Chevron U.S.A. v. Mobil Prod. Texas & New Mexico

• Decision Date: 27 February 2002
• Docket Number: No. 01-1016.,01-1016.
• Citation: 281 F.3d 1249
• Parties: CHEVRON U.S.A. INC., Plaintiff-Appellant, v. MOBIL PRODUCING TEXAS & NEW MEXICO, Defendant-Appellee, and Mobil Oil Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

281 F.3d 1249

CHEVRON U.S.A. INC., Plaintiff-Appellant, v. MOBIL PRODUCING TEXAS & NEW MEXICO, Defendant-Appellee, and Mobil Oil Corporation, Defendant-Appellee.

No. 01-1016.

United States Court of Appeals, Federal Circuit.

February 27, 2002.

Susan R. Richardson, Cotton, Bledsoe, Tighe & Dawson, P.C., of Midland, TX, argued for plaintiff-appellant. With her on the brief were Chris Aycock, and David W. Lauritzen. Of counsel on the brief was Alan I. Horowitz, Miller & Chevalier, Chartered, of Washington, DC.

David J. Beck, Beck, Redden & Secrest, L.L.P., of Houston, TX, argued for defendants-appellees. With him on the brief was Michael E. Richardson. Of counsel on the brief were Mark D. Wegener and Edward Han, Howrey Simon Arnold & White, LLP, of Washington, DC.

Before MAYER, Chief Judge, PAULINE NEWMAN and CLEVENGER, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Chevron U.S.A. Inc. brought suit against Mobil Producing Texas & New Mexico and Mobil Oil Corporation (collectively "Mobil") for restitution in connection with payments Chevron made to the Department of Energy ("DOE") for stripper well overcharges attributable to Mobil's working interest in a property operated by Chevron's predecessor in interest, the Gulf Oil Corporation. The United States District Court for the Western District of Texas, granting Mobil's motion for summary judgment,¹ ruled that a Consent Order entered into by Mobil and DOE in 1979 had settled Mobil's liability for all violations through May 1979, including the stripper well overcharges attributed to this working interest. We conclude that these stripper well overcharges were not settled in the Mobil/DOE Consent Order, and that Chevron is entitled to recover from Mobil the payments that Chevron made to DOE based on overcharges attributed to Mobil's working interest. We reverse the district court's ruling with respect to entitlement, and remand for further proceedings.

BACKGROUND

The United States instituted price controls for crude oil pursuant to the Economic Stabilization Act of 1970 ("ESA"), Pub.L. No. 91-379, 84 Stat. 799 (codified at 12 U.S.C. § 1904 note), and the Emergency Petroleum Allocation Act of 1973 ("EPAA"), Pub.L. No. §§ 93-159, 87 Stat. 627 (codified at 15 U.S.C. §§ 751-760h). See generally Texas American Oil Corp. v. United States Dep't of Energy, 44 F.3d 1557 (Fed.Cir.1995) (en banc) (Federal Circuit adoption of the precedent of the Temporary Emergency Court of Appeals).

Section 4(e)(2)(A) of the EPAA contained a "stripper well exemption" that allowed crude oil to be sold at free market prices when it was produced at a property with an average maximum daily production of ten barrels per well during the preceding twelve-month period. See generally Energy Reserves Group, Inc. v. Dep't of Energy, 589 F.2d 1082, 1087-89 (Temp.Emer.Ct.App.1978) (detailed history of the stripper well exemption). Some operators, in their calculation of average production per well for a specified property, counted the injection wells along with the producing wells. Injection wells do not extract oil but are used to inject substances into the underground reservoirs serving the producing wells, in order to aid in the extraction of oil.

In December 1974 the Federal Energy Administration ("FEA"), the predecessor to DOE in administering these statutes, ruled that injection wells cannot be included in calculating the average daily production per well, issuing Ruling 1974-29. A group of producing companies, forming the Energy Reserves Group, challenged Ruling 1974-29 in the United States District Court for the District of Kansas. The Kansas district court held that Ruling 1974-29 was void and unenforceable because it was issued in violation of the rulemaking requirements of the Administrative Procedure Act. The court enjoined the FEA from enforcing Ruling 1974-29 against the companies that constituted the Energy Reserves Group. Energy Reserves Group, Inc. v. Fed. Energy Admin., 447 F.Supp. 1135 (D.Kan.1978). The Kansas district court extended the injunction to the benefit of Mobil on September 6, 1978 and Gulf on June 25, 1979.² Pending decision of the appeal to the Temporary Emergency Court of Appeals, the district court required each of the oil companies to deposit into an escrow account the difference between the actual free market price and the regulated price, for oil whose stripper well character was based on inclusion of injection wells.

