Petition — Gulf Oil Corp. v. Federal Energy Regulatory Commission

oy ete

Office-Supreme Court, U.S.

83-4142 FILED

SEP 12 1993

No. -

POA POLAT DEE FPSO P ALEXAHDES by STEVAS,

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

GULF OIL CORPORATION,

. Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION,

PHILADELPHIA GAS WORKS,

PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK,

WASHINGTON URBAN LEAGUE,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

J. MITCHELL REESE

Post Office Box 3725

Houston, Texas 77253

(713) 754-9739

WARREN M. SPARKS

SPARKS & SPARKS

608 Franklin Building

Tulsa, Oklahoma

(918) 587-2368

Of Counsel: CARROLL L. GILLIAM *

GROVE, JASKIEWICZ, GILLIAM Craig W. HULVEY

AND COBERT J. PAUL DOUGLAS

1730 M Street, N.W. 1730 M Street, N.W.

Washington, D.C. 20036 Washington, D.C. 20036

(202) 296-2900

Attorneys for Petitioner

Gulf Oil Corporation

* Attorney of Record

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

|

QUESTIONS PRESENTED

1. Whether the Federal Energy Regulatory Commis-

sion has authority, under Sections 7(c) and 16 of the Nat-

ural Gas Act, to (i) modify retroactively its orders as to

the amounts of “refunds” and rates of interest thereon

after such orders have been affirmed by a court of appeals

and are final, and (ii) compel specific performance of a

natural gas sales contract and at the same time prohibit

the full recoupment of “refund” or “damage” payments

as was permitted by the prior orders affirmed on judicial

review.

2. Whether issuance of a notice of proposed rulemak-

ing and rulemaking orders changing rates of interest gen-

erally applicable to amounts collected subject to refund

under Section 4 of the Natural Gas Act constitutes ade-

quate “notice” that such changes later would supersede

lower rates of interest specifically prescribed in a prior

adjudicatory proceeding by Commission orders which

were affirmed and are final.

3. Whether a court of appeals reviewing the Commis-

sion’s construction of the force majeure provision of a

natural gas sales contract which is certificated and regu-

lated under the Natural Gas Act may: (i) treat the ex-

press provisions of the unconditioned, certificated contract

as not controlling, (ii) apply principles and precedents of

federal government contracts law instead of state contract

law, and (iii) substitute its views for the Commission’s

findings as to sufficiency of the proof of occurrence and

applicability of force majeure events under the regulated

contract.

(i)

ii

PARTIES TO THE PROCEEDING

Gulf Oil Corporation, the petitioner here, was a peti-

tioner below on refund and interest rate issues and an

intervenor below supporting the respondent Federal En-

ergy Regulatory Commission on the force majeure con-

tract issues. Respondents here are the Federal Energy

Regulatory Commission, respondent below on all issues,

and Philadelphia Gas Works, Public Service Commission

of the State of New York, and Washington Urban League,

which were petitioners below on the force majeure con-

tract issues and intervenors below supporting the respond-

ent Commission on the refund and interest rate issues.

Texas Eastern Transmission Corporation, Consolidated

Edison Company of New York, Inc., New Jersey Natural

Gas Company, and Public Service Electric and Gas Com-

pany were intervenors below.*

* The following were parties to the proceedings before the Com-

mission but did not participate in the proceedings before the court

of appeals: Algonquin Gas Transmission Co.; Associated Gas Dis-

tributors; Atlantic Richfield Co.; Brooklyn Union Gas Co.; Car-

negie Natural Gas Co.; Columbia Gas Transmission Corp.; Consoli-

dated Gas Supply Corp.; Equitable Gas Co.; Hoosier Gas Corp.; In-

diana Gas Co., Inc.; Long Island Lighting Co.; Louisville Gas & Elec-

tric Co.; Memphis Light, Gas & Water Division; Mississippi Valley

Gas Co.; New England State Agencies; New England Gas Distribu-

tion Companies; Philadelphia Electric Co.; Public Utilities Commis-

sion of Ohio; Southern Indiana Gas & Electric Co.; Southern Nat-

ural Gas Co.; Southern New England Regulatory Coordination

Project; State of New Jersey; Students Opposing Unfair Practices,

Inc.; Terre Haute Gas Corp.; Texas Gas Transmission Corp.; The

East Ohio Gas Co.; The Peoples Natural Gas Co.; The State of

Louisiana; and Western Kentucky Gas Co.

TABLE OF CONTENTS

QUESTIONS PRESENTED ~..0000.00......2.ccccesssssssececceeenees

PARTIES TO THE PROCEEDING ...00.........eeeeeeceeeeeee

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IEE IT \Gibdorenitcivecnsansienssocionpigpnsos sonnstisaciioceagseiel

ee: he PECTED cccsteTcinpsiivesuctesicnckedhebibeubetlenninilion

SC INIINTE Ts sdbceiehis tastinnindiainoscsinrcemeruiihinettoqeebesinighiabeebabenesets

Pre ST. SF

7.

a I Sacchi daichii actin innitncities ib

eT i cslilos

1979 Procedural Order and Evidence ....................

1981 Order On Refunds and Interest ..................

The Force Majeure Proceeding ...........................

The Third Circuit Opinion ....................2.......0-000+

Court of Appeals Rehearing .............0......ccceccccceees

REASONS FOR GRANTING THE PETITION ............

I.

II.

THE COMMISSION’S MODIFICATION OF

ITS PRIOR ORDERS ON REFUNDS AND

RATE OF INTEREST IS PROHIBITED BY

THE NATURAL GAS ACT, CONFLICTS

WITH PRIOR DECISIONS OF THIS COURT,

AND RENDERS THE ORDERS UNLAWFUL

UNDER THIS COURT’S CONSTRUCTION OF

TUE IIE siscencectascnictnislinsididiccinascsinnsysitidleapivsiictngaeiningaicn

THE COMMISSION RETROACTIVELY OR-

DERED CHANGES IN RATES OF INTEREST

ON GULF’S PAYMENTS WITHOUT ADE-

QUATE NOTICE OR OPPORTUNITY TO BE

BRERIE Goncidhninnipidahevibotenn

Page

i

ii

onan » WS Ww

12

iv

TABLE OF CONTENTS—Continued

Page

Ill. THE DECISION OF THE COURT OF AP-

PEALS ON THE FORCE MAJEURE ISSUES

CONFLICTS WITH DECISIONS OF THIS

COURT AND OTHER COURTS OF APPEALS

AND IMPERMISSIBLY INTRUDES UPON

THE COMMISSION’S AUTHORITY ......00......... 15

ITE Bi asain sang adigeebpsiigstehsrinener ikea nstlochshnnenicapubdcaig 24

Vv

TABLE OF AUTHORITIES

Page

Actions for Children’s Television v. FCC, 564 F.2d

A. : SR Deir enCPRoeer Ne 14

Andrew G. Nelson, Inc. v. United States, 355 U.S.

RT ARR a ee ee 17

Arkansas Louisiana Gas Co, v. Hall, 453 U.S. 571

EE RI ELS LE AF A EU RD ASAT Yo SAE Neh 10, 12

California Oil Co. v. FPC, 315 F.2d 652 (10th Cir.

a 16

City of Tacoma Vv. Taxpayers of Tacoma, 357 U.S.

a 10, 11

Eastern Air Lines, Inc. v. McDonnell-Douglas

Corp., 582 F.2d 957 (5th Cir. 1976) ...........000...... 19, 20

Erie R.R. v. Tompkins, 304 U.S. 64 (1988) .000000..... 20

FPC v. Florida Power and Light Co., 404 U.S. 453

ROE IDS TONITE SSE CREE SRO 24

FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944)... 10, 12

FPC v. Idaho Power Co., 344 U.S. 17 (1952)........ 17, 24

FPC v. Sunray DX Oil Co., 391 U.S. 9 (1968)........ 12

FPC v. Transcontinental Gas Pipe Line Corp, 423

Bs I III oa hickinceicisacdencoesensasemnsiaptenssedtivle Senbitiensonsliot 23, 24

Freeport Oil Co. v. FERC, 638 F.2d 702 (5th Cir.

