Eastern Airlines v. Mobil Oil Corp.

• Decision Date: 01 May 1981
• Docket Number: No. 74-765-Civ-SMA.,74-765-Civ-SMA.
• Citation: 512 F. Supp. 1231
• Parties: EASTERN AIRLINES, INC., Plaintiff, v. MOBIL OIL CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of Florida

512 F. Supp. 1231

EASTERN AIRLINES, INC., Plaintiff, v. MOBIL OIL CORPORATION, Defendant.

No. 74-765-Civ-SMA.

United States District Court, S. D. Florida, Miami Division.

May 1, 1981.

James H. Bratton, Jr., Donald Rickertsen, John G. Despriet, Gambrell, Russell & Forbes, Atlanta, Ga., William G. Bell, Jr., Vice-President, Legal, Laurence A. Schroeder and James Knight, Walton, Lantaff, Schroeder, Carson & Wahl, Miami, Fla., for plaintiff.

David S. Batcheller, Smathers & Thompson, Miami, Fla., Francis A. Rowen, Jr., New York City, Andrew J. Kilcarr, Donovan, Leisure, Newton & Irvine, Washington, D. C., Thomas R. Trowbridge, III, Donovan, Leisure, Newton & Irvine, New York City, for defendant.

MEMORANDUM OPINION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

ARONOVITZ, District Judge.

Eastern Airlines, Inc. (hereinafter "Eastern") commenced this action on June 12, 1974, by filing a six-count complaint naming Mobil Oil Corporation (hereinafter "Mobil") as Defendant. By Order dated February 3, 1975, counts 3, 4 and 5 were dismissed. See Docket No. 19. The remaining counts seek to recover damages for allegedly excessive prices charged on certain petroleum products sold by Mobil to Eastern during the one-year period November 1, 1973, to October 31, 1974.¹

Claiming that Mobil overcharged for jet fuel in violation of the Economic Stabilization Act of 1970, see 12 U.S.C. § 1904 note, the Emergency Petroleum Allocation Act of 1973, see 15 U.S.C. § 751 et seq., and petroleum price control regulations promulgated thereunder, Eastern, in count 1, seeks damages "in excess of $2.4 million." ¶ 19 of Complaint. In count 2, Eastern seeks to treble the damages recovered under count 1 on the basis that the overcharges alleged were due to intentional and willful conduct. See 15 U.S.C. § 754, which adopts § 210 of the Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note. Finally, in count 6 Eastern alleges that Mobil and others, in violation of § 1 of the Sherman Act, see 15 U.S.C. § 1, conspired to restrict the supply of and trade and competition for petroleum products, including jet fuel, in order to gain monopoly profits and thereby caused Eastern to suffer damages of "many millions of dollars." ¶ 34 of Complaint. The suit is now before the Court on the parties' Cross-Motions for Partial Summary Judgment with respect to counts 1 and 2 of the Complaint. The issues raised by the cross-motions have been comprehensively briefed and the Court has heard oral argument from the parties' respective counsel.

BACKGROUND

The salient facts and circumstances which precipitated this lawsuit are not in material dispute. Under a written agreement dated November 1, 1966, Mobil was Eastern's jet fuel supplier at Boston and Syracuse from February 1, 1970 to February 1, 1973, and at Los Angeles from September 23, 1969 to February 1, 1973. Upon expiration of those contracts, Eastern entered into supply arrangements with other petroleum companies but, on November 1, 1973, pursuant to the federal government's petroleum allocation program necessitated by the Middle East oil embargo,² Mobil was required to supply Eastern's jet fuel requirements at Boston, Los Angeles and Syracuse. Neither party in these proceedings challenges the administrative order requiring Mobil to resume supplying jet fuel to Eastern at the designated airports. It bears mention, however, that this mandatory supply relationship was imposed by the government upon both Mobil and Eastern, despite the fact that the prior contracts between the two had expired and notwithstanding the fact that Eastern had entered into supply contracts with other companies at Boston, Syracuse and Los Angeles. The mandatory supply relationship continued until October 31, 1974 (exactly one year), at which time Eastern entered into supply arrangements with other oil companies and ceased being supplied by Mobil.

Because there was no contractually established price for the jet fuel provided by Mobil during the mandatory supply period, prices to Eastern were controlled by federal mandatory petroleum price regulations. Those regulations were promulgated under the authority of the Economic Stabilization Act of 1970 and the Emergency Petroleum Allocation Act of 1973 in response to national shortages and disruptions in the petroleum industry. Although the regulations at issue in this lawsuit were amended during the Eastern-Mobil mandatory supply period,³ the underlying regulatory scheme remained unchanged.

