Appendix — Condor Operating Company and its Joint Venturers, James E. Hall, Charles L. Hall and Frost National Bank and Co-Trustees of the Richard A. Hall Trust v. Frank Zarb, and Federal Energy Administration

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APPENDIX “A”

IN THE

DISTRICT COURT OF THE UNITED STATES

FOR THE WESTERN DISTRICT OF TEXAS

MIDLAND-ODESSA DIVISION

CONDOR OPERATING COMPANY AND ITS JOINT

VENTURERS, JAMES E. HALL, CHARLES L. HALL,

AND FROST NATIONAL BANK AND JAMES E.

HALL AS CO-TRUSTEES OF THE RICHARD A.

HALL TRUST

v. Civii No. MO-74-CA-77

JOHN C. SAWHILL, ADMINISTRATOR, FEDERAL

ENERGY ADMINISTRATION, AND FEDERAL

ENERGY ADMINISTRATION

ORDER

Filed: Sept. 26, 1974

On this 23rd day of September, 1974 came on to be

heard the above entitled and numbered cause and

came the parties in person and by their Attorneys of

Record and announced ready for trial. It appearing to

the Court that, except for the evidence adduced on a

full hearing of this matter, all pertinent and relevant

facts have been stipulated to by the parties and it was

agreed that the Court could hear and decide the Plain-

tiffs’ Motion for Temporary Restraining Order and

Preliminary Injunction. After hearing all the

stipulations of the parties and the evidence adduced by

the plaintiffs, the Court is of the opinion and finds that

the law and the facts are with the plaintiffs and that

plaintiffs are entitled to the Temporary Restraining

2a

Order and Preliminary Injunction enjoining defen-

dants from in any manner attempting to enforce the

August 12, 1974 Remedial Order until such time as this

matter may be heard by the Temporary Emergency

Court of Appeals. It further appears to the Court that

properly, constitutionally and lawfully construed.

plaintiffs have not violated Section 211.63 of such

Regulation of the defendants and plaintiffs may not

legally and constitutionally be mandatorily enjoined

and required to sell to Phillips Petroleum Company

the crude oil which plaintiffs have elected under their

contract with Phillips to take and own in kind and who

now desire to refine products for marketing for plain-

tiffs’ own account. It is also the opinion of this Court

and the Court finds that under Regulation 211.63 of Ti-

tle 10, Code of Federal Regulations, which was adopted

under the provisions of the Emergency Petroleum

Allocation Act of 1973, that a supplier/purchaser

relationship exists between Phillips Petroleum Com-

pany and plaintiffs within the meaning of the Regula-

tion; that at all times pertinent hereto it has been in full

force and effect and the Regulation was not intended or

meant to prevent plaintiffs from using their own

private property in an effort to alleviate the domestic

emergency crisis except that plaintiffs are limited toa

sales price of said oil and gas in kind to any purchaser

for a sum in its unrefined crude state not to exceed

$5.28 per barrel. Under the contract existing between

plaintiffs and Phillips Petroleum Company, the plain-

tiffs have the express continuing written consent of

Phillips Petroleum Company to take plaintiffs’ crude

oil in kind and to refine and market products derived

therefrom or to use such oil in any way it sees fit and

there can be no requirement under the Act or

Regulations promulgated thereunder or pursuant

thereto that would in any manner require plaintiffs to

3a

mandatorily produce, market and sell its oil in kind to

any one particular individual purchaser exclusively.

including Phillips Petroleum Company. Further, this

Court is of the opinion and finds that such injunctive

relief should be granted based upon the invalidity of

the Remedial Order which was promulgated under the

Regulation because such Remedial Order. as it

applies to the particular Regulation in question. is ar-

bitrary, unreasonable, discriminatory, capricious, is

further contrary to Congressional mandate, and is

wanting in statutory authority. If the Remedial Order

correctly construes the Regulation, a serious and sub-

stantial constitutional question arises that must be

certified to the Temporary Emergency Court of

Appeals for determination of the appropriate manner

of disposition of this case, related issues, the con-

stitutionality of ihe Act itself, the Regulation

promulgated thereunder and the Remedial Order

which is attacked herein. Pending such certification,

the Court finds that the plaintiffs have suffered

irreparable injuries as shown by the evidence in this

case that can be alleviated only through the issuance

of a Restraining Order and Preliminary Injunction to

restrain in effect the actions of the Administrator

pending the disposition of the Temporary Emergency

Court of Appeals of such determination or the further

orders of the Temporary Emergency Courtof Appeals.

It is, therefore, accordingly ORDERED, ADJUDGED

AND DECREED by the Court that the plaintiffs’

application and petition for a Preliminary Injunction

shall remain in effect until such time as the Tem-

porary Emergency Courtof Appeals either orders that

the Preliminary Injunction be in all things made per-

manent or same is dissolved by the Temporary

Emergency Court of Appeals after a full determina-

4a

tion of all the issues in this case, including the con-

stitutional ones which are certified to the Temporary

Emergency Court of Appeals for final determination.

The Preliminary Injunction shall issue in favor of

plaintiffs ordering defendants to refrain and cease

from interfering with plaintiffs in receiving the

petroleum products in kind upon the execution by

plaintiffs in favor of defendants of a Surety Bond in the

sum of FIFTEEN THOUSAND AND NO/100

DOLLARS ($15,000.00). Defendants are hereby

preliminarily enjoined from in any manner attempt-

ing to enforce the August 12, 1974 Remedial Order un-

til such time as this case and all issues asserted and

raised herein shall be heard and determined by the

Temporary Emergency Court of Appeals, and this

Order is immediately appealable to such Honorable

Court.

