Petition for Writ of Certiorari — Northern Oil Co. v. Standard Oil Co.
Supreme Court brief1985
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ALEXANDER LC STEVAS.
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Ps
Iu the Supreme Court of the Anited States
OCTOBER TERM, 1984
No.
NorTHERN Or Company, INc.,
Bray Om Company, INc.,
NORTHERN TERMINALS, INC., AND Dana S. Bray
Petitioners
Vv.
STANDARD Or, COMPANY OF CALIFORNIA
AND CHEVRON U.S.A. INc.
PETITION FOR A WRIT OF CERTIORARI TO THE
TEMPORARY EMERGENCY COURT OF APPEALS
OF THE UNITED STATES
JouNn P. Monte, Esq.
Counsel of Record
RicHarp E, Davis, Esa.
Attorney for Petitioners
30 Washington St., Box 666
Barre, Vermont 05641
(802) 476-3123
May 23, 1985
——
wee EERE + OE EERE ern
QUESTIONS PRESENTED
1. Whether the TECA's ruling that a
cause of action for overcharges accrues
at thetimeof the original misclassifi-
cacion and not at the time of contract is
contrary to public policy embodied in the
Economic Stabilization Act.
2. Whether a release is void as against
public policy where such release was ob-
tained by deceptive practices and econo-
mic coercion in circumvention of the Emerg-
ency Petroleum Allocation Act and supporting
regulations.
3. Whether the purported federal common
law principle that "a misrepresentation
made during business aegotiations does not
constitute an actionable fraud claim if
the deceived party had access to the under-
lying truth" is consistent with the control-
ling case of Shappirio v. Goldberg, 192 U.S.
232 (1904),
4. Whether Congressional intent, public
policy and the decisions of this Court,
permit the rejection of Vermont law as the
federal common law of fraud applicable to a
release of federal statutory claims.
5. Whether the Erie doctrine allows the
TECA to apply federal common law to a release
of federal statutory claims.
TABLE OF CONTENTS PAGE(S)
TABU OF AUTMORITIES 6. + hee eee. iii
I cos, sits kb cee ws we es 1
STATEMENT OF JURISDICTION .......... l
FEDERAL STATUTES AND REGULATIONS
Se ee ee ae ee 2
SS dee ae ee ee eee 3
REASONS FOR GRANTING THE PETITION .. 20
I. The TECA's Ruling That A Claim
Of Overcharge Accrues At The
Time Of The Original Misclassi-
fication And Not At The Time
Of Contract, Is Contrary To
Public Policy se ee ge ee i a ee 20
II. A Release Is Void As Against
Public Policy If It Is Obtained
By Deceptive Practices And
Economic Coercion In Circumven-
tion Of The EPAA oS ie eo ee oe ae Oe ee ee i 22
III. The TECA Has Decided An Important
Federal Common Law Fraud Question
In A Way Which Conflicts With
Shappirio v. Goldberg, 192 U.S.
232 (1904), With Other Federal
Courts of Appeals, And With The
Trend Of Modern Law. -----:-:-:-:-- 29
PAGE(S)
IV. Congressional Intent, Public
Policy, And The Decisions Of
This Court Required The TECA
To Determine The Validity And
Scope Of The 1975 Release
According To Vermont Law :::::: 32
V. The Erie Doctrine Required The
TECA To Apply Vermont Law To
A Release Of A Pendent State
Fraud Claim «+++ -eeeee eee eeeees 60
es ce ee AEE OLE SD 62
1-212
APPENDIX «ccc cccrsrssercrersreserens
ii
TABLE OF AUTHORITIES
CASES PAGE(S)
Aaron Ferer & Sons, Ltd. v. Chase
ils tae a ee rrr eee 30
734. F.2@ Lid (Za Cir. , 1984)
: sie : 4 4s
Air Transport Association of America: 44,45,46
2 FEA 30502 (1975)
Board of Commissioners v. United
States, eee D hE ORUR ON a eke ee Rane me DO ate » hub owas 54
308 U.S. 64 (1939)
City of Milwaukee v. Illinois, -::::-: 58
101 S.Ct. 1784 (1981)
Crompton v. Beedle & Thomas, :::::::: 35,56
83 Vt. 287 (1910)
Dice v. Akron, C.&Y.R. Co.,---::++:+:- 32, 30; 2a:
342 U.S. 359 (1952) 61
53,61
Erie Railroad Company v. Tompkins,:::
304 U.S. 64 (1938)
Frigitemp Corp. v. Financial Dynamics
Fund, inc. , ee oe a ee ee ee ee ee ee 30,32,36
924 F.2d 275 (2d Cir., 1975)
Grumman Allied Industries, Inc. v.
Rohr Industries, Inc.,--------++--+ee--. 30,37, 38,
748 F.2d 275 (2d Cir., 1984) 30
Holdsworth v. Strong,:-------+-+-++++-- 36
545 F.2d 687 (10th Cir., 1976)
Ingram Corp. v. J. Ray McDermott, ... 27,29
698 F.2d 1295 (5th Cir., 1983)
SG
PAGE(S)
Korn v. Franchard Corp.,----++++++--: 22
388 F. Supp. 1326 (S.D.N.Y. 1975)
Larkin, et | aa a ae a ee ee i 44,45
4 FEA 89514 (1976)
Lunnie v. Gadapee, < ee ee 8 Oe ob 64 eS 53
Ilé Ve. 261 (1950)
weo2.ee WV. Bameere truer Co.,********* 38
615 F.2d 68, cert. den.
449 U.S. 1123 (1981)
Maternally Yours, Inc. v. Your
Maternity Shop, rr 61
234 F.2d 538 (2d Cir., 1956)
Mattivi v. Southern African
Marine Corp.,---+++ee reece reer eee ees 49
518 F.2d 163 (2d Cir., 1980)
Mead Vv. Bunn, ae ae ee ee ee ee ee ee ee 33 ,34,35
32 NY 275 (1865)
Negyessey W. BGETOMB, «+2 se see sees enns 53
136 Vt. 1930 (1980)
Neuman v. Pike, “a eo a ee ee ee ee ee ee 24,25
456 F. Supp. 1192 (S.D.N.Y. 1978)
New Jersey v. New York,"******"*"*°** 57
283 U.S. 336 (1931)
Newman Oil Co. v. Atlantic Richfield 24
a ; + & ace bw) be RSS wee Bee Se SE SS kOe ek BS
597 F.2d 275 (Temp. Emer. Ct. App.),
cert. den. 444 U.S. 842 (1979)
Northwest Airlines, Inc. v. Transport
Workers Union of America,............ 58
AFL-CIO, 101 S.Ct. 1571 (1981)
iv
PAGE(S)
Oberweis Dairy, Inc. v. Associated
Milk Producers, Inc., -'':cttcte:::
568 F. Supp. 1096 (N.D. Ill. 1983)
Pearlstein v. Scudder & German, -::: 21,22
429 F.2d 1136 (2d Cir., 1970),
cert. den., 401 U.S. 1013 (1971)
Properties v. Smith, -----:-+--+-++:::: 24,25
333 F.2d 568 (9th Cir., 1964)
Royal Indemnity Co. v. United 54
States, 6-8 ek bo SAE we © OS Oe a ee 8 eS oe Oe Oe
Shappirio v. Goldberg, ------:-:-::: 29. 38s33
192 U.S. 232 (1904) 35,38,39
41,50, 51,
52,53
Texas Industries, Inc. v. Radcliffe
Materials, Inc. ,-<-:: essere eee eees 58
101 S.Ct. 2061 (1981)
Textile Workers Union v. Lincoln
B 9 +o RPE sone aware EE orere aren aren 54
353 U.S. 448 (1957)
United Mine Workers v. Gibbs, .--.--- 61
383 U.S. 715 (1966)
United States v. Best, ------------ 54
573 F.2d 1095 (9th Cir. 1978)
United States v. Crain, ----------- 54
589 F.2d 996 (9th Cir. 1979)
United States v. Hadden Haciendas
EB 5 MAACERS OER UCRSITR AS GSMO RGA 8 8 54,57
541 F.2d 777 (9th Cir. 1976)
Vv
A
U.S. Vv. Stemeere O11 Co. ,6<++ sss ess
332 U.S. 301 (1947)
Wali Street Journal --:-:**::cs+:s%3:
2 FEA 80558 (1975)
Weinraub v. International Ba*’note
Cl Es a5 ete hwee eave wns hes bE Sess
422 F. Supp. 856 (S.D.N.Y. 1975)
Western Mountain Oil, Inc. v. Gulf
8B . PSST Ser eerrereerrres
726 F.2d 765 (Temp. Emer. Ct. App.
1983)
FEDERAL STATUTES
Economic Stabilization Act, §§208,
12 U.S.C.S. §1904 note (1980 Supp. )
Economic Stabilization Act, §210,-::-:-:
12 U.S.C.S. §1904 note (1980 Supp.)
Economic Stabilization Act, §21l(a),-
12 U.S.C.S. §1904 note (1980 Supp.)
Emergency Petroleum Allocation Act, -
15 U.S.C.S. §751, et. seq.
Freedom of Information Act,:-::'::*:*::°
§ ¥J.$.€.8. 8§35352(6) (7)
vi
PAGE(S) |
Ye eS BP
26, 58
16
o Sehd, of.
38,99
ney Spe Vn NY Se ene eee
FEDERAL REGULATIONS PAGE(S)
10 G.F.R. $212.82 «+ -sssseseeeeesss 26
10 C.F.R. §212.83(a) (1) (2) (3) -+°:> 2
10 C.F.R. $205. 202 -----+-s-.e5eee. 2,26
10 C.F.R. €210.62(c) -----++-.-+5.. 2,26
10 GPM. SPORTS «occ ves ee cwcenss 2,42
10 C.F.R. §205.201(e) -----+seeeeee- 2,43
OTHER AUTHORITIES PAGE(S)
33 A.L.R. 853 (Annotation: Fraud -
Matters of Public Record) -:::-::: 33
Prosser, Law of Torts, 4th ed.
SLOZ crc ttt teeter e cece we eees 34
Restatement 2d, Torts, §540 :::::: 36
Restatement 2d, Torts, §541 -::::: 36
Restatement 2d, Torts, §541,
Comment (a) i oe ae ee Oe a es a ee a 34
Wright, Miller & Cooper,
Federal Practice and Procedure:
Jurisdiction §4514 --++++ee ese eee 53, 54,59
vii
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1984
NORTHERN OIL COMPANY, INC.,
BRAY OIL COMPANY, INC.,
NORTHERN TERMINALS, INC., and
DANA S. BRAY
PETITIONERS
V
STANDARD OIL COMPANY OF CALIFORNIA,
and CHEVRON U.S.A., INC.
OP NIONS BELOW
The Opinion of the Emergency Court of
Appeals (App. 1-22) is unreported to date.
The opinions of the district court (App. 23-
187) are unreported.
JURISDICTION
The judgment of the Temporary Emergency
Court of Appeals (App. 1) was entered on
March 26, 1985 and a petition for rehearing
1
and suggestion for rehearing En Banc was
denied on April 24, 1985 (App. 22). The
jurisdiction of this Court is invoked under
28 U.S.C. §1254(1).
FEDERAL STATUTES AND
REGULATIONS INVOLVED
Economic Stabilization Act, §210(a), (b), (c)
12 U.S.C. §1904 note (1980 Supp.)
Emergency Petroleum Allocation Act
15 U.S.C. $753(b), Ci) , €2)
Freedom of Information Act
5 U.8.¢.8. $3320) 4/)
Price Rule (Refiners)
10 C.7.R.. $242.08 G08), C43, €2), GC)
Violations
10 C.F.R. §205.202
Normal Business Practices
10 C.F.R. §210.62(c)
Production or Disclosure Prohibited
10 €.¥.8. $262.22
Confidential Information
10 C.F.R. §205.291(e)
STATEMEN7’
l. Background
For 25 years before the enactment of the
Economic Stabilization Act (ESA) in 1970,
Bray companies (petitioners) were branded
wholesale distributors of Chevron's products.
These products were marketed by Bray
companies in up-state New York and through-
out Vermont. The heating oil (middle
distillates) supply contracts historically
required Chevron to bear all transportation
costs. Bray companies were also granted
discounts off the prices posted at Albany,
New York and Burlington, Vermont. Middle
distillates were transported from Chevron's
New Jersey plant to Bray's terminals by
barge. Because the waterways freeze in
winter months, all deliveries were required
to be made by November 15.
3
When ESA was enacted in 1970, the parties
were operating under contracts entered into
in 1968, which were due to expire on
May 2h, Sere
In 1972, the Bray companies were Chevron's
largest wholesale distributors of middle
distillates in the northeast and one of its
largest gasoline distributors. The price of
heating oils was frozen in 1972, but Chevron
decided it wanted more profits from the
Bray contracts. Consequently, Chevron gave
written notice to Dana Siay that unless Bray
companies agreed to buy product at the New
York harbor price, supply of all products
would terminate. Chevron was well aware Bray
companies had no other source of supply due
to the critical nationwide shortage of
petroleum products.
Bray companies resisted Chevron's "proposal"
because it substantially increased the price
of fuel oil by shifting transportation costs
and eliminating customary discounts. May 3l
came and went without any new contracts.
Finally, on July 11, 1973, Mr. Pfefferkorn
of Chevron unexpectedly flew to Burlington
and insisted that predrafted contracts be
signed or all shipments of product would
immediately cease. Chevron knew that the
Cost of Living Council was preparing to fix
a freeze date of either May 15 or June 13,
1973: Bray companies were totally unaware
of this.
The July, 1973 contracts contained a retro-
active starting date "as of May 1, 1973".
Dana Bray pointed out that the prior contract
had not expired until May 31, 1973, and
asked for an explanation. Mr. Pfefferkorn
said this date was selected so that all
customer contracts would commence on May l.
5
This statement was false and Bray companies
relied upon it in signing the new contracts.
(App. 134-136 ) Bray companies did not
discover the truth until 1978.
The price regulations in effect at all
relevant times required Chevron to classify
its customers on the basis of volume, location,
method of delivery and terms of sale. Chevron
knew these criteria established Bray companies
were in a class by themselves. To circumvent
these regulations, Chevron placed Bray in
its so-called New York Harbor Barge buyer
class.
The mandatory provisions of the Emergency
Petroleum Allocation Act (EPAA) were in
effect when the 1974 supply contracts were
signed. The only major difference between
the 1973 and 1974 contracts was a change in
credit terms. This change removed Bray
companies from consignment and required
payment for product on a fixed time schedule.
6
In October, 1974, the Federal Energy
Administration (FEA) learned of this credit
change and issued to Chevron a Notice of
Probable Violation (NOPV). (App. 208-210 ).
The FEA did not furnish a copy of its NOPV
to Bray Oil. Bray companies were not parties
to this proceeding, but became aware of it
when the FEA requested price and credit
information concerning the 1973 and 1974
supply contracts. The FEA also advised
Bray companies to resume payment on a
consignment basis. Chevron did nothing
about Bray companies’ return to consignment
until June of 1975 when Chevron learned
the NOPV was to be rescinded by the FEA on
“technical grounds".
Chevron then notified Dana Bray it would
not supply product except on a cash before
delivery (C.B.D.) basis and that it would
not restore Bray companies to consignment
unless it was given a general release.
7
Chevron's attorney, Matthew Fitzgibbon,
then informed Attorney O'Brien, who
represented Bray companies, that the FEA
"might take until July 15 to come up with
the decision".
On June 30, 1975, Attorney Fitzgibbon,
along with Chevron employees Kaiser,
Pfefferkorn and Martin, held a telephone
conference with William Costello of the FEA.
Costello informed Chevron that he had re-
commended rescission of the NOPV because
the NOPV contained the "incorrect base period"
as it was presently worded. Mr. Costello
refused to give Chevron a "clean bill of
health" despite Chevron's request, Chevron
warning the FEA that the agency would have
a bigger problem this fall and winter because
of the "effects on third parties".
Chevron, on July 10, 1975, demanded a
general release as a condition to entering
a new supply contract. Five days later,
8
Chevron sent a letter which once more
demanded a release and went on to state:
Although we continue to be advised
by FEA that the matter is being
brought to a conclusion, we still
have received no formal advice as
previously mentioned to Mr. O'Brien
and to you.
pies of this letter were sent to State
New York and Vermont Energy offices, and to
the FEA offices in Boston and New York.
On July 28, 1975, Chevron received the
FEA's formal written notice of rescission of
the NOPV. (App. 211) This letter stated
the rescission was ''not dispositive of the
credit terms in effect on May 15, 1973".
The next day, Mr. Pfefferkorn called Mr.
Costello of the FEA to discuss the meaning
of the rescission letter. Mr. Pfefferkorn
learned the words "not dispositive" meant
"not the final word as to what credit terms
actuaily were" and that (1) it was the FEA's
opinion no contract existed as of May 1, 1973;
9
and that (2) "FEA feels May 15, 1973
price still before them" and (3) the
FEA would continue the investigation as
soon as that agency had manpower available.
Chevron waited until August 28, 1975
to inform Bray companies by letter that
the NOPV had been "formally rescinded".
This letter contained nothing which had not
already been said in the July 15th letter
except the following passage:
We believe you are familiar with
the FEA's NOPV of October 25, 1974
directed to Chevron but you may not
be aware that FEA has formally
rescinded their NOPV of that date.
With the past-due account in the amount
of $3,500,000.00 and also lack of
current financial information, we
regret to advise you that we cannot
supply you with middle distillate
products on extended credit terms
unless your account is brought to a
current status and unless we can
satisfy ourselves on the future credit
reliability of your company.
Chevron did not send copies of this letter
to the FEA as it had done with previous
letters; nor was a copy of the FEA's
10
rescission letter sent to Bray companies.
A copy of this letter was, however, sent
to the state energy offices in Vermont and |
New York.
Mr. Pfefferkorn called Dana Bray shortly
after August 28th to tell him the "FEA had
found us innocent of any wrongdoing in the
handling of your account" and that the ''FEA
had found Chevron innocent of any wrong-
doing in the '73-'74-'75 contracts".