In general, while the regulations did not establish the actual prices Mobil charged, they did set a ceiling on the prices a refiner, such as Mobil, could charge. These maximum prices (variously called "base" prices and "maximum allowable" prices) were equal to the sum of the weighted average price at which the refiner sold the "product involved" (in this case, jet fuel) to similarly situated customers (called "classes of purchaser")^3a on or about May 15, 1973, plus an increment based upon increased product costs incurred by the refiner since May 15, 1973. 10 C.F.R. § 212.82(b). The regulations required a refiner to identify classes of purchasers which existed on May 15, 1973, and to calculate weighted average May 15, 1973 prices for each class of purchaser it identified, based upon actual prices at which the refiner sold the product involved to members of the class of purchaser on or about May 15, 1973. These May 15, 1973 weighted average prices served as a floor above which price increases could be made.

Subject to certain restrictions, permissible price increases were limited to product cost increases incurred by the refiner since May 15, 1973. 10 C.F.R. § 212.82(b). The aggregate of such increased costs for "covered products" (which include jet fuel) could be allocated among the various products in that category at the refiner's discretion, provided that the amount of such increase was "equally applied to each class of purchaser." 10 C.F.R. § 212.83(c)(ii). Refiners were not, however, required to pass through increased costs in the month actually incurred. Instead, where a refiner passed through less than all increased costs, because of contractual commitments or other commercial considerations, the regulations permitted a refiner to save or "bank" these "unrecovered costs" for recoupment at a later date. In other words, whenever increased product costs were not recouped in a given month, they were added to a cumulative fund or "bank" of unused increased costs which could then be used to calculate the maximum lawful price in subsequent months, provided they were applied equally to each class of purchaser in computing maximum lawful prices in that month. 10 C.F.R. § 212.83(d). Thus, "maximum allowable" or "base" prices were to be ascertained for each class-of-purchaser by adding together (1) the May 15, 1973 weighted average price for the product involved, (2) the increased product costs incurred during the immediately preceding month, and (3) product cost increases incurred since May 15, 1973, which were not previously passed through (i. e., banked costs).^3b See Longview Refining Co. v. Shore, 554 F.2d 1006, 1017 (Em.App.1977).

Eastern and Mobil agree that, for purposes of determining the "maximum allowable" or "base" price for the jet fuel sold to Eastern during the mandatory supply period, the applicable class of purchaser consisted of commercial airlines at each of the three airports involved here, with the commercial airlines at each airport constituting a separate class.⁴ Thus, the May 15, 1973 weighted average price, for use in establishing prices to Eastern, was computed by reference to transactions with other commercial airlines at the appropriate airport. Eastern and Mobil disagree, however, concerning the manner in which the May 15, 1973 weighted average prices should have been computed. Moreover, since Eastern, unlike other commercial airlines supplied by Mobil, was without a contractual price commitment from Mobil, the regulations discussed above permitted Mobil to charge the May 15, 1973 weighted average price plus increased product costs. As a result, during the mandatory supply period Eastern was paying higher prices than previously charged by Mobil. In addition, these prices paid by Eastern were higher than those paid by other airlines with which Mobil maintained it had binding contractual commitments.

Eastern concedes that the increases in product costs (which included the cost of crude oil) after May 15, 1973 were substantial, due primarily to the dramatic rise in crude oil prices imposed by the Organization of Petroleum Exporting Countries (OPEC). Eastern, nevertheless, challenges many of the purported product cost increases claimed by Mobil, arguing that the increases were not actually incurred but, rather, were a consequence of Mobil's transfer pricing and accounting system.

These combined circumstances—allegedly improper weighted average price calculations, higher prices based on increased "product costs" that Eastern viewed as nonexistent or impermissible, and higher jet fuel prices vis-a-vis other commercial airlines—led Eastern to file this lawsuit, alleging in counts 1 and 2 that Mobil had overcharged it for jet fuel and that it was entitled to recoup those overcharges. Those counts were brought pursuant to § 5(a) of the Emergency Petroleum Allocation Act ("EPAA"), 15 U.S.C. § 754(a), which incorporates by reference §§ 205, 211 of the Economic Stabilization Act of 1970 ("ESA"), 12 U.S.C. § 1904 note. Under the ESA, an "overcharge" would exist if Mobil had charged a price to Eastern which "exceeded the applicable ceiling price under the mandatory petroleum price regulations." See § 210(c) of the ESA. Moreover, if Eastern's allegations of overcharges were sustained, Mobil would be liable in damages to Eastern in accordance with § 210.

(I)

Eastern and Mobil have filed cross-motions for partial summary judgment on, what they have denominated, the May 15, 1973 "...