The Court also finds and holds that the plaintiffs

have in fact exhausted all administrative appeals for

relief and remedies that are available to them and that

the plaintiffs have no adequate remedy at law, and no

substantial harm or damage will be sustained to the

public interest by the granting of this Preliminary In-

junction, and all relief sought by any of the parties to

this action which is not herein granted shall be ex-

pressly DENIED.

SIGNED AND ENTERED this 26th day of

September, 1974, at San Antonio. Texas.

/s/ JOHN H. WOOD, JR.

JOHN H. WOOD. JR.

UNITED STATES DISTRICT

JUDGE

SPEIER ERNST II ITED IHN SET a

SEG IG IOP SE LSD EE LETT I AEE PELE EI OT MRI ty

5a

APPENDIX “B”

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF TEXAS

MIDLAND-ODESSA DIVISION

CONDOR OPERATING COMPANY AND ITS JOINT

VENTURERS, JAMES E. HALL, CHARLES L. HALL,

AND FROST NATIONAL BANK AND JAMES E.

HALL AS CO-TRUSTEES OF THE RICHARD A.

HALL TRUST

versus C.A. No. MO-74-CA-77

JOHN C. SAWHILL, ADMINISTRATOR, FEDERAL

ENERGY ADMINISTRATION, AND FEDERAL

ENERGY ADMINISTRATION

ORDER AND CERTIFICATE

Filed: Oct. 3, 1974

|

Pursuant to the order granting Plaintiffs a

preliminary injunction on September 26, 1974, the

Court makes the following findings:

(a) The Plaintiffs herein are the Condor Operating

Company and its joint venturers, James E. Hall.

Charles L. Hall, and Frost National Bank and James E.

Hall as co-trustees of the Richard A. Hall Trust.

(b) The Defendants herein are the Federal Energy

Administration and its Administrator. John C.

Sawhill.

; 6a

(c) Plaintiffs alleged in their Complaint that a

Remedial! Order entered by the Federal Energy Ad-

ministration on August 12, 1974, requiring Condor

Operating Company to sell certain crude oil produc-

tion to Phillips Petro’eum Corporation was invalid

because Condor Operating Company had not violated

the provisions of Regulation 211.63 of Title 10, Code of

Federal Regulations; which Regulation formed the

basis for the Remedial Order.

In its order, the Court basically agreed with Plain-

tiffs, and found Condor Operating Company to be in

compliance with Regulation 211.63, concluded the

Remedial Order to be invalid and granted a

preliminary injunction ordering Defendants to

refrain from interfering with Plaintiffs in taking their

oil production in kind.

(d) If, however, the Temporary Emergency Court

of Appeals finds this Court to be in error in holding

that Condor Operating Company was not in violation

of Regulation 211.63, then a substantial constitutional

question exists concerning the power of the United

States of America to require an owner of property to

sell said property to another private party for the

latter's benefit.

It is, therefore. ORDERED:

1. The following issue is certified to the Temporary

Emergency Court of Appeals:

Whether the Congress of the United States.

pursuant to the Emergency Petroleum Alloca-

tion Act of 1973. and the Federal Energy Ad-

$oreted

7a

ministration and its Administrator, pursuant

to Regulation 211.63 adopted under the Act,

have the power and right, under the Fifth

Amendment to the Constitution of the United

States, to require an owner of property. Con-

dor Operating Company, to sell its property to

another, Phillips Petroleum Corporation, for

the benefit and to the financial advantage of

Phillips.

2. This Court urges the Temporary Emergency

Court of Appeals to resolve all outstanding issues

between the parties pursuant to Section 21i(c) of the

Economic Stabilization Act of 1970 as incorporated by

Section 5(a)(1) of the Emergency Petroleum Alloca-

tion Act of 1973.

3. The Clerk of this Court shall transmit a certified

copy of this Order and Certificate to the Clerk of the

Temporary Emergency Court of Appeals of the Unit-

ed States.

ENTERED this 3rd day of October, 1974, at San An-

tonio, Texas.

/s/ JOHN H. WOOD, JR.

JOHN H. WOOD, JR.

UNITED STATES DISTRICT

JUDGE

hi oat ey

8a

SLIP OPINION

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

Nos. 5-10 and 5-11

CONDOR OPERATING COMPANY AND ITS JOINT

VENTURERS, JAMES E. HALL, CHARLES L. HALL.

AND FROST NATIONAL BANK AND JAMES Ez.

HALL AS CO-TRUSTEES OF THE RICHARD A.

HALL TRUST.

Plaintiffs-Appellees,

versus

JOHN C. SAWHILL, ADMINISTRATOR, FEDERAL

ENERGY ADMINISTRATION, AND FEDERAL

ENERGY ADMINISTRATION,

Defendants-Appellants.

ON CERTIFICATION OF A SUBSTANTIAL CON-

STITUTIONAL ISSUE BY THE UNITED STATES

DISTRICT COURT FOR THE WESTERN DISTRICT

OF TEXAS, MIDLAND-ODESSA DIVISION, AND

SUBSEQUENT APPEAL

William M. Kerr, Midland. Texas (Ted M. Kerr and

Kerr, Fitz-Gerald & Kerr with him on the brief) for

Plaintiffs-Appellees.

Marvin L. Coan, Atty. Dept. of Justice, Washington,

D.C. (Carla A. Hills. Asst. Atty. Gen. and Stanley D.

Rose, Atty. Dept. of Justice. with him on the brief) for

Defendants-Appellants.

Before CHRISTENSEN, ESTES and JOHNSON,

Judges.

CHRISTENSEN, Judge.

