Atlantic Richfield Co. v. U.S. Dept. of Energy

• Decision Date: 19 August 1985
• Docket Number: No. 82-2472,82-2472
• Parties: ATLANTIC RICHFIELD COMPANY, Appellant, v. UNITED STATES DEPARTMENT OF ENERGY, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 771

769 F.2d 771

248 U.S.App.D.C. 82

ATLANTIC RICHFIELD COMPANY, Appellant, v. UNITED STATES DEPARTMENT OF ENERGY, et al.

No. 82-2472.

United States Court of Appeals, District of Columbia Circuit.

Argued May 23, 1983.

Decided Dec. 27, 1984.

As Amended Aug. 19, 1985.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-03269).

David L. Roll, Washington, D.C., with whom Richard H. Porter, Seth Goldberg, Kim Ellen Heebner and Michael B. Green, Washington, D.C., were on the brief, for appellant.

Leland Ware, Atty. Dept. of Justice, Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., Dept. of Justice, and Stanley S. Harris, U.S. Atty., Washington, D.C., at the time the brief was filed, were on the brief, for appellees.

Stark Ritchie, Stephen Williams, Daniel Joseph, David A. Holzworth and Rory F. Quirk, Washington, D.C., were on the brief for amicus curiae, urging reversal.

Before SPOTTSWOOD W. ROBINSON, III, Chief Judge, WILKEY, Senior Circuit Judge, and MARKEY, Chief Judge ^*.

Opinion for the Court filed by Chief Judge SPOTTSWOOD W. ROBINSON, III.

Senior Circuit Judge WILKEY concurs in the judgment.

SPOTTSWOOD W. ROBINSON, III, Chief Judge:

The principal questions before us are whether the Department of Energy has adjudicatory authority over alleged petroleum price-control violations, and, if so, whether, in the exercise of that authority, it can impose remedial sanctions upon parties disobeying its discovery orders.

Atlantic Richfield Company (ARCO) brought suit in the District Court for declaratory and injunctive relief from an administrative levy of discovery sanctions in two ongoing departmental proceedings. ¹ The court concluded that the Department had power both to adjudicate the issues raised in those proceedings and to impose the sanctions. ² The court dismissed the case, however, holding that ARCO's claims were not ripe for judicial review and that ARCO had not exhausted available administrative remedies. ³

On this appeal, ARCO asserts that the Department can exercise only investigatory and prosecutorial functions, and, accordingly that it lacks authority to adjudicate asserted price-control violations. That authority, ARCO says, is conferred exclusively upon the Federal Energy Regulatory Commission by the Department of Energy Organization Act. ⁴ Even if the Department has some measure of implied adjudicatory power, ARCO argues, nonconformance with its discovery processes may be dealt with only by the courts. ARCO further contends that the doctrines of ripeness and exhaustion are inapposite because its challenge is not to the merits of any departmental decision, but rather to the authority of the Department to pass on allegations of price-control violations to impose the sanctions in question.

We find that ARCO's claims were ripe for judicial review and that ARCO was not required to resort to any supposed administrative remedy. We sustain, however, the Department's exertions of adjudicatory power, including the discovery sanctions involved in this case. We hold, as the District Court did, that the Secretary has received a "plenary grant" of adjudicatory authority, which extends to imposition of sanctions when necessary to "ensur[e] fairness and maintain[ ] the integrity of the [adjudicative] process." ⁵

I. THE STATUTORY SCHEME

The power of the Secretary of Energy to issue orders remediating petroleum price-control violations derives from Section 503 of the Organization Act. ⁶ That Act established the Department of Energy, and the Federal Energy Regulatory Commission as an independent body within the Department, ⁷ and transferred to the new Secretary of Energy functions theretofore performed by the Federal Energy Administration. ⁸ The Administration, itself the successor to the Cost of Living Council, ⁹ had possessed broad authority to adjudicate charged infringements of price-control regulations promulgated pursuant to the Emergency Petroleum Allocation Act of 1973, ¹⁰ which mandated pricing and allocation of crude oil, residual oil and refined petroleum. ¹¹

An important consideration in passage of the Organization Act was a perceived lack of due-process protections in petroleum-price proceedings before the Department's predecessor, the Federal Energy Administration. Regulations of the Administration specified that, if it had reason to suspect a violation, it would exercise a discretion relative to commencement of a proceeding to "determine the nature and extent of the violation." ¹² Proceedings were launched by issuance of either a notice of probable violation or a notice of proposed disallowance. ¹³ Recipients of these notices had ten days within which to respond, ¹⁴ and after expiration of that period the Administration could issue a "remedial order," ¹⁵ defined by the Administration's regulations as "a directive ... requiring a person to cease a violation or to eliminate or to compensate for the effects of a violation or both." ¹⁶

