Basin, Inc. v. Federal Energy Administration

• Decision Date: 07 March 1977
• Docket Number: No. 5-21.,5-21.
• Citation: 552 F.2d 931
• Parties: BASIN, INC., Plaintiff-Appellee, v. FEDERAL ENERGY ADMINISTRATION and Frank Zarb, Individually and as Administrator of the Federal Energy Administration, Defendants-Appellants, Independent Refiners Association of America, amicus curiae.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

552 F.2d 931

BASIN, INC., Plaintiff-Appellee, v. FEDERAL ENERGY ADMINISTRATION and Frank Zarb, Individually and as Administrator of the Federal Energy Administration, Defendants-Appellants Independent Refiners Association of America, amicus curiae.

No. 5-21.

Temporary Emergency Court of Appeals.

Argued January 21, 1977.

Decided March 7, 1977.

COPYRIGHT MATERIAL OMITTED

Bruce G. Forrest, Dept. of Justice, Washington, D. C. (Rex E. Lee, Asst. Atty. Gen., and Stanley D. Rose, Dept. of Justice, Washington, D. C., with him on the brief) for appellants.

Edwin Jason Dryer, Washington, D. C., for amicus curiae.

Cecil E. Munn, Cantey, Hanger, Gooch, Munn & Collins, Fort Worth, Tex.; and Northcutt Ely, Washington, D. C., with him on the brief for appellee.

Before INGRAHAM, VAN OOSTERHOUT and JOHNSON, Judges.

JOHNSON, Judge.

This case involves the validity of 10 C.F.R. § 211.63, a regulation of the Federal Energy Administration (FEA hereinafter) commonly known as the "supplier-purchaser freeze" rule. In 1973, Congress passed the Emergency Petroleum Allocation Act¹ in response to problems that it perceived in the petroleum industry. A notable cause of these difficulties was the Arab oil embargo. The Act required FEA to allocate the distribution of domestically produced crude oil in pursuance of certain stated objectives, and Section 211.63 was promulgated by FEA for this purpose.

Section 211.63 has the effect, with the exceptions discussed later, of locking or freezing into place the supplier-purchaser relationships that existed before the freeze date of December 1, 1973. If a producer of crude oil had been supplying a certain reseller, or if the reseller had been supplying a certain refiner, then the "freeze" rule required that they continue to do so. A related, though smaller, program is the refiner regulatory ("buy-sell") program. It is designed to protect small independent refiners from large integrated ones which own their sources of supply. Under it, the independent refiners may compel the integrated companies to sell them petroleum, the exact quantity being determined by regulation.²

Plaintiff-appellee Basin, Inc., is a reseller of petroleum. It buys from domestic producers of oil and resells the same oil to refiners. The company was founded only two months before the Allocation Act became law. It had made arrangements for the purchase of a substantial quantity of petroleum, but it was deprived of about seventy-five percent of that supply by the supplier-purchaser freeze. Since that time, an apparently growing and profitable business has undergone economic stagnation.

Basin sought administrative relief for its problems, particularly a change in the FEA regulations. Some modifications were made, but Basin considered them to be unsatisfactory. It therefore instituted a suit in the Western District of Texas. The district court entered a preliminary injunction against FEA, based on doubt that the Allocation Act could abrogate contracts entered into before the freeze date. However, this Court found that particular issue already to have been settled in the agency's favor. It remanded for consideration of the extent to which Basin was foreclosed from the market by the contested regulation, and FEA's justification for any such result. Basin, Inc. v. Federal Energy Administration, 534 F.2d 324 (Em.App.1976).

Before trial, the Independent Refiners Association of America (IRAA) moved to intervene. The district court denied the motion and refused to permit IRAA's counsel to participate in the trial. Cases 5-20 and 5-22 involve appeals by IRAA from this denial of intervention. Because of this Court's disposition of the principal case, 5-21, it is unnecessary to reach the intervention issue.³

At the conclusion of the trial in which Basin and FEA participated, the district court found that a continuation of the freeze rule would drive Basin out of business and effectively foreclose any new entrants into the crude oil marketing field. It found the exceptions to the freeze rule to be "insignificant" and said that any hardship caused by the abolition of the rule could be compensated for under the buy-sell program. It further concluded that the regulation failed to advance three of the underlying policies stated in the Allocation Act, and thus that it contravened the statutory mandate. Because of these factors, the supplier-purchaser freeze rule was found to be arbitrary, capricious, and an abuse of discretion, and its enforcement against Basin was enjoined. From this judgment, FEA appeals.