This case was initiated in the district court by acom-

plaint praying for a temporary restraining order and

preliminary and permanent injunctions to preventen-

forcement by the Federal Energy Administration

(FEA)! of a Remedial Order requiring Condor

Operating Company and its joint venturers,

plaintiffs-appellees herein (Condor), to sell certain

crude oil production to Phillips Petroleum Corpora-

tion (Phillips).2 It was alleged that the Remedial Or-

der was invalid because Condor had not violated the

provisions of section 211.63(a)? of Title 10, Code of

1 The Federal Energy Office became the Federal Energy Ad-

ministration (“FEA”) on June 27, 1974, pursuant to the Federal

Energy Administration Act of 1974 (Pub. L. No. 93-159) and will be

referred to herein as “FEA”.

2 “Accordingly, FEA has concluded that a violation of 10 C.F.R.

Section 211.63 has occurred. Therefore, pursuant to 10 C.F.R. Sec-

tion 205.86(b), FEA is issuing this Remedial! Order. “The Condor

Operating Company is hereby ordered to take the following

remedial action: Condor shall supply Phillips with the volumes of

crude oil Phillips was receiving under contract on December 1.

1973. This shall be interpreted to mean that any exercise by Condor

of its contractual option to take in kind the volumes Phillips was

purchasing on December 1, 1973. would not be effective to divert

the flow of crude oil from Phillips under § 211.63."

3 “(a) All supplier/ purchaser relationships in effect under con-

tracts for sales, purchases, and exchanges of domestic crude oil on

December 1, 1973, shall remain in effect for the duration of this

program: provided, however, that (1) any such

supplier/ purchaser relationship may be terminated by the mutual

consent of both parties; (2) the provisions of this paragraph donot

apply to the first sale of crude oil pursuant to § 210.32 of this

chapter [exempt “stripper well” oil]: and (3) the provisions of this

10a

Federal Regulations, upon which it was based and, if it

had, that the regulation would have unconstitu-

tionally deprived Condor of property without just

compensation and without due process of law.

The trial court granted the preliminary injunction

ordering defendants to refrain from interferring with

Condor's taking its oil production in kind upon a

determination that Condor was in compliance with

§ 211.63(a), concluded that the Remedial Order was in-

valid, and certified to this court the con-

stitutional question‘ of whether the government was

empowered to require an owner of property to sell its

property to another private party, in view of Fifth

Amendment protections.®

We stayed the injunction below pending our deci-

sion on the merits. It was also decided that in addition

to the certified constitutional question all other

paragraph shall not apply to the seller of any crude oil if the pre-

sent purchaser of such crude oil refuses, after notice by the seller.

to meet any bona fide offer made by another purchaser to buy such

crude oil at a lawful price above the price paid by the present

purchaser.”

4 Pursuant to § 211(c) of the Economic Stabilization Act of 1970,

as amended, 12 U.S.C.A. § 1904 (1974 Supp.). incorporated into the

Emergency Petroleum Allocation Act of 1973, Pub. L. No. 93-159, 87

Stat. 627. by its § 5(a)(1).

5 The question was certified in the following language: Whether

the Congress of the United States. pursuant to the Emergency

Petroleum Allocation Act of 1973, and the Federal Energy Ad-

ministration and its Administrator. pursuant to Regulation 211.63

adopted under the Act, have the power and right. under the Fifth

Amendment to the Constitution of the United States, to require an

owner of property, Condor Operating Company. to sell its proper-

ty to another Phillips Petroleum Corporation. for the benefit and to

the financial advantage of Phillips.”

lla

matters presented to the district court in support of

and in opposition to the application for preliminary

injunction ripe for appellate review would be con-

sidered. Contemporaneously the defendants filed

notice of appeal from the district court's order grant-

ing the preliminary injunction.

I. THE PROPRIETY OF OUR EXERCISE OF

JURISDICTION BY VIRTUE OF THE

CERTIFICATION.

_ The lower court granted the requested preliminary

injunction upon its determination that a proper inter-

pretation of the language of § 211.63(a) itself rendered

the Remedial Order invalid. While the point has not

been raised directly by any party, we have felt obliged

sua sponte to inquire into our own jurisdiction and the

propriety of its exercise. We were given pause by

reference in Condor’s reply brief to “the principle of

judicial self restraint in avoiding constitutional issue

holdings if the merits of the case can fairly be deter-

mined without doing so,” and its suggestion that the

constitutional issue can be so avoided here by uphold-

ing the lower court's decision on non-constitutional

grounds.

The problem lies deeper. for if there were no sub-

stantial constitutional issue properly before the trial

court in view of its complete resolution of the applica-

tion for a preliminary injunction on non-

constitutional grounds, it could be questioned under

ordinary circumstances whethe” that issue should

6 § 211(c) of the Economi- “ization Act. supra.

12a

have been certified to us at that stage or that the non-

constitutional issues should have been hung upon

such a certification here. Cf. Shapp v. Simon, _—_ F.2d

—___ (TECA No. 3-4, Jan. 13, 1975); National Petroleum

Refiners Association v. Dunlop, 486 F.2d 1388 (TECA

1973). See also District of Columbia v. Little, 339 U.S. 1

(1950).

The purported appeal by the defendants from the

order in question does not ameliorate the problem.

They had no appeal as of right from the interlocutory

order; they had obtained from the district court no cer-

tification for the usual interlocutory appeal, nor had

they filed application with this court for leave to so

appeal within the time prescribed by § 211(d)(2) of the

Economic Stabilization Act with reference to 28 U.S.C.

§ 1292(b). Thus our jurisdiction rests entirely upon

special certification of the constitutional issue by vir-

tue of § 211(c) of the Economic Stabilization Act,

supra.

