Eastern States Petroleum & Chemical Corp. v. Walker

• Decision Date: 18 September 1959
• Docket Number: Civ. A. No. 12682.
• Parties: EASTERN STATES PETROLEUM & CHEMICAL CORPORATION, Plaintiff, v. Charles J. WALKER, Sr., and C. M. Maier, Defendants.
• Court: U.S. District Court — Southern District of Texas

177 F. Supp. 328

EASTERN STATES PETROLEUM & CHEMICAL CORPORATION, Plaintiff, v. Charles J. WALKER, Sr., and C. M. Maier, Defendants.

Civ. A. No. 12682.

United States District Court S. D. Texas, Houston Division.

September 18, 1959.

Meyers & Batzell, E. J. Dryer, Washington, D. C., James R. Connor, Fulbright, Crooker, Freeman, Bates & Jaworski, W. N. Arnold, Jr., Houston, Tex., for plaintiff.

George Cochran Doub, Asst. Atty. Gen., Donald B. MacGuineas, Atty., Dept. of Justice, Washington, D. C., William B. Butler, U. S. Atty., Houston, Tex., for defendants.

INGRAHAM, District Judge.

Plaintiff operates a petroleum refinery at Houston with a capacity of 60,000 barrels per day. It seeks to enjoin the Collector and Deputy Collector of Customs at Galveston and Houston, Texas, from refusing to permit plaintiff to import amounts of oil in excess of its import allocation under the Mandatory Oil Import Program promulgated by the President in Proclamation 3279, issued March 10, 1959 (24 F.R. 1781), 19 U.S.C.A. § 1352a note. Plaintiff also seeks a declaratory judgment that it is entitled to an import allocation larger than it received under the program and that the Oil Import Appeals Board wrongfully denied its appeal for an increased allocation.

The purpose and nature of, and the statutory authority for, the Mandatory Oil Import Program are fully set forth in this court's opinion issued September 18th in Texas American Asphalt Corporation v. Walker, 177 F.Supp. 315.

Under the Voluntary Oil Import Program¹ which was in effect prior to the mandatory program, plaintiff was given an import allocation of 18,300 barrels per day, based on estimates of its imports of crudes for the latter half of 1957 which it submitted to the Director of Defense Mobilization. In 1957 plaintiff petitioned the Administrator of the voluntary program to increase its allocation under that program to 22,800 barrels per day on the grounds (1) that plaintiff had made an error in failing to include in the figure which it submitted as its estimated imports for the latter half of 1957, 4,500 barrels per day of Wafra (Mid-East) crude which plaintiff was under contract to purchase but which it had theretofore been diverting to purchasers in Japan rather than importing into the United States, and (2) that plaintiff had a "barter contract" which obligated it to import crude in exchange for the export of gas oil.

After a hearing the Administrator of the voluntary program denied plaintiff's petition, on the grounds that the "Force Majeure" provision of plaintiff's Wafra crude contract might relieve it from liability if it did not import such crude and that the importation of the Wafra crude had not been programmed as an integral part of the operation of plaintiff's plant during the latter half of 1957. At plaintiff's request the Undersecretary of the Interior reviewed the Administrator's decision and upheld it in June 1958. The Undersecretary also denied plaintiff's claim that the gas oil which it exported in exchange for its imports of crude under the "barter contract" should be credited against its imports.

On June 21, 1958, plaintiff brought suit in the United States District Court for the District of Columbia against the Secretary of the Interior, the Secretary of Defense, and the Administrator of the voluntary program, challenging the validity of that program and seeking an injunction to restrain the defendants from enforcing the voluntary program against plaintiff by refusing to regard it as an eligible bidder on Government contracts for the purchase of petroleum products. That court denied a motion by plaintiff for a preliminary injunction and dismissed its complaint for failure to state a cause of action, holding that the voluntary program was authorized by the Buy-American Act (41 U.S.C.A. §§ 10(a)-10(d)). Eastern States Petroleum & Chemical Corp. v. Seaton, D.C.D.C., 163 F.Supp. 797. On appeal, the Court of Appeals for the District of Columbia Circuit reversed, holding that the complaint in that suit, in alleging arbitrary action by the defendants, stated a claim upon which relief could be granted and remanded the case to the District Court to afford the defendants in that action an opportunity to controvert the allegations of arbitrary action and to determine whether a preliminary injunction was warranted.