State energy officials of Vermont and New
York, faced with a critical shortage of
heating oils because of Chevron's threat
to terminate supply to its sole distributor,
directed that a meeting be held between
Chevron and Bray companies in Albany, New
York on September 17, 1975. The states
invited FEA officials to attend the meeting.
FEA officials present were Mr. Levine and
Mr. Webster, both of whom made it clear from
the outset they were there only as observers.
ll
Neither Mr. Bray nor Attorney O'Brien
had ever met Webster prior to this meeting.
William Costello was not in attendance.
The clear purpose of the meeting was to
provide a continued supply of product to
up-state New York and Vermont. There was
no discussion about the NOPV or the
"rescission".
At that meeting, Chevron <«_ ain stated it
would only furnish product on a C.B.D. basis
until the alleged past dues were paid and
general release signed by Bray companies.
Believing the FEA had exonerated Chevron,
and realizing his business could not survive,
Dana Bray offered to turn his terminals
over to Chevron and let it supply his
customers because he didn't have the financial
ability to do so under the circumstances.
Dana Bray made this offer "because my concern
was for my people in the area getting the oil".
Chevron refused to even consider it. Chevron's
12
only concern was getting the money allegedly
owing because of the change in credit terms.
The parties met in Burlington on October lst
and 2nd to discuss possible supply contracts.
Because Mr. Bray was unwilling to sign a
release, an impasse developed. At this point,
Attorney O'Brien held a private meeting with
Dana Bray, lasting about two hours. The
topic of the meeting was the release.
Attorney O'Brien advised Mr. Bray that he
could not give him "a sufficient basis for
an opinion" that litigation or administra-
tive action would be successful or timely.
Dana Bray concluded ''we already lost before
the FEA ... look how long that took before \
and we ended up the way we did".
Dana Bray decided "he had no choice and
there was no alternative available to him
except to sign the release in order to
get the product vp and available for the
oncoming season". Mr. Bray signed the
13
release.
The release was later given to the FEA
by SOCAL officials when an investigator
for the FEA presented a request for
information on the pricing matters to
SOCAL's San Francisco office. The investi-
gation had, of course, continued although
it was transferred shortly after the notice
of rescission from Region I, Boston to
Region II, New York and then to Region Ix,
California. The FEA accepted this release
as a final res<lution of the issues, and
terminated its investigation.
After Mr. Bray “agreed” to sign the release,
Chevron and Bray companies entered into
another one-year heating oil and gasoline
contract containing the same illegal prices
as the prior contracts. Heating oil was
supplied until March 31, 1976 and gasoline
until August 1, 1976. By that time, Bray
companies were virtually bankrupt. They
14
«
ceased all operations. Chevron sued in
state court to recover amounts allegedly
due on a 1975 promissory note executed in
conjunction with the release, and for
deliveries of gasoline and heating oil made
pursuant to the post-release 1975 supply
contracts. During discovery proceedings
in state court, Bray discovered Chevron's
1973 and 1975 fraud and immediately insti-
tuted an action in federal court.
2. Court proceedings
The state court action was stayed when
Bray companies filed a complaint in the
United States District Court for the District
of Vermont on October 6, 1978.
The complaint charged Chevron and its
parent company, Standard Oil Company of
California with violations of federal regu-
lations issued under the Emergency Petroleum
Allocation Act (EPAA), 15 U.S.C. §751 et.
seg. and common law fraud and duress. The
15
federal district court took exclusive
jurisdiction on the basis of §21l(a) of
the Economic Stabilization Act (ESA) of
1970, and pendent jurisdiction over the
state claims of fraud and duress. Bray
companies sought damages recoverable under
§210(a) and (b) of the ESA including re-
imbursement for fraudulent overcharges for
the contract years, 1973-1974, 1974-1975,
1975-1976, treble damages for intentional
overcharges and attorneys’ fees. On the
common law fraud and duress claims, consequen-
tial damages for the loss. of business entit-
ies were sought in the alleged sum of Forty
Million dollars. Chevron counterclaimed
for collection of a debt alleged to be due
on a 1975 promissory note and for deliveries
of gasoline and heating oil made pursuant
to the post-release 1975 contract.
The first half of the bifurcated trial by
jury - on the liability issues only - began
16
on July 21, 1982. The trial lasted almost
seven months. After two weeks of deliber-
ations, the jury returned eleven special
verdicts consisting of 57 responses to
corresponding interrogatories. (App.13l -
143 )
In his July 27, 1983 Decision, the district
judge resolved the legal effect of the
special verdicts. He ruled that Special
Verdict 5 established Chevron's fraud in the
inducement of the 1973 supply contract.
(App. 134 )
In his October, 1983 Decision, the district
judge responded to Chevron's motion to set
aside the jury determination of fraud in the
inducement of the 1975 release by a grant of
Judgment Notwithstanding the Verdict. The
district judge granted J.N.O.V. on the basis
of federal common law, rejecting the Vermont
fraud law he charged to the jury. (App. 70-
88)
17
The district judge also ruled that the
1975 release did not absolve Chevron from
perpetuating the 1973 fraud and intention-
ally overcharging Bray companies in the
post-release, 1975 supply contract. (App.
23-28)
The jury's Special Verdict 6 also revealed
Chevron placed economic pressures upon Mr.
Bray which forced him to sign the 1973
supply contract because he had no reasonable
alternative. Special Verdict 11 established
Chevron had misclassified and overcharged
Bray from all relevant heating oil supply
contracts. Verdict 3 established Chevron's
infliction of duress in obtaining the 1975
release.! (App. 131-143)
l The jury in Special Verdict 4(b) apparently found
the 1975 duress had been ratified by Bray companies
failing to promptly repudiate the release. This
Court will please note that the instructions
following 4(b) were given in error, as a party can-
not ratify an unknown fraud. The jury either ig-
nured these instructions or what is more likely,
misunderstood the question and checked the wrong
18
«
The court's final judgment on April 10, i984
awarded Bray companies $210,000.00 plus interest
for overcharges arising after the 1975 release.
This sum was doubled pursuant to the damage
provision of §210(b) of the Economic Stabili-
zation Act (which provides up to treble
damages for intentional and wilful overcharges).
Chevron was awarded over Three Million dollars,
principal and interest, on its counterclaim.
Appeals were taken by both parties to the
Federal Court of Appeals for the Second
Circuit and to the Temporary Emergency Court
of Appeals.
The Second Circuit stayed the appeals "pending
a determination of appeals from the same
judgment in the Temporary Emer’;ency Court of
Appeals". A judgment and mandate was entered
by the TECA on March 26, 1985. The TECA
decision upheld the district court's grant of
J.N.O.V. on the 1975 release, and reversed the
response. Bray companies requested the district
judge to poll the jury, but he declined to do so.
(App. 134 )
19
district court's award of post-release
damages.
REASONS FOR GRANTING THE PETITION
I. The TECA's Ruling That A Claim Of
Overcharge Accrues At The Time Of
The Original Misclassification And
Not At The Time Of Contract, Is
Contrary to Public Policy.
The TECA held "... a cause of action for
an overcharge based on imvroper classification
accrues at the time of the original improper
classification". (App. 14-17) Consequently,
the majority of the TECA viewed a claim for
overcharges separate and apart from the terms
of the three consecutive heating oil supply
contracts. The court reasoned that since the
overcharge cause of action had accrued at the
time of the "as of 1973" supply contract, it
was barred by the release. This finding
overruled the following relevant portion of
the district court's decision:
It seems clear enough to the court
that overcharges resulting from a
misclassification grounded in fraud
which was carried forward to the
20
supply agreement ‘executed on or after'
October 14, 1975, were not extinguished.
While the release purported to compro-
mise any claims of fraud that attended
the prior arrangements, ‘as of May l,
1973 and as of May 1, 1974', it specific-
ally excluded the contract relating to
sale and purchase of petroleum products
executed on or after the date of the
settlement. (App. 16)
Judge Hoffman dissented from TECA's majority
decision dated March 18, 1985. He points
out that classification occurs “... at the
time of contracting" and that Chevron had a
continuing obligation under the terms of each
contract not to charge a price which
exceeded the maximum lawful price under the
regulations". Explicit in his dissent is
that under the majority rule of "accrual",
a supplier would absolve itself of "... all
future violations by having the purchaser
sign a release of a similar past violation”.
Judge Hoffman concluded: "A release of future
violations is, without question, void against
public policy . Pearlstein v. Scudder &
21
German, 429 F.2d 1136 (2d Cir. 1970),
cert. denied, 401 U.S. 1013 (1971);
Oberweis Dairy, Inc. v. Associated Milk
Producers, Inc., 568 F.Supp. 1096 (N.D. Ill.
1983); Weinraub v. International Banknote
Company, Inc., 422 F.Supp. 856 (S.D.N.Y. 1976);
Korn v. Franchard Corp., 388 F.Supp. 1326
(S.D.N.Y. 1975):’(App. 19-21).
The TECA has thus decided an important
question of federal law and public policy
that should be settled by this Court.
II. A Release Is Void As Against Public
Policy If It Is Obtained By Deceptive
Practices And Economic Coercion In
Circumvention Of The EPAA.
The TECA's decision is doubly harsh in this
case because Chevron's original misclassifi-
cation was based on its 1973 fraudulent
misrepresentation which was neither known
to nor discoverable by Bray companies prior
to the signing of the release. (App. 138 _ )
The TECA's decision consequently runs afoul
y a
of federal legal principle as well as public
policy. Specifically, at the time of the
release, even if Bray companies had knowledge
of the "operative facts" of a straight "over-
- without an examination of
charge" claim,
Chevron records, Bray companies could not
possibly discover the fact that Chevron had
not placed its customers on a uniform May l
contract date. 3 Equally unlikely, was the
prospect of Bray companies discovering that
Chevron had advance knowledge of the May L5,
1975 freeze hice
2 10 C.F.R. §210.62(c) provides that a retroactive
price increase violates federal price regulations
if such increase "constitutes a means to obtain a
price higher than is permitted by the regulations...’
(App. 205)
This is one truth underlying the 1973 misrepresent-
ation, which was that Chevron was backdating the
supply contract in order to put all its customers on
a uniform starting date.
This was the other underlying truth of the misrepre-
sentation appearing in footnote 3. These "operative
facts" lay buried in Chevron's files until brought
to light during the course of discovery in the state
proceedings. These facts, along with the true reason
behind FEA's rescission of the NOPV, which was also
found in Chevron's files, prompted Bray companies to
file a complaint in federal district court.
23
To be valid, a release of federal claims
must be an intentional relinquishment of a
known right. Neuman v. Pike, 456 F.Supp. 1192,
1207 (S.D.N.Y. 1978); Properties v. Smith,
333 F.2d 568, 571 (9th Cir., 1964)?. It is
true the measure of damages for an overcharge
claim and for a claim of fraud in inducing one
to forego EPAA rights (See Newman Oil Co. v.
Atlantic Richfield Co., 597 F.2d 275 (Temp.
Emer. Ct. App.), cert. den., 444 U.S. 842 (1979))
may be similar if the latter is a fraudulent
misrepresentation resulting in an intentional
misclassification. © However, the elements
> This issue was briefed on appeal to TECA, and
appears in Bray companies' Second Circuit appellate
brief which was requested and reviewed by the TECA.
6 The TECA found it necessary to decide whether
§210(a) of the ESA permits consequential damages
resulting from a fraudulent misrepresentation.
Therefore, the measure of damages of a federal
fraud claim under the Act has yet to be determined.
24
of the 1973 fraud required proof of an entirely
different kind than is required to show an
overcharge under the ESA and supporting regula-
tions. - (Ape. 134° -). Tm fact, the i973
fraud was undoubtedly a state law claim that
resulted in damages measured independently by
state and federal law, respectively.’
Further,
both the district court and the TECA found the
1973 and 1974 contracts invalid.
The TECA apparently does not consider the
federal judicial principle (which does not per-
mit the release of an unknown cause of action
(Neuman, Properties, supra), consistent
with the public policy embodied in the EPAA and
federal regulatory scheme. Whether known or
unknown, however, the following regulations
Chevron has somehow escaped the consequences of
"overcharges" for deliveries of product made May 1-15,
1973. The proper measure of damages for these over-
charges are the terms of the 1968 contract set to
expire May 31, 1973. The federal concept of "over-
charges" is irrelevant to this claim. Likewise, it
was improper to apply federal law to these pendent
state claims, but this issue will be addressed
subsequently.
25
prohibit any deceptive device, including
a release, which is designed to circumvent
federal regulations, whether or not such
conduct amounts to actionable fraud: 10 C.F.R.
§205.202 prohibits "... any practice that
circumvents ... or results in circumvention ...
of the requirements of any provision of this
chapter ... as a violation of the DOE regula-
tions stated in this chapter; 10 C.F.R.
§210.62(c) prohibits "...(a)ny practice
which constitutes a means to obtain a price
higher than is permitted by the regulations
in this chapter..."; 10 C.F.R. §212.82
provides ''...(a) refiner may not charge to
any class of purchaser a price in excess of
the base price...". Section 210(a) of the
ESA gives an unequivocal cause of action to
"...(a)ny person suffering legal wrong because
of any act or practice arising out of this
title or any regulation issued pursuant
thereto...''. The TECA failed to recognize
26
these regulations as an expression of public
policy. This policy clearly requires a
release to be voided where a material misrep-
resentation has been made for the purpose of
inducing a party to forego its EPAA rights.
(App. 190-207)
Thus, if a distributor relies on these
misrepresentations without investigating the
underlying truth, an unknown fraud claim is
not actionable and the regulations just cited
above will provide no relief. Further, under
the TECA's decision, a release will be valid
even if the supplier inflicts actionable
duress for the very purpose of obtaining a
release. (App. 133)
The TECA also refused to recognize the
federal principle developed in Ingram Corp. v.
J. Ray McDermott, Inc., 698 F.2d 1295 (5th
Cir., 1983) (A release is valid if it is an
integral part of a scheme to violate federal
law and to perpetuate that violation).
27
Accordingly, the TECA held:
Even if we were to assume that
this language provided another
means in addition to a fraudulent
inducement claim to attack the
validity of a release,which we
do not, plaintiffs have not shown
on the facts of this case that the
release is part of any such scheme.
(App. 13-14)
The court added that the 1975 release
was an "outgrowth", rather than a "cause"
of the violation, and therefore not a
part of any such scheme. (App. 14)
The court's distinction between an "out-
growth" and a “cause” is remarkable in
light of the fact Chevron used the release
as a means of terminating FEA's investiga-
tion in January of 1975. That Chevron used
the release to perpetuate the misclassifi-
cation in the 1975 supply contract has
been determined by the district court and
the TECA. Likewise, the fact that Chevron
knowingly violated federal law from 1973 on
is revealed by the district court's specific
28
determination of Chevron's intentional
overcharge (App. 52-58 ) and deliberate
falsehoods uttered to induce Mr. Bray to
sign the 19/5 release. (App. 77) If Ingram
doesn't apply to this case, it's hard to
imagine a case to which it would apply.
TECA's decision therefore condones the use
of deceptive practices as a means to circum-
vent declared public policy which expressly
prohibits the use of “any device” for such
purpose.
Whether or not the EPAA policy favoring
private settlement overrides the expressed
public policies in matters of nationwide
concern is an important federal question that
should be resolved by this Court.
III. The TECA Has Decided An Important
Federal Common Law Fraud Question
In A Way Which Conflicts With
Shappirio v. Goldberg, 192 U.S. 232
71 obey With Other Federal Courts Of
Appeals, And With The Trend Of
Modern Law.
The district court's grant of judgment
29
Frigitemp, supra, the TECA was actually
tracing the development of the purported
federal "access" principle. Frigitemp
was a Rule 10b-5 - Securities case which
stated in dicta, that ..."’(e)ven at
common law, if the plaintiff has been
furnished with the means of knowledge and
he is not prevented from using them, he
cannot say that he has been deceived by the
misrepresentations of the other party”.
Frigitem,, supra at p. 282, citing Shappirio
v. Goldberg, 192 U.S. 232, 241-242 (1904).
Shappirio, supra, was in fact cited by
the district court as the controlling federal
law relating to “blind reliance” and
"readily available access".
Shappirio may represent the last controlling
statement by this Court of the federal “access”
common law principle of fraud. ®
8 The "access" principle was expressly rejected in
Dice v. Akron, C.&Y.R. Co., 342 U.S. 359, 362 (1952).
Dice established the federal common law of fraud
32
See 33 A.L.R. 853, 917-918, Anno. - Fraud -
Matters of Public Record §§22-24. However, it
is quite clear the TECA's requirement of "due
diligence” and determination of "access" is
entirely inconsistent with the rule of that
case.
This Supreme Court held in Shappirio, supra
at pp. 241-242:
There are cases where misrepresentations
are made which deceive the purchaser, in
which it is no defense to say that hadthe
plaintiff declined to believe the repre-
sentations and investigated for himself,
he would not have been deceived. Mead v.
Bunn, 32 NY 275 (party deceived not
bound to test the truth of a representa-
tion by examinins the public records).
But such cases are to be distinguished
from the one under consideration. When
the means of knowledge are open and at
hand or furnished to the purchaser or
his agent, and especially where the
purchaser undertakes examination for
as it relates to a release under the Federal
Employer's Liability Act for injuries sustained as
a result of the negligence of an employer. This
Court, in rejecting the "defense" of "supine
negligence” (Plaintiff did not read the release he
signed) held: "... a release of rights under the
Act is void when the employee is induced to sign it
by the deliberately false and material statements
of the railroad's authorized representatives made to
deceive the employee as to the contents of the
release”. 33
himself, he will not be heard to say
that he has been deceived to his
injury by the misrepresentaticns of
the vendor". (citations omitted )
The plaintiff's agent in Shappirio, unlike
the plaintiff in Mead, actually undertook
an investigation of the public record. He
examined the recorded deed and plat and
issued a "report upon the title” to Shappirio.
The evidence in Shappirio, supra at p. 241,
was undisputed that "...(a) casual reading
of the description on the deed or examination
of the recorded plat ... (would have revealed
the truth)”.
