Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

Implementation of Special Refund Procedures

AGENCY: Office of Hearings and Appeals, Department of Energy.

ACTION: Notice of Implementation of Special Refund Procedures.

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SUMMARY: The Office of Hearings and Appeals (OHA) of the Department of

Energy announces procedures for disbursement of $48,307.13 of crude oil

overcharge funds obtained by the DOE from Texas American Oil

Corporation (Texas American), Case No. VEF-0019. The OHA has determined

that these funds, plus accrued interest, be distributed as direct

restitution to individual claimants who were injured by crude oil

overcharges.

FOR FURTHER INFORMATION CONTACT: Richard W. Dugan, Associate Director,

Office of Hearings and Appeals, 1000 Independence Ave., SW., Washington

DC 20585-0107, Telephone No. (202) 426-1575.

SUPPLEMENTARY INFORMATION: In accordance with 10 CFR Sec. 205.282(c),

notice is hereby given of the issuance of the Decision and Order set

forth below. The Decision and Order sets forth the procedures that the

DOE has formulated to distribute $48,307.13 (plus accrued interest)

remitted to the DOE by the trustee-in-bankruptcy for Texas American.

The DOE is currently holding these funds in an interest-bearing escrow

account pending distribution.

The OHA will allocate all of the crude oil overcharge funds

obtained from Texas American for individual claimants. This is in

accordance with Texas American Oil Corp. v. DOE, 44 F.3d 1557 (Fed.

Cir. 1995) (en banc), in which the United States Court of Appeals for

the Federal Circuit held that the DOE's claim in the Texas American

bankruptcy proceeding on behalf of individual claimants should have a

higher priority than its claim on behalf of the states and federal

government. Pursuant to that decision, the bankruptcy court distributed

to the DOE an amount equivalent to only 20 percent of its liquidated

claim in the Texas American bankruptcy proceeding, since under the

DOE's Modified Statement of Restitutionary Policy in Crude Oil Cases,

51 FR 27899 (August 4, 1986), a maximum of 20 per cent of the crude oil

overcharge funds remitted to the DOE are reserved for injured

purchasers of refined petroleum products.

Refunds to eligible purchasers will be based on the volume of

products that they purchased during the price control period. The

volumetric refund amount is $0.0016 per gallon. Because the June 30,

1995 deadline for crude oil refund applications has passed, no new

applications for refund will be accepted in this proceeding. As we

state in the Decision, the Texas American funds will be added to the

general crude oil overcharge pool for direct restitution to claimants

that have filed timely applications.

Dated: May 14, 1996.

George B. Breznay,

Director, Office of Hearings and Appeals.

Decision and Order of the Department of Energy

Implementation of Special Refund Procedures

May 14, 1996.

Name of Case: Texas American Oil Corporation.

Date of Filing: September 1, 1995.

Case Number: VEF-0019.

On March 14, 1996, the Office of Hearings and Appeals (OHA) of the

Department of Energy (DOE) issued a Proposed Decision and Order (PDO)

which tentatively established refund procedures for the distribution of

crude oil overcharge funds obtained from Texas American Oil Corporation

(Texas American). Texas American Oil Co., Case No. VEF-0019, 61 Fed.

Reg. 13170 (March 26, 1996). After a review of the comments received,

the DOE has determined that the procedures set forth in the Proposed

Decision and Order should be adopted.

I. Background

On September 19, 1988, the OHA issued a Remedial Order (RO) that

found that Texas American had violated 10 CFR Sec. 211.67(e)(2) by

receiving excessive small refiner bias benefits under the DOE's

Entitlements Program.

[[Page 25663]]

Texas American Oil Corp., 17 DOE para. 83,017 (1988). However, Texas

American had filed a petition in bankruptcy on July 2, 1987, and its

bankruptcy proceeding was still pending when the RO was issued. The

trustee-in-bankruptcy approved the DOE's claim in the amount of

$241,535.67, but classified it as a non-pecuniary loss in accordance

with Section 726(a)(4) of the Bankruptcy Code and Class 9 of the Plan

of Liquidation.1 Since Class 9 claims were inferior to Class 7

claims, and there were insufficient assets to satisfy any Class 9

claim, or to satisfy fully the Class 7 claims, the effect of the

trustee's determination was to preclude the DOE from receiving any

compensation from Texas American's estate.

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\1\ Section 726(a)(4) places non-pecuniary loss claims in the

fourth priority in the distribution of a bankrupt estate:

11 U.S.C. Sec. 726. Distribution of property of the estate

* * * * *

(a)(4) fourth, in payment of any allowed claim, whether secured

or unsecured, for any fine, penalty, or forfeiture, or for multiple,

exemplary, or punitive damages, arising before the earlier of the

order for relief or the appointment of a trustee, to the extent that

such fine, penalty, forfeiture, or damages are not compensation for

actual pecuniary loss suffered by the holder of such claim[.]

