Proposed Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

Proposed Implementation of Special Refund Procedures

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

ACTION: Notice of Proposed Implementation of Special Refund Procedures.

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

Energy announces revised proposed 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.

DATES AND ADDRESSES: Comments must be filed in duplicate on or before

April 25, 1996, and should be addressed to the Office of Hearings and

Appeals, 1000 Independence Ave., SW, Washington, DC 20585-0107. All

comments should conspicuously display a reference to Case No. VEF-0019.

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) 586-2860.

SUPPLEMENTARY INFORMATION: In accordance with 10 C.F.R.

Sec. 205.282(b), notice is hereby given of the issuance of the Proposed

Decision and Order set forth below. The Proposed Decision and Order

sets forth the procedures that the DOE has tentatively formulated to

distribute $48,307.13 (plus accrued interest) remitted to the DOE by

Texas American. The DOE is currently holding these funds in an

interest-bearing escrow account pending distribution.

This Proposed Decision revises a portion of a previous Proposed

Decision that was issued on January 16, 1996. See Brio Petroleum, Inc.,

Case Nos. VEF-0017 et al., 61 Fed. Reg. 1919 (January 24, 1996). In the

January 16 Proposed Decision, the OHA proposed to distribute the funds

obtained from Texas American and four other firms in accordance with

the DOE's Modified Statement of Restitutionary Policy in Crude Oil

Cases, 51 Fed. Reg. 27899 (August 4, 1986) (the MSRP). Under the MSRP,

crude oil overcharge monies are divided among the federal government,

the states, and injured purchasers of refined petroleum products. In

accordance with the MSRP, the January 16 Proposed Decision tentatively

reserved 20 percent of the funds received from Texas American and the

other four firms for direct restitution to injured claimants. In the

present Proposed Decision, which involves only Texas American, the OHA

has tentatively decided that all of the crude oil overcharge funds

obtained from the bankrupt estate of Texas American should be reserved

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 claim in the Texas American bankruptcy

proceeding.

The remainder of the Proposed Decision is unchanged from the

January 16 Proposed Decision. We propose that refunds to eligible

purchasers be based on the volume of products that they purchased

during the price control period and the extent to which they can

demonstrate injury. The proposed volumetric refund amount is $0.0016

per gallon.

Because the June 30, 1995 deadline for crude oil refund

applications has passed, we propose not to accept any new applications

for refund in this proceeding. As we state in the Proposed 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.

Any member of the public may submit written comments regarding the

proposed refund procedures. Commenting parties are requested to submit

two copies of their comments. Comments should be submitted within 30

days of publication of this notice in the Federal Register, and should

be sent to the address set forth in the beginning of this notice. All

comments received in this proceeding will be available for public

inspection between the hours of 1:00 p.m. to 5:00 p.m., Monday through

Friday, except federal holidays, in the Public Reference Room of the

Office of Hearings and Appeals, located in Room 1E-234, 1000

Independence Ave., SW, Washington, DC 20585-0107.

Dated: March 14, 1996.

Thomas O. Mann,

Acting Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Implementation of Special Refund Procedures

Name of Case: Texas American Oil Corporation

Date of Filing: September 1, 1995

Case Number: VEF-0019

On January 16, 1996 the Office of Hearings and Appeals (OHA) of the

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

that tentatively established refund procedures for the distribution of

crude oil overcharge funds obtained from Texas American Oil Corporation

(Texas American) and four other firms. Brio Petroleum, Inc., Case Nos.

VEF-0017 et al., 61 Fed. Reg. 1919 (January 24, 1996). In accordance

with the DOE's Modified Statement of Restitutionary Policy in Crude Oil

Cases (MSRP), 51 Fed. Reg. 27899 (August 4, 1989), the PDO 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. It has recently come to our

attention that the circumstances under which the DOE obtained the Texas

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American funds require that the funds be disbursed in a manner

different than that proposed in the PDO. Accordingly, we are issuing a

new PDO with respect to the Texas American funds.

Background

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

found that Texas American had violated 10 C.F.R. Sec. 211.67(e)(2) by

receiving excessive small refiner bias benefits under the DOE's

Entitlements Program. 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.

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

forth priority in the distribution of a bankrupt estate:

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

* * * * *

(a)(4) forth, 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 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 portion to be paid

to the federal and statement 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\

\2\ As of February 29, 1996, the account contained $50,596.54,

consisting of $48,307.13 principal and $2,289.41 interest.

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In accordance with 10 C.F.R. 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. In the PDO, we tentatively granted the petition, stating that we

intended to implement a Subpart V proceeding to distribute the funds to

individual claimants and state and federal governments in accordance

with the MSRP. The following section of this Proposed Decision sets

forth our revised tentative plan to distribute these funds.

Proposed Refund Procedures

We propose to 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. This sui generis proposal

results from the unique circumstances under which these funds were

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

position of the DOE that had been upheld in the West Texas case \3\ we

are constrained by the Federal Circuit's decision to use the funds

received from Texas American solely for direct restitutionary purposes.

Moreover, as indicated above, the Texas American Bankruptcy Court, in

accordance with the Federal Circuit's determination, distributed to the

DOE only 20 percent of its liquidated claim, an amount equivalent to

the portion of crude oil overcharge funds that we have consistently

reserved for individual claimants under the MSRP.

\3\ 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

citizen was for restitution and not for a penalty.

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

propose to follow the procedures set forth in the initial PDO and

adopted 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. See City of Columbus,

Georgia 16 DOE Sec. 85,550 (1987). We also proposed to base refunds to

claimants on a volumetric amount that is currently $0.0016 per gallon.

See 60 Fed. Reg. 15562 (March 24, 1995).

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). Because the June

30 1995 deadline for crude oil refund applications has

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passed, we propose not to 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.

Before taking the action proposed in this Proposed Decision, we

intend to publicize our proposal and solicit comments from interested

parties. Comments regarding the tentative distribution process set

forth in this Proposed Decision and Order should be filed with the OHA

within 30 days of its publication in the Federal Register.

It is therefore ordered that:

The refund amount remitted to the Department of Energy by Texas

American Oil Corporation pursuant to the Order of the United States

Bankruptcy Court for the Northern District of Texas signed on April 12,

1995, will be distributed in accordance with the foregoing Decision.

[FR Doc. 96-7270 Filed 3-25-96; 8:45 am]

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