Of critical importance to this case is what standard the trial court should have applied in evaluating the FEA's regulation. This Court concludes that the regulation should have been upheld if it had any rational basis to support it. It is true that reviewing courts should not simply "rubber-stamp" the actions of administrative agencies. NLRB v. Brown, 380 U.S. 278, 291-292, 85 S.Ct. 980, 13 L.Ed.2d 839 (1965); see Federal Maritime Commission v. Seatrain Lines, Inc., 411 U.S. 726, 93 S.Ct. 1773, 36 L.Ed.2d 620 (1973); Volkswagenwerk v. Federal Maritime Commission, 390 U.S. 261, 88 S.Ct. 929, 19 L.Ed.2d 1090 (1968). However, the decisions of administrative agencies are not lightly disregarded. Columbia Broadcasting System, Inc. v. Democratic National Committee, 412 U.S. 94, 93 S.Ct. 2080, 36 L.Ed.2d 772 (1973). To sustain an agency's statutory interpretation, it is not necessary to "find that its construction is the only reasonable one or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings." Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). The construction put on a statute by the agency charged with administering it is entitled to deference by the courts, and ordinarily that construction will be affirmed if it has a "reasonable basis in law." Unemployment Compensation Commission of Alaska v. Aragon, 329 U.S. 143, 154, 67 S.Ct. 245, 91 L.Ed. 136 (1946); NLRB v. Hearst Publications, 322 U.S. 111, 131, 64 S.Ct. 851, 88 L.Ed. 1170 (1944). The attitude of this Court toward judicial review of economic controls has been along these lines. "It is a well settled principle that the courts place great weight on the interpretations given to statutes and regulations by those agencies charged with the responsibility of administering them." Pacific Coast Meat Jobbers Ass'n, Inc. v. Cost of Living Council, 481 F.2d 1388, 1392 (Em.App.1973). See University of Southern California v. Cost of Living Council, 472 F.2d 1065, 1068-1069, (Em.App.1972), cert. den. 410 U.S. 928, 93 S.Ct. 1364, 35 L.Ed.2d 590.

Perhaps the decision most relevant to this case is Condor Operating Co. v. Sawhill, 514 F.2d 351 (Em.App.1975), cert. den. 421 U.S. 976, 95 S.Ct. 1975, 44 L.Ed.2d 467. There, Section 211.63 was challenged by an oil producer. This Court stated, "Where the obvious intent of Congress is to give the President and his delegates broad power to do what reasonably is necessary to accomplish legitimate purposes rendered necessary by a recognized emergency, and regulations are fashioned to implement the Congressional mandate, the court should not interfere with the prerogative of the agency to select the remedy which for rational reasons is deemed most appropriate." Id. at 359. See Pasco, Inc. v. Federal Energy Administration, 525 F.2d 1391 (Em.App.1975); Pacific Coast Meat Jobbers Ass'n, Inc. v. Cost of Living Council, supra; Reeves v. Simon, 507 F.2d 455 (Em.App.1974), cert. den., 420 U.S. 991, 95 S.Ct. 1426, 43 L.Ed.2d 672; Mandel v. Simon, 493 F.2d 1239 (Em.App.1974); University of Southern California v. Cost of Living Council, supra. This standard is the proper one in the present case.⁴

The problem remains whether the questioned regulation meets this rationality standard. The Emergency Petroleum Allocation Act specifies nine objectives which the FEA is to pursue in its regulations.⁵ However, the objectives are broad and the FEA must be afforded substantial leeway in attempting to attain them. Each stated goal cannot be raised to the status of a mandatory requirement for each regulation, as the legislative history clearly shows. The House committee report states that the drafters were "careful to provide the President with adequate flexibility so that he is not straight jacketed into accomplishing these objectives in instances where it would be inimicable to the public interest." H.R.Rep.No.93-531, 93d Cong., 1st Sess. (1973), 1973 U.S.Code Cong. & Ad.News, p. 2590. The Conference Report says that it may be impossible to satisfy one objective without sacrificing the accomplishment of another. Conference Report 93-628, 93d Cong. 1st Sess. (1973), 1973 U.S.Code Cong. & Ad.News, p. 2688. Further, the statute itself says that the stated objectives are to be pursued "to the maximum extent practicable." (Emphasis added). This indicates that a considerable degree of flexibility was intended by Congress and was incorporated into the Act. Pasco, Inc. v. Federal Energy Administration, 525 F.2d 1391 (Em.App.1975).

In Condor Operating Co. v. Sawhill, supra, this Court held Section 211.63 to be a "rational exercise" of the power conferred by Congress. The regulation has been amended since that time, but Basin cannot demonstrate how the amendments make it less rational. Rather, it tries to distinguish Condor from this case principally on the basis of the district court's finding that new entrants, such as Basin, are barred by the regulation from the crude oil marketing business. This factor, it contends, renders an otherwise rational regulation irrational.

Assuming that new entrants are barred, the regulation may still be viewed as a rational attempt to implement the congressional mandate. The primary aim of the Emergency Petroleum Allocation Act is to deal with "existing or imminent shortages and dislocations in the national distribution system." Conference Report ...