The Temporary Emergency Court of Appeals ultimately upheld the validity and enforceability of Ruling 1974-29, reversing the rulings of the Kansas district court. In re Dep't of Energy Stripper Well Exemption Litig., 690 F.2d 1375 (Temp.Emer.Ct.App.1982). In 1986 the oil companies and DOE entered into a Final Settlement Agreement to resolve the distribution of the escrowed funds. However, DOE reserved the right to claim additional recovery if DOE determined, upon further audit, that insufficient funds had been deposited into escrow.

Meanwhile, in 1979, while DOE's appeal on the basic question of how to calculate stripper well status was pending, Mobil and DOE entered into a Consent Order for the period from September 1973 through May 1979. DOE had conducted an audit of Mobil's compliance with crude oil price regulations for the period from September 1973 through December 1976, and the findings of this audit were extrapolated forward through May 31, 1979. The Consent Order stated that it resolved "all crude oil sales from its properties for the period covered by this Consent Order," on payment of $13.7 million. Notice of the Consent Order was published in the Federal Register on September 20, 1979 (for comment) and November 23, 1979 (final Order).

In 1987 DOE sued Chevron for additional recovery under the ESA and the EPAA. Chevron states that a portion of the claim by DOE included the liability of Chevron's predecessor Gulf as operator for overcharges from September 1977 through October 1978 attributed to Mobil's working interest in a property operated by Gulf at the East Waddell Ranch in Texas. In re Dep't of Energy Stripper Well Exemption Litig., 746 F.Supp. 1452 (D.Kan.1990), aff'd in part, 944 F.2d 914 (Temp.Emer.Ct.App.1991). The suit invoked the doctrine of operator liability, which permits the DOE, as a matter of administrative convenience, to recover from the operator the full amount of all overcharges for oil from the operated property, even when only the working interest owners, not the operator, received the overpayment. See W.R. Murfin Drilling Co. v. United States Dep't of Energy, 90 F.3d 1551, 1555 (Fed.Cir.1996) (explaining the operator liability doctrine). During the period September 1977 through October 1978, stripper well oil from Mobil's working interest in the East Waddell Ranch was sold by Mobil to Gulf at free market prices, contrary to Ruling 1974-29. Neither Mobil nor Gulf had made deposits into escrow to cover these charges through October 1978; Gulf began making deposits that included Mobil's working interest in November 1978.

In 1992 Chevron settled all of DOE's claims by payment of a total of $99,539,230. Chevron states that $1,647,080 ($396,000 in actual overcharges plus interest) of this payment was due to the improper characterization of stripper well sales from Mobil's working interest in the East Waddell Ranch from September 1977 through October 1978. Chevron seeks reimbursement from Mobil on a theory of "operator restitution," described by Chevron as an equitable remedy responding to the operator liability doctrine.

The district court held that Chevron was not entitled to this recovery because Mobil, by its Consent Order with DOE in 1979, resolved all of its compliance matters related to crude oil sold between September 1, 1973 and May 31, 1979. The court ruled that this extinguished any stripper well violations attributable to Mobil's working interest in the East Waddell Ranch, and that Chevron is not entitled to recovery from Mobil for any payment that Chevron may have made to DOE based on Mobil's overcharges attributed to its working interest in misdesignated stripper wells. This appeal followed.

DISCUSSION

The issues before the district court were decided on cross motions for summary judgment. Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In evaluating a motion for summary judgment, the evidence of the non-movant is to be believed and all justifiable inferences are drawn in favor of the non-movant. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. This standard is not changed when the parties bring cross-motions for summary judgment, each nonmovant receiving the benefit of favorable inferences. Murphy Exploration & Production Co. v. Oryx Energy Co., 101 F.3d 670, 673 (Fed.Cir.1996). The grant of summary judgment is subject to plenary review. Murfin, 90 F.3d at 1555.

Depending on the circumstances, an operator who has accounted to DOE under the operator liability doctrine may or may not be entitled to contribution from the working interest owners. "[T]he right of contribution depends on the particular facts, and is imposed when justice requires." Murphy, 101 F.3d at 674.

The district court held that Chevron would not be entitled to contribution for Chevron's payments to DOE attributable to overcharges from Mobil's working interest if Mobil had (1) previously settled its liability for these overcharges in the 1979 Consent Order, and (2) had provided Chevron with notice of this settlement. Chevron does not challenge this theory as applied to the audited and extrapolated overcharges settled by Mobil in 1979. However, Chevron argues that the Mobil/DOE 1979 Consent Order did not and could not include settlement of Mobil's stripper well liability, for DOE was enjoined from enforcing Ruling 1974-29, the...