Amber Refining, Inc. v. Occidental Oil and Gas Co., 5-130.

• Decision Date: 27 February 1992
• Docket Number: No. 5-130.,5-130.
• Parties: AMBER REFINING, INC., et al., Plaintiffs-Appellees, v. OCCIDENTAL OIL AND GAS CO., Defendant-Cross Claimant-Appellee, v. UNITED STATES DEPARTMENT OF ENERGY, Defendant-Appellant.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

961 F.2d 225

AMBER REFINING, INC., et al., Plaintiffs-Appellees, v. OCCIDENTAL OIL AND GAS CO., Defendant-Cross Claimant-Appellee, v. UNITED STATES DEPARTMENT OF ENERGY, Defendant-Appellant.

No. 5-130.

Temporary Emergency Court of Appeals.

Argued November 12, 1991.

Decided February 27, 1992.

As Amended on Denial of Rehearing April 16, 1992.

Don W. Crockett, U.S. Dept. of Energy, Washington, D.C., with whom Joseph L. Gibson, Marc Kasischke, Richard F. Ahern, and Thomas W. Sacco, of the same office, were on the briefs, for defendant-appellant U.S. Dept. of Energy.

Cecil E. Munn, Cantey & Hanger, Fort Worth, Tex., with whom H. Carter Burdette of the same firm was on the brief, for plaintiff-appellees Amber Refining, Inc., et al.

Glen E. Clover, Liddell, Sapp, Zivley, Hill & LaBoon, Houston, Tex., with whom Richard W. Staff of the same firm was on the brief, for defendant-cross claimant-appellee Occidental Oil and Gas Co.

Before BROWN, WEIGEL,^* and THORNBERRY, Judges.

WESLEY E. BROWN, Judge:

The Department of Energy ("DOE") appeals a final judgment entered against it in favor of Occidental Oil and Gas Company. The judgment arose out of an agreement between DOE and the Permian Corporation¹ which set up an escrow account to pay claims against Permian brought by third parties. The district court determined that DOE violated its agreement with Permian by unreasonably withholding approval of a settlement that Permian negotiated with Amber Refining, Inc.

I. Facts and Procedure.

In 1979 the DOE issued a "Notice of Probable Violation" in which it alleged that Permian violated federal petroleum price and allocation regulations. The allegations related to specified transactions occurring during the period of regulation. DOE and Permian reached a settlement on these claims in 1982. The settlement agreement was embodied in a DOE "Consent Order." Pursuant to the terms of the consent order, Permian agreed to make a total payment of $21,500,000. Of that amount, $7,000,000 was paid directly to the United States Treasury. The remainder $14,500,000, was placed in an interest-bearing escrow account.

The escrow account was set up to protect Permian from "double liability," since the settlement of DOE's claims did not prevent private persons from bringing suit against Permian on the same underlying transactions. The escrow fund was therefore available to pay such claims brought by third parties against Permian in either of two situations. First, the fund was to be used to pay any final judgment in a contested action, provided Permian gave notice of the filing of the action to DOE. Second — the situation that is at issue here — the fund was to be used for amounts payable "pursuant to any settlement negotiated by Permian and approved by the DOE, which approval shall not be unreasonably witheld." Rec. Vol. VII at 1866. Unless there was a court order to the contrary, the remainder of the escrow fund was to be paid over to the Treasury three years after the effective date of the consent order. It was expected that at the end of this three year period any private claims not already brought against Permian would be barred by a statute of limitations.

Amber Refining, Inc. ("Amber") filed suit against Permian in 1983 in the U.S. District Court for the Northern District of Texas. The complaint contained three counts: Counts I and II alleged that Permian violated DOE regulations by selling oil to Amber in excess of the maximum allowable price under the regulations; Count III alleged that Permian breached a contractual agreement with Amber by selling oil in excess of a contractually agreed upon price. Amber sought $16 million in damages. Amber and Permian reached a settlement on these claims in late May of 1985, just before the escrow account set up to pay such claims was due to expire. The settlement agreement called for Permian to pay Amber $2.25 million out of the escrow account. The agreement was contingent upon DOE's approval of the settlement. On May 29, 1985, Amber and Permian jointly obtained an order from Judge Belew of the U.S. District Court directing the escrow agent to retain $2.25 million in the escrow account. Permian notified DOE of the settlement reached with Amber.

