Conoco Inc. v. J.M. Huber Corp.
| Decision Date | 29 June 2001 |
| Docket Number | No. CIV. A. 98-1454-MLB.,CIV. A. 98-1454-MLB. |
| Citation | 148 F.Supp.2d 1157 |
| Parties | CONOCO INC., Plaintiff, v. J.M. HUBER CORP., Defendant. |
| Court | U.S. District Court — District of Kansas |
Dennis M. Feeney, Joseph W. Kennedy, Morris, Laing, Evans, Brock & Kennedy, Wichita, KS, for Plaintiff.
Jay F. Fowler, Jim H, Goering, Foulston & Siefkin, L.L.P., Wichita, KS, for Defendant.
The 1970s era energy crunch produced a watershed of litigation regarding the federally mandated price controls on petroleum production. Here, Conoco, the unit operator of oil-producing land during this heavily regulated period, was required to pay overcharges of roughly $60,000 for J.M. Huber's (Huber) receipt of stripper prices and payments from Sun Oil Company in violation of the price controls. Conoco seeks reimbursement plus prejudgment interest. Originally slated for a trial to the court, Conoco has now moved for summary judgment. Doc. 30.1 Jurisdiction is proper. See 28 U.S.C. § 1331.
This case presents three primary questions. First, this court must determine whether Conoco has set forth evidence entitling it to judgment under a federal common law claim for restitution. If so, this court must also address the extent to which Huber's affirmative defenses preclude judgment in Conoco's favor. Only if Conoco's entitlement to judgment survives Huber's affirmative defenses will this court determine whether prejudgment interest should be awarded, how long a period such an award will cover, and finally, at what rate such interest should be computed.
As discussed more fully below, the court finds that Conoco is entitled to recoup the entire amount of the overcharge liability it incurred on behalf of Huber's receipt of stripper prices and payments in excess of the federally-mandated price control. In so finding, the court denies Huber's identified affirmative defenses. Thus, Conoco's motion is GRANTED.
In addition to the roughly $60,000 of overcharges, the court orders Huber to pay Conoco prejudgment interest at a rate established by 28 U.S.C. section 1961, running from July 30, 1998, the date upon which Conoco first notified Huber of its liability in this matter, up to and including the date judgment is entered pursuant to this Memorandum and Order.
The facts in this case are largely undisputed. Doc. 42, p. 3-5. The following is a general description of the tortuous litigation history of this matter and a more detailed description of the specific events leading up to this dispute.
During the 1970s, the Department of Energy (DOE)3 administered a series of price controls on the sale of crude petroleum. The sale of petroleum from "stripper wells,"4 however, was exempted from these price controls. This exemption permitted stripper well interest owners to receive a noticeably higher, market-driven price for their oil. It was therefore more profitable to have as many properties classified in such a way to take advantage of this exemption. To avoid this result, the DOE clarified the exception in December 1974 by issuing Ruling 1974-29. This ruling stated that "injection wells" could not be included in the well count when certifying a property as "stripper property."
The first suit challenging the ruling was filed in the District of Kansas on October 6, 1976 by an independent oil producer, Braden-Zenith, Inc. The district court, after consolidating this case with other similar lawsuits, granted a preliminary injunction, pending final resolution upon the merits. DOE was enjoined from enforcing Ruling 1974-29 but the plaintiff-producers were required to "escrow" with the district court the difference between the unregulated price received under the stripper well exemption and the regulated price. This amount is referred to as the "overcharge" because the market price was higher than the controlled price.
On March 17, 1978, Conoco filed a similar suit against the DOE in the Northern District of Texas, seeking to invalidate Ruling 1974-29 and enjoin DOE from imposing civil or criminal penalties against Conoco for any violations of that ruling. Conoco's suit was consolidated with similar lawsuits brought in that district by other oil producers. The Texas district court also enjoined DOE from enforcing Ruling 1974-29 and ordered Conoco and the other oil-producing plaintiffs to escrow the overcharge amount.
