Citronelle-Mobile Gathering, Inc. v. Edwards

• Decision Date: 21 January 1982
• Docket Number: No. 5-60,5-61.,5-60
• Citation: 669 F.2d 717
• Parties: CITRONELLE-MOBILE GATHERING, INC., et al., Plaintiffs-Appellants, v. James B. EDWARDS, Secretary of Energy, et al., Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

669 F.2d 717

CITRONELLE-MOBILE GATHERING, INC., et al., Plaintiffs-Appellants, v. James B. EDWARDS, Secretary of Energy, et al., Defendants-Appellees.

Nos. 5-60, 5-61.

Temporary Emergency Court of Appeals.

Argued October 9, 1981.

Decided January 21, 1982.

Keith A. Jones, Fulbright & Jaworski, Washington, D.C., with whom Campbell Killerfer and John M. Simpson, Washington, D.C., of the same firm; and G. Sage Lyons and John P. Courtney, III, Lyons, Pipes & Cook, Mobile, Ala., were on the brief for plaintiffs-appellants.

Brian G. Kennedy, Civil Division, Dept. of Justice, Washington, D.C., with whom Stuart E. Schiffer, Acting Asst. Atty. Gen. and R. John Seibert, Washington, D.C., of the same agency; and Larry P. Ellsworth and Diana D. Clark, Office of Gen. Counsel, Dept. of Energy, Washington, D.C., were on the brief for defendants-appellees.

James F. Flug, Ruth M. Weisgall, Lee Ellen Helfrich, Lobel, Novins & Lamont, Washington, D.C., for the State of California, amicus curiae.

John P. Mathis, Catherine C. Wakelyn, Baker & Botts, Washington, D.C., and John F. Salisbury, Alden F. Whitehead, John F. Hornbostel, Jr., New York City, National Distillers and Chemical Corp. for Nat. Distillers and Chemical Corp. and Nat. Hydrocarbons, Inc., amicus curiae.

David L. Roll, Richard H. Porter, Carol A. Rhees, Steptoe & Johnson, Washington, D.C., for Texaco, Inc., et al., amici curiae.

Before SPEARS, HEMPHILL and POINTER, JJ.

HEMPHILL, Judge.

This litigation involves four cargo shipments of crude oil which were sold and shipped from appellants, Citronelle-Mobile Gathering, Inc. ("Gathering"), and Citmoco Services, Inc. ("Citmoco"), to the Grand Bahamas Petroleum Company ("PETCO") in the commonwealth of the Bahamas, pursuant to four export licenses issued by the Department of Commerce. These shipments were made pursuant to agreements between Bart Chamberlain, principal officer and principal stockholder of Gathering and Citmoco, and Edward M. Carey, principal officer and/or director of Carey Energy Corporation which owned New England Petroleum Corporation ("NEPCO"). It affirmatively appears that PETCO, to which company the petroleum was originally shipped from the United States, is a wholly owned subsidiary of NEPCO, the final recipient of the oil in question. The oil was refined by Bahamas Oil Refiners Co. ("BARCO") which is partially owned by PETCO. The first three contracts involved a sale of approximately 765,000 barrels at $14.00 per barrel; a fourth sale was of approximately 200,000 barrels at $13.00 per barrel. In order to effectuate the sale to PETCO, appellants were required to obtain export licenses from the Department of Commerce, and did so upon the showing that the proposed exportation of crude oil would not "affect the total quantity or quality of petroleum available to domestic users...." 15 C.F.R. § 377.6(b)(1); 38 Fed.Reg. 34442, 34443 (Dec. 13, 1973). The Federal Energy Office participated in the review and approval of the application for the export licenses, and officials of the Federal Energy Office were fully informed as to the details of the transactions.

Spawned by newspaper articles appearing in the summer of 1975, an initial investigation was had into the possible involvement of the Governor of New York resulting in a grand jury determination, with ultimate acknowledgement by the Department of Justice, that there was no credible evidence to support any allegations against that individual. A Congressional investigation also concluded that there was no substance to the allegations against the Governor of New York. In January, 1976, the Federal Energy Agency ("FEA") instituted another investigation involving, primarily, the enforcement of certain subpoenas, and during that litigation, in November of 1978, defendant filed a second allowed counterclaim under the Economic Stabilization Act of 1970, as amended, 12 U.S.C. § 1904 n. § 209¹ ("ESA") on behalf of the alleged overcharge of the domestic customers of NEPCO.

On cross motions for summary judgment, the district court granted partial judgment for the United States. Citronelle-Mobile Gathering, Inc. v. O'Leary, 499 F.Supp. 871 (S.D.Ala.1980). From this judgment appellants pursue an interlocutory appeal presenting four issues for decision at this level.

