Getty Oil Co. v. Department of Energy

• Citation: 749 F.2d 734
• Decision Date: 26 September 1984
• Docket Number: No. 3-37.,3-37.
• Parties: GETTY OIL COMPANY, Plaintiff-Appellant, v. DEPARTMENT OF ENERGY, et al., Defendant-Appellee, and United States of America, Counterclaimant-Appellee.
• Court: U.S. Temporary Emergency Court of Appeals

749 F.2d 734

GETTY OIL COMPANY, Plaintiff-Appellant, v. DEPARTMENT OF ENERGY, et al., Defendant-Appellee, and United States of America, Counterclaimant-Appellee.

No. 3-37.

Temporary Emergency Court of Appeals.

Argued March 8, 1984.

Decided September 26, 1984.

Certiorari Denied February 19, 1985.

William E. Wickens, Surrey & Morse, Washington, D.C., with whom William Simon, P.C., and Robert J. Brookhiser of Howrey & Simon, Washington, D.C., Charles F. Richards, Jr. and Stephen E. Herrmann, Richards, Layton & Finger, Wilmington, Del., were on the brief; R. David Copley and Robert E. Hafey, Los Angeles, Cal., of counsel, for plaintiff-appellant.

David A. Engels, Dept. of Energy, Washington, D.C., with whom Larry P. Ellsworth and Charles L. Cope, Washington, D.C., of the same agency; William C. Carpenter, Asst. U.S. Atty., Wilmington, Del., and David M. Glass, Dept. of Justice, Washington, D.C., were on the brief for defendant-appellee and counterclaimant-appellee.

Before HOFFMAN, METZNER and LACEY, Judges.

Certiorari Denied February 19, 1985. See 105 S.Ct. 1176.

METZNER, Judge.

Getty Oil Company ("Getty") appeals from a final order of the district court granting summary judgment to the Department of Energy¹ ("DOE") and the United States. This order embraces an opinion affirming a decision and order of DOE's Office of Hearings and Appeals ("OHA"), which found that Getty had violated DOE's producer price regulations, 10 C.F.R. Part 212 (1974), in its sales of domestic crude oil to Standard Oil Company (Ohio) ("Sohio"). In this opinion the district court also found that DOE had not abused its discretion in ordering Getty to make repayment of the amount of its overcharges to the Treasury, and that DOE had authority to assess Getty prejudgment interest on the amount found to have been overcharged. The final order also covers a memorandum reaffirming the award of prejudgment interest.

I

On appeal, DOE relies on the language of two contract documents signed by Getty and Sohio on May 16, 1973, to sustain its position. Getty agrees in its reply brief that "the material facts are undisputed," and that only a question of law is presented as to the main question raised on this appeal. That question is whether DOE correctly determined that the 1973 documents jointly comprised one integrated agreement by which Getty traded domestic crude for Sohio's foreign crude with money payments merely equalizing the net values received.

The relevant facts are set forth in the district court's opinion, Getty Oil Co. v. Department of Energy, 569 F.Supp. 1204, 1206-08 (D.Del.1983), and familiarity with that opinion is assumed. Briefly, Getty and Sohio executed two documents on May 16, 1973. One provided for Sohio to sell 25,000 barrels per day of foreign crude oil to Getty to be delivered outside the United States. Getty used this oil to fulfill contracts it had in the Far East. The other provided for Getty to sell an identical amount of domestic crude to Sohio in this country. Similar trades are common in the oil industry. They provide each party with the oil it needs at a place where it is needed, at a cost lower than that which would be incurred if each company had to ship its oil to a distant location. The agreements were for a term from January 1, 1974 to January 1, 1977, with one year extensions subject to termination on twelve months' notice.

These documents were intended to continue a relationship whereby Getty supplied Sohio with domestic oil, while British Petroleum ("BP") supplied Getty with foreign oil. BP's parent company had a 26 per cent interest in Sohio. It was Sohio's assumption of BP's role as supplier to Getty that produced the instant problem.

The price for the purchase of domestic oil by Sohio was "the posted prices" or "the price which Getty Oil may lawfully charge, which may in no event exceed such posted prices." The price for the purchase of foreign oil by Getty was the domestic price less fixed differentials for Iranian Light Export oil and Abu Dhabi Export-Murban oil. The fixed differentials reflected the differences between the domestic and the foreign prices in effect in May 1973. The price of the foreign oil was subject to renegotiation at the request of either party. Cash payments were to be made under the contracts for the oil received.

