Johnson Oil Co., Inc. v. US Dept. of Energy

• Decision Date: 21 September 1982
• Docket Number: 10-44.,No. 10-43,10-43
• Citation: 690 F.2d 191
• Parties: JOHNSON OIL COMPANY, INC., Plaintiff and Counterclaim Defendant-Appellant, v. UNITED STATES DEPARTMENT OF ENERGY, et al., Defendants, and SOUTHWESTERN REFINING COMPANY, INC., Intervenor-Defendant, Counterclaimant-Appellee and Third Party Plaintiff-Appellant, v. Reland JOHNSON and Wilma Johnson, Third Party Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

690 F.2d 191

JOHNSON OIL COMPANY, INC., Plaintiff and Counterclaim Defendant-Appellant, v. UNITED STATES DEPARTMENT OF ENERGY, et al., Defendants, and SOUTHWESTERN REFINING COMPANY, INC., Intervenor-Defendant, Counterclaimant-Appellee and Third Party Plaintiff-Appellant, v. Reland JOHNSON and Wilma Johnson, Third Party Defendants-Appellees.

Nos. 10-43, 10-44.

Temporary Emergency Court of Appeals.

Argued August 12, 1982.

Decided September 21, 1982.

As Amended September 21, 1982.

Rehearing Denied October 6, 1982.

COPYRIGHT MATERIAL OMITTED

William H. Bode, Batzell, Nunn & Bode, Washington, D. C., with whom John E. Varnum, Washington, D. C., of the same firm, were on the briefs for Johnson Oil Co.

J. Bryan Perilman, DiSalle & Staudinger, Washington, D. C., argued for Southwestern Refining Co., Inc., Susan A. Goltz and David C. Nevitte, Washington, D. C., of the same firm, were on the briefs.

Allen M. Swan, Kirton, McConkie & Bushnell, Salt Lake City, Utah, was on the brief for Reland and Wilma Johnson.

Before CHRISTENSEN, ESTES and JAMESON, Judges.

ESTES, Judge.

These consolidated appeals primarily involve the counterclaims (in TECA 10-44) of Southwestern Refining Company, Inc.^* (Southwestern), a crude oil refiner, against Johnson Oil Company, Inc.^** (Johnson Oil), a crude oil reseller, of pricing overcharges under the reseller pricing rule, and violations of the supplier/purchaser rule and crude oil certification regulation under the Mandatory Petroleum Price and Allocation Regulations. Johnson Oil initiated this litigation in an effort to overturn a Department of Energy (DOE) order which redirected Johnson Oil's crude oil supplies to Southwestern. Southwestern intervened and filed the counterclaim against Johnson Oil as well as a third-party complaint (TECA 10-43) against the principal shareholders and officers of Johnson Oil, Reland and Wilma Johnson (the Johnsons), individually. Johnson Oil then filed an amended complaint seeking damages against Southwestern for various violations of the price and allocation regulations. DOE was dismissed as a party prior to trial. The trial court, denying Johnson Oil any relief on its claims against Southwestern, awarded Southwestern a judgment against Johnson Oil on its counterclaims in the amount of $433,436.88 but dismissed the third-party complaint against Reland and Wilma Johnson individually. Both Johnson Oil and Southwestern appeal from the judgment entered in the United States District Court of Utah on January 29, 1982.

BACKGROUND FACTS

In the 1960's Johnson Oil was a crude oil reseller, purchasing crude oil from producers around LaBarge, Wyoming. Johnson Oil gathered oil from wellheads and central tank batteries, then transported and sold it to area refiners. In the early 1970's the Johnsons constructed their own refinery, Southwestern Refining Company, Inc. Johnson Oil had contracted with two producers to purchase crude oil, this being their two main sources—condensate from Mobil Oil Corporation (Mobil) and crude oil from Mountain Fuel Supply Company (Mountain). For the purposes of the regulations condensate is the equivalent of crude oil. Southern Union Production v. Federal Energy Admin., 569 F.2d 1147, 1148 (Em.App.1978). When the Southwestern Refinery became operational, Johnson Oil primarily sold its crude oil supply to Southwestern. In turn, Johnson Oil marketed the refined products from Southwestern— motor gasoline, diesel fuel, and residual fuel. In April 1974 a dispute with its suppliers, Mountain and Mobil, interrupted Johnson Oil's crude supplies and caused the Southwestern Refinery to lie essentially idle. In August 1975 the Johnsons sold all of their capital stock in Southwestern Refining to a group represented by Richard Preble under contract (hereinafter referred to as the 1975 sales contract).

In November 1975 Mobil resumed Johnson Oil's crude oil supply which Johnson Oil would have sold to Southwestern but for a dispute with Southwestern's new owners. Johnson Oil sold its Mobil crude oil elsewhere until it entered into a settlement agreement with Southwestern in September 1976. In November 1976 Mountain began resupplying Johnson Oil, and by December of that same year Johnson Oil had resumed supplies of both Mobil and Mountain crude oil to Southwestern.

The Johnsons built another refinery, the Silver Eagle, which went into operation in October 1978. Johnson Oil then informed Southwestern that as of April 1, 1979 it would no longer supply Southwestern with crude oil.