DOE refused to approve the Amber-Permian settlement. In response, Amber filed a motion to join DOE as a party in the Amber-Permian suit. Amber sought an order directing the DOE to show cause as to why it withheld its approval and an order releasing the funds in escrow to Amber. DOE moved to vacate the show cause order on the ground that Amber, which was not a party to the consent order, did not have standing to contest DOE's actions. DOE asked to be joined as a party, however, for the purpose of asserting a cross-claim against Permian for breach of the consent order. Rec. Vol. VII at 153. The cross-claim alleged that Permian breached the consent order by obtaining the order impounding $2.25 million of the escrow fund. DOE alleged that the settlement between Amber and Permian was not made in good faith and constituted an unlawful attempt to obtain funds belonging to the United States.²

At this point Permian filed a motion similar to Amber's for a show cause order and for an order directing that the Amber-Permian settlement be paid out of the escrow fund. Permian pointed out that this motion eliminated any obstacle created by DOE's assertion that Amber lacked standing. DOE opposed Permian's motion on the grounds that "it is premature and would ultimately waste the time and effort of all parties and of this Court." Rec. Vol. II at 289. DOE explained its views of the case:

Although Permian denied all of the allegations in the complaint and asserted various affirmative defenses which, if valid, would be dispositive of this action, it has never presented these threshold legal defenses to this Court by way of a proper motion to dismiss. Since the department believes that a close examination of the defenses which Permian itself should have long ago presented will terminate this action, it is filing such a motion itself herewith. If any part of the department's motion for Partial Summary Judgment is granted, the department's defensive role in this litigation will be terminated and the subject of its refusal to approve the purported settlement will be rendered moot.

Id. at 289-90. DOE thereby signalled its intention to step into the suit and litigate the merits of Amber's claims "on behalf of Permian." DOE followed this up with a motion for partial summary judgment in which DOE asked the court to dismiss Amber's complaint against Permian. DOE argued that the allegations in the complaint failed to state a claim and that all three counts were barred by the statute of limitations. In its response, Amber stated that "the issue now before this Court is whether the approval of DOE is being unreasonably withheld or not. If so, the Court should order the settlement approved. If not, the Court should order the case reopened and tried." Rec. Vol. III at 363. Amber also disputed the conclusions reached by DOE in its motion for summary judgment. On July 16, 1986, Judge Belew signed an order allowing discovery to go forward on the issue of whether DOE was unreasonably withholding consent. The court indicated that an evidentiary hearing on that issue would be held following discovery. Rec. Vol. III at 384. In a hearing before the judge on July 14, 1986, both Amber and Permian argued that the issue before the court was whether DOE had unreasonably withheld approval of the settlement. DOE, on the other hand, argued that the merits of the case should be addressed:

We believe that we have the right, in addition to rejecting approval, to enter a case as we have this case and to participate in the litigation and litigate it right to the end to protect the government's interest in this money. And that is our reading of the consent order, that we can do it either way. We are in this action, we don't want to have this settlement looked at by the Court. We are now in this action as a party. We want to have this case litigated.

Rec. Vol. III at 413. DOE filed a motion again asking the court to rule on the statute of limitations defense raised in DOE's motion for summary judgment, explaining that such a ruling would be dispositive of all the issues in the case. In response, Amber reversed course and joined in the request for the court to determine the statute of limitations issue. Amber stated that if the motion for summary judgment was denied "then perhaps the DOE will, as indicated, reconsider its refusal to approve the negotiated settlement." Id. at 460. Judge Belew therefore held a hearing on the DOE's motion. On January 13, 1988, Judge Belew issued a memorandum opinion in which he addressed the DOE's claim that the three counts in Amber's complaint were barred by the statute of limitations. Judge Belew concluded that the claims would be barred by the statute of limitations but that an issue of fact remained as to whether there was fraudulent concealment of the overcharges. He therefore entered an order denying the motion for summary judgment and granted a short period for discovery limited to the concealment issue. On March 7, 1988, Amber brought a motion "for declaratory relief." In this motion, Amber stated that it was waiving any claim that fraudulent concealment tolled the statute of limitations. Rec. Vol. IV at 595. Amber asked the court to declare, however, that a four-year statute of limitation applied to Count III of Amber's complaint. (The court's opinion on the statute of limitations question appeared to apply a two-year statute of limitation to all of Amber's claims.) Amber argued in its motion that a four-year period would apply to Count III of the complaint because that count alleged a state law breach of contract claim. Amber pointed out that DOE did not argue in its motion for summary judgment that Count III was barred by the statute of limitations and that the...