As the district court observed, the two contracts "were coextensive in duration, expressly related to each other in respect to price, volume, term and termination, negotiated at the same meeting and executed on the same date." 569 F.Supp. at 1209. In addition, the domestic sales contract provided that should Sohio ultimately not supply Getty with the same amount of foreign oil as Getty had supplied Sohio domestically, Sohio would redeliver to Getty a sufficient quantity of domestic oil to make the total number of barrels delivered under each contract equal. The district court found that Getty and Sohio would not have executed one contract without concurrently executing the other, so that it was not surprising that DOE eventually concluded that "the value bargained for under one ... contract was part of the consideration for the ... oil supplied under the other." Id. at 1210.

The producer price regulations in effect for 1974-76 provide that "no producer may charge a price higher than the lower tier ceiling price for any first sale of domestic crude oil." 10 C.F.R. § 212.73(a) (1974). "Price" includes "any consideration for the sale of any property or services and includes commissions, dues, fees, margins, rates, charges, tariffs, fares, or premiums, regardless of form." 10 C.F.R. § 212.31 (1974). The regulations do not define "consideration."

It is undisputed that the monetary price charged by Getty for its domestic oil under the 1973 agreements was permissible under Section 212.73(a). It is also undisputed that after the general price increases for foreign oil in late 1973, the price Getty charged for its oil exceeded the regulatory maximum if the foreign and domestic crudes were indeed consideration for each other.

A regulatory agency is no more bound than is a court by the form in which regulated parties choose to cast a transaction, but may look beyond form to the economic substance, in order to further the regulatory purpose of Congress. Tenneco v. F.E.A., 613 F.2d 298, 302 (Temp.Emer.Ct.App.1979); Mobil Oil Corp. v. F.P.C., 463 F.2d 256 (D.C. Cir.1971), cert. denied, 406 U.S. 976, 92 S.Ct. 2409, 32 L.Ed.2d 676 (1972). That is precisely what DOE sought to do in this instance.

The district court correctly affirmed the finding by DOE that the documents constituted a single integrated transaction as a matter of law.

II

Getty argues that DOE itself initially recognized that Getty's treatment of the transactions was lawful. DOE went so far as to issue a Notice of Probable Violation ("NOPV") to Sohio declaring that the transactions were separate. Furthermore, certain agency personnel continued to view the sales as distinct even after that NOPV was withdrawn.²

Finally, Getty notes that the agency did not promulgate regulations deeming matching purchases and sales of crude oil to be exchanges until December 1978, 43 Fed.Reg. 59,810, 59,813 (12/21/78). Accordingly, Getty contends, the agency exceeded its authority in finding that Getty had committed a price violation by imposing sanctions upon Getty when the applicable law and regulations did not provide fair notice that the company's treatment of the transactions was improper. See Tenneco, 613 F.2d at 303; Longview Refining Co. v. Shore, 554 F.2d 1006, 1014 n. 20 (Temp.Emer.Ct.App.), cert. denied, 434 U.S. 836, 98 S.Ct. 126, 54 L.Ed.2d 98 (1977).

The NOPV to Sohio was issued on October 11, 1974, and revoked only three weeks later. The promulgation and retraction of that short-lived NOPV did not constitute an admission by DOE that the regulations were so confusing that the proper construction of the 1973 documents was impossible to ascertain. Cf. Department of Energy v. Louisiana, 690 F.2d 180, 189 (Temp.Emer.Ct.App.1982) (agency reinterpretation of a regulatory term not an indication that term was unclear). The internal DOE memoranda discussing the propriety of the agency's action are of no consequence. After thorough consideration, DOE adopted its position concerning the 1973 Getty-Sohio agreements in August 1975, and has adhered to that position ever since. See Mobil Oil Corp. v. Tully, 653 F.2d 497, 501-02 (Temp.Emer.Ct.App.1981), citing Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944). The FEA memoranda cited by Getty do not evince a pattern of public pronouncements to the contrary. Compare Standard Oil Company v. Department of Energy, 596 F.2d 1029, 1052-56 (Temp.Emer.Ct.App.1978).

In fact, there was no ambiguity or vagueness in the regulations as they applied to this transaction. The lack of a regulation covering this type of transaction does not mean that there is any confusion.

The problem in this case is one of contract law. While there was no definition of "consideration" in the regulations, that term is clearly defined in the law. In a bilateral contract, which exists here, the promise by one party is the consideration for the promise by the other party. 1 Corbin, CONTRACTS, sec. 142, p. 611 (1963). Getty promised to furnish crude oil and money to Sohio which in turn promised to furnish crude oil and money to Getty. In any litigation over the terms and effect of a contract, the losing party is not excused from paying damages because it had a belief that its actions were in conformity with the law applicable to the transaction.

With the advent of controls, the price Getty could charge Sohio for domestic oil was frozen at the maximum lawful price. Getty could not complain about that since every seller of domestic oil was treated equally. However, the price of foreign oil here was tied to the domestic price, with the result that Sohio was required to deliver...