On remand the District Court again denied plaintiff's motion for a preliminary injunction, finding "that there was ample evidence to sustain the administrator's determination" that the 1957 import estimate figures submitted by plaintiff "were an exercise of business judgment on the part of plaintiff" rather than an error, as plaintiff contended; that the "Force Majeure" clause of plaintiff's contract to import the Wafra crude "would relieve plaintiff of any hardship, beyond the loss of the profits of its purchases"; and concluded "that the plaintiff has not made a substantial showing of arbitrariness in the Administrator's action so as to warrant the granting of a preliminary injunction." Eastern States Petroleum & Chemical Corp. v. Seaton, D.C.D.C., 165 F.Supp. 363, 368, 369-370. Subsequently, the defendants in that action answered the complaint, denying that plaintiff is entitled to any relief.

That case is now at issue in the District Court for the District of Columbia. In June 1959 when it was called on the trial calendar, plaintiff requested and received a six-months continuance on the ground that if I should, in the suit before me, not uphold the administrative officials in their denial of plaintiff's application for an increased import quota under the mandatory program, the District of Columbia case "would then become moot."

Proclamation 3279 provides that with respect to the allocation of imports of crude oil and unfinished oils the implementing regulations to be issued thereunder by the Secretary of the Interior "may provide for distribution in such manner as to avoid drastic reductions below the last allocations under the Voluntary Oil Import Program." The Secretary's regulations issued March 13, 1959 (24 F.R. 1907), prescribe a formula by which eligible applicants are to be given allocations based on specified percentages of their refinery inputs for 1958 but provide that the minimum allocation given any applicant shall be 80% of his last allocation under the voluntary program.² In accordance with these regulations, plaintiff was given an allocation of 12,480 barrels per day for the initial allocation period under the mandatory program (March 11-June 30, 1959), which is 80% of plaintiff's last allocation under the preceding voluntary program.

Plaintiff filed an appeal with the Oil Import Appeals Board, established under Proclamation 3279 and the Secretary's regulations, seeking an increase of 12,685 barrels per day in its allocation. This appeal sought (1) an increase in the amount of 3,040 barrels per day "in order to correct an inadvertent error" in plaintiff's submission to the Director of Defense Mobilization of its estimates of imported crude for the latter half of 1957, which formed the basis for its allocation under the voluntary program; and (2) an increase in the amount of 9,645 barrels per day as the "quantity of petroleum re-exported" by plaintiff under its "barter agreement." Plaintiff also presented as an alternative basis for the increases it sought the "unusual hardship" which plaintiff would suffer as a result of its long-term ship and affreightment contracts.

After a hearing at which plaintiff submitted testimony, documentary evidence, and argument in support of its appeal, the Appeals Board denied plaintiff's appeal. With respect to the claim of alleged error in plaintiff's submission to the Director of Defense Mobilization of its estimates of imported crude for the latter half of 1957, which formed the basis for its allocation under the voluntary program, the Appeals Board ruled:

"* * * It is the view of the Board that it has no authority to correct errors directly related to the Voluntary Program, under which the Board had no functions. Accordingly, the request for relief based upon error is denied."

With respect to plaintiff's claim that its allocation should be increased by the "quantity of petroleum re-exported" by plaintiff under its "barter agreement" the Appeals Board ruled:

"The matter of crediting exports against imports was brought to the attention of the Under Secretary of the Interior by this same appellant under the Voluntary Oil Import Program and, in his decision of June 18, 1958, such arrangement was denied as a basis for adjustment under that program, affirming the decision of the Administrator, Voluntary Oil Import Program. The attention of the President's Special Committee to Investigate Crude Oil Imports was directed to this problem by this appellant prior to the mandatory adjustment program. However, neither Presidential Proclamation 3279 nor the Secretary's regulations implementing it specifically recognize such allowances. It is clear to the Board, therefore, that if barter arrangements were to be recognized as a means of extending allocations, the regulations of the Secretary would have made specific allowance for them."

With respect to plaintiff's alternative ground for an increase in its allotment because of the "unusual hardship" which it allegedly would suffer as a result of its long-term ship and affreightment contracts, the Appeals Board ruled:

"The Board is of a similar view regarding contracts, of whatever nature, outstanding when the mandatory program was promulgated, as a basis for modifying an oil import allocation. Actually, request for relief from contract commitments is viewed by the Board as a remote basis for supporting an increased oil allocation, since the relief sought really is from the obligations under a contract, which involves questions of defenses to the obligations, such as force majeure, money damages, mitigation of damages, and other matters of

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