Atlantic Richfield Co. v. Federal Energy Admin.

Citation463 F. Supp. 1079
Decision Date08 January 1979
Docket NumberNo. C-77-1209-CBR.,C-77-1209-CBR.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
PartiesATLANTIC RICHFIELD COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, John O'Leary, Administrator, FEA, Melvin Goldstein, Director of Office of Exceptions and Appeals, FEA, William C. Arntz, Administrator of Region IX, FEA, and Dennis Riley, Defendants.

F. Bruce Dodge, James P. Bennett, Morrison & Foerster, San Francisco, Cal., for plaintiff.

Barbara Allen Babcock, Asst. Atty. Gen., Dennis G. Linder, Daniella Sapriel, Dept. of Justice, Washington, D. C., G. William Hunter, U. S. Atty., John D. O'Connor, Asst. U. S. Atty., San Francisco, Cal., for federal defendants.

Francis O. Scarpulla, Tracy R. Kirkham, Cooper & Scarpulla, San Francisco, Cal., for defendant Riley.


RENFREW, District Judge.

Plaintiff Atlantic Richfield Company ("ARCO") filed this action on June 6, 1977 against the Federal Energy Administration ("FEA"), certain FEA officials, and Dennis Riley, a former lessee of an ARCO service station. In 1975 the FEA determined that the service station rent that ARCO was charging Riley exceeded the maximum rent permitted by FEA regulations. The FEA ordered ARCO to make refunds and grant credits to Riley to comply with FEA rent regulations. After ARCO made these payments, the Temporary Emergency Court of Appeals held in the case of Shell Oil Co. v. Federal Energy Administration, 527 F.2d 1243 (Em.App.1975), affirming 400 F.Supp. 964 (S.D.Tex.1975), that when the Economic Stabilization Act of 1970 expired on April 30, 1974, the FEA no longer had the authority to regulate gasoline service station rentals. On July 23, 1976, eight months after the decision of the Temporary Emergency Court of Appeals in Shell, ARCO filed an Application for Rescission and/or Modification of the FEA's 1975 orders, seeking to have the orders set aside or declared invalid to the extent that those orders had regulated the rent charged Riley after April 30, 1974. The FEA Office of Exceptions and Appeals denied the application in an order issued on December 6, 1976. The decision reasoned that retroactive application of Shell would subject tens of thousands of small firms "to suits for restitution or damages for rental amounts which were specified in private contracts that were superceded sic by the FEA rent regulations" and that this type of liability "would be so inequitable as to lead to the conclusion that the decision in the Shell case should be applied on a prospective basis only." ARCO then filed this suit, seeking recovery of the money refunded or credited to Riley.

ARCO's Claims

The first claim set forth in ARCO's complaint is a claim against the federal defendants, seeking declaratory relief. ARCO requested that the Court issue a declaratory judgment that the FEA's orders regulating the rent ARCO charged Riley and the FEA's denial of ARCO's application for rescission were unlawful. The federal defendants moved for summary judgment on the first claim. In a Memorandum of Opinion dated February 15, 1978, this Court held that ARCO was not entitled to the relief sought in the first claim because no case or controversy existed between ARCO and the federal defendants. The motions presently before the Court concern ARCO's remaining claims, all asserted against defendant Riley.

ARCO's second claim purportedly "arises under the Economic Stabilization Act, the Emergency Petroleum Allocation Act and the Federal Energy Administration Act."1 ARCO alleges that Riley was unjustly enriched by the payments ARCO made pursuant to unlawful FEA orders. ARCO's third and fourth claims state that ARCO is entitled to recover the money paid to Riley under federal common law and state common law theories of unjust enrichment. ARCO has moved for summary judgment on the second, third, and fourth claims.

The fifth claim alleges that ARCO is entitled to recover the sums refunded or credited to Riley pursuant to FEA orders because Riley's failure to pay the rent agreed upon in the leasehold agreement constituted a breach of that contract. ARCO's sixth claim states that when ARCO made refunds and credits to Riley, Riley expressly and impliedly agreed to "repay to Atlantic Richfield with interest all monies he received pursuant to the unlawful FEA order." ARCO bases its sixth claim on a breach of contract theory.

Riley has filed a counter-motion for summary judgment on ARCO's second, third, fourth, fifth, and sixth claims.

ARCO's seventh claim alleges that ARCO mistakenly made certain duplicate credits and payments to Riley, that Riley received these payments and credits with knowledge of the mistake, and that Riley would be unjustly enriched if permitted to retain these funds. Neither ARCO nor Riley has moved for summary judgment on the seventh claim.