Nonetheless, we have concluded that the latter cer-

tification justifies our consideration not only of rele-

vant nonconstitutional problems but, to the extent that

it thereafter remained significant, the constitutional

issue as well. This conclusion has been reached by

reason of the pendant nature of the non-constitutional

issues, cf. Allee v. Medrano, 416 U.S. 802 (1974), the

completeness of the record bearing upon all issues

relating to the preliminary injunction, the likelihood

that if avoided now they must come back to us later in

the same case, because the interpretative questions

are so enmeshed here with the constitutional issue as

to make complete disposition in order. and the

13a

desirability for prompt resolution in light of cir-

cumstances hereinafter discussed. See Youngstown

Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952): Dis-

trict of Columbia v. Little, 339 U.S. 1, 4 n. 1 (1950):

supra; In Re Brown, 439 F.2d 47 (3d Cir. 1971): Board of

Managers of Ark. Tr. Sch. for Boys v. Csorge, 377 F.2d

228 (8th Cir.), cert. denied, 389 U.S. 845 (1967).

II. THE CONFLICTING POSITIONS OF THE

PARTIES.

Condor and its associated venturers are the owners

of undivided interests in certain oil and gas leases in

Ector County, Texas, with two other parties. one of

which is Phillips. The operating agreement among

them has provided since 1948 that the respective work-

ing interest owners shall have the right of taking in

kind or selling to others their proportionate shares of

the oil produced from the leases, a common provision

in the industry. The operating agreement permits, but

does not require, one working interest owner to sell its

share of the production to another working interest

owner, a situation Condor says is somewhat unique;

most lease agreements, they say. are followed by

purchase agreements between the producer and

another purchaser, i.e., pipeline or refinery. In this

case Phillips is a refiner. We do not see this as a

differentiation significant here.

Over a period of many years and continuing until

after December 1, 1973, Condor and its predecessors in

interest sold their share of production to Phillips un-

der Division Orders. See Thompson v. Thompson, 149

Tex. 632, 236 S.W.2d 779 (1951). Then determining that

its profits would be higher if it refined its own crude

14a

oil, Condor began to take its production in kind, thus

precipitating the present controversy.

The FEA, as part of its attempt to carry out the pur-

poses of the Emergency Petroleum Allocation Act

during the energy crisis, promulgated the regulation

in question, designed to prevent during the operation

of the program, with limited exceptions not applicable

here, the alteration of any supplier/purchaser

relationship which existed on December 1, 1973, ex-

cept upon the consent of both parties.” The Remedial

Order was issued against Condor to prevent it from

altering the disposition. of its working interest and

thus depriving Phillips of that source of supply.

Condor contends that it did not violate the regula-

tion because in view of its right (option) to take its own

crude oil production in kind it never had a binding

agreement to sell it, Phillips had none to buy it, and at

all times Condor has been entitled at its election to

take its production in kind; that Phillips will continue

to have available to it any crude oil which Condor may

elect to sell rather than to utilize itself, and that if the

7 Prior to the express “freeze of relationships”, FEA on January

14, 1974. issued petroleum allocation regulations (39 F.R. 1924, et

seq., Jan. 15, 1974) which by § 211.64(a). provided subject to three

exceptions that ‘‘all contracts for sales. purchases, and exchanges

of domestic crude oil in effect on December 1, 1973, shall remain in

effect for the duration of the mandatory allocation program.” On

January 28, 1974, FEA issued a clarifying amendment to this sec-

tion making clear that it was the “supplier/purchaser

relationships” that had to be maintained. (39 F.R. 3908. Jan. 30.

1974). This section has not been materially changed since then.

although as a result of the renumbering of sections which occurred

in connection with subsequent amendments to other provisions of

the regulations the December 1 rule is now contained in § 211.63(a).

See ERE SRO Pe OR Ne ere rettec er oaeen

15a

Remedial Order should be held authorized by the

regulation both would be unconstitutional because

they would command a private citizen to make or

produce and then sell private property to another

private citizen in violation of due process rights

guaranteed by the Fifth Amendment. It is insisted,

nonetheless, that the trial court properly construed

§ 211.63(a) as meaning that Condor is required to sell

to Phillips only that crude oil which it would be will-

ing to “sell” to someone, and that it has the continuing

“consent” of Phillips under the option provided in the

operating agreement to take all or any part of its crude

oil in kind, to be refined and marketed as it has arrang-

ed to do.

Defendants-appellants contend here, as they did

below, that the district court erred in determining that

the plaintiffs could, under the operating agreement,

exercise their contractual option and take their share

of crude oil production in kind notwithstanding

§ 211.63(a); that the preexisting option conflicts witha

legitimate exercise of federal regulatory powers; that

the amendment of the regulation prior to any change

in the supplier/ purchaser relationship rendered clear

beyond question that it was that relationship in effect

under contracts for sales or purchases on December 1.

1973, rather than merely the foundational contracts

which were to remain in effect for the duration of the

program; that those relationships could not be altered

simply by the exercise of options in existing contracts

bui required the consent of both parties after the

Decerber 1, 1973 freeze, and that plaintiffs are

attempting improperly to gain the benefit of exemp-

tions under subdivisions (1) and (3) of § 211.63(a) in the

16a

absence of requisite foundational circumstances.’ The

defendants-appellants contend finally that there is no

substantial constitutional question.

A proper resolution of the issues requires more than

fragmented consideration of the regulatory provision

directly under attack.

III. THE REGULATORY PLAN AND ITS

FOUNDATIONS.

The FEA, then the Federal Energy Office as noted in

the margin, was established by the President pursuant

to Executive Order No. 11748 issued December 4, 1973.

There was thereby delegated to the Administrator of

FEA all the authority vested in the President by (1) the

Emergency Petroleum Allocation Act of 1973 (Pub. L.