Class 7 (Unsecured Claims) consisted of allowed claims of

unsecured creditors, while Class 9 (Non-Pecuniary Loss) consisted of

``Allowed Claims for any fine, penalty, or forfeiture, or for

multiple, exemplary, or punitive damages, as further described in 11

U.S.C. Sec. 726(a)(4).'' Texas American Bankruptcy Committee Plan of

Liquidation Secs. 3.07, 3.09.

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The DOE argued before the Bankruptcy Court that the trustee's

determination was erroneous on the grounds that its claim was for

restitution and therefore was a Class 7 claim. The Bankruptcy Court,

however, rejected the DOE's position and held that Class 9 was the

proper classification since the DOE's claim was not for actual

pecuniary loss suffered by the holder of the claim. In re Texas

American Oil Corp., No. 387-33522-SAF-11 (Bankr. N.D. Tex. Mar. 5,

1992). This decision was reversed by the U.S. District Court which,

relying on a prior decision of the Temporary Emergency Court of Appeals

(TECA), held that a DOE claim under Section 209 of the Economic

Stabilization of 1970 (ESA), 12 U.S.C. Sec. 1904 note, was properly

placed in the same class and priority as the general unsecured claims

of other creditors. Texas American Oil Corp. v. DOE, No. 3:92-CV-1146-G

(N.D. Tex. Sept. 14, 1992) (citing DOE v. West Texas Marketing Corp.,

763 F.2d 1411 (Temp. Emer. Ct. App. 1985) (West Texas)). This decision

was in turn reversed by the United States Court of Appeals for the

Federal Circuit, which held that the DOE's claim in the Texas American

bankruptcy proceeding should be bifurcated, with the portion claimed on

behalf of individual persons who suffered actual injury to be

classified in Class 7 of the Plan of Liquidation and the portion to be

paid to the federal and state governments to be classified in Class 9.

Texas American Oil Corp. v. DOE, 44 F.3rd 1557 (Fed. Cir. 1995)(en

banc). On remand, the Bankruptcy Court implemented the Federal

Circuit's decision by distributing the 20 percent of DOE's liquidated

claim ($48,307.13) that fell within Class 7 to DOE and the remaining 80

percent ($193,228.53) to the other Class 7 creditors. In re Texas

American Oil Corp., No. 387-33522-SAF-11 (Bankr. N.D. Tex. April 12,

1995). The funds that the DOE received from Texas American were

deposited in an interest-bearing escrow account maintained by the

Department of the Treasury.2

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\2\ As of March 31, 1996, the account contained $50,815.65,

consisting of $48,307.13 principal and $2,508.52 interest.

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In accordance with 10 CFR Part 205, Subpart V, on September 1,

1995, the Office of General Counsel, Regulatory Litigation (OGC)

(formerly the Economic Regulatory Administration) filed a Petition for

the Implementation of Special Refund Procedures that requested OHA to

formulate and implement procedures to distribute the Texas American

funds. On January 16, 1996, we issued a Proposed Decision and Order

that tentatively established refund procedures for the distribution of

crude oil overcharge funds obtained from Texas American and four other

firms. Brio Petroleum, Inc., Case Nos. VEF-0017 et al., 61 FR 1919

(January 24, 1996). In accordance with the Modified Statement of

Restitutionary Policy in Crude Oil Cases (MSRP), 51 FR 27899 (August 4,

1986), that the DOE issued in connection with the Final Settlement

Agreement approved in In re The Department of Energy Stripper Well

Exemption Litigation, 653 F. Supp. 108 (D. Kan. 1986), the January 16

Proposed Decision proposed that 40 percent of the funds be disbursed to

the federal government, another 40 percent be disbursed to the states,

and the remaining 20 percent be reserved for applicants who file claims

showing that they were injured by crude oil overcharges. However, we

subsequently determined that the circumstances under which the DOE

obtained the Texas American funds required that the funds be disbursed

in a manner different than that set forth in the Proposed Decision.

Accordingly, we issued the March 14, 1996 PDO, in which we tentatively

determined that all of the funds received from Texas American be

allocated to individual claimants. On April 24, 1996, we received

comments on behalf of 14 designated states (the States). In their

comments, the States disagreed with the refund procedures set forth in

the PDO, but asserted that they would not formally object to them in

view of the small amount of money involved. Instead, they reserved

their right to object to any future proposed distributions of crude oil

funds solely to individual claimants.

II. Jurisdiction and Authority

The Subpart V regulations set forth general guidelines which may be

used by the OHA in formulating and implementing a plan of distribution

of funds received as a result of an enforcement proceeding. The DOE

policy is to use the Subpart V process to distribute such funds. For a

more detailed discussion of Subpart V and the authority of the OHA to

fashion procedures to distribute refunds, see Petroleum Overcharge

Distribution and Restitution Act of 1986, 15 U.S.C. Sec. 4501 et seq.