AR IRPRSR e PETORL CUE 16

Gulf Oil Corp. v. FERC, 706 F.2d 444 (8rd Cir.

SECS SIDE as ONESIES SOE a 1, 7, 8, passim

Gulf Oil Corp. v. FERC, 575 F.2d 67 (8rd Cir.

SEM ere i re da 8

Gulf Oil Corp. v. FPC, 563 F.2d 588 (8rd Cir.

1977), cert. denied, 484 U.S. 1062 (1978), aff’g.

Gulf Oil Corp., 56 F.P.C. 2298, reh. denied, 56

EE I ek 4, 12,14

Hirschey v. FERC, 701 F.2d 215 (D.C. Cir. 1983).. 11

Jennie-O Foods, Inc. v. United States, 580 F.2d

ES SE i ne rr OP x

Louisiana Power and Light Co. v. FERC, 587 F.2d

OS EERE nr Ce LPENEN 18

Michigan Consolidated Gas Co. v. Panhandle East-

tern Pipe Line Co., 226 F.2d 60 (1955) ................ 16

vi

TABLE OF AUTHORITIES—Continued

Page

Mississippi Valley Gas Co. v. FERC, 659 F.2d 488

CE IY TIE eidnsc.o snes aaidnsisinrsbeanicbiadebentapeneettanees 13

Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974) ............ 10

Montana-Dakota Utilities Co. v. Northwestern

Public Service Co., 341 U.S. 246 (1951) ............... 10

Pennzoil Co. v. FERC, 645 F.2d 360 (5th Cir.

1981), cert. denied, 454 U.S. 1142 (1982) ............. 18, 20

Permian Basin Area Rate Cases, 390 U.S. 747

NES A rate RT LN OY 10, 16, 17

Phillips v. FERC, 586 F.2d 465 (5th Cir. 1978)... 16, 18

Premier Resources, Ltd. v. Northern Natural Gas

Co., 616 F.2d 1171 (10th Cir.), cert. denied, 449

Rs I III icici sesigsvnpabaprtieisatonelen melbiecsuci sliticeCiahet 18

Pure Oil Co. v. FPC, 292 F.2d 350 (7th Cir. 1961).. 16, 17

Sam Rayburn Dam Electric Corp. v. FPC, 515 F.2d

998 (D.C, Cir. 1975), cert. denied, 426 U.S. 907

RETAINS RRS OS RP REPRE 8 ah UR ls ORE I 18

Shell Oil Co. v. FERC, 664 F.2d 79 (5th Cir. 1981).. 13

Skelly Oil Co. v. Phillips Petrolewm Co., 339 U.S.

RRS ER REY eee 18

Sun Oil Co. v. FPC, 364 U.S. 170 (1960) .............. 7, 15, 16

Sunray Mid-Continent Oil Co. v. FPC, 364 U.S. 187

ie AE SEARED CMe! FORE e Teas, 7,15, 16

Texas Gas Transmission Corp, v. Shell Oil Co., 363

WS IE III, Sed cecscsvetescncentcnecnessisicteecesuasbcnmcbaeias 18, 20

United Gas Improvement Co, v. Callery Properties

Tne., 882 U.S. 228 (1965) ..............-cccccsceesccecesereceeee 10, 12

United Gas Pipe Line Co, v. Mobile Gas Service

Corp., 850 U.S. 882 (1956) ...............-cc-cc-ecceeeseeeeees 16, 20

United States v. Brooks-Calloway Co., 318 U.S. 120

I idiitg ee kids cian cacerispnimsseeislnngsil ce Renate 8, 18, 19, 23

United States ex rel. Chapman v. FPC, 345 U.S.

Sy I oe 23

Vermont Yankee Nuclear Power Corp. v. NRDC,

Le Gh. | RAE RAn I nts LM NS TROP 28, 24

Wallis v. Pan American Petroleum Corp., 384 U.S.

CE Gs | penance San Em RO 18

%

ay

vii

TABLE OF AUTHORITIES—Continued

ADMINISTRATIVE ORDERS AND OPINIONS Page

Gulf Oil Corp., 18 F.E.R.C. 61063 (CCH 1982)

({ 61048) (Opinion No, 186, Opinion and Order

Reversing Initial Decision) , reh. denied, April 12,

UOGR CUMTOOTOOT) ncn asc niece lnccsecnscteccnens 2, 6, 7, 12, 18

Gulf Oil Corp., 17 F.E.R.C. 61518 (CCH 1981)

(§ 61264) (Order Denying Rehearing and Di-

recting Refunds), on reh., 18 F.E.R.C. 61658

(CCH 1982) (61307) (Order Denying Applica-

tions for Rehearing and Reconsideration, Deny-

ing Motion to Reject and Strike Application, and

CR Cie COIN) nina a svncn cc sncncenoncisbbessascsorvennent 2, 5, 10, 12

Gulf Oil Corp., 11 F.E.R.C. 65265 (CCH 1980)

hy st ENA EEMETERRES 26 PRM tee AES Lp a 6

Gulf Oil Corp., 6 F.E.R.C. 61087 (CCH 1979)

(¥ 61040) (Order Granting Notice, Directing

Filings, and Setting Certain Issues for Hear-

SD ise ie sth s sadrilionsichath inde odaeet nde ke. debe eee 2,4,5

Gulf Oil Corp., 56 F.P.C. 2298, reh. denied, 56

F.P.C, 3492 (1976), aff’d, Gulf Oil Corp. v. FPC,

563 F.2d 588 (8rd Cir. 1977), cert. denied, 434

ak Be : RE TE A Oe rat: a 3,9

Rate of Interest on Amounts Held Subject to Re-

fund, FERC Statutes and Regulations 30545

(CCH 1979) ({ 30083) (Order No. 47), on reh.,

oi FERC Statutes and Regulations 30712 (CCH

1979) (§ 30099) (Order No. 47-A), adopting No-

tice of Proposed Rule, 44 Fed. Reg. 18,046 aff'd.

(March 26, 1979), aff’d. sub nom. United Gas

Pipe Line Co. v. FERC, 657 F.2d 790 (5th Cir.

I sissies hetidle coke chilis Tecate bindable De ed ges 18

Texas Eastern Transmission Corp., 30 F.P.C, 1559

CIID chic acatdat iiverpcicecstiacaiascenbinibeainclihth diiren saaaee’s 2

STATUTES AND REGULATIONS

Administrative Procedure Act, 80 Stat. 381 (1966),

5 U.S.C. § 551 et seq. as amended:

Section 4(b), 5 U.S.C. § 558 (b) 00. 14

Section 4(c), 5 U.S.C. §558(c) —00000.. 14

viii

TABLE OF AUTHORITIES—Continued

Page

Section 5(b), 5 U.S.C. §554(b) —.......0......... 14

Section 5(c), 5 U.S.C. §554(c) ................. 14

Department of Energy Organization Act, 91 Stat.

567 (1977), 42 U.S.C. §§ 7101, et seq.:

Section 204, 42 U.S.C. § 7184 .........0.000002........ 1

Section 401, 42 U.S.C. § 7171.......................... 1

Section 402(a), 42 U.S.C. §7172(a) ............ 1

Federal Power Act, 49 Stat. 855 (1920), 16 U.S.C.

§§ 792, et seq. as amended:

Section 313(a), 16 U.S.C. § 825/(a) -.............. li

Section 313(b), 16 U.S.C, § 825/(b) ............... 10

Natural Gas Act, 52 Stat. 821 (1938), 15 U.S.C.

