United States v. Standard Oil Company of California, 57

• Citation: 270 F.2d 50
• Decision Date: 19 August 1959
• Docket Number: Docket 25078.,No. 57,57
• Parties: UNITED STATES of America, Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA, The Texas Company, Bahrein Petroleum Company, Ltd., California-Texas Oil Company, Ltd., Caltex Oceanic, Ltd., and Mid-East Crude Sales Company, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

270 F.2d 50 (1959)

UNITED STATES of America, Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA, The Texas Company, Bahrein Petroleum Company, Ltd., California-Texas Oil Company, Ltd., Caltex Oceanic, Ltd., and Mid-East Crude Sales Company, Appellees.

No. 57, Docket 25078.

United States Court of Appeals Second Circuit.

Argued February 10, 1959.

Decided August 19, 1959.

George Cochran Doub, Asst. Atty. Gen., Milo V. Olson, Sp. Asst. to Atty. Gen., John G. Laughlin, Atty. (Morton Hollander, Atty., on the brief), Department of Justice, Washington, D. C., for appellant.

John T. Cahill (Cahill, Gordon, Reindel & Ohl, New York City, Turner H. McBaine, San Francisco, Cal., William M. Sayre, James B. Henry, Jr., David R. Hyde, New York City, on the brief), for appellee, Standard Oil Co. of California.

Bethuel M. Webster, New York City (Webster, Sheffield & Chrystie, Oscar John Dorwin, Frederick P. Haas, Donald J. Cohn, New York City, on the brief), for appellee, The Texas Co.

Joseph M. Proskauer, New York City (Proskauer, Rose, Goetz & Mendelsohn, Albert E. Van Dusen, Marvin E. Frankel, Julius J. Teller, New York City, on the

brief), for appellees, Bahrein Petroleum Co., Ltd., California-Texas Oil Co., Ltd., Caltex Oceanic, Ltd., and Mid-East Crude Sales Co.

Before MADDEN, Judge, United States Court of Claims,^* MOORE, Circuit Judge, and KAUFMAN, District Judge.

LEONARD P. MOORE, Circuit Judge.

This action was brought by the United States of America (referred to as the "government") against a group of oil companies to recoup from them the sum of $66,021,257.77 expended by the government pursuant to the provisions of the Economic Cooperation Act of 1948, 22 U.S.C.A. § 1501 et seq., through the Economic Cooperation Administration and the Mutual Security Agency (referred to as "ECA"), to finance the purchase of crude oil produced in the Middle East and sold by defendants Caltex Oceanic, Ltd. (referred to as "Oceanic") and Mid-East Crude Sales Company (referred to as "Mid-East") (sometimes collectively referred to as "Caltex"), to various importers in foreign countries. In the alternative the government asks for a lesser amount, $16,472,178.51, the difference between the amount paid and the amount the government claims should have been paid under its interpretation of the law and the facts. The district judge received a vast amount of proof from both sides which he carefully analyzed in a lengthy opinion (D.C., 155 F. Supp. 121). He concluded that the defendants were entitled to judgment on the merits and dismissed the complaint. The government appeals.

Aside from a technical argument relating to the burden of proof the government's principal assignments of error are: (1) that ECA financed sales by defendants during the period September 1, 1950 to September 1, 1952 were at prices which did not "approximate, as nearly as practicable, lowest competitive market prices";¹ and (2) that the sales in issue were not at prices which did "not exceed any price charged by the supplier at the time of purchase in a comparable export sale of a similar commodity,"² either of which conditions allegedly rendered the sales ineligible for financing under the limitations imposed by ECA Regulation 1. Contributing to, if not entirely responsible for, these errors, was the court's failure, so argues the government, to hold that certain particular sales and transactions selected by the government were determinative of noncompliance with these requirements.

Defendants answer by asserting that the "lowest competitive market prices" provision was merely an expression of policy and that even if it be construed as a substantive rule, all of the sales in question were made in full compliance with its terms.³

Shortly after the termination of World War II the government decided to extend financial aid to certain foreign countries to enable them to purchase various commodities and to assist them in their economic recovery. The plan was popularly known as The Marshall Plan. The commodity here involved was Saudi Arabian crude oil. Under the Plan a buyer would apply to his government for authorization to make a purchase, would negotiate with the seller for the best price he could obtain, and would deposit the purchase price in his own currency in a "counterpart fund." The seller would be paid in ECA dollars loaned or granted by our government to the participating country.

