754 F.2d 379 (Fed. Cir. 1985), 9-85, City of Long Beach v. Department of Energy

Docket Nº:9-85, 9-86.
Citation:754 F.2d 379
Party Name:CITY OF LONG BEACH, Appellant, v. DEPARTMENT OF ENERGY, et al., Appellees. CHAMPLIN PETROLEUM COMPANY, Appellant, v. DEPARTMENT OF ENERGY, et al., Appellees.
Case Date:January 04, 1985
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 379

754 F.2d 379 (Fed. Cir. 1985)

CITY OF LONG BEACH, Appellant,

v.

DEPARTMENT OF ENERGY, et al., Appellees.

CHAMPLIN PETROLEUM COMPANY, Appellant,

v.

DEPARTMENT OF ENERGY, et al., Appellees.

Nos. 9-85, 9-86.

Temporary Emergency Court of Appeals.

Jan. 4, 1985

Argued Oct. 10, 1984.

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[Copyrighted Material Omitted]

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Robert G. Austin, Deputy City Atty., Long Beach, Cal., with whom Robert W. Parkin, City Atty. for Long Beach, Long Beach, Cal., were on the briefs for appellant City of Long Beach.

Joseph C. Bell, Hogan & Hartson, Washington, D.C., with whom Jeffrey N. Gibbs, Washington, D.C., of the same firm were on the briefs for appellant Champlin Petroleum Co.

Samuel Soopper, Washington, D.C., with whom Thomas H. Kemp, Dept. of Energy, Washington, D.C., were on the briefs for appellee Department of Energy.

Before DAUGHERTY, CRAIG and McNICHOLS, Judges.

McNICHOLS, Judge.

The Appellant City of Long Beach commenced the present action in the United States District Court for the Central District of California against the Department of Energy (DOE) and Donald P. Hodel, Secretary of the DOE, to challenge an order issued by the Office of Hearings and Appeals (OHA) of the DOE. The order required the City of Long Beach to disgorge itself of $963,459 the DOE claims the City received as a result of an erroneous calculation the OHA made in determining the price at which Long Beach could sell petroleum produced by Long Beach. Subsequent to the City of Long Beach commencing the present action, the District Court allowed Appellant Champlin Petroleum

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Company to intervene as a matter of right pursuant to F.R.C.P. Rule 26(a). Champlin Petroleum alleged that the City of Long Beach had acted in part on Champlin's behalf during the proceedings before the OHA and feared that Champlin might in turn be liable to the City of Long Beach. All three parties agreed there was no material issue of fact and submitted the case to the trial court on cross motions for summary judgment. The District Court granted the Department of Energy's motion for summary judgment and denied the City of Long Beach's and Champlin's motions for summary judgment. The City of Long Beach and Champlin Petroleum appeal.

Pursuant to the Emergency Petroleum Allocation Act of 1973 1 the United States Department of Energy was authorized to issue Mandatory Petroleum Price and Allocation regulations, 10 C.F.R. Part 212. The Mandatory Petroleum Price and Allocation regulations, inter alia, initiated a regulatory scheme governing the price at which domestically produced crude oil could be sold. The regulatory scheme created a "two-tier" pricing system which system imposed a ceiling on the price at which producers of crude oil could sell their oil. Producers of crude oil producing on property for a given month at a level of production less than the corresponding month's 1972 level of production were required to sell at lower-tier prices. 10 C.F.R. §§ 212.73, 212.74 (1981). 2

The Appellants, City of Long Beach and, Champlin Petroleum Company were at all times material herein working interest owners engaged in the production and sale of crude oil from property known as the Fault Block II Unit (the Unit), Wilmington Oil Field in Los Angeles County, California. Long Beach owns a 10.0001% interest and Champlin owns a 72.4290% interest in the Unit. Mobil Oil Company owns the remaining 17.5709% interest but is not a party to this action. In addition to being a working interest owner, Long Beach acted as the "operator" for a segment of the Unit. 3

Frequently, the ceiling prices imposed pursuant to 10 C.F.R. Part 212 would not be adequate to cover the costs of production. In such cases, an oil producer could apply to the Department of Energy for "exception relief" from the ceiling prices. Department of Energy Organization Act (DOEOA), § 504, 42 U.S.C. § 7194; 10 C.F.R. § 205.50 (1981), et seq. The DOE could grant exception relief upon a showing of "serious hardship or gross inequity" resulting from the ceiling prices. 10 C.F.R. § 205.50(a)(1). The Department of Energy required the exception relief applicant to file with the DOE detailed data relating to the cost of production. The DOE would use the submitted data to determine the amount of exception relief to which the oil producer would be entitled. The exception relief would issue in the form of an order allowing the oil producer to sell at the upper tier price a certain percentage of the oil produced.