In July of 1979, the Judicial Panel on Multidistrict Litigation ordered that the consolidated Texas stripper well cases, including Conoco's case, be transferred to the District of Kansas for further proceedings designated as MDL 378. After a trial on the merits, Judge Frank Theis of this court upheld the validity of the stripper well regulations and Ruling 1974 29. The Temporary Emergency Court of Appeals affirmed his ruling and determined the overcharges violated federal price controls. As a result, the district court was ordered to effect restitution of the escrowed overcharges.
In July of 1986, following negotiations among the parties and intervenors in MDL 378 with respect to the appropriate distribution of the escrowed overcharge funds, a "Final Settlement Agreement" (FSA) was reached and approved by the district court. The aftermath of the settlement caused the several billion dollars that had been escrowed with the court to be distributed to the qualifying participants of the FSA. Unfortunately, the FSA did not resolve all remaining issues. Specifically, the remaining liability of the plaintiff-producers for underpayment of overcharges into MDL 378 escrow account was reserved for later resolution by the district court.
To solve the remaining problem, DOE audited all parties involved in MDL 378, including Conoco, to determine whether any party had underpaid the escrow account. On December 21, 1987, DOE advised Conoco of the results of the audit and of its position that Conoco failed to deposit approximately $4.439 million in overcharges pertaining to the Conoco-owned stripper properties covered by MDL 378. On March 18, 1988, Conoco responded and advised that approximately 80% of the alleged deficiency identified by DOE was attributable to oil taken "inkind" by third-party interest owners.5 Conoco claimed it was not responsible for their interests or the alleged overcharges incurred by them because it never certified, sold, or received any revenues regarding these interests. Furthermore, Conoco claimed it did not even know what prices, whether stripper or controlled, had been received by the owners of these interests. Accordingly, Conoco continued to make supplemental deposits into the district court's escrow account, accompanied by the filing of explanatory notices of what Conoco considered to represent its entire liability on the twenty-eight properties it operated. Conoco's supplemental deposits never included the 80% share held by the "in-kind" interest owners.
On December 31, 1992, Conoco moved for summary judgment on the remaining overcharge claim in MDL 378. In its accompanying memoranda, Conoco identified eight properties that its liability as an operator was questioned for oil taken "inkind," including a property known as the "North East Cherokee Unit" (NECU), located in Alfalfa County, Oklahoma. DOE opposed Conoco's motion and filed a cross-motion for summary judgment, arguing Conoco was liable under the "operator liability" doctrine for all overcharges on the Conoco-operated properties, including the disputed "in-kind" interests.6
On December 30, 1994, the district court issued its decision on Conoco's and DOE's motions for summary judgment. The court (1) found that on six of the eight properties, including NECU, Conoco and all other interest owners had received unlawful stripper prices; (2) found that Conoco was liable under the operator liability doctrine for the stripper overcharges received by the third-party in-kind interest owners; and (3) rejected Conoco's defenses based upon various settlements and consent decrees, computational errors, and accrual of prejudgment interest. A journal entry of judgment was filed on February 14, 1995.
Conoco appealed to the Federal Circuit with respect to only five of the six properties. Liability on NECU was not appealed because Conoco believed DOE had sufficiently established stripper overcharges with respect to all production at NECU. The appeal proceeded, after being reviewed at least two times by the Federal Circuit, over the next two years. Without going into superfluous details, it is sufficient to say Conoco and DOE eventually entered into a settlement of the entire overcharge dispute. In their approved "Agreed Judgment," Conoco agreed to pay $3.3 million into the MDL 378 escrow account. This settlement payment covered 100% of Conoco's judgment liability for the stripper overcharges of the in-kind owners of NECU, including Huber.
With this generalized background in mind, it is now possible to return to 1980 and clarify Conoco and Huber's relationship. From May 1980 through January 1981, known as the "stripper period," Conoco was the operator of NECU. NECU was certified as stripper well property despite the inclusion of injection wells that were on this property. Conoco held roughly a 38% share of the NECU production while the remaining 62% was taken "in-kind" by third-party working interest owners. Huber owned a 3% interest in NECU production.
During the stripper period, Sun Oil Company (Sun) purchased all of the oil production from NECU and, based on the certification of the property as stripper property, paid unlawful stripper prices with respect to all of the working interests in NECU. Huber, like the other third-party working interest owners, took its share of NECU...
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