Originally Congress enacted a statute to the effect that sales should not be financed at prices higher than the market price prevailing in the United States adjusted for transportation costs to destination, quality and terms of payment (22 U.S.C.A. § 1510(l), repealed August 26, 1954). Suppliers were required to sign certificates that the price was within this statutory limit. When ECA Regulation 1 was amended to state rules, such as the "comparable sales" test (note 2, supra), which were stated as fixing the point beyond which purchases would not be eligible for reimbursement by ECA, the Supplier's Certificate was amended to state that the price charged was not in excess of that allowed by the applicable price provisions of the Regulation.

The question is: Were defendants' prices in compliance with the terms of the Regulation? Payments having been made by ECA, the government now claims that its post-audit discloses noncompliance. As required by the amended Regulation, suppliers' certificates certifying that the purchase prices were no higher than the permitted prices were submitted by the selling companies, Oceanic and Mid-East.

Regulation 1

Searching for some one or more theories of liability which may prove to be legally sufficient and factually supported, the government has industriously and imaginatively pursued every possibility and clue. The first complaint alleged: (A) that defendants charged prices in excess of: (1) prevailing market prices in the United States; (2) comparable export prices; and (3) prices prevailing in the Middle East; (B) that defendants charged lower prices on non-ECA sales; and (C) that the ECA payments had been made by mistake. By amendment the government asserted that because of excessive prices based on the comparable sales theory the suppliers' certificates were false.

The second amended complaint narrowed the issues. The allegations of fraud and deceit were abandoned and damages only from September 1, 1950 to September 1, 1952 were sought. In support of its "lowest competitive market price" theory the government advanced three arguments: (a) that the prices charged could not exceed the lowest price calculated according to its formula; (b) that a special rule required such a price; and (c) that there was a specific agreement between the parties to charge such a price. The defendants point to these vacillations in theory as a sign of weakness and claim that the government seeks to capitalize on hindsight. This is fair comment but were the government, even after many years of pretrial preparation, able to discover a clear violation of law its earlier misconceptions should not becloud the merits if at last it were able to hit upon a sound theory. After all, the defendants required many years of exploration before oil in commercially profitable quantities was found.

Regulation 1 is the keystone of the government's case. The words are reasonably clear but the parties give them widely divergent interpretations. Thus the Regulation states that "it is the policy of ECA to make payment only for purchases of commodities * * * at prices that approximate, as nearly as practicable, lowest competitive market prices." Defendants stress the word "policy" and would limit its meaning to a broad general statement whereas the government interprets it as a binding declaration of price. The next paragraph of the Regulation refers to "rules set forth in this section" which "are intended as a guide to buyers and sellers in conducting their negotiations." Policy having been stated, normal procedure would call for immediate reference to specific "rules" but even the "rules" are only to be a guide to buyers and sellers. ECA, as the government properly asserts, was not a price-fixing agency. Yet these "rules" assume more than policy importance because they "fix the point beyond which purchases will not be eligible for reimbursement by ECA." The next sentence restates this same declaration in the affirmative, i. e., "Compliance with them will make a purchase eligible for financing, * * *" ECA was vested with the duty "to determine whether there has been compliance" by making its own "post-audit." Thus far the procedure seems definite enough, "rules," "compliance" and ECA "post-audit" to determine compliance. But what happens if there be violations? Again the Regulation speaks. "If it appears that the objective of lowest competitive market prices is not being met, ECA will take appropriate action to impose additional limitations." The procedural cycle is thus complete. Sanctions are to be imposed for violations and ECA is charged with the responsibility of taking "appropriate action."

The government relies upon several theories. First, it would make the policy statement in the Regulation a specific price rule. Second, it would fix the lowest competitive market price in accordance with the government's hypothetical formula for calculating an assumed f. o. b. price in the Middle East by converting a c. i. f. price (Canada) into an f. o. b. price (Middle East) or, in the alternative, using the "offtake" price of $1.43. Third, an agreement between the parties to charge no more than a price derived from the alleged formula.

Although there is sharp dispute as to whether Section 201.22 of Regulation I is a price setting rule or merely an expression of policy, it is not necessary to resolve this question. Even were it assumed that the section is a price fixing rule, the government has failed to show that it was violated by the defendants.

The phrase "approximate, as...