§§ 717, et seq. as amended:

Section 4, 15 U.S.C. § 717¢ ......................00. 11, 12, 18

Section 7, 15 U.S.C. § 717f ...................... 2, 11, 15, 16

Section 19(a), 15 U.S.C. § 717r(a) ................ 11

Section 19(b), 15 U.S.C, §17r(b) ........ 2, 10, 11, 17,

23, 24

Natural Gas Policy Act, 15 U.S.C. §§ 3301, et seq.,

FS RUC caw Serene ark Chor PP 1,5, 18

28 U.S.C. § 1254(1) 2

18 C.F.R. § 271.101(a) (TableI) ............0000..2...... 5

18 C.F.R. § 271.101(a) (Table IT) — 2.000000. 5

18 C.F.R. §35.19(a) (2) .................. 18

18 C.F.R. § 154.67(d) (2) ................ 18

18 C.F.R. § 154.102 (d) (2) x 18

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

No.

GULF OIL CORPORATION,

ne Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION,

PHILADELPHIA GAS WORKS,

PUBLIC SERVICE COMMISSION OF THE

STATE OF NEW YORK,

WASHINGTON URBAN LEAGUE,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Gulf Oil Corporation petitions for a writ of certiorari

to review the decision of the United States Court of Ap-

peals for the Third Circuit in this case. *

OPINIONS BELOW

The opinion of the court of appeals, as amended (App.

la-26a, 27a-30a), is reported at 706 F.2d 744. The order

denying Gulf’s timely petition for rehearing (App. 113a-

115a) is not reported. The orders of the Federal Energy

Regulatory Commission ' on the refund, damages, and in-

1 Herein, “Commission” refers to the Federal Power Commission,

and its statutory successor, on and after October 1, 1977, the Fed-

eral Energy Regulatory Commission. Department of Energy Organi-

zation Act §§ 204, 401, 402(a), 42 U.S.C. §§ 7134, 7171, 7172(a).

* Petitioner Gulf Oil Corporation is a

publicly-held corporation and has _ no

parent company or affiliates and subsidi-

aries except wholly owned affiliates and

subsidiaries. See Rule 28.1.

on

er.

2

terest rate issues (App. 55a, 65a, 91a) are reported at 6

F.E.R.C. 61087 (CCH 1979) (61040), 17 F.E.R.C.

61513 (CCH 1982) (61264), 18 F.E.R.C. 61271 (CCH

1982) (761135), and 18 F.E.R.C. 61658 (CCH 1982)

(61307). The Commission’s order on the force majeure

issues (App. 30a) is reported at 18 F.E.R.C. 61063 (CCH

1982) (61048); the order denying rehearing (App.

53a) is not reported.

JURISDICTION

The revised judgment of the court of appeals (App.

105a-108a) and the order denying Gulf’s timely petition

for rehearing (App. 113a-115a) were entered on June 15,

1983. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1) and Section 19(b) of the Natural Gas

Act, 15 U.S.C. § 717r(b).

STATUTES INVOLVED

The pertinent provisions of the Natural Gas Act, 15

U.S.C. § 717, et seg., the Natural Gas Policy Act, 15

U.S.C. § 3301, et seg., the Federal Power Act, 16 U.S.C.

§ 792, et seq., and the Administrative Procedure Act, 5

U.S.C. § 551, et seg., are set forth at App. 116a-132a.

STATEMENT

1, The Contract. In 1963, the Commission issued a

certificate under Section 7 of the Natural Gas Act (15

U.S.C. §717f) authorizing Gulf to sell natural gas to

Texas Eastern Transmission Corporation, an interstate

pipeline, in accordance with an agreement between these

parties.* In the Contract, Gulf agreed to deliver approxi-

mately 4.44 trillion cubic feet of gas over approximately

twenty-six years, one of the largest quantities and longest

terms in any interstate gas sales contract in the United

States.

Gulf agreed to deliver a “daily contract quantity” of

500,000,000 cubic feet (500,000 Mcf) per day. Gulf also

2 Texas Eastern Transmission Curp., 30 F.P.C. 1559 (1963).

3

agreed to have available up to a maximum of 125% of

this daily contract quantity (625,000 Mcf! on any day

that Texas Eastern requests delivery of that volume, sub-

ject to the force majeure and other provisions of the con-

tract.

The certificate authorized Gulf’s sale in accordance with

the Contract without conditions to or modification of its

provisions by the Commission. Guif commenced deliveries

in 1964.

2. The 1976 Orders. During the national shortage of

natural gas in the 1970s, the Commission found that Gulf,

commencing in 1971, failed to deliver volumes of gas in

accordance with its certificate and contract; ordered “re-

funds” of amounts then estimated to exceed $100,000,000

for the past underdeliveries; and ordered current and fu-

ture deliveries in specific performance of the contract.*

The Commission then held that Gulf (a) is required to

deliver 625,000 Mcf on each day that Texas Eastern nom-

inates that volume, unless prevented from doing so by

force majeure; and (b) is required to make payments,

with interest, to Texas Eastern to be flowed through to

its customers as “compensation” for “damages” due to

past underdeliveries, adjusted for force majeure.

However, the Commission also held that Gulf could not

be required both to deliver the full contract volumes and

to pay unrecoupable damages. The Commission therefore

provided in its order for future recoupment by Gulf of

all its payments, including both principal and interest,

“refunded” to Texas Eastern. This was to be accom-

plished by reduction of the “refund” by certain amounts

on any day that Gulf delivered in excess of 625,000 Mcf

to Texas Eastern, and by rate adjustments for any re-

maining amounts in later years when the volume still to

* Gulf Oil Corp., 56 F.P.C. 2298, reh. denied, 56 F.P.C. 3492

(1976), aff'd, Gulf Oil Corp. v. FPC, 563 F.2d 588 (8rd Cir. 1977),

cert. denied, 434 U.S. 1062 (1978).

4

be delivered under the contract equaled the remaining

past deficiency. The Commission thus concluded that

ultimately Texas Eastern would receive all of the gas,

and Gulf would receive all of the compensation, that the

parties had agreed to under the long term of the 1964

Contract.

On review in 1977, the Third Circuit generally affirmed

the Commission’s 1976 orders. The court agreed that un-

der the Natural Gas Act and principles of contract law,

Gulf could not be required to pay unrecoupable damages

and at the same time held to specific performarce of the

Contract. The court, therefore, held that Gulf was en-

titled to recoup all amounts refunded to Texas Eastern,

including the accumulated interest. 563 F.2d at 609. This

Court denied certiorari.

3. The 1979 Procedural Order and Evidence. Almost

eleven months after this Court denied Gulf’s petition for

writ of certiorari in 1978, the Commission issued an or-

der establishing procedures to resolve remaining issues.

App. 55a-64a. The Commission first ordered a formal

hearing on Gulf’s submissions showing that some of the

past underdeliveries were excused by force majeure under

the terms of the Contract. App. 6la-62a. The Commis-

sion next held, without further hearings, that Gulf could

not recoup the interest on the refund principal which ac-

crued after December 15, 1976, and that such interest

was to be flowed through irretrievably to Texas Eastern’s

customers. App. 59a. The Commission further requested

“comments” on other terms and provisions of Texas East-

ern’s proposed plan for flowing through Gulf’s “refunds”

to its customers. App. 60a, 63a.

Thereafter, in the “comments” phase, Gulf submitted

evidence showing that Texas Eastern’s customers will

suffer no ultimate “damages” due to Gulf’s underdeliv-

eries between 1971 and 1977, but will realize net benefits

(ranging from $225 million to $802 million) due to Gulf’s _

increased future deliveries in the 1980s of gas which is

5

and will be priced substantially below other available sup-

plies.‘ App. 7la. Gulf also argued that under the Com-

mission’s now-final 1976 orders, Texas Eastern’s custom-

ers must prove that they will suffer net damages over the

life of the Contract before they are entitled to receive any

“refunds” from Gulf (App. 7la), and that Gulf is en-

titled to recoup all accumulated interest refunded to Texas

Eastern, not merely a portion of the interest as the Com-

mission’s 1979 order held (App. 8la). Further, Gulf ar-

gued that the 1979 order was in conflict with the 1976

orders and with the limitations on the Commission’s au-

thority as to “damages” and reparations under the Nat-

ural Gas Act. App. 71a.