No. 93-159); (2) Section 203(a(3) of the Economic

Stabilization Act of 1970, as amended (Pub. L. No. 92-

210; Pub. L. No. 93-28); and (3) the Defense Production

Act of 1950, as amended (50 U.S.C. App. § 2061, et seq.),

as it related to the production, conservation, use, con-

trol, distribution and allocation of energy. The Chair-

man of the Cost of Living Council delegated further

authority to the Administrator under the Economic

Stabilization Act of 1970, as amended, in Cost of Liv-

ing Council Order No. 47 (Dec. 26, 1973), and Cost of

8 ‘*...(1)[A]Jny...supplier/purchaser relationship may be ter-

minated by the mutual consent of both parties ... and (3) the

provisions of this paragraph shall not apply to the seller of any

crude oil if the present purchaser of such crude oil refuses, after

notice by the seller. to meet any bona fide offer made by another

purchaser to buy such crude oil at a lawful price above the price

paid by the present purchaser.”

17a

Living Council Order No. 47, Amendment 1 (Jan. 30,

1974).

Congress enacted the Emergency Petroleum Alloca-

tion Act of 1973, supra note 4, which became law

November 27, 1973, in response to its findings that

shortages of crude oil, residual fuel oil, and refined

petroleum products existed or were imminent. These

shortages were found to have created or be likely to

create ‘‘severe economic dislocations and

hardships”? which would “jeopardize the norma)

flow of commerce and constitute a national energy

crisis which is a threat to the public health, safety, and

welfare...’ Congress determined that the best method

of averting or minimizing this national threat was to

grant to the President of the United States “specific

temporary authority” to deal with the shortages and

dislocations of crude oil, residual] fuel oil and refined

petroleum products or dislocations in their national

distribution system.'°

Section 4.(b)(1) established within guidelines of the

Act authority, indeed a mandate, for the President or

his delegate to provide ‘‘to the maximum extent prac-

ticable” for

9 These were stated to include “loss of jobs, closing of factories

and businesses, reduction of crop plantings and harvesting. and

curtailment of vital public services, including the transportation

of food and other essential goods...”

10 As stated by Congress, “The authority granted under this Act

shall be exercised for the purpose of minimizing the adverse im-

pacts of such shortages or dislocations on the American people

and the domestic economy.”

18a

(A) protection of public health, safety, and

welfare ... and the national defense;

“(D) preservation of an economically sound

and competitive petroleum industry; in-

cluding the priority needs to restore and foster

competition in the producing, refining, dis-

tribution, marketing, and petrochemical sec-

tors of such industry, and to preserve the com-

petitive viability of independent refiners,

small refiners, nonbranded independent

marketers, and branded independent

marketers;

““(E) the allocation of suitable types, grades,

and quality of crude oil to refineries in the

United States to permit such refineries to

operate at full capacity;

“(F) equitable distribution of crude oil,

residual fuel oil, and refined petroleum

products at equitable prices among all

regions and areas of the United States and sec-

tors of the petroleum industry, including in-

dependent refiners, small refiners, non-

branded independent marketers, branded in-

dependent marketers, and among all users;

“(H) economic efficiency; and

“(I) minimization of economic distortion, in-

Ne ae ad : ined EW bo > aan

: 19a

flexibility, and unnecessary interference with

market mechanisms.”

Section 4.(b)(2) of the Act directed the FEA to

provide for use of a single date in computing the base

prices of crude oil, residual fuel oil and refined

petroleum products at all levels of marketing and dis-

tribution, and a dollar-for-dollar passthrough of net

increased product cost to all marketers or distributors

at the retail level. It was further provided in § 4.(c)(1)

that the mandatory allocation program for crude oil

shall “[t]o the extent practicable and consistent with

the objectives of subsections (b) and (d)” result in the

allocation of crude oil to each small refiner and each

independent refiner in an amount not less than the

amount sold or otherwise supplied to such refiner dur-

ing the corresponding period of 1972 — adjusted to

provide for the aggregate shortfall, if any, in total

crude supplies over 1972 levels.

The record contains a summarization of the reasons

FEA, after coordination with the Cost of Living Coun-

cil and the oil policy group in the Treasury Depart-

ment and consultation with major industry trade

associations, concluded that it should maintain all

supplier/purchaser relationships in effect on

December 1, 1973:'1

“a. The rule helped to maintain intact most

of the pre-existing national distribution

11 Affidavit of John Vernon, Associate Assistant Administrator

for Fuels Management, Office of Operations, Regulations and

Compliance of FEA.

20a

system for domestic crude oil, which was

threatening to disintegrate during the last

quarter of 1973. Since most domestic crude oil

contracts were year-long contracts which

would not terminate until after December 31.

1973, maintaining supplier/purchaser

relationships as of December 1, 1973, would

preserve and stabilize most of the nation’s

crude oil distribution system during a period

when the potential for disorder was at its peak.

“b. The second major reason for the

December 1 rule was that it established a floor

upon which the crude oil allocation program

(the ‘buy-sell’ list) could be built. The ‘buy-

sell’ list depended upon each refiner being

able to estimate its own crude oil availability

for a three-month period. In order to make

these estimates meaningful, it was necessary

to stabilize as much of the existing crude flow

as possible so that refiners would have a

definite point of reference from which to

measure the extent of their shortage. Without

maintaining existing supplier/purchaser

relationships, it would have been virtually

impossible to make the estimates upon which

the ‘buy-sell’ allocation program depended.

Moreover, the December 1 rule enabled FEA to

minimize the amount of crude oil that had to be

allocated through forced sales under the buy-

sell list by preventing crude supply im-

balances among refiners from worsening dur-

ing the critical start-up of the mandatory

allocation program. .

ee eed Oe a IO I FLT LIE LOS Pe PR EIILE PX,

2ia

“c. The third principal reason for the

December 1 rule was that it preserved access

by independent and small refiners to price-

controlled domestic crude oil. Without this

rule, many small and independent refiners

could have been supplanted or cut off by ma-

jor integrated refiners. The December 1 rule

was thus designed to meet the statutory objec-

tive of Section 4(b)(1)(F) to provide for

‘equitable distribution of crude oil ... at

equitable prices among all .. . sectors of the

petroleum industry, including independent

refiners [and] small refiners...”

