Quincy Oil, Inc. v. Federal Energy Administration

• Decision Date: 02 April 1979
• Docket Number: Civ. A. No. 76-4096-C.
• Citation: 468 F. Supp. 383
• Parties: QUINCY OIL, INC., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, Defendant.
• Court: U.S. District Court — District of Massachusetts

468 F. Supp. 383

QUINCY OIL, INC., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, Defendant.

Civ. A. No. 76-4096-C.

United States District Court, D. Massachusetts.

April 2, 1979.

Timothy H. Gailey, Hale & Dorr, David S. Mortensen, Boston, Mass., for plaintiff.

Cynthia S. Bogorad, Bonnie S. Blair, Spiegel & McDiarmid, Washington, D. C., Edward A. Roster, Roster & Antine, Taunton, Mass., for intervenor, Taunton Municipal Lighting Plant.

Carolyn Grace, Asst. U. S. Atty., Boston, Mass., Mark J. Kreitman, Ellen P. Spangler, U. S. Dept. of Energy, Regulatory Litigation Div., Washington, D. C., for defendant.

OPINION

CAFFREY, Chief Judge.

This is a civil action for declaratory judgment and injunctive relief brought by Quincy Oil, Inc. (Quincy) against the Federal Energy Administration (FEA), now the Department of Energy (DOE). Plaintiff, Quincy, seeks judicial review of orders of the DOE. The agency found that Quincy had violated the mandatory Petroleum Price Regulations with respect to sales of No. 6 fuel oil by Quincy to Taunton Municipal Lighting Plant (Taunton) during the period November 1, 1973 through May 31, 1976¹ and ordered Quincy to refund approximately $400,000 in overcharges. It denied exceptional relief from that finding. Quincy also challenges the validity of FEA Ruling 1977-5 which DOE relied on in its final Order and Decision of March 31, 1977. The parties filed certain discovery motions which were referred to the magistrate.

The matter is now before the Court on DOE's appeal from a portion of the discovery order issued by the magistrate on October 23, 1978. The magistrate denied DOE's request for a protective order and allowed Quincy to depose the decisionmaker who issued the notice of probable violation (NOPV) which lead to the administrative order which found Quincy in violation of the petroleum price regulations. The magistrate ordered DOE to file forthwith the complete administrative record. He also allowed Quincy's request for production of documents generated during the investigative stage of the proceedings but denied Quincy's request for unofficial agency statements.

The case filed is burdened with several memoranda submitted by each of the parties. After hearing, I now affirm in part and reverse in part the magistrate's order.

An explication of the applicable regulatory law, factual background and administrative proceedings to date assists the Court in determining the scope of discovery, if any, to be ordered.

Pursuant to the authority of the Economic Stabilization Act of 1970 (ESA), 12 U.S. C.A. § 1904, and the Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C.A. § 751 et seq., the FEA promulgated regulations establishing the maximum allowable price which a reseller of refined petroleum products may charge. The basic rule, subject to exceptions not here relevant, is that:

A seller may not charge a price for any item subject to this subpart which exceeds the weighted average price at which the item was lawfully priced by the seller in transactions with the class of purchaser concerned on May 15, 1973, plus an amount which reflects on a dollar-for-dollar basis, increased costs on the item.

10 C.F.R. § 212.93(a) (emphasis added). The term "transaction" is defined in the regulations as occurring "at the time and place when a binding contract is entered into between the parties," 10 C.F.R. § 212.31, a definition originally adopted in 1973 by the Cost of Living Council (CLC) and later adopted by the FEA. Gulf Oil Corp. v. Schlesinger, 465 F.Supp. 913 (1979).

In March, 1977 the FEA issued Ruling 1977-5 purporting to clarify the proper meaning and application of the definition of transaction. The Ruling provides that, when a contract has a variable price term:

That such a . . . contract is merely a general sales agreement which, because of its lack of a fixed price that would reflect market level prices on the date the contract was entered into, cannot be regarded as a "binding contract" for purposes of the definition of "transaction" and the computation of May 15, 1973, selling prices. Within the framework of such a general sales agreement, one or more subsidiary contracts occur, and they are presumed to have been entered into on the date the price becomes fixed with respect to a particular delivery. At that time a fixed price is specified with respect to a particular delivery pursuant to the terms of a general sales contract, a "binding contract" arises for purposes of the definition of "transaction."