Shappirio was decided in 1904, before many
states had rejected the doctrine of caveat
emptor. Modern law has by and large opted
for the principle that the "means of knowledge
is open and at hand” only "when the recipient
of the misrepresentation is capable of
appreciating its falsity by the use of his
senses’. Restatement, Torts 2d §541, Comment
a; cf. Prosser, Law of Torts, 4th ed. §107.
34
siecle
This is precisely the principle that a
thoughtful reading of Shappirio reveals.
33 A.L.R. 853,918 ("The fact that the court
referred, without any expression of dis-
approval, to Mead v. Bunn ( 1865) 32 NY 275...
may be regarded as indicating somewhat strongly
that it is prepared, whenever the point is
| directly presented, to adopt the broad doctrine
applied in this case”. (This ALR annotation
was written in 1924)). Under this rule,
"access" to a federal agency does not bar a
fraud claim.
In federal courts, common law fraud claims
usually arise in diversity cases, where the
appropriate state law is applied under the
Erie doctrine. Federal common law becomes an
issue in cases where federal statutes create
private claims. Two examples of this situa-
tion are the Federal Employer's Liability Act
and Securities - Rule 10(b)5 violations. The
former situation has been resolved by this
35
Court's articulation of federal common
law as it relates to the Act. (Dice,
supra, footnote 8). The latter has not
been resolved and a conflict has arisen
among the federal jurisdictions.
The Second Circuit, for instance, apparent-
ly adheres to the "access" principle.
Frigitemp, supra. The Tenth Circuit relies
on the Restatement of Torts, §§540,541:
plaintiff is not duty bound to
investigate the truth or falsity of
an intentional misrepresentation
unless the misrepresentation is
patently false.
Holdsworth v. Strong; 545 F.2d 687
(10th Cir., 1976)
In fact, the difference between the Second
and Tenth Circuits is more of terminology
than anything else. Even under the “un~
restricted access" doctrine of the Second
Circuit, the defendant must first establish
by uncontradicted evidence, (1) the existence
and physical whereabouts of the “true facts",
36
and (2) plaintiffs' unrestricted access to
9
those facts. If the defendant fails to
establish this defense as a matter of law, the
fraud claim goes to the jury for determination
on the merits. Grumman, supra at p. 7/40.
To illustrate, the court in Grumman concluded
that summary judgment was proper where the
defendants produced affidavits which showed
plaintiff had a right of unrestricted access
to defendants’ plant, files and the performance
test results of a particular model bus.
Grumman, supra at pp. 738, 740. (The fraud
claim concerned representations of good
performance and quality of the bus - Grumman
had contractually disclaimed reliance on
those specific representations). Rohr's
affidavits also established that Grumman
possessed the "legal, technical and business
expertise necessary to make effective use of
that access". The defendants’ affidavits
were not opposed by any contrary facts pre-
37
sented by plaintiff. Grumman, supra at
p. 740. The court held: "Grumman's right
to unrestricted access and its failure to
inquire preclude, as a matter of law, its
claim of reliance on Rohr's alleged misrep-
resentations". But the Second Circuit also
made it abundantly clear that if plaintiff
had introduced specific facts tending to
show its "access" was restricted, the fraud
claim would have gone to the jury. Grumman,
supra at p. 740,10
9 The "access" or "means of knowledge" principle
is a defense, not an element of common law fraud.
Mallis v. Bankers Trust Co., 615 F.2d 68,80, cert.
den. 449 U.S. 1123 (1981) (New York does not
recognize "due diligence” as an element of fraud,
but rather requires proof of the five traditional
elements: (1) misrepresentation of a material fact;
(2) falsity of that representation; (3) scienter;
(4) reliance; (5) damages. See also Shappirio
and Dice, supra.
LO Grumman cites Shappirio at p. 737.
38
Petitioners submit the TECA's mandate has
clearly shifted to plaintiffs the burden of
showing the "true facts" were not available
to them. This is not the test, according to
Shappirio. The only information plaintiffs
ever received about the status cf the FEA
investigation was from Chevron. In addition,
the following undisputed evidence was intro-
duced: (1) the plaintiffs were not a party to
the NOPV; (2) they were not copied by the FEA
on any matters relating to the investigation
of Chevron, including the NOPV and rescission
notice; (3) prior to the date of the rescissior.
notice, plaintiffs did make a request, by
telephone and letter, for a decision. These
requests were not responded to by the FEA;
(4) three different FEA officials were involved
with the NOPV. The point is that even if
Chevron met its burden supporting the defense
of "access", Bray companies introduced evidence
which raised a genuine issue under any standard
39
Chevron certainly could have asked Mr.
Costello, the FEA official in charge of the
NOPV at the time of the notice of rescission,
whether he would have disclosed the true
nature of the rescission to Bray companies
even though not a party to the NOPV. Chevron
did not do so. Chevron could have asked
Mr. Costello, during his deposition, (which
perpetuated his testimony) whether the
rescission notice became part of the public
record or offered other evidence showing this
to be the case. Chevron did not do this,
either, in spite of the fact it has continu-
ously asserted that Bray companies’ lack of
"due diligence" bars the claim of fraud. On
the other hand, Bray Oil did not ask these
questions because (1) it wasn't part of the
prima facie case, and (2) it was irrelevant
under Vermont law which was actually charged
il
to the jury.
Il The district judge applied "federal law" only
on consideration of Chevron's Motion for J.N.O.V.
4n
ee ee ee a ae
What Chevron actually did speaks for itself,
and it doesn't come close to showing a "means
of knowledge" defense under Shappirio. First,
Chevron solicited as an "expert witness", one
Melvyn Goldstein, a former director of the
Office of Exceptions and Appeals of the FEA.
Mr. Goldstein testified that he was "generally"
familiar with NOPV procedures, and based on
that "general familiarity" of these procedures,
he was not aware of any obstacles that might
confront a hypothetical Bray Oil in learning
from the FEA the basis for a rescission of an
NOPV. Mr. Goldstein also testified that he
was unaware of any reason that the FEA would
not provide the basis of the rescission to
Bray Oil, if an inquiry had been directed at
the FEA's regional counsel (Mr. Webster).
Mr. Goldstein's lack of awareness of any
obstacles in FEA regulations to the discovery
of the truth, based on his "general familiarity’
with the NOPV procedure, does not establish
41
much of anything. It does not establish that
Mr. Gebeter would have revealed the true
facts to Attorney O'Brien on September 1/7,
1975, or that the "true facts" were a matter
of public record,. or for that matter that
the FEA's disclosure of the basis of the
rescission would have been timely. Outside
of the general familizrity with NOPV procedures,
Mr. Goldstein remained mute on the issue
of "access".
In their appellate brief to the TECA, Bray
companies pointed out that FEA regulations
prohibited the production. or disclosure of
any and all materials "contained in the files
of the FEO" without "prior approval of the
General Counsel of FEO". 10C.F.R. §202.22
(App. 206 ) It was also brought to the court's
attention that information received during
the course of an investigation remains
12 Neither Dana Bray nor his attorney, Donald O'Brien
had ever heard of or met Mr. Webster prior to
September 17, 1975 and did not believe Mr. Webster
Was involved with the Chevron NOPV in any event.
42
confidential “unless otherwise determined
by FEA". 10C.F.R. §205.201(e) (App. 207)
The TECA's conclusion that such regulations
would not prohibit FEA disclosure of the mean-
ing and effect of the rescission misses the
issue entirely. Under these regulations,
neither Costello nor Webster was free to
disclose any information to Bray companies
without prior approval of General Counsel.
On the other hand, if the NOPV and notice of
"rescission was a matter of public record,
Bray companies would have been required to
follow the procedures of the Freedom of
Information Act. 5 U.S.C.S. §552. The main
difficulty in contacting General Counsel
or proceeding with the FOIA is that it was
FEA's consistent practice through the summer
and fall of 1975 to withhold any document,
(including NOPV's) relating to ongoing investi-
gations initiated by an NOPV.
Three related FEA decisions clarify this
43
point: Air Transport Association of America,
2 FEA 80502 (January 10, 1975); Larkin, et al.,
4 FEA 80514 (July 22, 1976); and Wall Street
Journal, 2 FEA 80558 (March 21, 1975).
In Larkin, supra, a request was made under
the FOIA for a number of documents to an
FEA investigation of Union Oil Company of
California concerning the “lawful selling
price of gasoline which Union sells to its
retail customers". Larkin, supra at p. 80,
553. Larkin's request included "...(r)ecords
of any formal or informal rulings, advice
or counsel given by the FEA...". Because
the investigation of Union was still in
progress, the Information Access Officer
withheld a Notice of Probable Violatitdn
(NOPV) (and other documents relating to the
investigation) which the FEA issued to Union
on August 9, 1974.
Larkin appealed, alleging the Information
Access Officer erroneously withheld “access
4G
to the requested documents". Larkin, supra
at p. 80, 554.
The FEA held that "... NOPV's ... issued
prior to the date of Wall Street Journal
and which were used as discovery devices
designed to further an investigation would
be exempt from public disclosure while
the investigation remained open’. Larkin,
supra at p. 80,554. The FEA also determined
that the NOPV and other documents requested
were exempt under our investigatory records
provision of 5 U.S.C. §552(b)(7) because it
revealed investigatory techniques and
procedures of the FEA. Larkin, at p. 80,554.
Wall Street Journal, supra, citing Air
Transport Association of America, supra,
stated: "The FEA has consistently refused
to disclose NOPV's on the grounds they are not
subject to mandatory disclosure under Section
(b)(7) of the Freedom of Information Act".
(emphasis added) Wall Street Journal, at
45
p. 80,668.
Read individually or together, the three
FEA decisions uphold the FEA practice of
non-disclosure of any documents which relate
to material compiled for investigatory
purposes. Air Transport, supra at p. 80, 502.
Air Transport also establishes the investi-
gation is not completed until a Remedial Order
is issued or the investigation is otherwise
terminated.
In the case at hand, the “rescission” was
not a termination of the investigation.
(App. 77 ) It was notification to Chevron
that the investigation was to be expanded to
areas "technically" outside the scope of the
NOPV. Further, the “rescission” did not
serve as a formal statement of the alleged
violations to be investigated and "rescinded"
an NOPV which itself was not a "formal
statement of charges issued after a signifi-
cant stage of investigation (had been) com-
pleted’. 46
Wall Street Journal, supra at p. 80,689.
Thus, it is quite apparent why Chevron did
not produce evidence demonstrating plaintiffs’
"unrestricted access" to the meaning and
effect of the notice of rescission. It is
also manifestly unfair for the TECA to reject
federal statutes, regulations and FEA
decisions which demonstrate, beyond a doubt,
that “access” was restricted, if not totally
unavailable. The TECA'’s "due diligence”
rule is especially harsh where Vermont law
is applied to the release by the district
judge in his charge to the jury.
Another misleading conclusion of the
district court, perpetuated by the TECA, was
that there were "frequent contacts" between
Bray companies and FEA officials. The
district judge opined:
Bray and Chevron representatives
alike were in frequent contact
with Mr. Costello and Mr. Webster
concerning energy matters.
(App. 94
47
The undisputed evidence established
absolutely no contacts between Webster and
Bray and only one contact between O'Brien
and Webster. Mr. O’Brien testified he
did not know Uebetar onioe to the Albany
meeting on September 17, 1975, and did not
believe he was involved in the handling of
the NOPV.
Dana Bray met Mr. Costello only once in
Burlington on May 1, 1975. Costello was
present in furtherance of the Chevron
investigation. Mr. O'Brien was also in
attendance. The only remaining “contact”
which O’Brien had with Costello was by
telephone on May 27, 1974. The evidence
showed that any discussions between FEA
personnel and Bray companies were initiated
by the FEA.
There were no "contacts" at all between
representatives of Bray companies and FEA
personnel after the telephone call of May 27,
48
1975, except at the Albany meeting. In short,
there was one contact with FEA officials in
the relevant time frame. The notice of
rescission was dated July 28, 1975 and
Chevron's written misrepresentation was dated
August 28, 1975.
"Frequent contacts” is an egregious distort-
ion of the evidence, especially in the context
of a J.N.O.V. The TECA, in reviewing a grant
of J.N.0O.V. was duty bound to give Bray
companies the henerit of all reasonable
inferences without weighing conflicting
evidence, and then uphold the jury's verdict
unless the jury's findings could only have
been the result of sheer surmise and conject-
ure or no reasonable or fair-minded man
could have arrived at a verdict against
Chevron. Mattivi v. Southern African Marine
Corp., 618 F.2d 163 (2d Cir., 1980)., If the
TECA has, in fact, searched the record for
‘substantial evidence’ supporting the jury
49
verdict, it is not reflected in the mandate.
(App. 1-21) The TECA relies solely on
"frequent contacts" to show access and
ignores all conflicting evidence.
The TECA paraphrases Shappirio ("if the
plaintiff has been furnished with the means
of knowledge and he is not prevented from using
them, (emphasis added) he cannot say that he
has been deceived by the misrepresentations
of the other party), but it has in every
essential misstated or misapplied the
Supreme Court principle. The “opportunity
to make inquiry" does not establish that
such inquiry would have been fruitful and
without difficulty. Even a broad reading
of Shappirio or Grumman, supra, reveals
the burden was on Chevron to establish just
that.
This Court may also note that TECA has
apparently adopted a federal tolling
(statute of limitations) provision as the
59
federal common law of the case. Citing
Western Mountain Oil, Inc. v. Gulf Oil Corp.
726 F.2d 765 (Temp. Emer. Ct. App. 1983) (The
statute of limitations is not tolled by a
fraudulent concealment of a cause of action
if the true facts would have been discovered
by the exercise of due diligence), TECA
asserts the Western Mountain "due diligence”
tolling provision should apply with greater
force to a claim of fraud in the inducement
of a release of federal claims. (App. 12)
The TECA's mandate has interpreted the
Shappirio principle as being synonymous with
a federal tolling provision. Further, a
plaintiff asserting a federal common law
fraud claim now has the burden of showing
he acted with due diligence in order to
verify a material representation. This ruling
is a dangerous precedent which, by its
language, purports to apply to any federal
fraud claim. It also condones deceitful
51
and unlawful price gouging which is
contrary to the public policy embodied
in the emergency federal statutory scheme
enacted at a time of national crisis.
IV. Congressional Intent, Public Policy,
And The Decisions Of This Court
Required The TECA To Determine The
Validity And Scope Of The 1975 Release
According To Vermont Law.
Insofar as the 1975 release related to
federal claims, it is clear that the district
judge was required to apply federal law.
Dice, supra. The District Judge Holden
adopted Vermont law as the federal law, and
he so charged the jury. However, upon review
of Chevron's motion for J.N.0.V., the district
judge changed his mind and applied a somewhat
confusing blend of authorities, the most
notable being Shappirio, supra.
On appellate review, the TECA ostensibly
adopted Shappirio by reference to Second
Circuit case law. (App. 12) In reality,
however, the TECAhas misstated Shappirio
a2
by equating that case with a federal to_ling
provision (App. 12).
Bray companies have thus been laboring
under a quite elusive concept of federal
common law fraud ranging from a near absolute
right of reliance (Negyessey v. Strong, 136
Vt. 193, 195 (1980); Lunnie v. Gadapee, 116
Vt. 261, 265 (1950)) to a "means of knowledge”
defense (Shappirio), and finally toa require-
ment of due diligence as part of the prima
facie case. (Western Mountain, supra).
This problem has perhaps arisen because,
since the time Erie Railroad Company v.
Tompkins, 304 U.S. 64 (1938) was decided,
there has been no "general" federal common
law, but only specialized federal common law
that relates to particular areas of federal
interest. ‘U.S. Vv. Standara: O21. Go. .-332 U. 3.
301, 308 (1947); Wright, Miller and Cooper,
Federal Practice and Procedure: Jursidiction
§4514. However, both the district court and
53
the TECA were subject to the choice of
law principles laid down in the applicable
decisions of this Court.
In 1979, the Ninth Circuit provided the
following summary of these principles in
United States v. Crain, 589 F.2d 996,999
(9th Cir., 1979):
The federal courts are generally
free to draw upon any and all
traditional sources in developing
federal common law. United States v.
Best, 573 F.2d 1095, 1109 (9th Cir.,
1978). Often state law is an
appropriate source. Textile Workers
Union v. Lincoln Mills, 353 U.S. 448, 457,
‘i S. Ct. -9i2; 2. Be. 24 S72 CE9S7)
Royal Indemnity Co. v. United States,
313 U.S. 289, 296-97 61; S. Ct. 995, 85
L. Ed. 1361 (1941); Board of Commiss-
ioners v. United States, yp 3,
350-52, 50 S.Ct. 285, 84 L.Ed. 313 (1939);
United States v. Best,573 F.2d at 1102.
Even when an ‘action arises under and
is clearly determined by federal law,
state law limiting the enforcement of a
federal right is sometimes adopted as the
federal rule'. United States v. Hadden
Haciendas Co., 541 F.2d 777, 783 (9th
Cir., 19/6)
As stated in Hadden, whether or not
state law will be adopted as the
federal common law rule depends on
‘whether the state law can be given
54
effect without conflicting with federal
policy.’ id. at 784... (other citations
omitted ). Conversely, rejection of the
state rule should be avoided where the
adoption of a different federal rule
would unduly interfere with the state's
interests."
Vermont law is consistent with congressional
intent and public policy embodied in the EPAA
as well as traditional and modern common law
fraud. One eloquent expression of the law
appears in Crompton v. Beedle & Thomas, 83 Vt.
287, 301-302 (1910).
The court, in Crompton traces the origin of
Vermont's rejection of the defense of negli-
gence to an intentional misrepresentation:
The doctrine (due diligence) inconsistent
with that which has been declared by this
Court is said by the writer last quoted
(Bigelow) to be dead in England if it
ever existed there and moribund in this
country ...