A recent case, Exxon Corp. v. Federal Energy Office.

et al. (D.D.C. No. 74-921, July 17, 1974). supplies

warranted emphasis to related considerations, ig-

nored in plaintiffs’ arguments. The duty imposed upon

@ major supplier by the December 1/buy-sell

regulations was attacked by a major supplier, which

sought to avoid the requirements of selling to small

and independent refiners 130,000 barrels of crude per

day under the December 1 regulation or 95,000 barrels

under the buy-sell regulation. An injunction against

the enforcement of the regulations was denied by the

district court, which observed, among other things:

‘“... The December 1 Regulation was im-

plemented to continue supplier/purchaser

relationships existing on December 1, 1974.

[sic] within the whole petroleum industry and

prevent a disruption in the existing distribu-

tion system for domestic crude oil. The

December 1 Regulation, furthermore, was im-

— ee

— OO OEY PDE RT RII T EEE GES SANE, TOS ds

22a

plemented to assure small and independent

refiners continued access to lower-cost

domestic crude oil. The December 1 Regula-

tion, furthermore, was implemented to

provide a foundation upon which a mandatory

allocation program could be implemented by

the FEA.

“The Buy/Sell Regulation provides for

allocation of crude oil solely among refiners

... to assure adequate supplies of crude oil for

all refiners who were experiencing deficien-

cies of crude oil during that period citime...

The refiners who are eligible to purchase

crude oil under the current Buy/Sell Regula-

tion are only those refiners who fall within the

definition of a small or independent refiner

under Section 3 of the Petroleum Act.”

See also Gulf Oil Corporation v. Simon, 502 F.2d 1154

(TECA 1974).

The record indicates that the reasons for the

program, of which the December 1 regulation is only a

part, are continuing ones.'2 And there may be gathered

from the allocation plan as a whole the rational bases

th of the agency's denial of any controlling effect of

options or other “consents antedating December 1,

1973” and the exception dealing with subsequent con-

sents. It is reasonable to suppose that the latter do not

12 The basic Act initially was scheduled to expire February 28.

1975; this date has since been postponed to August 31. 1975. Pub. L.

No. 93-511. 88 Stat. 1608 (Dec. 5. 1974).

23a

threaten the program, controlled as they are by the

continuing interest of major suppliers in maintaining

their sources for meeting their own continuing

obligations to independent or small refiners. Nor do

we believe the regulation reasonably can be attacked

here as one mandating production rather than

regulating disposition, as Condor suggests. The sub-

ject of the Remedial Order was the disposition of

produced oil as between the alternatives of sale to

Phillips pursuant to the existing relationship, or tak-

ing in kind.

IV. THE REGULATION CONSTITUTES A

RATIONAL EXERCISE OF DELEGATED POWERS.

We are of the view not only that Congress had the

power to grant authority to the President and his

delegates within the guidelines of the Act to pursue

the objectives enumerated, but that the regulation in

question, as a part of the entire plan, was a rational ex-

ercise of that power. “The national Government has

the power to do what is needful for the great national

purposes that identify this country’s adjustments to

change and ultimately survival.” Amalgamated Meat

Cutters & Butcher Work. v. Connally, 337 F. Supp. 737,

752 (D.D.C. 1971). ““We cannot, in these circumstances,

conclude that Congress has given authority inade-

quate to achieve with reasonable effectiveness the

purposes for which it has acted.”’ Permian Basin Area

Rate Cases, 390 U.S. 747, 777 (1968).

Where the obvious intent of Congress is to give the

President and his delegates broad power to do what

sae iaiace

24a

reasonably is necessary to accomplish legitimate

purposes rendered necessary by a _ recognized

emergency, and regulations are fashioned to imple-

ment the Congressional mandate, the court should not

interfere with the prerogative of the agency to select

the remedy which for rational reasons is deemed most

appropriate.

The urgency of the challenge confronting the agen-

cy upon the passage of the Emergency Petroleum

Allocation Act already has been recognized. Reeves v.

Simon, —— F.2d —_ (TECA No. 9-18, Nov. 27, 1974);

People of State of California, State Lands Com’n v.

Simon, 504 F.2d 430 (TECA 1974): Mandel v. Simon, 493

F.2d 1239 (TECA 1974).

Exercising of the administrative authority and the

accomplishment of purposes enumerated by Con-

gress under the recognized emergency conditions are

exceedingly complicated undertakings. The

petroleum industry itself is a complicated one. By

reason of its intimate and convoluted relationship

with the whole economy of the country it also tends to

take upon itself the myriad problems besetting

marketing and business activities generally. It would

be the height of folly and grievously incompatible

with the rule of deference, Bowles v. Seminole Rock &

Sand Co., 325 U.S. 410, 414 (1945); People of State of

California, State Lands Com’n v. Simon, 504 F.2d 430

(TECA 1974), supra; Pacific Coast Meat Job. Ass'n, Inc.

v. Cost of Living Coun., 481 F.2d 1388 (TECA 1973);

University of Southern Cal. v. Cost of Living Council,

472 F.2d 1065 (TECA i972). cert. denied, 410 U.S. 928

(1973); Mandel and Reeves. supra, myopically to

25a

“solve” these problems solely on the basis of Condor’s

situation or by the court's off-hand ideas of regula-

tory alternatives differing from the rational approach

set by the agency.