42 Fed.Reg. 15306.

In April, 1972, Quincy entered into a variable-price contract to supply No. 6 fuel oil to Taunton for a one-year period which extended from May 1, 1972 through April 30, 1973. The contract contained a clause which conferred authority on Taunton unilaterally to extend the supply contract for an additional 90 days beyond April 30, 1973 at the same price. On April 23, 1973, Quincy and Taunton entered into another variable-price contract in which Quincy agreed to supply No. 6 fuel oil to Taunton for the period May 1, 1973 through April 20, 1974. Taunton exercised its 90-day option under the April, 1972 contract, and Quincy continued to make deliveries at prices established under the terms of the old contract until July 31, 1973. Deliveries under the new contract did not commence until August 1, 1973.

On January 13, 1976, after an audit of Quincy's books and records, the FEA issued a NOPV to Quincy, which alleged that Quincy violated the price regulations in its sales to Taunton by calculating its May 15, 1973 selling price under its new contract, which the FEA claimed did not take effect until August 1, 1973. The NOPV stated that the maximum allowable selling price was to be determined on the basis of the price at which Quincy charged Taunton in transactions on May 15, 1973.

On May 15, 1976, Quincy submitted a formal reply to NOPV setting forth its contention that a "transaction" between Quincy and Taunton took place on April 23, 1973, when the parties signed the new contract and that the maximum allowable price should be computed by reference to that contract.

On November 2, 1976, DOE issued a Remedial Order (RO) which concluded that Quincy had in fact violated the petroleum price regulations. The RO discussed Quincy's submissions, the history and intent of the regulatory pricing rules, the definition of "transaction," the application of the regulations and definitions to the Quincy-Taunton facts, and set forth in an attachment the computations used to calculate the amount of overcharges which Quincy would be required to repay to Taunton. The RO concluded that the price at which Quincy delivered fuel oil to Taunton on May 15, 1973 was the base price which Quincy was required to use in determining its maximum allowable selling price for the purposes of the FEA price regulations.

Quincy appealed the RO to the Office of Exceptions and Appeals of the FEA on November 11, 1976, contending that the RO was contrary to the plain meaning of the FEA's regulations and that it was arbitrary and capricious and an abuse of discretion. In addition, Quincy contended that the RO was an unlawful confiscation of Quincy's property in violation of the Constitution. This appeal was denied by Decision and Order of March 31, 1977 in a thirteen-page opinion which agreed with the conclusion reached in the RO but applied Ruling 1977-5, which defines "transaction" in a manner different from that in the RO. The opinion ordered Quincy to refund the overcharges to Taunton. This is the first of the two orders challenged by Quincy in this action.

Parallel to the above proceeding, there was a proceeding for prospective and retroactive exception relief from the NOPV. Quincy applied, pursuant to 10 C.F.R. ¶ 205.50, on January 16, 1976, for exception relief from the NOPV, contending that strict application of the regulations as interpreted by FEA would cause severe hardship and gross inequity. The FEA denied Quincy's application for exception on May 7, 1976. Thereafter, Quincy filed an administrative appeal which the FEA denied by Decision and Order of November 8, 1976.

In April, 1977, Quincy filed a further application for exception relief based on the invitation contained in FEA Ruling 1977-5. On November 23, 1977, FEA dismissed Quincy's application for exception, without prejudice for resubmission at a later date, concluding that Quincy had failed to furnish financial and operating data necessary to a determination of Quincy's appeal. This is the second order from which Quincy appeals. Apparently, Quincy has submitted additional financial data for DOE to rule upon Quincy's exception application which is now pending before DOE.

On November 18, 1976, Quincy filed this action alleging that the challenged orders are arbitrary, capricious and contrary to law and not supported by substantial evidence on the record. On April 26, 1977, Quincy filed an amended complaint to include a challenge to Ruling 1977-5.² Quincy seeks a declaration that the prices charged Taunton during the period of price control were in compliance with the price regulations.

On March 6, 1978, DOE filed the administrative record, totalling approximately 600 pages. Also on that date, the parties filed cross-motions for summary judgment.

On April 23, 1978, Quincy moved to compel production of documents, including documents relating to DOE's audit of Quincy on which the RO was purportedly based, documents prepared by DOE relating to sales by Quincy of No. 6 fuel oil, the DOE auditor's report, and documents relating to the various decisions, orders and appeals in this case. In addition, Quincy sought documents instructing auditors as to the rules applicable in situations comparable to Quincy's and documents discussing when a transaction is deemed to occur under DOE regulations.

On April 28, 1976, Quincy noticed the deposition of John V. Balutis, who issued the NOPV.

Thereafter, Quincy moved to compel DOE to assemble...