In a House of Lords case, this principle
was thus declared by Lord Chancellor
Chelmsford:
"When once it is established that there
has been any fraudulent misrepresentation
or wilful concealment by which a person
has been induced to enter a contract, it
is no answer to his claim to be relieved
55
from it to tell him that he might have
known the truth by proper inquiry
Any different doctrine carried to
its logical conclusion would facilitate
transactions in gold bricks, salted
mines, bogus diamonds as real, facsimilies
as originals, and would permit a variety |
of things destructive to commercial
integrity. The maxim which requires
a party to a trade to look out for
himself has a wide and broad application.
We would not traduce it or deny to it
the legitimate application to which it
is entitled. But it cannot be permitted
that that maxim should be so construed
as to portraying the law in caricature
and to render it an instrument of craft,
a tool of fraud, a talisman of injustice,
a key by the use of which one man may
plunder another. For the commerce of
the world is promoted not by cunning
but by such wisdom as is consistent
with that good faith which underlies |
everything in the social order that
has stability".
Vermont had a very real interest in keeping
its citizens warm during a national fuel
oil shortage, as well as a long standing
commitment to integrity in the marketplace.
See Crompton, supra. Yet the district court
and now the TECA rejected Vermont law and
the basis for that rejection cannot accurate-
56
ly be determined. The critical inquiry
should have been "whether Vermont law could
be given effect without violating federal
policy’. (Hadden, supra). Federal policy
in turn, was subject to the "paramount
authority of congress". New Jersey v. New
York, 283 U.S. 336 (1931).
An expression of congressional intent is
found in the EPAA, 15 U.S.C. §753(b) (1)
(App. 193-199), and the following excerpts
are particularly relevant:
(b) (1) The regulation under subsection
(a) of this Section. to the maximum extent
practicable, shall provide for --
(a) Protection of public health ...
safety and welfare (including maintenance of
residential heating, such individual homes,
apartments, and similar occupied dwelling
units), and the national defense.
(d) Preservation of an economically
sound and competitive petroleum industry ...
57
and to preserve the competitive viability
of independent refiners, small refiners,
nonbranded independent dealers, and
branded independent marketers ... (emphasis
added).
This intent is buttressed by §§208,2909
and 210 of the ESA (as incorporated in the
EPAA) which provide for criminal and civil
penalties as well as private suits for
damages or other relief for any “legal wrong
because of any act or practice arising out
of this title, or any order or regulation
issued pursuant thereto”. (App. 190 ).
Perhaps of even greater importance is that
since 1979, several significant decisions
involving federal common law have issued
from this Court, including Northwest Airlines,
Inc. v. Transport Workers Union of America,
AFL-CIO, 101 S.Ct. 1571 (1981); Texas
Industries, Inc. v. Radcliffe Materials, Inc.,
101 S.Ct. 2061 (1981) and City of Milwaukee v.
58
Illinois, 101 S.Ct. 1784 (1981).
An often cited and prominent authority has
made an analysis of these decisions:
These cases, read together, reveal
at least one central theme: a renewed
emphasis upon the fact that federal
common law is ‘subject to the paramount
authority’ of Congress. Indeed, the
1980-1981 Term cases may be read to
say that courts cmpcaly should be
reluctant to develop federal common
law, absent some signal from Congress.
If this reading is correct, then it
is likely that future years will see
a vastly more restricted use of federal
common law’.
Wright, Miller & Cooper
Federal Practice & Procedure
Jurisdiction §4514 at p. 274
The EPAA was an emergency act designed to
protect the citizens and the marketplace from
price exploitation that would have inevitably
attended the short supply of an essential
product. The clear signal from Congress was
that no deceptive practice would be tolerated
during such conditions. To rule, as the TECA
has done, that Vermont law is contrary to
congressional intent and public policy, cannot
59
be justified.
V. The Erie Doctrine Required The TECA
To Apply Vermont Law To A Release Of
A Pendent State Fraud Claim.
The federal court acquired pendent
jurisdiction over the 1973 fraud claim. It
charged Vermont law to the jury, and the
court upheld the jury determination of fraud
on the basis of Vermont law. (App. 144)
The material misrepresentation itself, related
to the retroactive date of the "as of May 1,
1973" contract.
In his July decision, the district judge
confirmed that under Vermont law, the terms
of the prior contract will be substituted
for a subsequent cor -sact procured through
fraud. (App. 175) The federal price
regulations were therefore not the sole
measure of damages. The measure of damages
was the price terms of the prior contract,
at least through May 31, 1973 when the
prior contract was set to expire. Thus,
69
the source of this claim is state law, and
under Erie Railroad Company v. Tompkins,
304 U.S. 64 (1938) state law must be applied
to a release of a state claim. Maternally
Yours, Inc. v. Your Maternity Shop, Inc., 234
F.2d 538 (2d Cir., 1956) (""... the Erie
doctrine applies, whatever the ground for
federal jurisdiction to any issue or claim
which has its source in state law".); cf.
United Mine Workers v. Gibbs, 383 U.S. 715
(1966) and Dice, supra: (Federal law applies
to a release of feceral claims).
The TECA as well es the district court,
plainly erred in applying federal law to a
release of a state claim. (App. 17-18)
This error underscores the confusion of the
TECA in construing the scope and the validity
of the release. The decision of the TECA
should not be permitted to stand.
61
CONCLUSION
The petition for a writ of certiorari
should be granted.
Respectfully Submitted,
JOHN P. MONTE, ESQ.
Attorney of Record
RICHARD E. DAVIS, ESO.
Attorney for Petitioners
May 23, 1985
62
APPEND IX'
Nos. 2-41, 2-42, 2-45, 2-46
NORTHERN OIL COMPANY, INC., BRAY OIL COMPANY, INC.,
NORTHERN TERMINALS, INC., and DANA S. Bray,
PLAINTIFFS-APPELLANTS AND CROSS-APPELLEES,
Vv.
STANDARD O1L COMPANY OF CALIFORNIA and
CHEVRON U.S.A. INC.,
DEFENDANTS-APPELLEES AND CROSS-APPELLANTS.
Appeal from the United States District Court
for the District of Vermont
(Civil Action 78-231)
Argued January 18, 1985 Decided March 18, 1985
Judgment Entered: March 26, 1985
RICHARD E. DAvis, Richard E. Davis Associates, Inc.,
Barre, Vermont, with whom David L. Cleary, Miller,
Norton & Cleary, Rutland, Vermont, were on the brief,
for Plaintiffs-Appellants and Cross-A ppellees.
JEFFREY S. FACTER, Cravath, Swaine & Moore, New York,
N.Y., with whom Allen F. Maulsby, Steven H. Rouhandeh
and Robin C. Landis, of the same firm, were on the
brief; Douglas C. Pierson and Richard W. Affolter, Pier-
son, Affolter & Wadhams, Burlington, Vermont, of Coun-
sel, for Defendants-Appellees and Cross-Appellants.
Before HOFFMAN, GIGNOUX and METZNER, Judges.
METZwWER, Senior District Judge:
This is an action for overcharges, and for consequen-
tial and punitive damages, under Section 210(a) and (b)
of the Economic Stabilization Act of 1970 (“ESA”), 12
1
2
U.S.C. § 1904 note (1980 Supp.), as incorporated in the
Emergency Petroleum Allocation Act (“EPAA”), 15
U.S.C. § 751 et seq., for violations of various regulations
implementing the EPAA, and for common law fraud,
brought in 1978 by plaintiffs-appellants ana cross-
appellees Northern Oil Company, Inc., Bray Oil Company
Inc., Northern Terminals, Inc., and Dana S. Bray, as
owner of the three companies (hereinafter collectively re-
ferred to as “Bray Oil”), against defendants-appellees
and cross-appellants Standard Oil Company of California
(“SoCal”) and its wholly-owned subsidiary Chevron
U.S.A. Ine. (“Chevron”). Both sides appeal from a final
judgment entered on April 10, 1984, by Judge Holden in
the District of Vermont which awarded plaintiffs
$210,000 in damages for overcharges by Chevron on the
price of home heating oil, prejudgment interest, statu-
tory penalties of $210,000 and attorneys’ fees and other
expenses."
BACKGROUND
The complex factual background of this case is more
than adequately set out in three comprehensive opinions
by Judge Holden. For present purposes we outline the
facts upon which our decision is predicated.
During the time period relevant to this action, Bray
Oil was a major distributor of home heating oil in New
York and Vermont. Since 1968 it had purchased its prod-
uct from Chevron pursuant to a contract effective by its
terms until May 31, 1973. Under the terms of that con-
tract, Bray Oil purchased product at prices posted by
Chevron at Albany, New York, and Burlington, Vermont,
1 Chevron filed a counterclaim to collect the unpaid balance
on a promissory note from plaintiffs. An earlier state court
suit on ‘jis issue was stayed pending the outcome of the
federal litigation. Judge Holden granted judgment on that
counterclaim for an aggregate amount in excess of $3.2 mil-
lion. Plaintiffs have not challenged that judgment on this
appeal.
3
minus certain discounts. Well before that contract was
due to expire the parties began negotiations for a new
contract. Chevron demanded, among sther things, pricing
terms more favorable to it because its profits under the
old contract had steeply declined.
In early May of 1973 Chevron made several deliveries
which Bray Oil accepted and later paid for at a higher
price than provided for in the written contract in effect
at the time of the deliveries. In July of 1973, after hard
bargaining between the parties, Chevron convinced plain-
tiffs to enter into a new contract with pricing terms
F.0.B. New York Harbor. This new contract also pro-
vided that it would be effective “as of May 1, 1973.”
Chevron informed Bray Oil that it desired the backdat-
ing in order to have all its customers signatory to con-
tracts with that uniform date. The jury found at trial
that this representation was false or misleading, and that
Bray Oil relied on the representation in agreeing to the
backdating of the contract.
On July 19, 1973, after many but not all of the docu-
ments comprising the new contract had been signed, the
Cost of Living Council (“COLC’’) proposed for notice and
comment a regulation fixing May 15, 1973, as the freeze
date for Phase IV of the federal energy regulatory pro-
gram. The last of the documents comprising the “as of
May 1, 1973” contract were signed on August 13, 1973.
On August 19, 1973, the freeze date of May 15, 1973, was
adopted. 38 Fed. Reg. 22536, 22541 (August 22, 1973).
Once the price regulations were promulgated, Chevron
placed Bray Oil in a “class of purchaser” (10 C.F.R.
§ 212.31) reflecting the new backdated contract terms
rather than those of the old contract which had been in
effect on May 15, 1973. Because of this, Chevron was
able to and did charge Bray Oil a higher price under the
regulations than would have been lawful if Bray Oil had
been classified pursuant to the price terms of the old
contract.
4
In the summer of 1973 Bray Oil transferred nearly
seven million gallons of heating oil to one of its customers,
Green Mountain Petroleum Company, and received more
than one million dollars in payment without reporting the
transaction to Chevron (the “Green Mountain transac-
tion”). This violated the consignment terms of Bray Oil’s
contract with Chevron. Chevron learned of the Green
Mountain transaction by chance six months later. As a
result of this transaction, Chevron insisted on new credit
terms when the parties negotiated a new agreement for
1974-75. The 1974-75 contract established a fixed schedule
of payments based on the 1972 pattern of withdrawals.
Subsequently, one of Bray Oil’s customers filed a com-
plaint with the Federal Energy Administration (“FEA’’)
concerning the change in credit terms. On October 24,
1974, the FEA issued a Notice of Probable Violation
(“NOPV”) to Chevron and commenced an investigation.
As a result, in November of 1974, Bray Oil unilaterally
ceased paying Chevron in accordance with the fixed pay-
ment schedule of the 1974-75 contract and instead re-
turned to the previous consignment arrangement. Chevron
did not challenge Bray Oil’s action because of the FEA’s
ongoing investigation regarding the NOPV. Because the
winter of 1974-75 was mild, the payments for withdrawals
were less than what would have been called for by the
fixed payment schedule.
The parties failed to resolve their differences before
the expiration of the 1974-75 supply contract on May 1,
1975. On July 24, 1975, the FEA notified Chevron that
it was rescinding the NOPV in order to broaden the in-
vestigation to include the retroactive effect of the “as of
May 1, 1973” contract, but that it would be unable to
proceed with the investigation until it had greater man-
power. In a letter dated August 28, 1975, Chevron in-
formed Bray Oil of the rescission, but not the reason
for it.
pla aN it Nice
5
At that time both parties were under pressure to reach
an agreement. -With the rescission of the NOPV, Chevron
had put Bray Oil on a “cash first” delivery basis, which
precluded Bray Oil from being able to purchase its full
needs for the winter. In addition, the transportation of
product would become increasingly difficult as the weather
worsened. For its part, Chevron feared adverse publicity
if a shortage of home heating oil developed. After media-
tion by FEA and state officials, the parties on October 14,
1975, reached agreement on the 1975-76 supply contract.
In conjunction with that agreement, Chevron agreed to
an interest-free promissory note on the substantial debt
owed it by Bray Oil. Bray Oil in turn signed a gen-
eral release which purported to release Chevron from any
claims, including those under the EPAA, Bray Oil may
have had stemming from the relationship between the
parties under the “as of May 1, 1973” contract.?
2 The release provides as follows:
“IT IS AGREED by and between Chevron and Bray
that Chevron hereby releases Bray and Bray hereby re-
leases Chevron and each of them hereby releases each
of their respective parent corporations, if any, affiliates,
successors and assigns, servants, agents and employees,
from and against any and all loss, cost, claims, damages,
liabilities, actions, and causes of action which each may
have or which each may allege to have had against the
other arising out of actions, agreements, contracts, com-
mitments, relationships or action taken or omitted to be
taken up to the date hereof based on tort, contract, negli-
gence, anti-trust or violation of State or Federal Regula-
tions excluding, however, the following:
A) Payments under Agreements existing immedi-
ately prior to the execution hereof with respect
to the sale of products referred to therein, pay-
ment for which is not to be made prior to the
effective date hereof and which have not other-
wise been resolved as between Chevron and
Bray,
B) Obligations undertaken by Bray and its affiliates,
or any one or more of them, with respect to
6
Following the expiration of the 1975-76 contract, Mr.
Bray sold or leased his various properties and retired to
Florida, leaving behind a substantial balance on the
promissory note as well as other obligations to Chevron.
The instant suit was commenced in 1978 and resulted
in a bifurcated trial. In the liability phase, which lasted
seven months, the jury returned eleven special verdicts
with a total of 52 subparts. The jury found, among
other things, that at the time Chevron was negotiating a
new contract with plaintiffs in 1973, it represented to Mr.
Bray that the reason for selecting the “as of May 1, 1973”
starting date was to place all distributors of middle distil-
lates on a uniform contract year. The jury found that
this representation was false or misleading, that Mr. Bray
relied on the representation, and that plaintiffs suffered
financial harm as a result of signing the 1973-74 contract.
The jury found as well that Bray Oil had no knowledge
financing loans, through banks, the re-payment
of which loans Chevron has guaranteed at the
request of Bray and its affiliates, or any one of
them, and
C) Obligations undertaken by Chevron and/or Bray
arising out of Agreements executed on or after
this date in the resolution of past differences.
Bray,-by its execution hereof, acknowledges the validity
of certain arrangements entered into between it and
Chevron dated as of May 1, 1973 and as of May 1, 1974
relating to the purchase and sale of petroleum products.
Bray further acknowledges that it shall file no claim,
complaint or charge for its own intended benefit, or that
of others, nor be entitled to retain the benefit of the
disposition of a claim, complaint or charge filed by any
other party with the Federal Energy Administration
involving Chevron’s allocation and pricing practices to-
wards Bray under Acts or Regulations relative to Fed-
eral Price Control and Allocation Regulations presently
within the jurisdiction of the Federal Energy Adminis-
tration.”
7
at the time regarding the COLC consideration of the
proposed freeze date.
Relying on the jury’s findings, the district court held
that Chevron’s misrepresentation of its reason for seeking
the backdating term amounted to fraud which invalidated
the entire contract. The court therefore classified plain-
tiffs according to the terms of the old contract, and de-
termined that Chevron had overcharged plaintiffs under
10 C.F.R. § 212.82 and Section 210(b) of the ESA. The
court concluded, however, that the release executed by
Bray Oil in 1975 barred recovery for overcharges made
prior to its execution.
DISCUSSION
Numerous issues have been raised on this appeal by
both sides. The most important one involves the validity
and effect of the mutual general release executed on
October 14, 1975. Bray Oil asserts on appeal that the
district court erred in setting aside special verdicts in
which the jury found that Chevron had fraudulently in-
duced Bray Oil to execute the release. Chevron contends
in its cross-appeal that the district court erred in holding
that the release does not bar the claim for overcharge
damages based upon deliveries made after October 14,
1975.
I. The Release
A. Jurisdiction
We turn first to the question of this court’s jurisdiction
to determine the issue of the validity and effect of the
release. It is clear that this court has jurisdiction over
an issue when “resolution of the litigation in its entirety
requires the application or interpretation of the EPAA
and regulations, and [when] an EPAA issue has been
adjudicated in the district court.” Mobil Oil Corp. v. De-
partment of Energy, 728 F.2d 1477, 1497 (Temp. Emer.
8
Ct. App. 1983) (citations omitted). See also Mountain
Fuel Supply Co. v. Johnson, 586 F.2d 1375, 1381 (10th
Cir. 1978) (case arises under the EPAA if it “clearly and
substantially involves a dispute or controversy respecting
the validity, construction or effect of such laws which is
determinative of the resulting judgment’), cert.’ denied,
441 U.S. 952 (1979). Accord Scallop Corp. v. Tully, 705
F.2d 645, 647 (2d Cir. 1983). Our jurisdiction has been
construed as “issue jurisdiction.” Coastal States Market-
ing, Inc. v. New. England Petroleum Corp., 604 F.2d 179
(2d Cir. 1979); Texaco, Inc. v. Department of Energy,
616 F.2d 11938 (Temp. Emer. Ct. App. 1979). As the
court noted in Texaco, “jurisdiction is not an either-or
proposition with regard to the case as a whole. Rather
the Court takes jurisdiction over those issues which it
has authority to decide, refusing to hear any others, al-
though they are part of the same case or controversy.”
Id. at 1197.
As a general rule, this court has declined jrisdiction and
permitted a bifurcated appeal only where the issues over
which it declines jurisdiction provide an independent
substantive ground for relief, or will not facilitate the
decision of an EPAA claim. See Atlantic Richfield Co. v.