See also Office of Enforcement, 9 DOE para. 82,508 (1981); Office of

Enforcement, 8 DOE para. 82,597 (1981).

III. Refund Procedures

Since the States have not formally objected to the proposed refund

procedures, it is not necessary for us to respond to the specific

arguments that they raise. We do, however, disagree with the States'

position that the decisions of the Federal Circuit and the Bankruptcy

Court (on remand) do not affect the manner in which we must distribute

the crude oil funds in the present case.3 Thus, we shall

distribute the funds received from Texas American (and accrued interest

on those funds) solely to individual claimants in the DOE's crude oil

refund proceeding. In our view, which we believe to be correct, this

distribution scheme is required by the unique circumstances under which

these funds were obtained

[[Page 25664]]

by the DOE. While the Texas American v. DOE decision is contrary to the

position of the DOE that had been upheld in the West Texas case,4

we are constrained by the Federal Circuit's decision. The clear import

of that determination is that we must use the funds received from Texas

American solely for direct restitutionary purposes. Moreover, as

indicated above, the Bankruptcy Court, in accordance with the Federal

Circuit's determination, distributed to the DOE only 20 percent of its

liquidated claim in the Texas American bankruptcy proceeding. This

percentage is equivalent to the portion of crude oil overcharge funds

that we have consistently reserved for individual claimants under the

MSRP. We therefore decline to modify our proposed allocation of the

Texas American funds in response to the States' comments.

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\3\ We also do not accept the States' attempt to blur the

distinction between recipients of direct and indirect restitution.

It is true that, prior to the Federal Circuit decision, it was the

DOE's consistent position that both types of recipients should be

treated the same for purpose of distributing funds from bankrupt

estates. Nevertheless, our prior Decisions make it clear that,

unlike the beneficiaries of indirect restitution, individual

claimants cannot receive direct refunds without a finding of injury,

though that finding may be based on a presumption of injury. See 10

C.F.R. Sec. 205.282(e) (``[T]he standards for evaluation of

individual claims may be based upon appropriate presumptions''). See

also Ernest A. Allerkamp, 17 DOE para. 85,079 at 88,175-76 (1988);

City of Columbus, Georgia, 16 DOE para. 85,550 (1987).

\4\ The Federal Circuit in Texas American v. DOE ascribed its

unwillingness to follow the West Texas decision to judicial,

statutory, and related policy changes that had occurred since the

issuance of that decision. The Federal Circuit also specifically

overruled TECA's ruling that a DOE bankruptcy claim under the ESA to

be paid to the federal and state governments on behalf of their

citizens was for restitution and not for a penalty.

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Except for the manner in which the funds will be allocated, we

shall follow the procedures set forth in prior refund proceedings

involving crude oil overcharge funds. Thus, claimants will be required

to (i) document their purchase volumes of petroleum products during the

August 19, 1973-January 27, 1981 crude oil price control period, and

(ii) prove that they were injured by the alleged crude oil overcharges.

Applicants who were end-users or ultimate consumers of petroleum

products, whose businesses are unrelated to the petroleum industry, and

who were not subject to the DOE price regulations will be presumed to

have been injured by Texas American's crude oil overcharges. In order

to receive a refund, end-users will not need to submit any further

evidence of injury beyond the volume of petroleum products purchased

during the price control period. We shall base refunds to claimants on

a volumetric amount that is currently $0.0016 per gallon. See 60 FR

15562 (March 24, 1995).

A party that has already submitted a claim in the DOE crude oil

proceeding need not file another claim in order to obtain its

appropriate restitutionary share of crude oil funds. Moreover, because

the June 30, 1995 deadline for crude oil refund applications has

passed, we shall not accept any new applications. See Western Asphalt

Service, 25 DOE para. 85,047 (1995). Instead, these funds will be added

to the general crude oil overcharge pool used for direct restitution.

Finally, an applicant who has executed and submitted a valid waiver

pursuant to one of the escrows established by the Final Stripper Well

Settlement Agreement will be considered to have waived its rights to

apply for a crude oil refund under Subpart V. See, e.g., Mid-America

Dairymen, Inc., v. Herrington, 878 F.2d 1448 (Temp Emer. Ct. App.

1989); see also Hoechst Celanese Chemical, 25 DOE para. 85,066 (1996).

It Is Therefore Ordered That:

(1) The Director of Special Accounts and Payroll, Office of

Departmental Accounting and Financial Systems Development, Office of

the Controller of the Department of Energy shall take all steps

necessary to transfer the $48,307.13 obtained from Texas American Oil

Corporation, COTS No. N00S90460, plus accrued interest, into the

subaccount denominated ``Crude Tracking-Claimants 4,'' Number

999DOE010Z.

(2) This is a final Order of the Department of Energy.

[FR Doc. 96-12823 Filed 5-21-96; 8:45 am]

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