4. 1981 Order On Refunds and Interest. Almost thirty-

two months after the last comments were filed, the Com-

mission issued an order in 1981 denying Gulf’s petition

for rehearing of its 1979 order and resolving the remain-

ing issues, other than the force majeure questions. App.

65a.

The Commission held that Texas Eastern’s customers

were not required to show that they had suffered any

damages as a result of Gulf’s past delays in deliveries,

that it was “irrelevant” that Texas Eastern’s customers

will benefit from Gulf’s past underdeliveries, and that the

purpose of the refund-recoupment mechanism “is to force

Gulf to live up to its obligations.” App. 73a. The Com-

mission also held that Gulf is not entitled to recoup the

interest on the principal of its payments accrued after

December 15, 1976. App. 8la-832. Finally, the Commis-

sion ordered that the calculation of interest on the corpus

*Some of the gas delivered by Gulf is priced at the Commis-

sion’s minimum rate (approximately 29. cents per Mcf (18 C.F.R.

§ 271.101(a) (Table II)). The remainder of the gas is sold to Texas

Eastern at approximately 21 cents per Mcf, the Contract price.

Prices of alternative supplies exceed $3.00 per MMBT"' under the

Natural Gas Policy Act, 15 U.S.C. §§ 3801, et seg. (Supp. V 1981),

enacted in 1978. See 18 C.F.R. § 271.101(a) (Table I).

6

of the refunds be changed retroactively to a formula using

the “prime” rate and “compounding” methodology adopted

in regulations promulgated in a separate rulemaking pro-

ceeding in 1979 instead of the 7% and 9% rates ex-

pressly prescribed in the 1976 orders in the Gulf proceed-

ing. App. 85a.

5. The FoRCE MAJEURE Proceeding. In response to

the Commission’s 1979 procedural order, Gulf submitted

extensive evidence on the force majeure question. This

evidence showed, in computer-printout format, summary

factual data on over 43,000 force majeure occurrences,

over a six year period, including dates, facilities involved,

causes, and volumes that could not be delivered. App.

48a-49a. Gulf’s testimony and exhibits described its in-

ternal procedures for reporting force majeure occurrences

(App. 49a), and also described its efforts in maintaining

deliveries to Texas Eastern, including an explanation of

maintenance procedures and efforts to overcome force ma-

jeure occurrences. App. 49a-50a. No other party sub-

mitted evidence on the force majeure issues.

At the conclusion of Gulf’s force majeure presentation,

the Washington Urban League, with the support of other

parties, moved to strike Gulf’s evidence. App. 35a. The

administrative law judge did not strike Gulf’s evidence;

however, he treated the motion as a motion for summary

judgment against Gulf and ten months later granted it.

App. 35a. He recognized that the Commission, having

recognized applicability of force majeure in the refund-

recoupment formula in 1976, could not “repeal it now

that judicial review . . . has been completed.” Gulf Oil

Corp., 11 F.E.R.C. 65265, 65269 (CCH 1980) ({ 63041).

In separate orders in 1982, the Commission approved

Gulf’s claimed force majeure volumes. App. 8la, 58a.

The Commission rejected claims that force majeure should

be defined according to asserted “common usage.” App.

4la-42a. According to the Commission, “[t]he force ma-

jeure provision, including its broad definition of that

7

term,” is an “integral part” of the certificated contract,

is not contrary to the public interest, and should not be

abrogated. App. 42a. “[F Jor purposes of the certificate

in question and the refund formula, force majeure has

[meant] and should mean force majeure as defined in

Article X [the force majeure provision] of the contract.”

App. 43a. The Commission further found and concluded

that the evidence satisfied the contractual requirements

and substantial evidence test and approved Gulf’s claimed

force majeure volumes. App. 51a.

6. The Third Circuit Opinion. On review, the Court

affirmed without discussion the orders on the refund-

recoupment issues. App. 9a. This left standing the Com-

mission’s 1981 changes of its 1976 orders as to proof of

damages, recoupment of interest, and rates of interest.

On the force majeure issues, the Third Circuit reversed,

holding “that the Commission’s definition of force majeure

and its application of that definition was in legal error.”

App. 18a. This reversal of the force majeure order

rested on four grounds.

First, citing Sun Oil Co. v. FPC, 364 U.S. 170, 176

(1960), and Sunray Mid-Continent Oil Co. v. FPC, 364

U.S. 137, 157-158 (1960), the court of appeals held that

“the mere fact that the Commission did not require the

parties to change the underlying contract does not mean

that the contract terms are controlling.” App. 20a. Even

though the 1963 certificate did not condition or otherwise

limit the operation of the force majeure clause (App.

20a), the court of appeals was of the view that new re-

strictions now could be imposed (App. 25a-26a), and, in

practical effect, impose’ such new conditions in its ap-

plication of the force majeure concept. App. 26a.

Second, the court of appeals ignored the explicit lan-

guage of the force majeure provision and the applicable

contract law principles followed by the Commission. In-

stead, relying on a supposedly “well settled principle” de-

8

rived from construction of federal government contracts’

forms in United States v. Brooks-Calloway Co., 318 U.S.

120 (1948), and Jennie-O Foods, Inc. v. United States,

580 F.2d 400, 408 (Ct. Cl. 1978), the court of appeals

held that despite its terms, Gulf’s force majeure provi-

sion did not apply to occurrences defined in the Contract

and certificate which are “frequent, almost predictable”

occurrences, but applies only to “unforeseen” or “unfore-

seeable and infrequent” events, even though these limita-

tions are not contained within the Contract provision but

were express limitations on force majeure in the govern-

ment contract form. Thus, the court limited the explicit

language of the Contract force majeure clause, such as

“breakage or accidents to machinery or lines of pipe.”

App. 21a-23a.

Third, the Court ignored both the 1976 Commission

orders and its own related decision in 1978 in Gulf Oil

Corp. V. FERC, 575 F.2d 67 (8rd Cir.), which held that

Gulf was not required to maintain “reserve” supplies in

excess of the maximum volume which could be demanded

from it. This time, the court of appeals held Gulf must

“have available a larger amount of gas than 625 Mmef

so that it can supply the maximum amount per day when

demanded.” App. 20a. According to the court of appeals

in 1988, to invoke force majeure “under the warranty

contract, Gulf ... must show that even though the events

which delayed its performance were unforeseeable and

infrequent that it had available at the time of their oc-

currence more than the maximum warranted quantity

of gas.” App. 22a.

Fourth, the court of appeals rejected the Commission’s

findings that Gulf had shown that it had exercised due

diligence in attempting either to prevent or to overcome

the force majeure events. App. 23a-26a. The court of

appeals then made findings based on its view of the record

evidence; dictated the methods, procedures, and other

9

aspects of the Commission’s future inquiry into “due

diligence”; and announced the evidence which must be

submitted and the specific findings which the Commission

must make. App. 24a-26a.

7. Court of Appeals Rehearing. Gulf’s timely petition

for rehearing and for rehearing en banc was denied by

the Court on June 15, 1983. App. 113a-115a.

REASONS FOR GRANTING THE PETITION

This case presents important questions concerning the

administration of the Natural Gas Act, the Natural Gas

Policy Act, and the Federal Power Act.