Impact of the Shell Decision

In Shell Oil Co. v. Federal Energy Administration, supra, 527 F.2d 1243, the court determined that the FEA did not have the authority to regulate leasehold rentals in the petroleum industry after the Economic Stabilization Act ("ESA") expired on April 30, 1974. The ESA had explicitly authorized the President or his delegates to issue regulations stabilizing "prices, rents, wages, and salaries." 12 U.S.C. § 1904, note § 203. Regulations controlling rents charged to those leasing service stations were published by the Cost of Living Council in August 1973, 6 C.F.R. § 150.360 (38 Fed.Reg. 22536, Aug. 22, 1973), and were later incorporated by the Federal Energy Office ("FEO") into its regulations, promulgated pursuant to authority delegated to the FEO by the Chairman of the Cost of Living Council.2

The FEO's stated authority to regulate rentals expired on April 30, 1974, the expiration date of the ESA. 12 U.S.C. § 1904 note § 218. However, the FEA, successor to the FEO,3 continued to regulate certain rentals after that date. The FEA concluded that it could do so pursuant to its authority to regulate petroleum product prices under the provisions of the Emergency Petroleum Allocation Act of 1973 ("EPAA"), 15 U.S.C. §§ 751 et seq. The FEA took the position that rents charged to service station operators are so inextricably interwoven with the prices paid for gasoline that the FEA's statutory mandate to regulate petroleum prices required the continued regulation of rents charged for service station leases. Shell Oil Co. v. Federal Energy Administration, supra, 400 F.Supp. at 966-967. This argument was rejected by both the district court and the Temporary Emergency Court of Appeals in the Shell case.

Although Shell held that the FEA rent control regulations were beyond the statutory authority granted by the EPAA and that any orders issued under those regulations were therefore "null and void," 527 F.2d at 1247, the Shell decision did not consider the issue presented in this case. Since Shell did not involve a lessor seeking a refund of money paid in compliance with an FEA rent control order, neither the district court nor the court of appeals considered the rights and liabilities of private parties who acted in accordance with FEA orders issued pursuant to the unauthorized regulations.

In a prior Memorandum of Opinion, this Court found that the orders directing ARCO to comply with FEA rent regulations and to refund and credit money to Riley were in excess of the FEA's statutory authority insofar as they regulated rents after April 30, 1974. However, that opinion also stated that although the orders were unlawful, ARCO was not necessarily entitled to recover the money paid Riley pursuant to those orders:

"The determinative issue that remains is whether the Court should now, more than two years later, reach back and undo actions taken pursuant to the orders. Shell does not necessarily require that Riley must bear the consequences of the government's mistake." (Memorandum of Opinion dated Feb. 15, 1978, at p. 11.)

This Court has concluded that the Shell decision should not be applied retroactively to require Riley to refund the money paid by ARCO, for, on the facts of this case, retroactive application of Shell to undo a past transaction would be inequitable.

The Doctrine of Nonretroactivity

The doctrine of nonretroactivity recognizes that actions taken under judicial decisions that are later overruled or under statutes later declared unconstitutional need not always be undone. ARCO argues that the FEA orders in this case were "void ab initio" and that restitution of the money Riley unlawfully received is therefore mandated. However, this argument ignores the fact that the FEA orders were based on existing regulations, which both Riley and the FEA believed to be lawful. In Lemon v. Kurtzman, 411 U.S. 192, 198, 93 S.Ct. 1463, 1468, 36 L.Ed.2d 151 (1973), the Supreme Court rejected a similar theory:

"Appellants insist that * * * an unconstitutional statute `confers no rights; it imposes no duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it had never been passed.' Norton v. Shelby County, 118 U.S. 425, 442, 6 S.Ct. 1121, 30 L.Ed. 178 (1886)."

The Supreme Court pointed out that the Norton doctrine is no longer adhered to, for the courts must take into account a variety of factors in order to determine the appropriate effect of a new judicial ruling on prior conduct:

"However appealing the logic of Norton may have been in the abstract, its abandonment reflected our recognition that statutory or even judge-made rules of law are hard facts on which people must rely in making decisions and in shaping their conduct. This fact of legal life underpins our modern decisions recognizing a doctrine of nonretroactivity." 411 U.S. at 199, 93 S.Ct. at 1468.

Although the doctrine of nonretroactivity has most often been considered in criminal cases, the doctrine has also been applied in civil litigation, in both constitutional and nonconstitutional cases. Despite the great variety of circumstances in...

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