Beginning in 1976, the working interest owners in the Unit found the federal ceiling prices for crude oil produced from the Unit inadequate to cover the costs of production. The City of Long Beach therefore made, from time to time, application for exception relief on behalf of Long Beach and the two other working interest owners (e.g. Champlin and Mobil Oil).

On May 17, 1979, Long Beach filed one of its periodic applications for exception relief; it is this May 17 application that gave life to the present controversy. On July 31, 1979 the DOE Office of Hearing and Appeals (OHA) granted exception relief

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for the period commencing July 1, 1979 and ending December 31, 1979.

The OHA based its decision upon a finding that the operating costs of the Unit had continued to increase at such a rate that the working interest owners had no incentive to continue production without relief from the regulations, and thus that the exception relief previously granted concerning the Unit should be extended. OHA's final decision and order allowed the working interest owners to sell 72.58% of the crude oil produced from the Unit during the July to December period at upper tier ceiling prices. The OHA based its decision upon the data Long Beach submitted to the OHA. The figures Long Beach submitted were admittedly correct. The fault for any error, therefore, rests with the Department of Energy and its Office of Hearings and Appeals. Subsequent to the issuance of the final order of the OHA, the appellants commenced the selling of 72.58% of the crude oil produced from the Unit at the upper-tier prices.

On August 8, 1979, Long Beach sent a letter to OHA alerting the OHA to a possible error in the DOE's calculations of Unit operating cost. More specifically, the OHA had used $8.74 per barrel in calculating the unit operating cost for the period when $8.06 correctly reflected the cost per barrel. Long Beach contended, however, that the OHA should not correct the error because the higher cost figure more accurately reflected the costs appellants were incurring.

On November 15, 1979, Long Beach filed applications for extension of the exception relief for the Unit for another six-month period on behalf of Long Beach and on behalf of the other working interest owners. The OHA on December 21, 1979 issued a proposed decision and order extending the exception relief earlier granted to the City of Long Beach. In the extension, the OHA held that recovery of increased operating expenses could be most effectively accomplished by permitting the City of Long Beach to sell 34.17% of the crude oil produced from the Unit for the benefit of the working interest owners at upper-tier ceiling prices.

In the proposed decision and order, the OHA acknowledged the error to which Long Beach had alerted them on August 8, 1979. The OHA specifically stated that as a result of the error, Long Beach received an amount of exception relief in excess of the amount as should have been determined pursuant to the methodology set forth in Great Southern. 4

To rectify the error, the OHA directed Long Beach to submit a report detailing the revenues received as a result of the claimed excessive relief. The OHA stated that the DOE would thereafter take appropriate action to assure the repayment of any excessive revenues that the working interest owners received. On January 25, 1980, Long Beach objected to the portion of the OHA's order relating to correction of the error in the July, 1979 proceedings. Long Beach essentially argued that the DOE should be estopped from correcting the computational error after substantial reliance by the City.

Three and one-half years later, on June 6, 1983, OHA issued a final decision and order regarding the excess relief received by the working interest owners during the last six months of 1979. The OHA affirmed its proposed decision granting the City relief for the first six months of 1980. However, the OHA rescinded the portion of the July 31, 1979 decision and order which authorized the sale of 72.58% of the crude produced to be sold at upper-tier prices and substituted a paragraph authorizing the sale of 61.41% of the crude oil produced at upper-tier prices. The OHA rejected the City's contention that it should retain the excessive relief it had received as a result

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of the miscalculation on the grounds of estoppel.

During the three and one-half year period between the filing of objections to the proposed order and the issuance of the June 6, 1983 final decision and order, negotiations had been conducted between DOE and Long Beach and between DOE and Champlin, regarding each appellants' compliance with Mandatory Petroleum Allocation and Price Regulations. In February, 1982, a Consent Order was entered into between DOE, Long Beach and the State of California. In July, 1982, a Consent Order was entered into between DOE and Champlin.

After OHA issued the June, 1983 Decision and Order, Long Beach in compliance thereto paid $963,459, into an escrow account held by DOE where the money presumably remains.

Long Beach filed this action in the United States District Court for the Central District of California on September 16, 1983. The trial court subsequently granted Champlin...

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