The case and all incidental issues revolve around the central question of whether the export exemption applies. If the sales are to be treated as exports, and/or domestic sales for export crude petroleum subject to the export licenses regulations of the Department of Commerce ("DOC"), then such are expressly excluded from FEA's petroleum allocation regulations; 10 C.F.R. § 211.1. Prices charged for export sales, including sales to a domestic purchaser which certifies the product is for export, are also exempt from FEA's petroleum pricing regulations; 10 C.F.R. § 212.53. The question of whether the export exemption applies suggests the conclusion that if appellants are allowed to take advantage of what appeared to be a loophole in the law, then the whole concept of consumer protection, as found in the Department of Energy's ("DOE") regulations, may be frustrated. We consider in this light.

THE SALES OF AMERICAN CRUDE OIL BY AN AMERICAN FIRM TO THE WHOLLY OWNED SUBSIDIARY OF ANOTHER AMERICAN FIRM WERE NOT "EXPORT SALES"

Appellants have urged this Court to consider the "plain" or "commonly accepted" meaning of the term "export sale". This Court cannot concentrate on individual words and ignore a consideration of the context in which the term appears. In order to determine the precise meaning of the term "export sale" it is imperative that strong consideration be given to the entire transaction giving rise to the "export sale"², coupled with a consideration of the purpose for which this regulation was intended.³

As stated earlier, appellant firms, both American corporations, sold crude oil produced in the United States to PETCO, a wholly-owned foreign subsidiary of another American corporation (NEPCO). Once refined, the same quantity of refined products was returned, not only to the United States, but to the refiner's parent corporation in the United States. This transaction, admittedly clever, is not original. In 1883, the Attorney General issued an opinion evolving from circumstances in which whiskey was to be shipped from the United States to Bermuda with the intent that it be returned to the United States after it had been aged. That opinion, holding there was no exportation, was later quoted with approval by the Supreme Court. See Swan & Finch v. United States, 190 U.S. 143, 145, 23 S.Ct. 702, 703, 47 L.Ed. 984 quoting 17 Op.A.G. 579, 583 (1883). The Court stated:

The legal notion ... of exportation is a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country.

Id. at 145, 23 S.Ct. at 703. See also United States v. 200 Watches, 66 F.Supp. 228, 230, (S.D.N.Y.1946). In the case at bar, appellant's intention was that the refined products attributable to the Chamberlain firm's crude oil be returned to the United States. There was never any intention that the crude oil be joined with the mass of things in the Bahamas.

The apparent plan of appellant's transactions becomes much clearer when considered along with the purpose and actual requirements of the pertinent regulations. Exports, and domestic sales for export, of crude petroleum subject to export license regulations of the Department of Commerce were, and are, excluded from FEA's petroleum allocation regulations. Prices charged for these "export sales", are exempt from the FEA's petroleum pricing regulations. (10 C.F.R. § 212.53 provides: The prices charged for export sales including sales to a domestic purchaser which certifies the product is for export, are exempt.) In order to take advantage of this exemption one must follow the simple, rudimentary procedure of obtaining an export license. This involves a showing that the "total quantity or quality of petroleum available to the United States" would not be diminished. 15 C.F.R. § 377.6(b)(1). Once licensed, an exporter is free to charge whatever price the foreign market can bear. Thus, the regulations were promulgated in such a way as to, among other things, increase foreign revenue, stabilize the economy, and assure sufficient quantities of petroleum. However, when the economic reality of the transactions is examined, it is quite obvious, as the able trial judge perceived, that these transactions had precisely the effect which Congress sought to avoid in enacting the Emergency Petroleum Allocation Act of 1973 (EPAA), to wit; higher oil prices to American buyers. Citronelle, supra at 883.

Finally, the case of United States v. Concentrated Phosphate Export Assn., 393 U.S. 199, 89 S.Ct. 361, 21 L.Ed.2d 344 (1968), is instructive and somewhat analogous. Concentrated Phosphate involved foreign aid paid for by the United States, specifically sales of phosphate to the Republic of Korea financed by the Agency for International Development. The Court faced the question of whether the associations made the sales "in the course of export trade" within the meaning of the Webb-Pomerene exemption, 15 U.S.C. §§ 61 et seq., to the Sherman Act. The exemption allows the formation of joint associations in order to compete with foreign cartels in export trade. In making its decision the Supreme Court examined the purpose of the act in light of transactions occurring in attempts to take advantage of the Act. It is important to note that there is great similarity in the purpose of the DOE's "export sales" exemption and that of the Webb-Pomerene Act. In the DOE exemption, price controls were implemented to, "benefit United States consumers and the domestic economy." FEA Ruling 1975-7, 40 Fed.Reg. 30037 (July 17, 1975). Likewise, in dealing with the Webb-Pomerene Act, the Court, in Concentrated Phosphate...