Department of Energy, 655 F.2d 227, 233 (Temp. Emer.
Ct. App. 1981) (purely private contract claims) ; Long-
view Refining Co. v. Shore, 554 F.2d 1006, 1009 n.5
(Temp. Emer. Ct. App.) (antitrust and contract claims),
cert, denied, 434 U.S. 886 (1977); Spinetti v. Atlantic
Richfield Co., 522 F.2d 1401, 1403 (Temp. Emer. Ct. App.
1975) (antitrust, fair trade and fraud claims).
In Newman Oil Co. v. Atlantic Richfield Co., 597 F.2d
275 (Temp. Emer. Ct. App.), cert. denied, 444 U.S. 842
(1979), we held that this couit had jurisdiction over a
cause of action arising from a fraudulent representation
intended to induce a party to forgo EPAA rights. 597
F.2d at 279. The release issue in this case is under appeal
precisely because Bray Oil contends that Chevron made a
9
false representation to it which induced it to sign a
release forgoing any EPAA rights it might have: had.
Newman Oil therefore controls this case. See also Rainey
v. Union Oil Co. of California, 732 F.2d 1563, 1564, n.1
(Temp. Emer. Ct. App. 1984) (breach of contract and
tortious interference with contract claims adjudicated be-
cause of interdependency with EPAA claims) ; Mobil Oil
Corp. v. Department of Energy, 728 F.2d at 1497 (exer-
cising jurisdiction to decide issue of contract interpreta-
tion because “incident to and interwoven with,” over-
charge claim) ; Francis Oil and Gas Inc. v. Exxon Corp.,
687 F.2d 484, 487 (Temp. Emer. Ct. App.) (breach of
contract claim that alleges entitlement to a specific price
based upon the federal price regulations clearly falls
within TECA jurisdiction), cert. denied, 459 U.S. 1010
(1982).
B. Validity of the Release
In a long and carefully reasoned discussion of the evi-
dence and the applicable law, the district court set aside
those special verdicts of the jury which indicated that the
release of EPAA rights given by plaintiffs in conjunction
with the signing of the 1975-76 contract had been in-
duced t, fraud on the part of Chevron. The district court
concluded that the release was obtained as the result of
hard bargaining between two sophisticated commercial
entities, and that plaintiffs had not in fact relied on any
misrepresentation Chevron muy have made regarding
FEA action concerning the relationship between the par-
ties. The court also held that under federal law appli-
cable to the release plaintiffs had no right to rely blindly
on any misrepresentation Chevron may have made because
plaintiffs had adequate access to information regarding
the rescission of the NOPV. Plaintiffs raise four objec-
tions to the district court’s holding. After careful con-
sideration, we hold that none has merit and affirm the dis-
trict court’s ruling that as a matter of law the release was
valid.
10
Plaintiffs first argue that the district court erred be-
cause in setting aside the special verdicts it necessarily
passed upon the credibility of witnesses and so usurped
the jury’s function. The evidence must be viewed in the
light most favorable to the plaintiffs here. Simblest v.
Maynard, 427 F.2d 1, 4 (2d Cir. 1970). The standard
for reviewing the district court’s action is whether “the
evidence is such that without weighing the credibility of
the witnesses there can be but one reasonable conclusion
as to the verdict...” Brady v. Southern Railway Co.,
320 U.S. 476, 479-80 (1943).
Our review of the evidence discloses that on July 24,
1975, the FEA informed Chevron by letter that it was
rescinding the NOPV it had issued the year before, but
would, when it had available manpower, broaden the scope
of the investigation to include possible violations stem-
ming from the backdating of the “as of May 1, 1973”
contract. Chevron later informed Bray Oil of the rescis-
sion in a letter dated August 28, 1975, but did not state
the reason for or the effect of the rescission.
The claim of fraudulent inducement is in essence based
upon the allegation by Mr. Bray that a few days after
receipt of that letter he received a telephone call from a
Chevron employee stating that the FEA had found Chev-
ron innocent of any wrongdoing in the handling of the
Bray Oil account. Bray Oil asserts that this false state-
ment caused it to believe that it no longer had EPAA
rights against Chevron, and induced it to sign the release.
As noted above, Bray is a sophisticated businessman
represented by counsel. A telephone call or letter to the
FEA would have revealed the true facts. Neither was
availed of by Bray. Moreover, Bray and his attorney
were often in contact with FEA officials, including a
lengthy meeting on September 17, 1975, but never asked
about the rescission of the NOPV. Finally, Bray ad-
mits that after these representations were made, he was
10
11
advised by his attorney, in a letter dated September 9,
1975, to proceed with a complaint before the FEA. ,
Although Judge Holden charged the jury under Ver-
mont law on this issue, he later correctly determined
that federal law governed the validity and effect of the
release. See Locafrance U.S. Corp. v. Intermodal Sys-
tems Leasing, Inc., 558 F.2d 1113, 1115 (2d Cir. 1977)
(federal law governs aJl questions relating to purported
releases of federal statutory causes of action). See also
Dice v. Akron, Canton & Youngstown Railroad Corp.,
342 U.S. 359, 361 (1952). We find that the district court
was clearly correct in ruling that as a matter of federal
law plaintiffs were under a duty to investigate the true
status of the FEA action and were not entitled to rely
on the representations of their adversary in the midst of
negotiations when they had several opportunities to make
such inquiry of the FEA itself.
This court has specifically held that in forgoing the
assertion of rights under the EPAA, a buyer cannot
blindly rely on a false statement by a seller as to action
taken by an enforcement agency when the buyer has ac-
cess to that agency. Western Mountain Oil, Inc. v. Gulf
Oil Corp., 726 F.2d 765 (Temp. Emer. Ct. App. 1983).
In Western Mountain, the court rejected a fraud claim
similar to the one here asserted by Bray Oil. Plaintiff
in that case asserted that the statute of limitations had
been tolled by defendant’s false representation that the
FEA had approved its pricing structure.
This court held, however, that though the statement
may have been false, it did not constitute fraudulent con-
cealment because plaintiff had a duty to investigate:
“While Gulf may have wrongfully asserted the
propriety of its pricing method, we do not find that
appellant was entitled to blindly rely on that asser-
tion without making any further investigation. Nor
do we find the existence of any fiduciary relationship
11
12
between the parties which might excuse the duty of
further investigation.”
726 F.2d at 768.
Western Mountain makes clear that Bray Oil had no
right to reply blindly on any false statement by Chevron
made during negotiations when Bray Oil clearly had ac-
cess to the true facts regarding the rescission of the
NOPV.’ See also Grumman Allied Industries, Inc. v.
Rohr Industries, Inc., 748 F.2d 729, 737-38 (2d Cir.
1984) (recognizing principle of federal and New York
common law that misrepresentation made during busi-
ness negotiations not actionable if adversary had access
to information) ; Aaron Ferer & Sons Ltd. v. Chase Man-
hattan Bank, N.A., 731 F.2d 112, 123-24 (2d Cir. 1984)
(concealment of material fact during negotiations sur-
rounding a business transaction not actionable fraud if
adversary had access to, but did not pursue investigation
of, true fact); Frigitemp Corp. v. Financial Dynamics
Fund, Inc., 524 F.2d 275, 282 (2d Cir. 1975) (“if the
plaintiff has been furnished with the means of knowledge
* The fact that in Western Mountain the fraud claim was
asserted to avoid the operation of the statute of limitations
does not diminish its application here. Indeed, its rule applies
with even greater force to an effort to avoid a release. While
for policy reasons courts have tended to disfavor strict en-
forcement of statutes of limitations, they have generally
favored strict enforcement of releases granted in a commer-
cial context for valuable consideration and with advice of
counsel. Compare Chase Securities Corp. v. Donaldson, 325
U.S. 304, 314-16 (reflecting willingness to permit impact of
statutes of limitation to be restricted), reh’g denied, 325 U.S.
896 (1945) with Locafrance U.S. Corp. v. Intermodal Systems
Leasing, Inc., 558 F.2d at 1115 (encouraging enforcement of
releases made in commercial context where language of re-
lease is clear), and Ruskay v. Waddell, 552 F.2d 392, 398 (2d
Cir.) (“strong policy considerations require that what all
parties thought to be a closed matter [by virtue of a general
release] should remain so.”), cert. denied, 434 U.S. 911
(1977).
13
and he is not prevented from using them he cannot say
that he has been deceived by the misrepresentations of
the other party.”).
The regulations cited by plaintiffs, 10 C.F.R. § 202.9
and § 205.201(e), clearly do not prohibit the release by
the FEA of the fact and effect of the rescission of a
NOPV. Such regulations were designed solely to protect
the confidentiality of business information supplied by
parties to the NOPV and the integrity of the internal
processes of the agency itself.
Plaintiffs next argue that as a matter of law the re-
lease is contrary to public policy. We have made it quite
clear, however, that the EPAA embodies a policy favor-
ing private settlement of disputes under the statute. See
Longview Refining Co. v. Shore, 554 F.2d at 1012. There
is no public policy which prohibits an otherwise valid
release from operating to bar federal statutory causes of
action. See Mittendorf v. J. R. Williston & Beane, Inc.,
372 F. Supp. 821, 835 (S.D.N.Y. 1974).
Plaintiffs also argue that the release is void as a
matter of public policy because it is an involuntary re-
linquishment of federal rights. It is abundantly clear,
however, that “involuntary relinquishment” is not an in-
dependent ground for setting aside a release, but merely
a shorthand reference to the traditional grounds for re-
scission—which the district court held inapplicable both
because plaintiffs knew they were releasing claims that
they might have under the EPAA against Chevron and
because they were not entitled as a matter of law to rely
on statements made by adversaries under such circum-
stances. This contention therefore adds nothing to the
plaintiffs’ case.
Finally, plaintiffs contend that the release is void be-
cause it is part of an integral scheme to violate federal
law and to perpetuate that violation. The rely on Ingram
Corp. v. J. Ray McDermott, Inc., 698 F.2d 1295 (5th Cir.
14
1983), an antitrust conspiracy case which discussed the
possible application of such a standard to a future case
whose facts merited it. Even were we to assume that
this language provided another means in addition to a
fraudulent inducement claim to attack the validity of a
release, which we do not, plaintiffs have not shown on
the facts of this case that the release is part of any such
scheme. As the court noted in Ingram, if the release is
merely an outgrowth, rather than a cause, of the violation,
it cannot be part of any such scheme. 698 F.2d at 1315.
C. Scope of the Release—Statutory Claims
In construing the scope of the release, we must give
effect to the intent of the parties, as demonstrated by the
language of the release itself and the circumstances sur-
rounding its execution. Zenith Radio Corp. v. Hazeltine
Research, Inc., 401 U.S. 321, 342-48 (1971). We agree
with the district court that by the plain language of the
release, the- parties settled all claims under previously ex-
isting contracts in the context of the applicable federal
law and regulatory scheme.
The district court went on to hold, however, that the
release did not bar claims for damages in the contract
year following its execution because the cause of action
for these damages accrued after the release had been
executed. The court stated that the “release executed by
Bray barred matured claims then accrued; it did not bar
claims that might arise from future violations of federal
law.” In a later decision confirming its prior ruling, the
district court held that prospective application of the
release would offend public policy and undermine the
policy of the price freeze regulations to maintain the
supplier-purchaser relationship as it was_in 1972-73.
This court has consistently held, however, that a cause
of action for an overcharge based on an improper classi-
fication accrues at the time of the original improper clas-
sification. Western Mountain Oil, Inc. v. Gulf Oil Corp.,
14
15
726 F.2d at 767; Fleetwing Corp. v. Mobil Oil Corp.,
‘126 F.2d 768, 770 (Temp. Emer. Ct. App. 1983) ; Lerner
v. Atlantic Richfield Co., 731 F.2d 898, 900-01 (Temp.
Emer. Ct. App. 1984). In these cases this court has
clearly rejected the “continuing violation” theory in the
context of actions for overcharges based on an improper
classification. See also Siegal Oil Co. v. Gulf Oil Corp.,
701 F.2d 149, 153 (Temp. Emer. Ct. App. 1983) (con-
tinuing violation concept rejected as to claim under sub-
stitute supplier rule). The fact that the instant case
involves a release, while the cases referred to involve the
application of the statute of limitations, is a distinction
without a difference in this case. We find no legitimate
policy reason for allowing a party to escape the effects
of an otherwise valid release more easily than he could
a statute of limitations. The cause of action for all
damages arising from the improper classification, there-
fore, accrued prior to the execution of the release.
The general proposition that public policy precludes
the application of a release to bar claims that arise from
future violations of federal law is therefore not an issue
here. See Fox Midwest Theatres, Inc. v. Means, 221 F.2d
173, 180 (8th Cir. 1955); Pearlstein v. Scudder & Ger-
man, 429 F.2d 1136, 1143 (2d Cir. 1970), cert. denied,
401 U.S. 1013 (1971); Weinraub v. International Bank-
note Co., Inc., 422 F. Supp. 856, 858 (S.D.N.Y. 1976).
This case does not invoke the policy concerns inherent in
the situation where a release purports to allow a know-
ingly guilty party to violate federal law in the future.
Since the cause of action for any overcharges during the
contract year 1975-76 arose at the time of misclassifica-
tion in 1973; there is no future violation present here.
There are only future damages arising from a past
violation.
It is clear that parties may agree to release claims
of future damages arising from past violations of fed-
eral law where the cause of action for the past violation
15
16
had accrued at the time the release was executed. See
United States v. Allegheny-Ludlum Industries, Inc., 517
F.2d 826, 853-54 (5th Cir. 1975) (release bars all Title
VII claims for damages incurred because of continuing
effects of past violations, cert. denied, 425 U.S. 944
(1976); Marketing Assistance Plan, Inc. v. Associated
Milk Producers, Inc., 338 F. Supp. 1019, 1022 (S.D. Tex.
1972) (release bars damages from pre-release activity
not consummated until after release executed). See also
Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S.
at 348 (parties may validly release future damages).
Judge Holden held that the Western Mountain rule as
to the accrual date of overcharge claims was inapplicable
to this case because of certain exclusionary language in
the release:
“While the argument has some surface appeal, it
ignores the particular language of the 1975 release
agreement which carves out three exceptions from its
operation and effect. One of these exclusions is
[C] Obligations undertaken by Chevron and/or
Bray arising out of Agreements executed
on or after this date in the resolution of
past differences.
It seems clear enough to the court that overcharges
resulting from a misclassification grounded in fraud
which was carried forward to the supply agreement
‘executed on or after’ October 14, 1975, were not ex-
tinguished.
While the release purported to compromise any
claims of fraud that attended the prior arrangements
‘as of May 1, 1973 and as of May 1, 1974,’ it specifi-
cally excluded the contract relating to sale and pur-
chase of petroleum products executed on or after the
date of the settlement.”
From the face of the release and the evidence in the
record, however, it is quite clear that this exclusionary
language applied only to a promissory note executed that
16
17
day to resolve past differences between the parties con-
cerning certain debts. Other exclusionary language re-
garding payments under already existing agreements
is equally inapplicable. Both parties understood that the
release was drafted to preclude any challenges to the
pricing and credit terms of the “as of May 1, 1973” and
May 1, 1974 contracts.*
The district court therefore erred in holding that the
release does not bar claims for overcharge damages in
the contract year following its execution.°
D. Scope of the Release—Common Law Claims
The district court held that plaintiffs’ exclusive remedy
in this action was damages for overcharges under Sec-
tion 210(b) of the ESA. Plaintiffs claim that they have
suffered other legal wrongs separate from the over-
charges which should be compensable under Section
210(.) of the ESA. These wrongs, plaintiffs claim, stem
from common law fraud and the consequential loss caused
because the overcharges placed them in a noncompetitive
market position ultimately causing the sale of the busi-
nesses below fair market value.
Our holding as to the validity of the release makes it
unnecessary for us to consider the correctness of the dis-
trict court’s ruling that plaintiffs’ damages were limited
to those provided under Section 210(b). The release effec-
* Indeed, as Bray Oil’s attorney testified, he and his client
were aware prior to the signing of the release that “once
[the validity of the 1973-74 contract] was resolved, well, then
that resolution would extend throughout the time that this
particular commodity, petroleum, was regulated.” (Tr. 7672;
Def. App. No. 2-42 at 168).
5 We need not address plaintiffs’ claim that the negotiation
and execution of the “as of May 1, 1973” contract violated
various other EPAA regulations. The release bars recovery
for any damages stemming from the alleged violation of all
EPAA regulations.
17
18
tively bars recovery for any damages stemming from
common law fraud based on the negotiation of the “as of
May 1, 1973” contract.
II. The Change in Credit Terms in the 1974-75 Contract
Bray Oil also claims that the district court erred in
finding that a change in credit terms in the 1974-75 con-
tract from a consignment arrangement to a fixed payment
schedule did not violate 10 C.F.R. § 210.62(a). Our hold-
ing as to the validity of the release, however, makes it
clear that Bray Oil would be barred from recovering any
damages realized prior to the date of the release arising
from the change in credit terms. For the same reasons
noted above regarding overcharge claims based upon an
improper classification, we hold that the release has pro-
spective effect to bar recovery for any damages stemming
from the change in credit terms in the 1974-75 contract.
See Shell Oil Co. v. Nelson Oil Co., 627 F.2d 228, 236
(Temp. Emer. Ct. App.) (cause of action for change in
credit terms accrues when acts constituting challenged
change occurred), cert. denied, 449 U.S. 1022 (1980).
In view of our holding that plaintiffs released their
claim for overcharge damages realized in each of the three
contract years in question, we vacate the district court’s
award of prejudgment interest, penalty damages, attor-
neys’ fees and other expenses.
The judgment below is affirmed in part and reversed
in part and che matter remanded to the district court for
entry of final judgment in favor of the defendants.
18
1
HOFFMAN, Judge, concurring in part and dissenting in
part:
While I agree with the majority as to the principal
points discussed in the opinion, I do not agree with the
discussion in part I-C relating to the Scope of the Release.
