Basin, Inc. v. Mobil Oil Corp., 5-45.

• Decision Date: 05 March 1980
• Docket Number: No. 5-45.,5-45.
• Citation: 616 F.2d 1199
• Parties: BASIN, INC., Plaintiff-Appellant, v. MOBIL OIL CORPORATION and James R. Schlesinger, Secretary of Energy, Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

616 F.2d 1199

BASIN, INC., Plaintiff-Appellant, v. MOBIL OIL CORPORATION and James R. Schlesinger, Secretary of Energy, Defendants-Appellees.

No. 5-45.

Temporary Emergency Court of Appeals.

Argued January 4, 1980.

Decided March 5, 1980.

Cecil E. Munn, Cantey, Hanger, Gooch, Munn & Collins, Fort Worth, Tex., for plaintiff-appellant.

Donald G. Canuteson, Strasburger & Price, Dallas, Tex., with whom Leo J. Hoffman and Stuart C. Hollimon, Houston, Tex., of the same firm, and Francis A. Rowen, Jr., New York City, were on brief, for Mobil Oil Corporation, defendants-appellees.

Thomas H. Kemp, Dept. of Energy, Washington, D. C., with whom John McKenna and Nancy Crisman, Washington, D. C., of the same agency, were on brief for James R. Schlesinger, Secretary of Energy, defendants-appellees.

Before CHRISTENSEN, INGRAHAM and MORGAN, Judges.

LEWIS R. MORGAN, Judge.

In 1974 the Federal Energy Office, agency predecessor of the Department of Energy (DOE), froze all petroleum supplier-purchaser obligations in order to stabilize the domestic petroleum distribution system and protect small and independent refiners from being squeezed out of the market by the shortage. Regrettably, the freeze has adverse effects on small and new independent resellers, who are unable to expand or enter new markets. The regulations have therefore been amended several times to allow for greater competition without entirely thawing the freeze. This case involves an interpretation of those amendments.

Basin, Inc. initiated this action against Mobil Oil Corporation to obtain a declaratory judgment that Mobil is a "reseller" subject to being substituted under 10 C.F.R. § 211.63. Mobil counterclaimed for a declaratory judgment that it is a "refiner" protected from substitution by the same regulatory provision. The parties filed cross-motions for summary judgment and the district court, finding no material issue of fact, entered judgment for Mobil. In this appeal, Basin asks that we reverse the district court's action on the cross motions and direct the court to enter summary judgment for Basin. Basin agrees with Mobil and the district court that there exists no issue of fact, and is resistant to any remand that would send the case to trial.

The root of the controversy is the reseller substitution rule appended to the freeze regulations on December 1, 1977 to permit a crude oil producer to substitute resellers provided that the new reseller offers refiners supplied by the old reseller a right of first refusal to continue to purchase the producer's crude oil. 10 C.F.R. § 211.63(d)(1)(iv). If the producer sells directly to a refiner, no substitution is possible under the regulations. The substitution provision thus allows competition between middlemen in the supply chain without cutting off refiners dependent on their established crude oil producers.

Whether a business is protected from or exposed to competition depends on its status as a "refiner" or "reseller" under section 211.63 of the regulations. Basin is a crude oil reseller. Mobil is a refiner supplied in part by its own production, but it also purchases and sells large quantities of oil in what it terms "accommodation sales" for the purpose of supplying its refineries with oil of the right type and at the right location.

Among the crude oil producers who sold to Mobil under the supply freeze were Texas American Oil Corporation, BTA Oil Producers and Joseph I. O'Neil. The crude oil purchased by Mobil from these producers was intermingled with other supplies, most of which was resold to other companies in accommodation sales. In December 1977, Texas American, BTA and O'Neil notified Mobil that they intended to terminate their supply relationship with Mobil and would sell instead to Basin. Mobil responded that it would not consent to the substitution, and that as a "refiner," it could not be deprived of its rights to the producers' oil.

On December 16, 1977, Mobil filed a request for an interpretation with DOE's national office in Washington, D. C. setting forth the facts and seeking an order declaring that Mobil is a "refiner" as that term is used in section 211.63(d)(1)(iv). Although DOE did not respond directly to this request, it did issue Ruling 1977-8, an interpretation of section 211.63(d)(1)(iv) as it applies to refiners who make certain types of sales, including accommodation sales. Ruling 1977-8 concludes that refiners who make accommodation sales, without more, are refiners and not resellers under section 211.63(d)(1)(iv). Nevertheless, the three producers terminated their supplies to Mobil and began to sell the same quantities of oil to Basin. Mobil filed a complaint with DOE seeking the issuance of notices of probable violation against the producers and Basin. This complaint is now pending before DOE. Basin's action for a declaratory judgment in the district court was commenced at about the same time that Mobil filed its DOE complaint.

The word "reseller" is used throughout the petroleum allocation regulations but is not defined by the regulations. A literal or dictionary interpretation of the word would leave little doubt that Mobil is a reseller, for Mobil regularly purchases and resells crude oil. It is also true, however, that Mobil is a refiner. The regulations offer no assistance in our endeavor to discern whether the regulatory terms "reseller" and "refiner" were intended to be mutually exclusive, or whether a refiner might be regarded as a refiner and a reseller for purposes of the reseller substitution rule. Nor do the regulations provide guidelines for the treatment of petroleum businesses which are both refiners and resellers. Plain as the regulations may appear on their face, in the situation before us they yield a conundrum. On the basis of the history and purposes of the regulations, however, we agree with the district court that Mobil must be regarded only as a refiner in this case.

Of pivotal importance in our interpretation of the regulations is Ruling 1977-8, which addressed the problem of what kinds of sales might convert a refiner into a reseller under the regulations. The agency ruling offers a solution which hinges a refiner's status as a refiner or reseller on the reasons for which its oil supply is purchased. Four possible reasons are considered: (1) for direct use as a refinery feedstock; (2) for exchange (through direct exchanges, matching purposes and sale agreements, time trades, etc.) to obtain suitable crude oil for refining feedstock; (3) to resell for profit; and (4) for use in accommodation sales. The first three possible reasons for purchase present no difficulty. Purchases of oil for refining or to be exchanged for oil for refining are simple refinery activities. Protection of supply rights for these purposes is consonant with the objectives of the regulations. Purchasing for resale at a profit, on the other hand, is a reseller activity. To the extent that a refiner engages in reselling for profit, its...