I. THE COMMISSION’S MODIFICATION OF ITS

PRIOR ORDERS ON REFUNDS AND RATES OF

INTEREST IS PROHIBITED BY THE NATURAL

GAS ACT, CONFLICTS WITH PRIOR DECISIONS

OF THIS COURT, AND RENDERS THE ORDERS

UNLAWFUL UNDER THIS COURT’S CONSTRUC-

TION OF THE ACT.

In its 1976 orders, the Commission held that Gulf

would be entitled to reduce its refunds to Texas Eastern

if the evidence adduced in subsequent proceedings showed

that the “damages” actually suffered by Texas Eastern’s

customers were less than the “refunds” determined under

the Commission’s orders, Gulf Oil Corp., 56 F.P.C. 2293,

2307-2308 (1976); assessed simple interest on the “re-

funds” at 9% after October 10, 1974, id. at 2307; and

held that both specific performance and unrecoupable

“damages” could not be lawfully ordered, id. at 2301.

In the orders now on review, the Commission ignored

explicit, binding provisions of its 1976 final orders and

entered new orders which change drastically the sub-

stance of those orders. Contrary to statements that Gulf

would be permitted to show that the “damages” sought

to be remedied were less than the refunds required, the

Commission held that its prior orders required Gulf to

10

make refunds at least equal to the amount computed un-

der the Commission’s formula (App. 70a-73a). The Com-

mission also revised the rate of interest to be used after

September 30, 1979 (App. 85a), and further changed the

recoupment provision to bar future recovery of interest

accrued after December 16, 1976 (App. 83a, 88a).

1. The Commission lacks authority so to modify orders

which have been affirmed on appeal. Section 19(b) of the

Natural Gas Act provides that the decision of a court of

appeals on review of a Commission order “shall be final,

subject” only to review by this Court. App. 120a-121a.

Under Section 19(b), upon the completion of judicial re-

view, an order of the Commission is final and binding on

all parties, including the Commission, and is not subject

to modification in subsequent proceedings. City of Ta-

coma Vv. Taxpayers of Tacoma, 357 U.S. 320, 336, 339-

841 (1958).°

This Court therefore has held that the Commission

lacks the authority to modify final orders which have

been affirmed without qualification. Mobil Oil Corp. v.

FPC, 417 U.S. 288, 310-812 (1974); United Gas Im-

provement Co. v. Callery Properties, Inc., 382 U.S. at

229; FPC v. Hope Natural Gas Co., 320 U.S. 591, 618

(1944); accord, Montana-Dakota Utilities Co. v. North-

western Public Service Co., 341 U.S. 246, 254 (1951).

This Court has permitted the Commission to modify prior

orders only when the prior order was reversed and not

final, United Gas Improvement Co. v. Callery Properties,

supra, or the affirmance by the court of appeals explicitly

authorized the Commission to modify its order, Mobil Oil

Corp. Vv. FPC, supra. Neither situation is presented here.

* City of Tacoma construed Section 313(b) of the Federal Power

Act, 16 U.S.C. § 825/(b) (App. 125a-126a), which, in all pertinent

respects, is identical to Section 19(b). Thus, cases construing Sec-

tion 313(b) are applicable to Section 19(b). Arkansas Louisiana

Gas Co. V. Hall, 458 U.S. 571, 577 n. 7 (1981); Permian Basin Area

Rate Cases, 390 U.S. 747, 820-821 (1968).

ll

In 1977, the court of appeals did not reverse the Com-

mission’s 1976 orders. Rather, it affirmed those orders

without qualification. When this Court denied Gulf’s peti-

tion for a writ of certiorari in 1978, those orders became

final and binding. City of Tacoma v. Taxpayers of Ta-

coma, supra. The Commission thereafter lacked statu-

tory authority to modify those orders.

The court of appeals’ decision allowing the Commission

to modify prior orders also conflicts with Hirschey v.

FERC, 701 F.2d 215 (D.C. Cir. 1983). In Hirschey, the

Commission took no action on an application for an ex-

emption from the hydroelectric licensing provisions of the

Federal Power Act, and that application was automati-

cally granted. No person applied for rehearing within

thirty days after the grant of the exemption as required

by Section 313(a) of the Federal Power Act, (16 U.S.C.

§ 851l(a)) (App. 125a). After this time had expired, the

Commission vacated the exemption, but the District of

Columbia Circuit set aside the order, holding that under

Section 313(a), 16. U.S.C. § 8251l(a), the Commission

lacks authority to modify an order after time for seeking

review has expired (701 F.2d at 217-218). The same rule

applies under Section 19(b) of the Natural Gas Act.*

2. Results of the 1981 changes of the 1976 orders also

render the orders substantively unlawful under this

Court’s construction of the Natural Gas Act.

In 1976, the Commission recognized the limits on its

authority to order both specific performance and unre-

coupable “damages.” Its orders then were consistent with

this Court’s decisions that the Act does not authorize the

Commission to order “reparations” or “damages” con-

flicting with prior orders under Sections 4 and 7 of the

* Section 313(a), in all material respects, is identical to Section

19(a) of the Natural Gas Act.

12

Act. FPC v. Hope Natural Gas Co., 320 U.S. 591, 611-

613 (1944); FPC v. Sunray DX Oil Co., 391 U.S. 9, 23-

24 (1968) ; United Gas Improvement Co. v. Callery Prop-

erties, 382 U.S. 228 (1965); Arkansas Louisiana Gas Co.

v. Hall, 453 U.S. 571, 578-579 (1981).

The 1981 modifications denying full future recoupment

of interest payments, therefore, conflict not only with the

1976 orders as affirmed by the court of appeals, but also

with this Court’s constructions of the Act. The effect is

to undermine the holdings of this Court and stability of

prior, presumably final orders of the Commission. There-

fore, on these issues as to refunds, “damages,” and inter-

est, the orders of the Commission and the court of ap-

peals’ affirmance warrant review by this Court.

IL THE COMMISSION RETROACTIVELY ORDERED

CHANGES IN RATES OF INTEREST ON GULF’S

PAYMENTS WITHOUT ADEQUATE NOTICE OR

OPPORTUNITY TO BE HEARD.

In its 1976 orders, the Commission‘ specifically directed

that Gulf’s remedy payments to Texas Eastern’s custom-

ers should bear simple interest at 9% after October 10,

1974, and the court of appeals affirmed this rate of inter-

est in 1977. Gulf Oil Corp. v. FPC, supra, 568 F.2d at

610 n.27, aff’g 56 F.P.C. at 2307. No retroactive or pros-

pective modification of this rate of interest was provided

for in the 1976 orders.

The Commission’s orders issued in 1981 and 1982

(App. 85a, 93a-95a), as affirmed below, ignored those

final orders and directed Gulf to recalculate and pay

higher interest, retroactive to October 1, 1979. The Com-

mission did so on the basis of orders issued in a separate,

unrelated rulemaking proceeding which established gen-

eral rates of interest to be applied to amounts collected

subject to refund under Section 4 of the Natural Gas Act,

pending a determination of “just and reasonable” rates,

13

and under Title I of the NGPA.’ However, the Commis-

sion erred in its orders as to Gulf because it failed to pro-

vide Gulf any notice that the specific rates of interest on

its remedy payments would be subject to retroactive

change or be tied to Commission-ordered “general” rates

of interest applicable to rates collected under Section 4

or Title I.