The Release is quoted verbatim in footnote 2 of the opinion
and will not be repeated in detail.
The Release, executed on October 14, 1975, mutually
releases any “causes of action which each may have or
which each may allege to have had against the other aris-
ing out of actions, agreements, contracts, commitments,
relationships or action taken or omitted to be taken up to
the date hereof based on tort, contract, negligence, anti-
trust or violation of State or Federal Regulations exclud-
ing, however, the following:
[C] Obligations undertaken by Chevron and/or |
Bray arising out of Agreements executed
on or after this date in the resolution of
past differences.
The Release continues:
Bray, by its execution hereof, acknowledges the va-
lidity of certain arrangements entered into between
it and Chevron dated as of May 1, 1973 and as of
May 1, 1974 relating to the purchase and sale of
petroleum products.
This Release does not refer to future violations by
Chevron, concerning which the majority opinion has held
are barred by the release. While it is true that the Re-
lease acknowledges that the 1973 and 1974 arrangements
were valid, both the district court and the majority opin-
ion have held to the contrary.
In my opinion, the district court correctly construed the
Release, and its judgment should be affirmed in every
respect. To hold, as does the majority, that a continued
violation by Chevron after October 14, 1975, is permissi-
19
2
ble and bars the victim from a right of action, would, in
my view, be contrary to public policy.
The majority relies upon Western Mountain Oil, Inc. »v.
Gulf Oil Corp., 726 F.2d 765 (Temp. Emer. Ct. App.
1983), for the proposition that the cause of action ac-
crues at the time of the original improper classification.
Western Mountain, however, is clearly distinguishable
from the case at bar. In Western Mountain, the plaintiff
brought suit on a claim of having been overcharged. The
court ruled that the claim was barred by the statute of
limitations. There was only one three-year contract in-
volved: and the plaintiff brought suit after the contract
expired. The plaintiff in that case had argued that each
delivery of petroleum constituted a violation. The Western
Mountain court held that the cause of action accrued when
the overcharging commenced at the beginning of the
contract.
The policy underlying the statute of limitations sup-
ports the conclusion in Western Mountain. If it is deemed
to be a separate violation each time any petroleum is
delivered, then a company would be forced to re-examine
its classification of each purchasers each time there is a
delivery. This would be an onerous burden to impose
upon the companies. It is at the time of contracting that
the supplier classifies the purchaser.
In the case’ sub judice there were three separate con-
tracts. The contract term which placed Bray in the wrong
class of purchasers first appeared in the 1973-74 contract.
This term was repeated in the two subsequent contracts.
We are only concerned with the last contract covering the
1 The other cases cited by the majority, Fleetwing Corp. v.
Mobil Oil Corp., 726 F.2d 768 (Temp. Emer. Ct. App. 1983),
and Lerner v. Atlantic Richfield Co., 731 F.2d 898 (Temp.
Emer. Ct. App. 1984), do not state whether there was more
than one contract involved. Furthermore, they merely rely
upon Western Mountain on this issue.
20
EE EO EEO EEE EE EEE EOE EEO OEE EOE OEE OE EE EE EE
3
year 1975-76. The release was signed on October 14,
1975 at the same time the 1975-76 contract was signed.
The cause of action for overcharges in the 1975-76 con-
tract year accrued at the beginning of the contract. In
that contract Chevron improperly classified Bray which
resulted in Bray being overcharged during the term of
the contract. It was at the time of contracting that the
price terms were established which would be in effect for
1975-76. Chevron was obligated not to charge a price
which exceeded the maximum lawful price under the
regulations. The previous contracts had no legal force
beyond their expiration. The fact that Chevron had com-
mitted the same type of violation in those previous con-
tracts is irrelevant. At the time the 1975-76 contract
was agreed upon, Chevron’s negotiators specifically con-
sidered the price terms of the 1975-76 contract. This is
unlike the purely ministerial task of shipping quantities
of petroleum according to the terms of the contract found
in Western Mountain.
{
A release of future violations is, without question, void
against public policy. Pearlstein v. Scudder & German,
429 F.2d 1136 (2d Cir. 1970), cert. demed, 401 U.S. 1013
(1971); Oberweis Dairy, Inc. v. Associated Milk Pro-
ducers, Inc., 568 F. Supp. 1096 (N.D. Ill. 1988); Wein-
raub v. International Banknote Company, Inc., 422 F.
Supp. 856 (S.D. N.Y. 1976); Korn v. Franchard Corp.,
388 F. Supp. 13826 (S.D. N.Y. 1975). If the release is
held to bar Bray’s claims for the 1975-76 contract years,
it would allow companies to absolve themselves of all
future violations by having the purchaser sign a release
of a similar past violation. For this reason, I would affirm
Judge Holden’s decision.
21
TEMPORARY EMERGENCY COURT Oi" APPEALS
OF THE UNITED STATES
No. 2-45
NORTHERN OIL COMPANY, INC. ,
BRAY OIL COMPANY, INC.,
NORTHERN TERMINALS, INC., and
DANA S. BRAY,
Plaintiffs-Appellants,
Vv.
STANDARD OIL COMPANY OF CALIFORNIA
and CHEVRON, U.S.A., INC.,
Defendants-Appellees.
Before HOFFMAN, GIGNOUX, and METZNER, Judges.
ORDER
Upon consideration of the Petition for Rehearing
and/or Suggestion for Rehearing En Eanc filed by
Appellants Northern Oil Company, Inc. et al.,
IT IS HEREBY ORDERED that the Petition for
Rehearing is DENIED.
IT IS FURTHER ORDERED that the Suaqestion for
Rehearing En Banc is DENIED. The mandate is to
issue May 1, 1985.
FOR THE COURT:
Donna M. Bold, Clerk
by:
April 24, 1985 Karen S. Berky
Deputy Clerk
22
UNITED STATES DISTRICT COURT
FOR TH=
DISTRICT OF VERMONT
Northern 011 Company, Inc.
Bray Oil Company, Inc., )
Northern Terminals, Inc.,)
and Dana S. Bray ) Civil Action
Vv. _
Standard Oil Company of Tile No. 78-231
California and Chevron
U.S.A., Inc.
— ee eee ee
MEMORANDUM OF DECISION
I. Motion to Reconsider Effect of Release
Following the close of all the evidence in this
cause, on the issues of liability and damaces, the
defendants Standard Oil Company of California ("SeCal]/
and Chevron U.S.A., Inc. ("Chevron"), by repetitive
requests, ask reconsideration of the court's earlier
ruling on the prospective amplication of the release
between the parties dated October 14, 1975. The re-
lease was executed contemporaneously with the con-
tract for the supply of middle distillates for the
ensuing contract year, May 1, 1975 through June 30,
1976. The target of the defendants’ present motion
is the court's ruling to the effect that
The release executed by Bray barred
matured claims then accrued; it did
not bar claims that might arise from
future violations of federal law.
Northern Oil Co. v. Standard Oil Co., No. 78-231,
23
Memorandum of Decision (D.Vt. filed October 5,
1983) ,at 22.
One of the reasons advanced in the first motion
to reconsider was that the defendants had no on-
portunity to brief this asnect of the court's deci-
sion. The defendants have now had the opportunity
to brief the question anew to include two recent
decisions of the Temporary Emergency Court of
Appeals entered on December 22, 1983.
The court is not persuaded that the mutual re-
leases exchanged on October 14, 1975 foreclosed
recovery of damages under Section 210 of the Eco-
nomic Stabilization Act, 12 U.S.C. sec.1904 note,
incorporated by reference in the Emergency Petro-
leum Allocation Act, 15 U.S.C. sec.754(a) (1). to
assion this consequence in futuro,to paraphrase
from Judge Waterman's opinion in Pearlstein v.
Skudéer & German, 429 F.2d 1136 (2d Cir.1970),
cert. denied, 401 U.S.1013 (1971), would serve
only to legalize the very conduct which the
regulations seek to prevent and which suits such
as this one serve to discipline.
The court reads nothing in the authorities
advanced by the defendants to justify giving the
release curative and prospective effect capable
of discharging liability for overcharges under a
new supply contract that was awaiting performance.
The defendants’ most recent request for reconsid-
eration was apparently renewed on the basis of two
recent, and as yet unreported, decisions by the
Temporary Emergency Court of Appeals: Western
Mountain Oil Inc. v. Gulf Oil Corp., No. 9-76,
slinp.op. (Temp.Emer.Ct.App.December 22, 1983) and
Fleetwing Corp. v. Mobil Oil Corp., No. 11-5,
Slip.op. (Temp.Emer.Ct.App. December 22, 1983).
These appeals, as their precedents, Siegel Oil Co.
v. Gulf Oil Corp., 701 F.2d 149 (Temp.Emer.Ct.App.
1983), and Shell Oil Co. v. Nelson Oil Co., Inc.,
627 F.2d 228 (Temp.Emer.Ct.App.), cert. denied, 449
U.S. 1022 (1980), were concerned with limitation of
actions under applicable state statutes of limitation
Each of these authorities rejected the "continuing
violation" theory and turned aside the concept that
each new supply of product gave rise to a separate
cause of action.
Western Mountain was an action to recover for
overcharges for product sold under an agreement by
Gulf to supoly Western Mountain with unbranded
gasoline from January 1, 1974 through December 31,
1976. There, as in the present action, the claim
against the supplier is for overcharges which re-
sulted "from Gulf placing Western Mountain in an
improper class of purchaser and calculating its May
15, 1973 transaction prices based on that improper
25
classification." The apnellate court affirmed
the district court's application of the Nevada
statute of limitation from the date the cause of
action accrued.
As the district court correctly
found, all of the requirements
for accrual of appellant's cause
of action under the facts of this
case had been met on January 1, 1974,
the date the overcharging commenced
as a result of this misclassification.
Id., slip.op. at 6. Accord, Fleetwing, supra,
slip op. at 4.
The defendants translate the text just quoted
from Western Mountain to mean that all of Bray's
claims based on misclassification accrued when
the misclassification occurred in 1973. Application
of the release in the fashion that the statute of
limitations was applied in the cases cited would
release the overcharges derived from the final
supply agreement of 1975-76. Since this court's
opinion of October 5, 1983 held that the October
14, 1975 release barred matured claims then ac-
crued, the defendants urge that the court's prior
holding necessarily barred all plaintiffs’ claims
for overcharges imposed thereafter.
While the argument has some surface appeal,
it ignores the particular language of the 1975 re-
lease agreement which carves out three exceptions
from its operation and effect. One of these
exclusions is
26
Obligations undertaken by Chevron
and/or Bray arising out of Agreements
executed on or after this date in the
resolution of past differences.
It seems clear enough to the court that over-
charges resulting from a misclassification grounded
in fraud which was carried forward to the sunply
agreement "executed on or after" October 14, 1975
were not extinguished.
While the release pvurported to compromise any
claims of fraud that attended the prior arrange-
ments "as of May 1, 1973 and as of May 1, 1974," it
specifically excluded the contract relating to sale
and purchase of petroleum products executed on or
after the date of the settlement.
For the reasons outlined above, the court confirms
its prior ruling that the release exchanged by the
parties on October 14, 1975 extinguished past claims
but cannot be applied to foreclose overcharges im-
posed under the suvvly agreement for the ensuing
contract year. To apoly the release prospectively
to bar this private action under Section 210 of the
Economic Stabilization Act would offend public policy
in equivalent degree to that which attends prospec-
tive release of a statutory action under the securi-
ties and antitrust laws. See Redels, Inc. v. General
Electric Co., 498 F.2d 95, 99 (5th Cir.1974) (Releases
may not absolve party from liability for future
27
violations of antitrust laws); Pearlstein v.
Skudder & German, supra, 429 F.2d at 1136; Hunt
v. Mobil Oil Corp., 410 F. Supp. 10, 27 n. 59
(S.D.N.Y.1975) (Weinfeld, J.), aff'd, 550 F.2d
68 (2d Cir.), cert. denied, 434 U.S. 984 (1977)
("An agreement to waive future antitrust violations
would be contrary to public policy."”); Westmoreland
Asbestos Co. v. Johns-Manville Corp., 39 F. Supp.
117, 119 (S.D.N.Y.), aff'd, 136 F.2d 844 (2d Cir.
1943) (Release designed to absolve future violations
of federal law would be void as against public
policy). In this instance the language of the re-
lease against prospective application is in step
with sound consideration of public policy.
To give the effect urged by the defendants to
the release would undermine a principal objective
of the regulatory scheme, which
..-wasS to maintain the supplier-
purchaser relationships as they
existed in 1972-73, prior to the
statutory regulation of the
petroleum industry.
Mobil Oil Corp., et al. v. Dept. of Energy, et al.,
Nos. 2-40 and 6-31, slip op. at 5 (Temp. Emer. Ct.
App. December 20, 1983).
The court's prior ruling precluding prospective
application of the release of October 14, 1975
will stand.
28
II. The Cost Bank Defense
Since the closing days of the liability phase
of this controversy the defendants have stoutly
contended that the Bray Companies' entitlement to
danuges, by way of overcharges under the final con-
tract, are insulated and washed away by unrecouped
banked costs, the so-called "cost bank" defense.
The defendants advance the argument:
An overcharge by definition is a
price that exceeds the 'maximm
allowable price’. 10 C.F.R.sec.
212.83(a) (1). A orice to a cus*omer
exceeds the maximum allowable p_ice
only if that price is greater than
the May 15, 1973 base price to that
customer's class of purchaser plus
the increased costs incurred by the
seller since May 15, 1973. 10 C.F.R.
sec.212.82.
Defendants’ Memorandum in Support of Chevron's Motion
to Dismiss, dated December 12, 1983, at 1-2
(empr.asis in text).
The regulation last cited provides:
"Maximum allowable price’ means the
weighted average price at which the
covered product was lawfully priced
‘in transactions with the class 2f pvur-
chaser concerned on May 15, 1973, com-
puted in accordance with the provisions
of Section 212.83(a), plus increased
product costs and increased non-pvroduct
costs incurred between the month of
measurement and the month of May 1973.
29
10 C.F.R. sec.212.82.
On the strength of these regulatory provisions,
the gist of the argument is that Chevron's unrecouped
inc’eased costs, as shown in the cost bank balance for
each month between October 1975 and the date middle
distillates were decontrolled, satisfied the amounts
claimed by the plaintiffs for overcharges. Thus,
it is claimed that the price increases charged are
offset by the costs which Chevron was entitled to pass
through to Bray during the relevant time period.
The defendants press the point that since they, as
refiners, withheld passing through the increased
costs to the plaintiffs, the cost bank balances
eliminate the overcharges that are claimed under the
1975-76 supply contract. The overcharge problem
that consumed weeks of trial time does not lend
itself to such simplistic analysis and easy resolution.
Regulatory Framework
The statutory and regulatory background is well
described in Standard Oil Gg. v. Department of
Energy, 596 F.2d 1029 (Temp.Emer,.Ct.App. 1978):
On August 19, 1973 the CIC [Cost
of “Living Council] added Subpart
L-Petroleum and Petroleum Products-
to the Phase IV regulations, which
established special rules governing
the pricing of petroleum products.
The key to this pricing structure
was the 'base price’, which was
défined as the May 15, 1973 selling
price plus adjustments for the in-
creased costs of imports and domestic
30
crude petroleum above the May 15 price.
This definition, which differed sub-
stantially from that in the proposed
regulations, allowed refiners to pass
through their product cost increases
on a dollar for dollar basis without
being subject to ore-notification re-
quirements or a profit margin rule.
As to non-product costs, refiners could
make price increases above base price
to reflect these costs, but they re-
mained subject to pre-notification and
profit margin limitations.
As initially promulgated, the pet-
roleum price regulations did not pro-
vide that either product cost increases
or non-product increases unrecoupned in
one month could be carried forward, or
‘banked', for use in the oricing equation
for establishing prices in a later month.
Id. at 1035 (footnote omitted).
More recently this regulatory background has been
reviewed and confirmed in Mobil Oil Corp., et al., v.
Dept. of Energy, et al., supra, slip op. at 4-5 and
Med, The de
The so-called "cost bank" rule was added to this
regulatory structure on September 18, 1973, allowing
refiners to carry over, or "bank," unrecovered in-
creased product costs for inclusion in the calculatinm
of base prices in a later month. 38 Fed.Reg. 25686,
25688 (Sept. 14, 1973). Banked costs would be reducd
correspondingly whenever a refiner added previously
unrecouped costs to its current price. "(T]he
banking provisions had given refiners a mechanism
with which to smooth out price adjustments over a
31
period of time." Standard Oil Co. v. Dept. of Energy,
supra, 596 F. 2d at 1036.
Because the initial cost bank rule created some con-
fusion, it was amended in November, 1973, to clarify
that if the prices charged for a particular product
failed to yield sufficient revenues to recoup all
the product's cost increases, the refiner could bank
the unrecouped costs for use in computing base prices
in a subsequent month. 38 Fed.Reg. 30271 (Nov.2, 1973).
The banking provisions were continually amended
between 1973 and 1976. For the most part, these
amendments are not material to resolution of the
issue before the court. Of significance, however,
is a September, 1974 amendment that has been referred
to as the "equal application" or "deemed recovery"
rule. 39 Fed.Reg.32306 (Sept.5, 1974). The rule
required refiners to pass through increased product
costs uniformly among all classes of purchaser or
suffer a cost recovery penalty. Specifically, the
largest cost increase passed through to one class
was deemed to have been passed through to each of that
refiner's other classes 6f purchaser for purposes
oz cost bank depletion.
Because the rule was initially promulgated with-
out prior notice and comment in reliance on the
"good cause" exception to this procedural require-
ment, its validity was questioned. On December 21,
1983, the Temporary Emergency Court of Appeals
32
a
ruled that the September 5, 1974 promulgation and
the December 5, 1974 repromulgation of the deemed re-
covery rule were procedurally valid. Mobil Oil Corp.
et al. v. Dept. of Energy, et al., suvora, slip op.
at 34, 39.
Other amendments in November, 1974, restricted the
amount of banked product costs which could be used to
increase the base price in a particular month to ten
percent of the total amount of unrecouned increased
product costs available for pass through. 39 Fed.Reo.
