Laketon Asphalt & Refining, Inc. v. United States

• Decision Date: 17 July 1979
• Docket Number: No. F 77-20.,F 77-20.
• Citation: 476 F. Supp. 668
• Parties: LAKETON ASPHALT AND REFINING, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF the INTERIOR and Cecil Andrus, Secretary, U. S. Department of the Interior, Defendants.
• Court: U.S. District Court — Northern District of Indiana

476 F. Supp. 668

LAKETON ASPHALT AND REFINING, INC., Plaintiff, v. UNITED STATES DEPARTMENT OF the INTERIOR and Cecil Andrus, Secretary, U. S. Department of the Interior, Defendants.

No. F 77-20.

United States District Court, N. D. Indiana, South Bend Division.

July 17, 1979.

John H. Heiney, Rothberg, Gallmeyer, Fruechtenicht & Logan, Fort Wayne, Ind., Howard P. Trockman, Trockman, Flynn & Probert, Evansville, Ind., for plaintiff.

Lawrence R. Liebesman, Dept. of Justice, Washingon, D. C., John S. Leonardo, Asst. U. S. Atty., United States District Court, South Bend, Ind., for defendants.

MEMORANDUM

GRANT, Senior District Judge.

Factual Background

Section 36 of the Mineral Lands Leasing Act of February 25, 1920 (30 U.S.C. § 192), provides that royalties accruing to the United States under public domain oil or gas leases shall, on demand of the Secretary of the Interior, be paid in kind, i. e., in oil or gas. As originally passed, the Act directed the Secretary to retain these resources for the use of the United States or, in general, to offer them for sale at public auction.

The practice of selling royalty oil to the highest bidder apparently resulted in purchase domination by the larger oil companies and, accordingly, in 1946 Congress amended Section 36 (60 Stat. 533) in order to assist small business oil refineries not having their own source of crude oil supply:

The purpose of the bill is to give small refineries that do not have an adequate source of crude oil the right to purchase government royalty oil at the price established by the Secretary of the Interior. It is a meritorious piece of legislation. It merely permits small business enterprises such as small refineries to remain in operation or to re-open if they have been closed down because of their inability to buy crude oil.

Cong.Record: S.680, 79th Cong. 2d Session, Vol. 92, Part 7 at 8160 (1946); Statement by the bill's sponsor, Rep. Barrett of Wyoming.

The text of the Amendment directs the Secretary, "when he determines that sufficient supplies of crude oil are not available in the open market", to grant a preference in selling to those refiners who qualify as a small business enterprise under the rules of the Small Business Administration, and who are unable to purchase in the open market an adequate supply of crude oil to meet the needs of their existing refinery capacities.

The Act specifically provides "that in selling such royalty oil the Secretary of the Interior may at his discretion prorate such oil among such refineries in the area in which the oil is produced." 30 U.S.C. § 192. The legislative history of the Amendment clearly substantiates the fact that Congress intended to accord complete discretion to the Secretary in administering the bill, and to provide for this geographical preference.¹

Accordingly, the regulations implementing the Amendment provide that refineries qualifying for the royalty oil will be classified as "eligible refiners", and those eligible refiners applying for purchase of oil produced in a given area for use in their refineries within that area shall be further categorized as "preference eligible refiners". The latter is given preference over the former in the ability to purchase such oil.² 30 C.F.R. § 225.

The record reveals that petitioner is a small, independent refinery qualifying as an "eligible refiner" under the Act and, during the period from May 1971 to June 1976, had obtained its supply of crude oil (approximately 7,900 barrels per day) through royalty oil contracts with the Department of the Interior pursuant to this program. These purchases were made from the Casper, Wyoming, district supply depot, located in the Northern Rocky Mountain Area, and transported to petitioner's place of business in northeastern Indiana by way of interstate pipeline.³

These contracts were generally of three years duration, and in July 1976 Laketon applied for approximately 6,600 barrels of crude per day—again with the Casper, Wyoming, office. Until that time, petitioner had had no difficulty in obtaining its oil requirements from this source because there was little competition among small refiners for the royalty oil, and thus the needs of "eligible refiners", such as Laketon, could be easily met without being given secondary consideration to the needs of those who qualified as "preference eligible refiners". This situation began to change in early 1973 because of the growing disparity between the supply of domestic crude oil and refining capacity. The oil embargo of late 1973 intensified that disparity.