The 1976 orders of the Commission were specific as to

the fixed rates of interest applicable to Gulf’s remedy

payments and nowhere suggest that those rates are sub-

ject to change or that the “general” interest rates applied

to collections from purchasers subject to refund are to

be used. Cf., Shell Oil Co. v. FERC, 664 F.2d 79, 83, 84

(5th Cir. 1981). Had the Commission intended its “gen-

eral” interest rates to apply to Gulf’s remedy payments,

its intent should have been unambiguous and clear. Mis-

sissippi Valley Gas Co. v. FERC, 659 F.2d 488, 500 (5th

Cir. 1981); Louisiana Power and Light Co. v. FERC,

587 F.2d 671, 675 (5th Cir. 1979).

Nor did the Commission’s notice or orders in the rule-

making proceeding intimate that rates of interest adopted

there would be made applicable retroactively or prospec-

tively to Gulf’s remedy payments. From their captions

through their concluding paragraphs, the rulemaking no-

tice and subsequently issued orders identify and refer to

rates collected subject to refund under Section 4 of the

Natural Gas Act in instances where a company files to

7 Rate of Interest on Amounts Held Subject to Refund, FERC

Statutes and Regulations { 30083 (CCH) (Order No. 47) (Septem-

ber 10, 1979), on reh., FERC Statutes and Regulations { 30099

(CCH) (Order No. 47-A) (November 8, 1979). The Commission’s

notice of proposed rulemaking was published at 44 Fed. Reg. 18,046

(March 26, 1979). These orders provided that as of October 1,

1979, interest rates under Section 4 of the Natural Gas Act and

under Title I of the NGPA should be computed using prime rates

and should be compounded quarterly. See 18 C.F.R. §§ 35.19(a) (2),

154.67(d) (2), and 154.102(d) (2).

14

collect increased rates and where the Commission later

finds that all or part of those collections were “unjust and

unreasonable.” Contrary to the requirements of the Ad-

ministrative Procedure Act, 5 U.S.C. § 558(b) (3),° no-

where do the notice of proposed rulemaking or rulemak-

ing orders provide sufficient notice to apprise Gulf that

its remedy payments into an escrow account attributable

to prior delivery deficiencies ® would bear interest at the

revised rates of interest adopted generally for other types

of refunds. Thus, the Commission has attempted to cir-

cumvent the requirements of due process and the Admin-

istrative Procedure Act by modifying now-final orders as

to Gulf without providing any notice that those orders

could be changed.

The Commission similarly failed to comply with other

procedural requirements of the Administrative Procedure

Act, 5 U.S.C. §§ 553(b), (c), 554(b), (¢), to the extent

it can amend its prior orders as to Gulf, because the

Commission gave no notice to Gulf that it would seek to

change interest rates through the adjudicatory or rule-

making processes. An order changing the rates of inter-

est is substantive and requires Commission compliance

with the Administrative Procedure Act and notice and an

opportunity to Gulf to be heard as to such a change.

Here, notice to Gulf was lacking. Contrary to estab-

lished principles of due process and the procedures re-

quired by the Administrative Procedure Act, the final or-

ders as to interest rates on Gulf’s remedy payments have

been disturbed. To preserve rights of due process, this

issue warrants review by this Court.

8 See, e.g., Actions for Children’s Television v. FCC, 564 F.2d 458,

470 (D.C. Cir. 1977).

*® In 1977, the court of apeals compared Gulf’s remedy payments to

a “temporary performance bond,” Gulf Oil Corp. v. FPC, supra, 563

F.2d at 608, which would secure Gulf’s future performance.

15

IIL THE DECISION OF THE COURT OF APPEALS ON

THE FORCE MAJEURE ISSUES IS IN CONFLICT

WITH DECISIONS OF THIS COURT AND OTHER

COURTS OF APPEALS AND IMPERMISSIBLY IN-

TRUDES UPON THE COMMISSION’S AUTHORITY.

In reversing the Commission’s order approving Gulf’s

force majeure volumes, the court of appeals acted con-

trary to decisions of this Court and other courts of ap-

peals and also has impermissibly intruded upon the Com-

mission’s exclusive authority under the Natural Gas Act.

Issues involving force majeure now are arising with in-

creasing frequency before the Commission and in state

and federal court litigation over natural gas contracts.

For these reasons and those set forth infra, the court of

appeals’ decision on the force majeure issue should be

reviewed by this Court and the order of the Commission

reinstated and affirmed.

1. The court of appeals first erred in holding that “the

mere fact that the Commission [in 1963] did not require

the parties to change the underlying contract does not

mean that the contract terms are controlling [in 1983]”

App. 20a. This holding conflicts with decisions of this

Court and other courts of appeals that in the absence of

express conditions which are imposed at the time of is-

suance of a certificate under Section 7 of the Natural

Gas Act and which limit the operation of the contract,

those contractual provisions subsequently govern the

rights and obligations of the parties.

The court of appeals seriously misapprehended and

grossly misapplied this Court’s decisions in Sun Oil Co.

v. FPC, supra, and Sunray Mid-Continent Oil Co. v. FPC,

supra. Sun and Sunray do not hold that in the absence of

conditions in the certificate, the contract terms may be

disregarded, as assumed by the court of appeals. These

eases involve statutory requirements that “service” must

continue until the Commission affirmatively grants an

abandonment. Sunray holds only that the Commission is

16

not required to issue a certificate under Section 7(c)

limited in duration to the term of the seller’s contract,

but may require the seller to accept or reject a certificate

of unlimited duration or forego the interstate sale. 364

U.S. at 141. Sun establishes only the corollary principle

that unless a certificate contains a term expressly limit-

ing its duration, it is of unlimited duration as a matter

of law under Sections 7(b) and 7(c). 364 U.S. at 174-

176. Neither decision supports the court of appeals opin-

ion, and Section 7(b) and “abandonment” are not in-

volved in this case.

In this case, the controlling principles and decisions of

this Court, which the court of appeals ignored, hold that

during its term, and in the absence of orders expressly

limiting its provisions, the contract, as filed with and

certificated by the Commission, determines the rights and

obligations of the parties. United Gas Pipe Line Co. V.

Mobile Gas Service Corp., 350 U.S. 332, 338-339, 342-

845 (1956); Freeport Oil Co. v. FERC, 638 F.2d 702,

715-716 (5th Cir. 1980) ; Phillips v. FERC, 586 F.2d 465,

469-470 (5th Cir. 1978). “The regulatory system cre-

ated by the [Natural Gas] Act is premised on contractual

agreements voluntarily devised by the regulated com-

panies; it contemplates abrogation of these agreements

only in circumstances of uneqUivocal public necessity.”

Permian Basin Area Rate Cases, 390 U.S. 747, 822

(1968) .2°

The Commission, of course, may include conditions in a

certificate limiting the operation of contractual provisions

during the term of the contract. Natural Gas Act, $7

(e), 15 U.S.C. § 717(e); Freeport Oil Co., supra, 638

F.2d at 715. If such conditions are included in the certifi-

cate, they “ ‘must be supported by soundly-based findings

in the record... .’” Id., quoting Pure Oil Co. v. FPC,

10 See also, California Oil Co. v. FPC, 815 F.2d 652, 656 (10th

Cir. 1963); Michigan Consolidated Gas Co. Vv. Panhandle Eastern

Pipe Line Co., 226 F.2d 60, 67 (6th Cir. 1955).

17

292 F.2d 350, 352 (7th Cir. 1961). In this case, however,

no condition in Gulf’s 1963 certificate limited the opera-

tion of the force majeure clause and the Commission ex-

pressly so found. App. 42a-43a. The Commission also

found that no circumstances of unequivocal public neces-

sity justified abrogating or restricting the operation of

the force majeure clause in 1982. App. 42a n.11.

Ignoring the Commission’s interpretation of its own

certificate and view of any “public interest” requirement

for restrictive conditions," the court of appeals thus im-

posed a new “condition” that the Commission found did

not exist in the certificate. The court of appeals con-

cluded that the force majeure clause should be given effect

only if it was limited to “unforseen” and “infrequent”

events. App. 22a. In so acting, the court of appeals in-

truded upon the Commission’s exclusive authority.

While the court of appeals possesses authority “to af-

firm, modify, or set aside [the Commission’s] order in

whole or in part” (Natural Gas Act §19(b), 15 U.S.C.

§ 717r(b)), “that authority is not power to exercise an

essentially administrative function.” FPC v. Idaho Power

Co., 344 U.S. 17, 21 (1952). When the court of appeals

decided that the operation of the force majeure clause

should be restricted, “it usurped an administrative func-

tion.” Jd., 344 U.S. at 20.