The party attacking a regulatory scheme must carry

the burden of persuasion. Bowles v. Willingham. 321

U.S. 503 (1944): American Nursing Home Ass'n v. Cost

of Living Council, 497 F.2d 909 (TECA 1974). Neither

the regulation nor the interpretation and enforcement

of it as encompassed in the Remedial Order has been

shown to be irrational, arbitrary, carpicious or beyond

the powers delegated. Consequently, accepting the in-

terpretation of the agency, we reach the constitutional

issue certified to this court.

V. THE REGULATION AND THE REMEDIAL

ORDER ARE NOT SHOWN TO BE UN-

CONSTITUTIONAL.

Plaintiffs say that historically “... until January,

1974 the Congress, legislatures and those to whom

they have delegated their functions, have confined

their exercise of power over private property to the ex-

ercise of the power of eminent domain, and to solely

negative influences in limiting, restricting, inhibiting

or prohibiting the use or disposition of private proper-

ty.” Plaintiffs see it as significantly different for*.. .

Congress simply to come right out and tell the people

what they positively must do with their property,

rather than merely tell them what they cannot do with

it.” We find it unnecessary to discuss in detail the

array of cases Condor has marshalled in an attempt to

demonstrate that “affirmative” requirements beyond

26a

the reach of the power of eminent domain, unlike

“negative” restrictions within the police power, are

constitutionally unacceptable.’

Even though the distinction sought to be drawn

between negative and affirmative requirements were

not in the context of this case simply that, rather than

representing some real difference, we think that Block

v. Hirsh, 256 U.S. 135 (1921), is controlling against

Condor’s contention here. This case upheld the re-

quirement of an emergency rental control measure

that tenants be permitted to continue to occupy leased

premises upon expiration of their leases and

demonstrates that the affirmative requirement of a

continued relationship for the benefit of another may

be constitutionally acceptable even though property

13 We find them either not in point, superceded in application by

the flow of modern authority, or not inconsistent in principle with

the validity of the regulation. They range in dates from 1829 to 1937

and involve such matters as a requirement of a municipality thata

railroad company permit use of its property for a public cab stand

without compensation, the railroad’s uncompensated furnishing

of an underpass for a private individual. taxation for private pur-

poses, the provision by a railroad company of siding tracks and

services to private individuals without a preliminary hearing and

without compensation, the similar requirement of weighing

scales under specified circumstances. the issuance of private

bonds for private donations, unreasonable railroad rates, the seiz-

ing of private property in Puerto Rico by a military governor in

reliance upon claimed power in excess of that delegated to him by

the President, building line regulations issued by a municipality

by reason of a two-thirds vote of property owners in the area, the

licensing of securities dealers which now contrary to the holding

relied upon is generally regarded as constitutional, and cases

recognizing that Fifth and Fourteenth Amendment rights to

property include generally the right to acquire. use and dispose of

it. Fallbrook Irrigation Dist. v. Bradley. 164 U.S. 112 (1896), another

case cited, upheld levy of an assessment by an irrigation district

with the statement, “It is obvious . . . that what is a public use fre-

quently and: largely depends upon the facts and circumstances

surrounding the particular subject-matter in regard to which the

character of the use is questioned.”

|

27a

rights must be temporarily surrendered in the

process, i.e., an interest in land for a substantial term.

There, as in the present case, the complaining party

was assured of compensation based upon ad-

ministratively determined “reasonable” prices for the

controlled property. Mr. Justice Holmes for the court

faced and answered “[t]he main point against the law

... that tenants are allowed to remain in possession at

the same rent that they have been paying, unless

modified by the Commission established by the Act.

and that thus the use of the land and the right of the

owner to do what he will with his own and to make

what contracts he pleases are cut down.” (256 US. at

157). Mr. Chief Justice Hughes later stated for the court

in Home Building & Loan Ass'n v. Blaisdell, 290 U.S.

398, 440 (1934), with reference to the doctrine of Block:

“Whatever doubt there may have been that

the protective power of the state, its police

power, may be exercised — without violating

the true intent of the provisions of the Federal

Constitution — in directly preventing the im-

mediate and literal enforcement of contractual

obligations by a temporary and conditional

restraint, where vital public interests would

otherwise suffer, was removed by our

decisions relating to the enforcement of

provisions of leases during a period of scarci-

ty of housing. Block v. Hirsh, 256 U.S. 135...

Marcus Brown Holding Co. v. Feldman, 256

U.S. 170...”

Condor has attempted to distinguish Block from the

present case but the distinction it seeks to draw rests

28a

upon misconceptions of both.'4 That Block has con-

tinued viability is indicated by frequent reference to it

in the current cases, including quotation of a brief ex-

tract in Village of Belle Terre v. Boraas, 416 U.S. 1

(1974). A decision most strongly relied upon by Con-

dor during oral argument and referred to again in its

supplemental statement, Railroad Retirement Board

v. Alton R. Co., 295 U.S. 330 (1935), has been questioned

as being at variance with the tenor of modern

authority.'5 In any event, we do not regard it as in

point. Far from Block’s representing an aberrant

application, its principle has been applied to a variety

of analogous situations.

14 When during oral argument the court mentioned Block, not

cited in the briefs. counsel asked for leave to file a response after

study. They now have stated in such response among other things:

“We have no quarrel with the holding of Block because it is con-

ceded in this case that if Plaintiffs wanted to and did sell their

crude oil, they would, and could be required to, sell to Phillips.

their traditional purchaser, at the FEA control price, just as the

Block legislation required that if premises are to be rented they

must be rented to the tenant in possession at the rent control rent. if

the tenant wants to so rent it. Our quarrel is with the position that

Plaintiffs must sell their crude oil even though they want to keep it

and use it and not sell it to anyone.”