39259-39261 (Nov.6, 1974). In proposing these amend-
ments, the Federal Energy Administration ("FEA") exp-
ressed its concern that the enormous accumulated banks
of unrecouped costs of some refiners would not ultim:
ately serve to further the provisions' goals:
The FEA has also concluded that the
banking provisions should be substantially
restricted in the future. The intent of
the price regulations was never to
guarantee into the indefinite future that
refiners would be able ultimately to pass
throuch the total amount of their in-
creasec product costs, without regard to
market conditions. Rather, it was intended
only to afford refiners the opportunity to
pass through increased product costs on
a reasonably current basis.
39 Fed. Reg. 32718, 32724 (Sept. 10, 1974).
Further developments in the cost bank amendments
are set forth in the margin.+
33
Discussion
The court returns to defendants' contention that
the balance of unrecouped banked costs constitutes
a full defense to this private action under Section
210(b) to bar liability for any overcharge violations.
They maintain that even applying the deemed recovery
penalty, Chevron still has a positive cost bank
balance during the period between October, 1975,
and the end of price controls on middle distillates.
After careful consideration, the court denies
Chevron's motion to dismiss based on the sufficiency
of umrecouped costs in the Chevron cost bank to
support the price increases to the Bray Companies.
The court holds as a matter of law that cost bank
credits cannot be used to offset overcharge violations,
which were found to exist in the liability phase of
this case and which are discussed in subsequent parts
of this opinion.
In urging the cost bank defense, the defendants
place some reliance on the district court decision
in Eastern Airlines, Inc. v. Mobil Oil Corp., 512
F.Supp.1231 (S.D.Fla.1981), rev'd, 577 F.2d 879
(Temp.Emer.Ct.App.1982). It appears that the
appellate court did not reach Eastern's challenge
to the district court's ruling on the cost bank.
Eastern Airlines, Inc. v. Mobil Oil Corp., 677 F.2d
879, 881-82 (Temp.Emer.Ct.App. 1982). And in Pacific
Service Stations Co. v. Mobil Oil Corp., 689 F.2d
34
1055 (Temp.Emer.Ct.App.1982), cited by defendants,
the court of appeals reversed the district court's
summary judgment holding for Mobil, noting that
"appellants appear to concede” that the cost bank
would provide a defense to overcharges. Id. at 1065.
Neither case squarely held that the district court
had been correct in treating the sufficiency of a cost
bank as an absolute defense.
The histo.y of the price rules teaches that the
"cost bank" implementation was principally designed to
assist in restoring competition to make »~<™ for tra-
ditional market forces "to supplant the rigid price
control regulations as the price setting mechanism."
The Cost of Living Council was aware from the inceptin
of the price freeze of the need to balance price
constraints imposed by the regulations against the
compelling need for increased energy sources of supply
that would otherwise be curtailed by restricted profit
incentives. Standard Oil Co. v. Dept. of Energy, sunvra
596 F. 2d at 1036.
The court's search has uncovered no support for the
contention of the defendants that the "cost bank" is
available as a defense to be retroactively invoked,
to excuse or palliate a wrongful classification under
the Phase IV regulations. To engage the "cost bank
rule" to override the wrongful classification imposed
on the Bray Companies would subvert the regulatory
Purpose "...to maintain the supplier-purchaser
35
relationship as they existed in 1972-73, prior
to the statutory regulation of the petroleum in-
dustry." See Mobil Oil Corp., et al. v. Dept. of
Energy, et al., supra, Slip op. at 5. It would
also frustrate the effort to preserve historic
differentials between classes. See Eastern Air
Lines, Inc. v. Atlantic Richfield Co., No. 74-1207,
Slip op. at 18 (S.D.Fla. Oct.29, 1982), aff'd,
712 F. 2d 1402 (Temp.Emer.Ct.App. 1983), citing
Phillips Petroleum Co., 2 F.E.A.sec.80,599, at
80, 831 (1975).
Recently, the Temporary Emergency Court of
Appeals quoted approvingly from an earlier ad-
ministrative decision in this area in upholding
the district judge's finding that ARCO had over-
charged Eastern Air Lines when it improperly
reallocated banked costs from one products bank to
another. Eastern Air Lines, Inc., v. Atlantic
Richfield Co., supra, 712 F.2d at 1408. The
decision relied on involved Tenneco's challenge
to an FEA Remedial Order requiring the refund
of over $12 million in gasoline overcharges.
Tenneco had asserted that during the relevant period,
it had available increased costs in its general
refinery products bank which could have been realicc-
ated to justify the price it charged for gasoline.
Tenneco Oil Co., 1 D.O.E. (CCH) sec.82,512 at 85,041-
85,042 (1977). The FEA stated simply:
36
This type of retroactive reallocation of
increased costs to offset overrecoveries
on a particular covered product has never
' been permitted under the price regulations.
Id. at 85, 043, as quoted in Eastern Air Lines, Inc ,
v. Atlantic Richfield Co., supra, 712 F.2d at 1408
(emphasis in original).
The defense asserted by the defendants that the
overcharges resulting from the misclassification of
the Bray Companies are satisfied by the "favorable"
cost bank balances is unavailing.
III. Gasoline Claims
The plaintiffs have asserted three overcharge
damage claims related to the gasoline contract that
was negotiated during the first part of 1973 and made
effective as of May 1, 1973. Those claims concerned
credit card imprinter rentals, service station ident-
ification sign rentals, and service station painting.
Throughout the many trial days consumed by this
controversy and in the vroceedings which followed,
the subject of gasoline supply arrangements and
undertakings was brought into the evidence only veri-
pherally as part of the commercial background of the
conflict that has been waged before the court and
jury. Gasoline supply and incidental expenses relate:i
to that product were not involved in the issues
presented in the liability phase; that subject is not
37
before the court in determining the extent of the
plaintiffs’ entitlement in the damage aspect of the
trial.
As noted in our earlier Memorandum of Decision
dated July 27, 1983, "it is only middle distillate
pricing that is at issue here.” Northern Oil Co.
v. Standard Oil Co., No. 78-231, Memorandum of
Decision (D.Vt.filed July 27, 1983), at 4. The
plaintiffs' gasoline claims are dismissed.
IV. Overcharge Violations
The court's earlier decision of October 5, 1983,
following the jury verdicts returned in the trial
of the liability phase of this action, confined
the question of damages recoverable by the plaintiffs
to the overcharges imposed by the defendants for
sales of middle distillates under the 1975-76 supply
agreement executed on October 14, 1975. The remedy
is that provided in Section 21'(b) of Economic
Stabilization Act, 12 U.S.C. sec.1904 note. This
holding is confirmed by what is written and filed
today in response to the defendants’ motion to
reconsider the court's prior decision concerning
the prospective effect of the release given by the
plaintiffs when the final supply agreement was
signed.
By oral argument of counsel stated in the
record at a conference on December 7, 1983, after
the jury had been summoned to return for the
38
damage trial, the parties announced that on the
basis of various factual stipulations and concessions
reached by counsel, there were no remaining issues for
consideration by the jury. Accordingly, the case pro-
ceeded to trial by the court sitting without a jury
on the factual and legal issues that remained.
Facts
Upon consideration of the agreed facts, the
stipulations of counsel and the evidence presented,
the court finds the facts which follow.
The plaintiffs’ entitlement to damages is restrict-
ed to overcharges resulting from purchases of middle
distillates from Chevron and SoCal during the period
between October 14, 1975 and June 30, 1976.
During this time period, the plaintiffs purchased
a total of 16 million gallons of middle distillates
from the defendants. This total is derived from
total gallons delivered by truck from the Albany-
Rensselaer storage facilities to the delivery points
indicated below:
a) From Rensselaer, New York to Burlington,
- Vermont=4.3 million gallons;
b) From Rensselaer to Fort Ann, New York=
3 million gallons; and
c) From Rensselaer direct to customers=8.7
million gallons.
The total of 16 million gallons was shipped by
barge from Chevron's plant in Perth Amboy, New Jersey
39
to Bray Terminals, Inc. at Ren .®iaer, New York;
stored at Rensselaer ("throughput"); and then hauled
by truck to plaintiffs’ storage terminals at Fort
Ann, New York or Burlington, Vermont, or hauled by
truck from Rensselaer directly to plaintiffs’ cust-
omers. The plaintiffs bore the costs of barging,
throughput, and trucking to these various destina-
tion points.
Transportation costs presented on a cents per
gallon basis are as follows:
Direct to
Burlington Fort Ann Customers
Barging to
ts - 004760 -904760 004760
Throughput at
Rensselaer -002500 -002500 -002500
Trucking -023738 -015000 - 005380
TOTAL -030998 -022260 -013090
Under previous supply agreements prior to the
"as Of May 1, 1973" contract, plaintiffs were
charged the following prices:
a) Albany tank car price of .12950, discounted
by .00400 to .12550, for deliveries made at
Fort Ann and Rensselaer, New York terminals;
and
b) Burlington tank car price of .14350, discount-
ed by .01100 to .13250, for deliveries from
the Burlington, Vermont terminal.
The plaintiffs were receiving product on a deliv-
ered basis; the defendants paid the cost of trans-
portation to Burlington, Fort Ann, and Rensselaer,
as well as throughput at Rensselaer.
Under the terms of the "as of May 1, 1973" con-
40
tract, the plaintiffs were charged the F.O.B. New
York Harbor Cargo price2 of .1195. The plaintiffs
then paid the cost of transporting the product to the
various destinations in the amounts per gallon speci-
fied above.
The single most divisive issue during the damage
phase of this controversy was the extent of overcharges
assessed during the damage period caused by the
initial, improper classification of the Bray Companies
in 1973. After extensive briefing and oral argument
on the differino theories of overcharge calculation,
the parties stipulated by an agreement announced in
oven court on December 13, 1983, that for purposes
of the damage phase of this trial,3 the total excess
charges to the Bray Companies resulting from the im-
proper classification, subject to defenses raised by
the defendants that have now been disposed of in pre-
ceding sections of this memorandum, were in the total
amount of $210,000.4 The necessity for calculating
the total overcharges recoverable by the vlaintiffs
for product delivered subsequent to the release of
October 14, 1975 was eliminated.
The parties further stipulated the amounts com-
prising Chevron's entitlement under the counterclaim
against the Bray Companies in the total amount of
$1,905,278.20:
41
a)
b)
c)
d)
$786 ,820.77--the balance unpaid on the
promissory note given by Bray to Chev on in
October 1975;
$555,902.21--the amount unpaid on No. 2 oil
purchases made by Bray between March 21, 1976
and April 28, 1976;
$472,000.70--the amount unpaid on gasoline
purchases made by Bray between March 21, 1976,
and April 28, 1976;
$86,106.99--the amount unpaid on product
purchased by Bray during July and early August
of 1976;
$2 ,695.48--credit card charge backs;
$492.68--unpaid rentals on credit card
imprinters; and
$1,259.78--unpaid rentals on service station
identification signs.°
The defendants have agreed that the plaintiffs
are entitled to an allowance for credit card payments
in the amount of $99,527.07, to be applied against
the unpaid balance on product purchased during the
soring and early summer of 1976.
The court finds that after deducting $99,527.07,
pursuant to the defendants’ concession, the defendants
are entitled to recover the sum of $1,805,751.13
from the plaintiffs by way of their counterclaim.
In assessing the amount of the plaintiffs' re-
covery for overcharges for product sold under the
1975-76 supply agreement, the court confirms the
jury's finding in response to Interrogatory No.1,
except for application of statutory sanctions dis-
cussed in Part V which follows. The jury determined
42
that the defendant ScCal, through its authorized
officers and agents, directed and controlled the acts
and participation of the defendant Chevron's repres-
entatives in the consummation of the 1975-76 contract
and mutual release signed October 14, 1975.
Conciusions
During the relevant period from October 14, 1975
to June 30, 1976, the lawful vorices that Chevron and
SoCal could charge their customers were regulated by
the Phase IV price regulations issued by the Cost of
Living Council under the Economic Stabilization Act
and, subsequently, by the Mandatory Price and
Allocation regulations, 10 C.F.R. Part 212, issued
by the Federal Energy Office.
The court concludes that Chevron and SoCal over-
charged the Bray Companies, as that term is defined
under Section 210(c) of the Economic Stabilization
Act:
the amount by which the consideration for
...the sale of goods...exceeds the
applicable ceiling [price] under the
[mandatory petroleum price] regulations.
12 U.S.C. sec.1904 note.
The Bray Companies, therefore, are entitled to
recovery of overcharge damages from Chevron and SoCal
for their purchases of middle distillates during the
relevant period at prices exceeding those lawfully
permitted.
Chevron and SoCal are refiners as that term is
43
defined in 10 C.F.R. sec.212.31. As such, they
were required to determine the prices for their prc-
ducts in accordance with the refiner price rule set
forth in 10 C.F.R. sec.212.83. This rule prohibits
the defendants from charging prices higher than the
maximum allowable price (also referred to as the
"base price"). The maximm allowable price for a
refiner's sales of a product was defined as the
weighted average price at which the item was lawfully
priced in transactions with the class cf purchaser
concerned on May 15, 1973, plus increased product
costs and certain non-product costs that were also
allowed to be passed on. 10 C.F.R. sec.212.82.
The May 15, 1973 base veriod date was selected
due to the general stability of prices on that date
in the petroleum industry when normal, free market
conditions prevailed. Eastern Air Lines, Inc. v.
Atlantic Richfield Co., supra, slip op. at 8-9
(S.D.Fla. Oct.29, 1982), quoting F.E.A. Ruling
1977-5. This was stressed by Judge Mishler,
because classes of purchasers are
determined and fixed with reference
to base period transactions, a period of
relatively normal market conditions
would permit such classes to reflect
normal or ‘customary’ price differentials
between a firm's purchasers.
Id., slip op. at 9.
Since a maximum allowable price could only be
determined after a customer was assigned to a class
of purchaser, the first step in deciding whether
44
a customer was overcharged is to determine whether
the refiner classified that customer in a proper
"class of purchaser." "Class of purchaser" is defined
as a group of purchasers to whom the seller has
charged a comparable price for comparable property
or services pursuant to so-called "customary price
differentials" between that customer and other
customers.
The class of purchaser designation is critical
in the process of determining the allowable charges
by a refiner to a given customer. Memorandum of
Decision, supra, (D.Vt.filed October 5, 1983), at
p. 25. The purvose of the class of purchaser con-
cept was to establish a mechanism for preserving the
price distinctions between purchasers that customarily
existed before implementation of the price control
program. Mobil Oil Corp., et al. v. Devt. of Energy,
et al., supra, slip op. at 5; Champlin Petroleum
Co., 4 D.0.E. (CCH) sec.80,101 at 80, 520 (1979);
Atlantic Richfield Co., 4 D.O.E. (CCH)sec. 80,108
at 80, 582 (1979). ;
Additional terms must be defined to complete the
inquiry into the appropriateness of the defendants'
classification of the plaintiffs into the New York
harbor barge buyer class of purchaser. The term
"customary price differential" was defined as a
"price distinction based on a discount, allowance,
add-on, premium, and an extra based on a difference
in volume, grade, quality or location or type of
45
VO ST
purchaser, or a term or condition of sale or delivery."
10 C.F.R. sec.212.31. }
A price differential is considered customary,
rather than random, if it is shown to be cost-
related. "Cost-related" means that the differential
reflected some significant cost savings by the seller.
Pacific Supply Corp. v. Shell Oil Co., 697 F.2d 1084
(Temp. Emer.Ct.App. 1982); Naph-Sol Refining Co. v.
Cities Service Oil Co., supra, 495 F. Supp. at 890;
Champlin Petroleum Co., supra, at 80, 522.
Under the regulations, four factors have been
identified as important considerations in a seller's
price det .uinations: 1) location of delivery;
2) type of customer; 3) volume of product; and 4)
terms and conditions of sale or delivery. 10 C.F.R.
sec.212.31. A seller that regularly based its
pricing decisions prior to May 15, 1973, on any of
those factors was required to give them continuing
recognition by establishing separate classes of
purchaser on the basis of the appropriate factors.
Champlin Petroleum Co., supra, at 80, 523.
The jury's responses to Interrogatory No. ll
in its special verdict established that the differences
between the prices charged the Bray Companies and
other customers in the New York harbor barge buyer
class were the result of an established pricing
policy or practice to grant a discount or allowance
to the Bray Companies based on location and type of
46
facilities, volume of product purchased, and terms
and conditions of purchase. Additionally, the jury
responded that these same factors or characteristics
of the Bray Companies resulted in a cost-related
differential, because substantial cost savings
accrued to Chevron and SoCal in doing business with
the Bray Companies rather than some other customer.
The regulations required the defendants to preserve
price differentials among ourchasers that were cust-
omarily utilized by sellers prior to the incosition
of price controls. _Naph-Sol Refining Co. v.Cities
Service Oil Co,, sunra, 495 F. Sunn. at 890. Pre-
servation of such differentials was accommlished bv
creation Of sevarate classes of vurchasex to reflect
customary orice differentials among purchasers that
were in effect on May 15, 1973. Id. at 898.In
Navh-Sol, Judge Fox held that voroof of an immroper
classification is sufficienti to establish a triable
issue of fact as to damages under Section 210 of the
Economic Stabilization Act. Id at 892. It was on this
basis that the oresent case at bar proceeded fron the
liabilitv phase into the final damace phase.
Based upon the jury's responses to Interrogatory
No. 11 cited above, the court finds that the voricing
formula that defendants applied to the Brav Companies
contained customary orice differentia's such as to
warrant creation of a separate class of »urchaser.
The evidence adduced at trial volainly established
47
the unique arrangements of the 1968 supnly contract
that would have been in effect on May 15, 1973, but
for the fraudulent misrepresentation that induced
the "as of May 1, 1973" contract.
Once the relevant class of purchaser has been
identified, the inquiry into overcharges proceeds
to consider "transactions," as that term is defined
under the regulations. "Transaction" means an arm's-
length sale or lease between unrelated parties and is
considered to occur at the time and place when a
bindina contract is entered into between the parties.
