646 F.2d 548 (Fed. Cir. 1981), DC-80, Bonnaffons v. United States Dept. of Energy

Docket Nº:DC-80.
Citation:646 F.2d 548
Party Name:Louis J. BONNAFFONS, William D. Melton, and Shell Oil Company, Plaintiffs-Appellants, v. The UNITED STATES DEPARTMENT OF ENERGY, The Government of Puerto Rico, The Shell Company (Puerto Rico) Limited, and Commonwealth Oil Refining Company, Inc., Defendants-Appellees.
Case Date:March 11, 1981
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 548

646 F.2d 548 (Fed. Cir. 1981)

Louis J. BONNAFFONS, William D. Melton, and Shell Oil Company, Plaintiffs-Appellants,

v.

The UNITED STATES DEPARTMENT OF ENERGY, The Government of Puerto Rico, The Shell Company (Puerto Rico) Limited, and Commonwealth Oil Refining Company, Inc., Defendants-Appellees.

No. DC-80.

Temporary Emergency Court of Appeals

March 11, 1981

Argued Oct. 30, 1980.

Page 549

[Copyrighted Material Omitted]

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William E. Wickens, Howrey & Simon, Washington, D. C., with whom William Simon, W. Donald Dresser and Joanne Parsons, Washington, D. C., of the same firm; and William G. Riddoch, Shell Oil Company, Houston, Tex., were on the brief for plaintiffs-appellants.

Larry Ellsworth, Dept. of Energy, Washington, D. C., with whom Sandra K. Webb and W. Thomas Rosemond, Jr. of the same agency and Alice Daniel, Asst. Atty. Gen., Civil Div., Dept. of Justice, Washington, D. C., were on the brief for defendant-appellee, Dept. of Energy.

Darci L. Rock, Bracewell & Patterson, Washington, D. C., with whom John R. Cope and Roger L. Reynolds of the same firm, and Miguel Gimenez Munoz, Atty. Gen., Dept. of Justice, San Juan, Puerto Rico, were on the brief for defendant-appellee, The Government of Puerto Rico.

Max O. Truitt, Jr., Wilmer & Pickering, Washington, D. C., with whom C. Loring Jetton, Jr. and Helen Torelli, Washington, D. C., of the same firm, were on the brief for defendant-appellee, The Shell Company (Puerto Rico) Limited.

James Hamilton, Ginsburg, Feldman, Weil & Bress, Washington, D. C., with whom Fred W. Drogula and Alan R. Yuspeh, Washington, D. C., of the same firm, and David Galbraith, Washington, D. C., were on the brief for defendant-appellee, Commonwealth Oil Refining Company, Inc.

Before LARSON, BONSAL and PECK, Judges.

LARSON, Judge.

In this appeal the Court is called upon to determine not only the relationship between two Royal Dutch/Shell Group corporations but also the relationship existing between the extended family serving the petroleum needs of the island of Puerto Rico. This is not merely a dispute between "first cousins" or "brother and sister;" this is a dispute affecting the interdependence of the Puerto Rican petrochemical industries in which both government and private parties are involved. Conscious of the deference afforded administrative decisions in these matters, see Amtel, Inc. v. FEA, 536 F.2d 1378, 1383 (Em.App.1976); Pasco, Inc. v. FEA, 525 F.2d 1391, 1401-04 (Em.App.1975), and the Emergency Petroleum Allocation Act's (EPAA), 15 U.S.C. s 753(b)(1)(D), objective of preserving a sound and competitive petroleum industry, this Court feels that the District Court's decision, 492 F.Supp. 1276, must be affirmed and this appeal denied.

I. PROCEDURAL AND FACTUAL BACKGROUND

Plaintiffs Shell Oil Company (Shell USA), Louis J. Bonnaffons, a Shell service station operator, and William D. Melton, a Shell gasoline customer, sought summary judgment setting aside an order of the defendant Department of Energy's (DOE) Office of Hearings and Appeals (OHA). This order directed Shell USA to supply a related Puerto Rican distributor, defendant The Shell Company (Puerto Rico) Limited (Shell PR), with gasoline and to purchase the gasoline from defendant Commonwealth Oil Refining Company, Inc. (CORCO), a Puerto Rican refiner. The District Court denied plaintiffs' motion for summary judgment and granted defendants' cross-motions for summary judgment and dismissed the case. Bonnaffons v. DOE, 492 F.Supp. 1276, 4 En.Mngm't Rep. (CCH) P 26, 210 (D.D.C.1980). On appeal, plaintiffs contend that DOE's granting of "exception relief" 1 from

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the Puerto Rico Price Rule, 39 Fed.Reg. 17,764 (1974), to Shell PR exceeded its lawful authority and was not supported by substantial evidence.

The Puerto Rico Price Rule requires Puerto Rico marketers affiliated with mainland United States refiners to price gasoline under the Refiner Price Rule, 10 C.F.R. s 212.83, rather than the Reseller Price Rule, 10 C.F.R. s 212.93. This means that these marketers will "roll in" their higher costs with the lower costs of their parent refiners and recover them nationwide under the Equal Application Rule, 10 C.F.R. s 212.83(h). Because Shell PR is not affiliated with a mainland refiner, 2 it is not able to roll in its costs with such a refiner and spread its costs nationwide. In early 1979 substantial cost increases in foreign crude oil required Shell PR to substantially raise its prices and resulted in large losses in its sales volume. Because of this situation, Shell PR applied for exception relief from the effect of the Puerto Rico Price Rule.

Also bearing on Shell PR's application for exception relief is the precarious nature of the petrochemical industry in Puerto Rico. See CORCO, 4 DOE P 81,118, at 82,997-98 (1979); Phillips Puerto Rico Core, Inc., 2 DOE P 81,106, at 83,210-14 (1978). In the 1950s, the federal government under the Operation Bootstrap Program provided incentives to induce firms engaged in petroleum-related activities to construct facilities in Puerto Rico that would rely on imported petroleum feedstocks. Since the fall of 1973, when the Arab oil embargo resulted in dramatically increased prices for foreign crude oil, the Puerto Rican refining and petrochemical industry has experienced severe financial difficulties. CORCO is the cornerstone of this petroleum industry. 3 Its precarious financial position has been considered by the DOE in a number of previous proceedings. See, e. g., CORCO, 4 DOE P 80,206 (1979); Phillips Puerto Rico Core, Inc., 2 DOE P 81,106 (1978); Ashland Oil, Inc., 6 FEA P 83,049 (1977). CORCO filed a petition for bankruptcy on March 2, 1978, and has since been operating as a debtor-in-possession under the jurisdiction of the bankruptcy court. Shell PR has been a major purchaser of gasoline from CORCO and accounts for 25% of CORCO's sales.

After two hearings and several notice and comment periods, the OHA issued an order that in effect made Shell USA the mainland refiner for Shell PR. This order required...

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