Proceedings before the Administration were informal, consisting only of the pleadings and possibly a discretionary conference with Administration officials. ¹⁷ The agency had subpoena power, ¹⁸ but there were no regulations under which a recipient of a notice of probable violation or of proposed disallowance could obtain discovery respecting the agency's case. Any remedial order resulting consisted of "a written opinion setting forth the relevant facts and the legal basis" of the order, ¹⁹ and was "effective upon issuance," notwithstanding an administrative appeal. ²⁰ Such appeals had to be filed within ten days with the Administration's Office of Exceptions and Appeals, ²¹ which was permitted to convene conferences or hearings in its discretion. ²² Judicial review of the decision of the Office of Exceptions and Appeals then became available in a federal district court. ²³

When the Organization Act was adopted in 1977, Congress was aware of industry complaints that this regulatory scheme was not sufficiently protective. Senator Javits, the author and Senate sponsor of the bill ultimately approved, noted that "[t]he procedure that has evolved at [the Administration] is one well-suited for emergency needs and temporary authorities, but it falls short of the due process safeguards and separation of functions requirements included in all other permanent regulatory schemes." ²⁴ Representative Eckhardt, the House sponsor, voiced the concern that under the Administration's "peremptory [sic] procedures," there was no way that "a person ordered to comply with a rule or regulation by a remedial order could get a hearing before the agency." ²⁵

To ensure that the newly-created Department of Energy would accord industry "basic procedural due process rights in agency adjudicatory proceedings," ²⁶ Congress singled out enforcement of the Emergency Petroleum Allocation Act price-control regulations from the many unspecified "functions" of the Adminsitration reassigned to the Secretary of Energy under the general transfer clause of the Organization Act, ²⁷ and enacted an entirely new provision governing enforcement of those regulations by the Department of Energy. It is the proper construction of that provision--Section 503 of the Organization Act ²⁸--that concerns us today.

II. THE PRESENT CASE

ARCO is the respondent in two separable proceedings, now being conducted by the Department of Energy's Office of Hearings and Appeals, involving charged violations of price-control regulations. In the Property Case, ²⁹ the agency has alleged that ARCO classified certain of its crude-oil-producing properties in a prohibited manner, resulting in unlawful enrichment in the amount of some $42 million. In the Affiliate Transfer Case, ³⁰ the allegation is that ARCO overstated by more than $49.5 million its cost for imported crude oil purchased from foreign affiliates.

In each proceeding, one of the defenses asserted by ARCO is good-faith reliance upon its interpretation of the applicable regulations. The parties have engaged in discovery, and the agency's prosecutorial arm, the Economic Regulatory Administration, has sought evidence concerning ARCO's "corporate state of mind" regarding those regulations. ARCO resisted production of some of the requested documents, asserting the attorney-client and work-product privileges.

In both proceedings, the Office of Hearings and Appeals granted motions by the Economic Regulatory Administration seeking to effectuate discovery. ³¹ The order in the Property Case ³² stated that unless ARCO produced the sought-after materials, it would be precluded from relying upon any affirmative defense placing its corporate state of mind in issue. ³³ An order granting the Administration's motion for sanctions in the Affiliate Transfer Case, ³⁴ while not barring any of ARCO's defenses, permitted inferences adverse to those defenses to be drawn. ³⁵

ARCO then inaugurated this litigation in the District Court for declaratory and injunctive relief. After briefing and argument, the court denied ARCO the injunction requested and granted the Department's motion to dismiss. ³⁶ This appeal then ensued. ³⁷

III. JURISDICTION OF THE APPEAL

At the threshold, the Department of Energy argues that, because this case presents issues arising under both the Economic Stabilization Act and Emergency Petroleum Allocation Act, an appeal may be taken only to the Temporary Emergency Court of Appeals (TECA). That court has exclusive jurisdiction of "all appeals from the district courts of the United States in cases and controversies arising under" those two Acts, "or under regulations or orders issued thereunder." ³⁸ That jurisdiction, however, is limited to the issues arising directly under those statutes; ³⁹ an appeal raising such issues but also other issues must be bifurcated. ⁴⁰ The underlying controversy--here, alleged violations of the Emergency Petroleum Allocation Act's price-control regulations--is "not...