The orice that is the starting ooint for computing
"maximum allowable prices" for each class of
purchaser is the price charged in deliveries to a
member of that class that took place on or before
May 15, 1973 pursuant to a binding contract. If
there were no deliveries, but a binding contract
was in effect, the transaction is deemed to occur
at the time the contract is entered into. F.E.A.
Ruling 1979-1.
Because the court concludes that the relevant
class of purchaser is a separate class with the
Bray Companies as its only member, the May 15, 1973
weighted average price is to be derived from the
1968 supnly agreement then in effect.
Lastly, the defendants urge that the Bray
purchasers suffered no increased price changes
by the refiners reallocation of transportation
48
costs from the seller to the buyer by way of the
assignment of the Bray Companies from the Albany-
Burlington tank car oricing scheme to the New York
Narbor formula. The argument is premised on the
notion that the orices charged on the Albany and
Burlington nosted tank car formula included trans-
portation and other marketing costs. Thus, the
argument qoes, there was no impermissible orice
increase, but rather a reduction in the vrice of
product since the price at New York Harbor, apart
from transport costs, was less than the price at
Albany and Burlinaton after deduction of bardina
and other marketing costs.
The argument is illusory at best. It is notewortly
that in the letter agreement proposed bh Chevron,
dated December 26, 1973, wherein the supplier pvre-
served the option of selecting the hicher of the
prices prevailing under the contract due to expire
May 31, 1973 or Chevron's New York Harbor Cargo
price "plus all of Chevron's related supply costs
to each such location (Albany-Burlington) provided
such prices shall in no event exceed the maximum
prices for such products permitted under any
economic control vorogram then in effect."Pltf.
Exhibit 58. Of course, the narticular control poro-
gram that might be in effect after tia 31, 1973
was incanable of accurate prediction when the pro-
nosal was first made. What was unknown in December
49
a
1972, in terms of price controls, became more readily
ascertainable after the initial freeze became effective
by Executive Order cn June 13, 1973. By July 10, 1973,
as shown by the SoCal telex to the operating companies
of that date, the defendants’ forecast of effective
nrice freeze Gates was narrowed to May 15 and June 13,
1973. In any event, in terms of these predictions,
a contract, retroactive to day 1, 1973, could eliminate
the constraint of prices in effect on the May 31, 1973
exoiration date and preserve the prices imoosed under
the New York Harbor Cargo pricing formula. A rollback
to June 13, 1973 would oresent no adverse effect to
the supplier.
From the outset, the vlaintiffs' case has proceedec
on the theory that the maxinum allowable price is
governed by the price in effect on May 15, 1973
under the prior 1968 supply agreement. The price
formula established in that supply agreement was
based on discounted Albany and Burlington posted
tank car prices. The plaintiffs have maintained
consistently and have successfully sustained their
burden of proving that a comparison of these
earlier orices to those charged under the "as of
May 1, 1973" contract established overcharges, as
that term is defined under the federal vricing
regulations. Accordingly, the court holds that
the plaintiffs are entitled to recovery for overcharges,
50
imposed by the defendants in violation of the
applicable regulations. This recovery will be
in the amount of $210,000 and is based on
deliveries and prices during the relevant time
period as commuted and agreed by the narties.
V. Statutory Sanctions
At last we turn to the nature and extent of
the recovery to be allowed the plaintiffs as a
conseauence of the overcharges imposed by the
Gefendants. The court has, by orior interlocutory
decisions, limited the plaintiffs’ entitlement to
that available under Section 210 of the Economic
Stabilization Act. Memoranda of Decision, supra,
(D.Vt. filed October 5, 1983), at o. 34-36, n.17;
(D.Vt. filed July 27, 1983), at py. 31. The control-
ling statutory provision bears revetition:
(b) In any action broucht under subsection
(a) against any person renting pronerty
or selling goods or services who is found
to have overcharced the plaintiff, the
court mav, in its discretion, award the
plaintiff reasonable attorney” s fees and
costs, plus :hichever o% the following
sums is oreater:
(1) an amount not more than three
times the amount of the overcharce
upon which the action is based, or
(2) not less than $100 or more than
$1,000;
excent that in any case where the “defendant
establishes that the overcharce was not
51
intentional and resulted from a bona fide
error notwithstanding the maintenance of
procedures reasonable adapted to the
avoidance of such error the liability of
the defendant shall be limited to the
amount of the overcharge...
12 U.S.C. sec. 1904 note.
The key to the overcharges in this action is the
assignment of the Bray Companies by Chevron to the
New York Harbor Cargo class of purchasers. In 1964
the Bray Companies were two of Chevron's largest
distributors. Dana S. Bray, Sr., was a determined
and skilled necotiator during this period when the
defendants strived to expand their petroleum market
in the northeast. At the time the 1966 supply agree-
ment was consummated, the New York Harbor Cargo
formula was Chevron's most advantageous pricing
arrangement in terms of realization of profit.
Bray demanded and received a better pricing agreement
by way of the Albany and Burlington posted tank
car prices at the location where Chevron's supplies
of middle distillates were delivered. Under the
Burlington and Albany tank car price arrangement,
Chevron paid the transportation costs to these
distribution voints. The prices specified in the
1966 supply agreement were further reduced by
certain discounts and allowances.
52
_ The factual history of the negotiations that
followed and concluded in the "as of May 1, 1973"
contract is fully reported in earlier decisions
of the court. The increasing danger of price control
threatened Chevron's resolute determination to
remove the pricing advantage which the Bray Companies
enjoyed under the prior suoply agreements. The
plaintiffs' claim that the responsible officers at
Chevron anticipated the selection of a base orice
date during the month of May, 1973, and motivated the
false representation by Eric Pfefferkorm, is fully
supported by the evidence on this asnect of the
case. See Memorandum of Decision, suora, (D. Vt.
filed July 27, 1983), at 5-6, n.1. There is no
evidence to indicate that the fraudulent statement
concerning the justification for the contract change
was unintentional or a bona’fide error.
In the letter agreement dated December 26, 1972,
oroposed by Chevron through Eric S$. Pfefferkorn,
it is at once apparent that the author of the
Gocument was entirely mindful that the prior
contracts listed as then in effect
will by their terms expire on May 31, 1973:
Heating Oil Agreements between Chevron
and Bray and Northern, respectively,
dated as of June 1, 1966, as now operative
between us.
53
We have also previously informed you that
we do not intend to extend or renew the
Contracts after their expiration as afore-
said.
The communication from Chevron recognizes the dif-
ficulty that might be encountered should Bray decide
to sell his companies or experience the need to procure
product from other sources. After reminding Bray
that Chevron had no obligation to supply the plain-
tiffs after May 31, 1973, the letter stated that
Chevron would continue "to supply you for such reason-
able period beyond May 31, 1973, as you elect, but
in no event beyond November 30, 1973... ."
Whether supply of product would continue after
June 1, 1973 was conditioned on Bray's compliance
with various demands. Chevron preserved the
option of selecting either the pricing formula -
based on the Albany -Burlington posted tank car
prices then in effect or the New York Harbor Cargo
price, whichever was hicher. An additional condition
dealt with credit terms. The pertinent text
of this letter is set forth in the margin.’ Apparently,
the notion of placing all suoply contracts on a
uniform May first starting date was of no concern
to the defendants at the time the December 26, 1972
letter agreement was proposed -- at least no mention
was made of a May 1, 1973 effective date.
As the termination date of the 1968 supnovly agreemert
drew near, the dangers posed by way of a price freeze
and rollback became more threatenina. The imoortance
of transactions based on a contractual relationshiv
was the key to the classification process. It appears
from cross examination of the defendants’ witness,
Mr. Melvin Goldstein of the FEA, that the assignment
of customers to a particular class could conceivably
unlock the price restraints 8
It is manifest from the record that the marketing
officers at Chevron East were intent on imoroving the
profit margins to be derived from the Bray Companies
after the expiration date of the contract in effect
during the negotiations for the 1973-74 supply
acreement. It is equally clear that while the
defendants sought to retain the economic benefits
-derived from middle distillate markets developed
in the northeastern New York and Vermont areas by
the Bray enterprises, the officers at Perth Amboy
and San Francisco were equally determined to avoid
Going so on Bray's terms. As referred to above,
when impendina regulatory controls threatened
to interdict these financial objectives by way of
orice controls, Chevron's negotiator, Eric Pfefferkorn
resorted to drastic bargaining measures.
55
On the total evidence vresented, the jury by its
special verdict in answers to Interrogatory 5,
determined that Chevron's representatives, namely
through its chief negotiator, knowingly made false
statements concerning the reasons for backdating of
answers to Interrogatory 6 that the "as of May 1”
contract was involuntarily signed by Dana S. Dray, Sr.,
because his will was overborne by economic pressure
exerted by Chevron's representatives.
To be sure, the findings of the jury fell short
Cc. constituting economic duress in the legal sense,
but that shortage does not cure or condone Chevron's
conduct which underlies the overcharges made
during the relevant period of time. The court con-
curs in this aspect of the jury's verdict. Absent
any mitigating evidence or explanation from
Chefrron's principal actor in these events, Eric S.
Pfefferkorn, the record affords no room for a
conclusion that the mischief practiced in the negoti-
ations was innocent, accidental or the result of a
bona fide mistake.
Chevron's awareness of plaintiffs' status as
a unique class of purchaser is reflected “n the
testimony of two Chevron defense witnesses, Richard M.
Kaiser and Eric C. Martin. Mr. Kaiser, who was
initially responsible for Bray's classification,
testified at his deposition that he did not know of
other Chevron customers who were barge buyers and
resellers that were priced o the basis of the Albany
and Burlington tank car pricing arrangement. Trial
transcript, August 3, 1982, at 5; trial transcript,
August 5, 1982, at 199. Additionally, Mr. Martin's
deposition, read into evidence, references a
versonal note:
Bray class of purchaser, relationship
between Bray and Chevron. He is in a
class by himself.
As the refiner charged with responsibility for
classifying its many thousands of purchasers, Chevron
was acutely aware of Bray's singular situation.
Chevron was bound to know that the polestar to guide
the classification orocess was the contract legally
in effect on May 15, 1973. ‘The evidence revealed
that the FEA notified Mr. Pfefferkorn that the fact
that the 1973-74 supply contract had not been signed
until after the base price date was a orincipal factor
in broadening the scove of the Notice of Probable
Violation. Memorandum of Decision, sunra, (D. Vt.
filed July 27, 1983), at 9.
In a letter dated June 22, 1973 from Eric S.
Pfe*ferkorn to R. Case Prime, Bray's attorney,
Pferferkorn stated:
57
We have been operating without anv acree-
ments since May 1, 1973. This arrangement
is causing serious confusion internally
in processing barge shipments, payment of
invoices, and all other arrangements. It
is of primary importance that new contracts
be executed at the earliest possible date.
Plaintiffs' Exhibit 994, Letter from William J.
Costello, FEA area Manager, to Eric S. Pfefferkorn,
quoting letter of June 22, 1973 from Lric S. Pfefferkorm
to R. Case Prime, Esc.
The emphasis to this point has been on the acts
of defendant Chevron. The court turns at last to the
defendant, Standard Oil Company of California,
which stands in a different posture. At the outset
of the responses in the special verdict returned
in the liability phase of this controversy, the
jury determined that SoCal, through its officers,
directed and controlled Chevron's representatives
in the consummation of the 1973-74 contract. It
is on this basis that overcharges, which have been
discussed in the previous section, are assessed
against SoCal.
The relationship of parent company to wholly-
owned subsidiary, standing alone, however, cannot
form the predicate for the assessment of additional
sanctions against SoCal beyond the overcharges
already discussed. Absent proof of direct partic-
ipation by SoCai in the fraudulent misrepresentation
by Chevron's marketing representative, the separate
identities of Chevron and SoCal warrant particularized
treatment. Nor does the involvement of SoCal officiakb
in the contract negotiations with the Bray Companies
establish the requisite willfulness.
The jury's special verdicts determined that the
wronadoing in this case was grounded in the fraudulent
misrepresentation concerning the reason for the
backdating of the “as of May 1, 1973" contract. There
is no evidentiary link to connect the wrongdoing
of Chevron's chief negotiator to the parent company,
SoCal. The evidence is to the contrary.
The court is satisfied that the defendants have met
their burden of establishing that SoCal was removed
and insulated from the wrongdoing that was found to
exist in this case. On December 19, 1983, Mr. George
J. Wyllie, of Chevron U.S.A. in San Francisco,
testified that in the first instance, classification
and base price determinations were made by the pricing
coordinator in the overating company 9 Additional
corroboration is provided by the testimony of
Mr. Richard M. Kaiser, Chevron U.S.A. regional
representative, to the effect that he was the only
one involved in making the initial decision that Bray
should be put into a narticular class 19
59
In sum, the reviewing officers in San Francisco
rather blindly followed the classification done by the
operating companies, and woodenly applied the latter
of the contract documents without looking for
misfe>sance at Perth Amboy. Nonetheless, SoCal
did maintain elaborate administrative procedures
to avoid overcharges. The network of screening
mechanisms was insufficient, however, to screen
out deceptive or coercive conduct in the bargaining
process. And, of course, the complex regulatory
framework, coupled with the thicket of facts that
composes the background of this controversy,
made the detection of the wrongdoing more difficult.
Conclusions
The parties agree as to the applicable law.
Section 210(b) of the Economic Stabilization Act
permits the imposition of attorneys' fees and penalty
damages of up to three times the amount of the
overcharges for willful conduct, except where the
defendant establishes that the overcharge was not
intentional but rather resulted from a bona fide
error notwithstanding the maintenance of procedures
reasonable adapted to the avoidance of such error.
Both parties cite Eastern Air Lines, Inc. v.
Atlantic Richfield Co., 712 F.2d 1402 (Temp. Emer.
60
Ct. App. 1983), in pressing their positions with
respect to the imposition of additional sanctions.
This recent opinion by the Termporary Emergency
Court of Appeals orovides guidance for district court
determinations on the award of penalty damages under
Section 210. |
After examining the Economic Stabilization Act's
legislative history, the court assigned the burden
of proof to the seller who imoosed the overcharges:
[T]o deprive the court of its discretionary
“power to award treble damages and attorney's
fees, the defendant making the overcharge
must prove that (1) the overcharge was not
intentional, and (2) the overcharge
resulted from a bona fide error notwith-
standing (3) the maintenance by the
defendant of procedures reasonably adapted
to the avoidance of such error.
In the absence of such proof by the defendart
the court in its discretion may award treble
damages and attorney's fees if it finds
the overcharge was intentional or resulted
from reprehensible or criminal conduct,
or lack of procedures reasonably adapted
to the avoidance of erroneous overcharges,
or bad faith, or where required by equity
and the ends of justice.
Id. at 1412. The court then affirmed the cenial of
penalty damages based uvon the district court's find-
ing that the defendant ARCO had vroved that the over-
61
charges were unintentional and that ARCO had acted
in good faith and maintained procedures reasonably
adapted to the avoidance of overcharges. Id.
In measuring the standard of proof required for
the imposition of statutory sanctions, the appellate
court has held that recovery of treble damages
for violation of petroleum pricing regulations
requires more demanding proof of additional elements
than that for an award of’ conpensatory relief. See,
e.g., Ashland Oil Co. v. Union Oil Co., 567 F.2d
984, 990(Temp. Emer, Ct. App.), cert. denied,
435 U.S. 927 (1977).
It was held in Longview Refining Co. v. Shore,
554 F.2d 1006 (Temp. Emer. Ct. Appv.), cert. denied,
434 U.S. 836 (1977).
[T]o establish a willful overcharge
there must be an intentional violation
of a known legal duty, that is to
say, to be willful an overcharge must
have been made with the specific
intention of charging a price which
the defendant knew was in excess of
the ceiling price allowable under
the applicable pricing law and regu-
lations.
kkk
[T]here must be clear and convincing
proof that an overcharge was willful
when a claim for the amount of the
overcharge was not presented to the
defendant prior to bringing an action
for the overcharge.
62
Id. at 1014. Additionally, the court held that
negligence is insufficient to establish a violation.
Id.
The plaintiffs' reliance on Napnh-Sol Refining
Co. v. Cities Service Oil Co., supra, is well
placed. In that case, an indenendent petroleum
marketer sued Cities Service Oil Company for
treble damages and attomeys' fees arising from
alleged gasoline sale overcharges that exceeded the
Department of Energy's mandatory vetroleum vrice
regulations. In denying the defendant's summary
judanent motion, the court concluded that there was
sufficient evidence to enable the trier of fact
to conclude that Cities' conduct was intentional and
did not result from "a bona fide error notwithstanding
the maintenance of procedures reasonably adaoted to
the avoidance of such error." Id. at 902.11
Here the justification for the award of additional
statutory sanctions resides primarily in the over-
charges imoosed after the exchange of mutual releases
in October, 1975. Yet, the underpinning of these
overcharges is entrenched in the deceptive and wrong-
ful conduct on the vart of Chevron's Pfefferkorn who,
according to the jury's verdict, induced the retro-
active effective date of the "as of May 1, 1973"
contract.
63
The evidence is clear and convincing that by this
device Chevron was striving for financial gains that
otherwise could be stifled if the 196€ contract became
the basis for calculation of the maximum allowable
price under the federal pricing regulations.
The proof leads to the conclusion that Chevron's
marketing representative acted with the specific
intention of inducing a change in contract terms
to a pricing formula that exceeded the ceiling
price defined in the applicable regulations
prevailing during the relevant time period.
SoCal, on the other hand, although eagerly engaged
in the pursuit of increased profit realization,
did not participate in the wrongful misrepresentation
on the part of Chevron's marketing representative.
ScCal's fault lies in its failure to probe into the
deceptive foundation upon which Chevron's classi-
cation was based.
Reliance on the teaching of Eastern Air Lines,
Inc. v. Atlantic Richfield Co., supra, 712 F.2d
at 1410-1412, and Longview Refining Co. v. Shore,
supra, 554 F.2d at 1012-1014, leads the court
to hold that, on the evidence presented, the
plaintiffs are entitled to recover the amount
cf $210,000 from the defendants for ove
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