Whether or not a particular condition should be in-

cluded in a certificate is a decision for the Commission,

not the court of appeals, because “Congress has entrusted

the regulation of the natural gas industry to the in-

formed judgment of the Commission, not the preferences

of reviewing courts.” Permian Basin Area Rate Cases,

supra, 390 U.S. at 767.

11 The Commission’s interpretation of its certificate is entitled to

deference. See, e.g., Andrew G. Nelson, Inc. v. United States, 355

U.S. 554, 558 (1968).

18

2. It also is well established that contracts for the sale

of natural gas subject to regulation under the Natural

Gas Act are to be interpreted in accordance with appli-

cable state law. Pennzoil Co. v. FERC, 645 F.2d 360,

383-387 (5th Cir. 1981), cert. denied, 454 U.S. 1142

(1982)."* In its order, the Commission held, consistent

with state contract law, “that force majeure, for purposes

sf the refund formula, should be defined in accordance

with Article X [the force majeure clause] of the con-

tract,” and the intent and “bargain” of the parties. App.

42a. The Commission then rejected arguments that the

term should be defined “according to common usage or a

common law definition rather than the specific definition

set forth in the contract.” App. 42a. The court of appeals

reversed, holding that the force majeure clause should be

interpreted by applying the supposedly “well established”

rule of federal government contracts law stated in United

States v. Brooks-Callu.vay Co., 318 U.S. 120 (1943).

The court of appeals, however, did not determine

whether this principle is consistent with either applicable

state contract law or “general” principles of contract law.

By failing to make this determination, the court of ap-

peals rendered a decision which conflicts with prior deci-

sions of this court and decisions of other courts of ap-

peals in cases involving force majeure and other issues

as to regulated contracts.

12 Accord, Premier Resources, Ltd. v. Northern Natural Gas Co.,

616 F.2d 1171, 1180 (10th Cir.), cert. denied, 449 U.S. 827 (1980) ;

Phillips v. FERC, 586 F.2d 465, 468-470 (5th Cir. 1978); Sam Ray-

burn Dam Electric Corp. v. FPC, 515 F.2d 998, 1009 (D.C. Cir.

1975), cert. denied, 426 U.S. 907 (1976); see, Texas Gas Trans-

mission Corp. V. Shell Oil Co., 363 U.S. 263, 270-277 (1960) (imply-

ing that state law governs the interpretation of natural gas con-

tracts) ; Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 672

(1950) (state law governs disputes arising under natural gas con-

tracts) ; see, Wallis v. Pan American Petroleum Corp., 384 U.S. 68

(1966) (state law governs validity of assignment of mineral leases

acquired from the United States).

19

3. Contrary to the court of appeals (App. 18a-19a), in

Brooks-Calloway, this Court did not establish a “general

principle” to be applied in interpreting all force majeure

clauses. The Brooks-Calloway rule applies only to clauses

which are expressly limited to “unforeseeable” events.

318 U.S. at 120 n.1. The “general” rule consistent with

this Court’s holding is stated in Eastern Air Lines, Inc.

v. McDonnell Douglas Corp., 582 F.2d 957, 992 (5th Cir.

1976) :

[A] promisor can protect himself against foreseeable

events by means of an express provision in the agree-

ment.

Therefore, when the promisor has anticipated a

particular event by specifically providing for it in a

contract, he should be relieved of liability for the

occurrence of such event regardless of whether it

was foreseeable.

The force majeure clause in Gulf’s Contract contains

no language which, explicitly or implicitly, excuses per-

formance only if the event causing nonperformance is

“unanticipated,” “unforeseen,” or “irregular”. Instead,

that clause lists the events which will excuse performance

whether foreseen or unforeseen, including, inter alia,

“storms, ... breakage or accidents to machinery or lines

of pipes, [and] the necessity for making repairs to or

alterations of machinery or lines of pipe... .” App. 11a.

“(There is no indication from the wording of the [force

majeure] clause that [Gulf’s] defenses are to be limited

to breaches caused by unforeseen events.” Eastern Air

Lines, supra, 582 F.2d at 992. Storms or hurricanes are

certainly foreseeable in the Gulf of Mexico over a twenty-

six year contract term. Nevertheless, shut ins due to hur-

ricanes are almost text book cases of force majeure and

were included in the contract between the parties.

Thus, the court of appeals erred in two major respects.

First, it misapplied this Court’s decision in Brooks-

Calloway and reached a decision which conflicts with the

20

decision in Eastern Air Lines. Second, in failing to give

effect to the express language of the force majeure clause,

the court of appeals entered a decision which conflicts

with this Court’s decision in United Gas Pipe Line Co. V.

Mobile Gas Service Corp., supra, and the Fifth Circuit’s

decision in Pennzoil, both of which hold that the express

language of the contract controls. Moreover, the court of

appeals analysis conflicts with the applicability of Erie

R.R. v. Tompkins, 304 U.S. 64 (1938), correctly applied

in Pennzoil but ignored by the Third Circuit in this case.

This Court should exercise its supervisory authority, re-

view the decision below, and reverse the decision of the

court of appeals. The Commission’s orders on the force

majeure question, which are based upon correct principles

of contract construction and source of 'aw, must be af-

firmed.

4. The question of which rules of reference and con-

tract law principles govern the interpretation of natural

gas contracts is of importance in the administration of

the Natural Gas Act. For years, courts have held that

natural gas contracts are to be interpreted by reference

to state law. See, e.g., Texas Gas Transmission Corp. Vv.

Shell Oil Co., supra; Pennzoil Co. v. FERC, supra. Par-

ties to natural gas contracts have acted on the basis of

these holdings. The court of appeals’ decision here is con-

trary to this longstanding line of decisions and to the

understanding on which contracting parties have pro-

ceeded.

Unless reversed by this Court, the court of appeals de-

cision will create uncertainty in the natural gas industry

as to the applicable source of law, particularly on issues

of force majeure now arising with frequency. In recent

months, numerous actions have been initiated by natural

gas producers and interstate pipeline companies in which

a principal issue is whether the current market situation

of reduced demand and over supply constitutes an occur-

rence allowing the suspension of pipeline takes of gas

21

under long-term contracts and the avoidance of millions

of dollars in pipelines’ contractual take-or-pay obliga-

tions.** These actions, both before the Commission and in

13 See, e.g., Tennessee Gas Pipeline Co., a Division of Tenneco,

Inc. v. Amoco Production Co., et al., FERC Docket No. RP83-109

(Complaint, Request for Evidentiary Hearing and for Expedited

Consideration, and Petition for Declaratory Orders) ; Columbia Gas

Transmission Corp., FERC Docket No. CI83-804 (Petition for

Declaratory Order) ; Chevron U.S.A. Inc. v. Columbia Gas Transmis-

sion Corp., U.S.D.C. W.D. La. No. CV 83-2029 (Complaint for

Declaratory Judgment, Specific Performance, Preliminary and Per-

manent Injunction); Exxon Corp. v. Columbia Gas Transmission

Corp., U.S.D.C., W.D. La. No. CV83-1586 (Complaint for Declara-

tory Judgment, Specific Performance and a Permanent Injunction) ;

Union Oil Co. of California v. Columbia Gas Transmission Corp.,

U.S.D.C. 8.D. Tex. Civil Action No. H-83-3905 (Plaintiff's Original

Complaint) ; Amoco Production Co. v. Columbia Gas Transmission

Corp., Civil District Court for the Parish of Orleans, State of

Louisiana, No. 83-11570 (Petition for Specific Performance and

Declaratory Judgment) ; GHR Energy Corp. v. Natural Gas Pipeline

Co. of America, 49th Judicial District Court, Webb County, Texas,

No. 34,392, removed to U.S.D.C., 8.D. Tex. Civil Action No. L-83-20

(Plaintiff’s Original Petition and Application for Temporary Re-

straining Order, Temporary Injunction, Permanent Injunction and

Declaratory Judgment) ; Tema Oil Co. v. Northwest Central Pipe-

line Corp., U.S.D.C. W.D. Ok. No. CIV-88-828W (First Amended

Complaint) ; Northwest Central Pipeline Corp. v. Mesa Petroleum

Co. and Tenneco Oil Co., Court of Chancery for the State of Dela-

ware, in and for New Castle County, Civil Action No. 7169, petition

for removal pending, U.S.D.C. D. Del. Civil Action No. 83-282;

Kaiser-Francis Oil Co. v. Northern Natural Gas Co., District Court

in and for Tulsa County, Oklahoma, No. C-82-3291 (Petition) ;

Samson Resources Co. v. Northern Natural Gas Co., U.S.D.C. N.D.

