# 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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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1975
- **Citation:** 421 U.S. 976

## Text

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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

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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

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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-

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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

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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

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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

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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.

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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

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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

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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

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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

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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.”

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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.”

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(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.

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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.

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385608_0728%3A2. Public record. Not legal advice.