Accordingly, petitioner's 1976 purchase application elicited the response that all available royalty oil from that Area, with the exception of approximately 4,300 barrels per day, would be allotted to "preference eligible refiners", and that petitioner would have to divide this residue with four other applicants who were similarly located outside the Northern Rocky Mountain Area.⁴

Section 225.3 of the regulations implementing the sale of government royalty oil provides in part that this preferential status accorded certain eligible refiners should be adhered to unless special circumstances, "as determined by the Secretary", warrant otherwise. Pursuant to this section, Laketon filed what it termed an "emergency request for relief", citing the extreme hardship that would result to it if this preference eligibility section of the regulations were followed.

A conference hearing was held in Washington, D.C., on October 1, 1976, to discuss this petition for relief, and a reply letter from the Acting Assistant Secretary of the Interior described to petitioner the reason why no amelioration would be forthcoming:

The Department is appreciative of circumstances in which Laketon presently finds itself. However, an assent to your request . . . for special relief . . . would be contrary to our current policies and procedures for administering the royalty oil program. Once an exception is made, the precedent is established for further exceptions that would ultimately lead to a situation which would make it impossible to impartially administer the program.⁵

Petitioner now seeks injunctive relief in this court urging that denial of these royalty oil benefits will result in significant increases in operational costs thereto, and argues that such denial is a violation of the Fifth Amendment's Due Process Clause, as that provision comprehends the equal protection of the laws, because other refineries, which are located in the Northern Rocky Mountain Area, are statutorily entitled (as petitioner is not) to priority over the receipt of royalty oil produced from that area.

It is contended that such preference based solely on geographic location is an arbitrary and irrational classification impermissible under that Clause, and that it conflicts with the primary policy objectives of the Emergency Petroleum Allocation Act of 1973 and corresponding regulations. The court first addresses this latter issue.⁶

Statutory Conflict

In 1973 Congress enacted the Emergency Petroleum Allocation Act (Pub.L.No. 93-159) in response to its findings that shortages of crude oil and other petroleum products existed or were imminent.⁷ It was determined that the best method for averting or minimizing this national threat to the American people and the domestic economy was to grant the President of the United States "specific temporary authority" to deal with such shortages. Congress provided a list of policy objectives which the program was, "to the maximum extent practicable", designed to accomplish.⁸

Petitioner highlights certain of these provisions which are allegedly in conflict with the geographical preference scheme set forth in the Mineral Leasing Act outlined above.⁹ Accordingly, it is urged that the statute last in time should prevail and thus this "preference eligible" scheme should be struck down.

Mr. Chief Justice Hughes, in 1939, summarized the guidelines courts are to follow when construing two legislative acts dealing with the same subject:

. . . the rule is to give effect to both if possible. . . . The intention of the legislature to repeal `must be clear and manifest'. . . . There must be `a positive repugnancy between the provisions of the new law and those of the old; and even then the old law is repealed by implication only, pro tanto, to the extent of the repugnancy.' (Citations omitted.)

United States v. Borden Co., 308 U.S. 188, 198-199, 60 S.Ct. 182, 188, 84 L.Ed. 181 (1939). This doctrine was reaffirmed by the Supreme Court in Radzanower v. Touche Ross & Co., 426 U.S. 148, 96 S.Ct. 1989, 48 L.Ed.2d 540 (1976), where it was noted that:

It is a basic principle of statutory construction that a statute dealing with a narrow, precise, and specific subject is not submerged by a later enacted statute covering a more generalized spectrum. `Where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment.' (Citations omitted.)

* * * * * *

It is . . . a cardinal principle of statutory construction that repeals by implication are not favored. United States v. United Continental Tuna Corp., 425 U.S. 164, 168, 96 S.Ct. 1319, 1323, 47 L.Ed.2d 653, 658.

Id. at 153, 154, 96 S.Ct. at 1992-93.

The Emergency Petroleum Allocation Act "expresses a mandate phrased in broad permissive terms." Air Transport Association of America v. Federal Energy Office, 382 F.Supp. 437, 446 (D.D.C.1974). Its legislative history indicates that the goals enumerated by Congress were "equally ranked", and that "these goals would necessarily conflict at times and . . . the President (or his delegate) would likewise necessarily be required to exercise discretion (`administrative flexibility') in their implementation." Id. at 446.

The listing of objectives in successive paragraphs (A) through (I) in section 4(b)(1) is not intended to establish any order of

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