Ok. No. 82-C-1214-E (Complaint) ; Amoco Production Co. v. Tenneco

Inc., 15th Judicial District Court, Parish of Lafayette, State of

Louisiana, No. 83-2988-I (Petition for Specific Performance and

Declaratory Judgment) ; Chevron U.S.A. Inc. v. Tenneco Inc., 15th

Judicial District Court, Parish of Lafayette, State of Louisiana,

No. 83-3260-H (Petition for Declaratory Judgment, Specific Per-

formance, permanent Injunction, Preliminary Injunction, Tempo-

rary Restraining Order) ; Exxon Corp v. Tenneco Inc., 15th Judicial

District Court, Parish of Lafayette, State of Louisiana, No. 83-8291

(Petition for Declaratory Judgment, Specific Performance and Per-

22

federal and state courts, involve the explicit questions of

interpretation of force majeure provisions, source of iaw,

and the Commission’s authority under the Natural Gas

Act.

The novel and unprecedented holdings of the court of

appeals below that the language of the contract (includ-

ing express force majeure provisions) is irrelevant and

that state law is not the source of law to be applied will

create widespread and unnecessary confusion and pro-

longed litigation. This Court should exercise its jurisdic-

tion, review the court of appeals’ decision, and decide

manent Injunction) ; Gulf Oil Corp. v. Tenneco Inc., United States

District Court for the Eastern District of Louisiana, No. 83-2714

(Complaint) ; Kerr-McGee Corp. v. Tenneco Inc., 15th Judicial Dis-

trict Court, Parish of Lafayette, State of Louisiana, No. 83-3870-B

(Petition for Declaratory Judgment, Specific Performance and Pre-

liminary Injunction); The Louisiana Land and Exploration Co. v.

Tenneco Inc., 15th Judicial District Court, Parish of Lafayette,

State of Louisiana, No. 83-3112-B (Petition for Preliminary Injunc-

tion, Permanent Injunction and Declaratory Judgment); Moore

McCormack Oil & Gas Corp. v. Tenneco Inc., 15th Judicial District

Court, Parish of Lafayette, State of Louisiana, No. 83-3686-E (Pe-

tition for Preliminary Injunction, Permanent Injunction, Specific

Performance and Declaratory Judgment and Damages) ; Placid Oil

Co. v. Tenneco Inc., 15th Judicial District Court, Parish of Lafayette,

State of Louisiana, No. 83-8566-E (Petition for Declaratory Judg-

ment and Damages); Sanchez-O’Brien Oil & Gas Corp. v. Tenneco

Inc., 49th Judicial District Court, Webb County, Texas, No. 34,579

(Plaintiff's Original Petition) ; J.E. Stack, Jr. v. Tenneco Inc., Cir-

cuit Court of Lauderdale County, Mississippi, No. 1550-H (Com-

plaint for Declaratory Judgment, Breach of Contract and Punitive

Damages) ; The Superior Oil Co. v. Tenneco Inc., 15th Judicial Dis-

trict Court, Parish of Lafayette, State of Louisiana, No. 83-3053-A

(Petition) ; System Fuels, Inc., Tomlinson Interests, Inc., and Pan-

Canadian Petroleum Company v. Tenneco Inc., Chancery Court of

Marion County, Mississippi, No. 19,494 (Complaint for Injunctive

Relief, Specific Performance, Declaratory Judgment, Breach of Con-

tract and Punitive Damages); Texaco Inc. v. Tenneco Inc., 15th

Judicial District Court, Parish of Lafayette, State of Louisiana,

No. 88-8211-A (Petition for Specific Performance and Damages and

First Supplemental Amending Petition for Specific Performance

and Damages).

23

whether interstate natural gas sales contracts, including

force majeure provisions, are unlike other commercial

agreements and are to be interpreted according to the

law of federal contracts, or whether the interpretation of

gas contracts is governed by state law and the specific

terms of the agreements at issue.

5. The court of appeals also held that the Commission

erred in finding that Gulf had exercised due diligence in

attempting to prevent or reduce the impact of various

force majeure occurrences. App. 23a-24a. The court of

appeals then specified, in great detail, the evidence which

Gulf must submit and the particular findings which the

Commission must make. App. 24a-26a.

On this question, the court of appeals first erred in

holding that federal contract law, as applied in Brooks-

Calloway, rather than state contract law, supplies the

rules to be applied in determining whether Gulf had ex-

ercised due diligence. See pages 7-8, 18-20, supra. Second,

the court of appeals’ specification of the evidence which

must be submitted and the findings which must be made

is inconsistent with the limited function of a reviewing

court under Section 19(b) of the Natural Gas Act.

“(T]he function of the reviewing court ends when an

error of law is laid bare. At that point the matter once

more goes to the Commission for reconsideration.” FPC

v. Transcontinental Gas Pipe Line Corp., 423 U.S. 326,

331-334 (1976). The reviewing court is not to supplant

the Commission’s decision “with one more nearly to its

liking” (Mobil, supra, 417 U.S. at 308), but is to reverse

only for legal error. Vermont Yankee Nuclear Power

Corp. v. NRDC, 435 U.S. 519, 558 (1978).

Here, the court of appeals supplanted the Commission’s

decision on force majeure with one it preferred. Instead

of simply determining whether the Commission’s judg-

ment “had no basis in evidence” and was “devoid of rea-

son,” United States ex rel. Chapman v. FPC, 345 U.S.

153, 171 (1952), the court of appeals “dictated” “the

methods, procedures, and time dimensions” of the Com-

24

mission’s inquiry into “due diligence” and announced spe-

cific findings required as to Gulf’s performance. This is

contrary to the limited function of a reviewing court un-

der Section 19(b). FPC v. Transcontinental Gas Pipe

Line Corp., supra, 423 U.S. at 333; accord, Vermont Yan-

kee, supra, 435 U.S. at 548, 549-555. In so specifying

evidence which the Commission must include in a record

and findings that the Commission must make, the court

of appeals “usurped an administrative function.” FPC v.

Idaho Power Co., supra, 344 U.S. at 20; accord, e.g.,

FPC v. Florida Power & Light Co., 404 U.S. 458, 465-

466 (1972). The court of appeals thus erred, and its de-

cision must be vacated.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

J. MITCHELL REESE

Gulf Oil Corporation

Post Office Box 3725

Houston, Texas 77253

(718) 754-9789

WARREN M. SPARKS

Sparks & SPARKS

608 Franklin Building

Tulsa, Oklahoma

(918) 587-2368

Of Counsel: CARROLL L. GILLIAM *

GROVE, JASKIEWICZ, GILLIAM Craig W. HULVEY

AND COBERT J. PAUL DOUGLAS

1730 M Street, N.W. 1730 M Street, N.W.

Washington, D.C. 20036 Washington, D.C. 20036

(202) 296-2900

Attorneys for Petitioner

Gulf Oil Corporation

* Attorney of Record

September 12, 1983