In actuality the exception to the statute involved in Block was

not based upon general “use” by the owner but only his possession

“for actual and bona fide occupancy by himself, or his wife,

children or dependents.” All different use, or non-use, had to yield

to a continuation of the relationship of landlord and tenant. In the

present case Condor’s desired “use” of its oi] production is in no

sense such a personal one, but involves processing by, and sale of

the product to, others in the stream of commerce. Nor was Block

narrowly decided with reference to the personal occupancy excep-

tion.

15 “... [W]e believe the cases cited by appellants are not con-

trolling on the facts before us. See Mandeville Island Farms v.

American C.S. Co., 1948, 334 U.S. 219 ... where Mr. Justice

Rutledge, speaking for the majority of the Court, listed the Alton

case as one ‘foredoomed to reversal’; although the formal reversal

has not yet taken place.” Wicks v. Southern Pacific Co., 231 F.2d

130, 137. n. 11 (9th Cir.). cert. denied, 351 U.S. 946 (1956). See also

Wickard v. Filburn. 317 U.S. 111, 121-122 (1942).

It has long been recognized that the Fifth Amend-

ment prohibitions against the taking of property for

public use without just compensation or due process

of law refers only to direct appropriation and not to

consequential injuries resulting from the exercise of

lawful regulations. Bowles v. Willingham, 321 U.S. 503

(1944), supra; Knox v. Lee, 12 Wall, 457, 79 U.S. 457

(1871); Western States Meat Packers Ass’n, Inc. v.

Dunlop, 482 F.2d 1401 (TECA 1973); Local Union No. 11,

Int. Bro. of Electrical Wkrs. v. Boldt, 481 F.2d 1392

(TECA), cert. denied, 414 U.S. 1092 (1973); Wilson v.

Brown, 137 F.2d 348 (Em. Ct. App. 1943), supra.

A reasoned decision for the temporary suspension

of usual ownership prerogatives based upon broad

national needs does not constitute necessarily an un-

constitutional taking; and the issue of whether it does

properly turns upon the circumstances of each case.

U.S. v. Central Eureka Mining Co., 357 U.S. 155 (1958).

The regulation of future action based on rights

previously acquired by the person regulated is not per

se prohibited by the constitution. Fleming v. Rhodes,

331 U.S. 100 (1947). Reasonable and practical

regulations which are generally fair and equitable,

although not necessarily so as applied to a particular

person, are not unconstitutional when general

regulations are necessary to accomplish an ap-

propriate congressional purpose. Bowles v.

Willingham, 321 U.S. 503 (1944), supra; Wilson v.

Brown, 137 F.2d 348 (Em. Ct. App. 1943). Condor con-

siders only its own situation. But agency orders are

not to be read in a vacuum but rather must be inter-

preted in the entire context in which they arise. Bell

Telephone Company of Pennsylvania v. F.C.C., 503

F.2d 1250 (3d Cir. 1974).

30a

The effect of invalidating the administrative action

here would be far-reaching. The authority of the FEA,

or its counterpart under any future stabilization plan.

to cope with an energy crisis on the basis of a coor-

dinated and balanced plan could be rendered

questionable indeed. Essential powers of government

to meet this or other crises in perilous times would be

frustrated by the adoption of an excessively rigid and

unprecedented construction inhospitable to broad

realities. “A limit in time, to tide over a passing trou-

ble, well may justify a law that could not be upheld asa

permanent change.” Block v. Hirsh, 256 U.S. 135, 157

(1921), supra.'* Whether the challenged regulation and

enforcement order would pass muster as a long con-

tinuing response to chronic energy problems need not

be decided. Nor may this opinion be interpreted out of

context as passing on the validity or invalidity of

other FEA regulations not directly involved here.

The wording of the question certified to this court

assumed certain effects in disregard of the far more

than counterbalancing considerations mentioned

above. But having satisfied ourselves of the propriety

of exercising jurisdiction based upon that certifica-

tion of what essentially is a substantial constitutional

question, we hold that the December 1 regulation was

incorrectly interpreted by the district court, that there

is no showing in the record that Condor’s con-

16 Recently in similar vein the Supreme Court resolved far-

reaching issues in the context of “[a] rail transportation crisis

seriously threatening the national welfare. . .”, over the minority

objection that while an “emergency often gives Congress the occa-

sion to act...noemergency .. . permits it{Congress] todisregard

the Just Compensation Clause of the Fifth Amendment...”

Regional Rail Reorganization Act Cases. ___ U.S. ____ (Dec. 16.

1974).

3la

stitutional rights are violated by the Remedial Order.

and that the district court erred in enjoining the en-

forcement of that order.

For the reasons indicated the order of preliminary

injunction is reversed and the case is remanded to the

trial court for further proceedings not inconsistent

with this opinion.

32a

APPENDIX “D”

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

BEFORE HONORABLE A. SHERMAN

CHRISTENSEN, HONORABLE JOE EWING ESTES

AND HONORABLE FRANK M. JOHNSON, JR..

JUDGES

Condor Operating Company. et al.,

Plaintiffs-Appellees,

versus Nos. 5-10 and 5-11

John C. Sawhill, Administrator, Federal Energy Ad-

ministration, et al.,

Defendants-Appellants.

This cause came on to be heard on the record on

appeal for the United States District Court for the

Western District of Texas, Midland-Odessa Division

and was argued by counsel.

In consideration whereof,

IT IS ORDERED that the order of preliminary in-

junction is reversed and the case is remanded to the

trial court for further proceedings not inconsistent

with this opinion.

FOR THE COURT:

Thomas R. Napton

Clerk

/s/ RUTH H. JACOBSON

Deputy Clerk

February 7. 1975

District Court Docket No. MO 74 CA 77