On February 15, 1979 the DOE issued a decision and order in Southwestern Refining Co., Inc., No. DES-0148, CCH Energy Management, 3 DOE ¶ 82,018 (Feb. 15, 1979), which allowed Southwestern to succeed to Johnson Oil's crude oil allocation rights from Mobil and Mountain. As mentioned above, Johnson Oil initiated this litigation with a challenge to this order.

THE CRUDE OIL ALLOCATION ISSUE

On February 28, 1979 the District Court enjoined DOE from reassigning the crude oil supply from Mobil and Mountain and required Johnson Oil to continue the supply of Mobil and Mountain to Southwestern. At the trial Johnson Oil contended it had a right to stop selling crude oil to Southwestern and retain it for its own refinery, Silver Eagle, and sought a declaratory judgment to that effect.

The trial court properly found that the parties established a supplier/purchaser relationship by their 1975 sales contract, which in Paragraph 8 gave Southwestern a right of first refusal to Johnson Oil's crude oil supplies from Mobil and Mountain, and that this relationship was to endure throughout the crude oil allocation program in accordance with 10 C.F.R. § 211.63(b).¹ 41 Fed.Reg. 24340 (June 16, 1976).

The objective of the rule as applied was to freeze relationships which existed on January 1, 1976. Although Johnson Oil delivered no crude oil under the 1975 sales contract until December 1976, this delivery quantified its supply obligation to Southwestern and related back to January 1, 1976 under § 211.63(b)(2).

Johnson Oil contends that Paragraph 8 of the 1975 sales contract as incorporated in the 1976 settlement agreement between the parties effected a waiver of Southwestern's supply rights.² The trial court correctly found neither a waiver nor an effective termination of these rights in these agreements.

A waiver is a voluntary and intentional relinquishment of a known right. Johnson v. Zerbst, 304 U.S. 458, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938). The DOE and the Federal Energy Administration (FEA), predecessor to the DOE, only allowed waivers of § 211.63 rights when it was evident that both the parties possessed full knowledge of the terms of § 211.63 and the rights arising thereunder. State of Alaska, FEA Interpretation 1977-7 (Apr. 27, 1977), 6 CCH Energy Management ¶ 56,344; 42 Fed.Reg. 31143 (June 30, 1977). The Permian Corp., DOE Interpretation 1978-45 (July 18, 1978), 6 CCH Energy Management ¶ 56,436; 43 Fed.Reg. 34436 (Aug. 4, 1978). Paragraph 8, relied upon by Johnson Oil, is a general waiver which fails to specify any rights under § 211.63.

Neither does Paragraph 8 effect a valid waiver of Southwestern's option to terminate. Johnson Oil attempted a termination in December 1978 when it notified Southwestern it would no longer supply Southwestern crude oil effective April 1, 1979. The option to terminate a 1976 supplier/purchaser relationship was the purchaser's under § 211.63(d)(1)(i).³ Advance consent to terminate was recognized by the DOE if it was written, specific as to the rights under § 211.63 and had a specified termination date. Giant Industries, Inc., DOE Interpretation 1981-2 (Jan. 6, 1981), 6 CCH Energy Management ¶ 56,535; 46 Fed. Reg. 27280 (May 18, 1981). Paragraph 8 fails as such an advance consent in that it makes no reference to § 211.63 rights nor a specific termination date.

The trial court's findings on this issue are not only a correct application of the regulation, but fulfill the objective of the rule and the goals of the crude oil allocation program under the Emergency Petroleum Allocation Act (EPAA), i.e., "the preservation of ... the competitive viability of independent refiners, and small refiners ..." 15 U.S.C. § 753(b)(1)(D) (1976). See also Condor Operating Co. v. Sawhill, 514 F.2d 351, 358 (Em.App.1975), cert. denied, 421 U.S. 976, 95 S.Ct. 1975, 44 L.Ed.2d 467 (1975). (TECA would not allow a contractual provision similar to that urged here to disrupt the supplier/purchaser relationship and thereby frustrate the objectives of the EPAA.)

We hereby affirm the trial court's award of damages to Southwestern for Johnson Oil's failure to supply crude oil and further affirm the denial of Johnson Oil's request for a declaratory judgment.

THE STATUTE OF LIMITATIONS ISSUE

Before discussing the price overcharge issue, a proper time frame for those violations should be delineated. The trial court applied Wyoming state law for such limitation (because there is no statute of limitations provided for in the EPAA), and its choice of law was not disputed on appeal.

The issue Johnson Oil raises is whether the trial court erred in applying Wyoming's ten-year statute of limitations to Southwestern's claims instead of a two-year statute.⁴

"Generally in the absence of a statutory limitation provided by Congress, a federal court will apply the most analogous state law of limitations," Ashland Oil Co. of Calif. v. Union Oil Co. of Calif., 567 F.2d 984, 989 (Em.App.1977), cert. denied, 435 U.S. 994, 98 S.Ct. 1644, 56 L.Ed.2d 83 (1978); Colorado Pet. Products Co. v. Husky Oil Co., 646 F.2d 555 (TECA 1981), the only qualification being that such statute not be inconsistent with national energy policy. United Parcel Service v. Mitchell, 451 U.S. 56, 101 S.Ct. 1559, 67 L.Ed.2d 732 (1981).

The trial court applied the ten-year statute for contract actions because, as discussed earlier, Johnson Oil contracted with Southwestern to supply it crude oil, specifying the prices...