Gulf Refining Co. v. United States

• Decision Date: 11 September 1922
• Docket Number: 5899.
• Parties: GULF REFINING CO. v. UNITED STATES. [1]
• Court: U.S. Court of Appeals — Eighth Circuit

284 F. 90

GULF REFINING CO. v. UNITED STATES. ^[1]

No. 5899.

United States Court of Appeals, Eighth Circuit.

September 11, 1922

R. L Batts, of Pittsburgh, Pa., and Frank M. Swacker, of Washington, D.C. (James B. Diggs, of Tulsa, Okl., on the brief), for plaintiff in error.

William D. Riter, Asst. Atty. Gen. (James M. Beck, Sol. Gen., of Washington, D.C., on the brief), for the United States.

Before LEWIS and KENYON, Circuit Judges, and JOHNSON, District Judge.

LEWIS Circuit Judge.

The plaintiff in error (defendant below) was convicted and fined on 99 counts of an indictment charging that it received concessions on shipments of gasoline to its refinery at Port Arthur, Texas, from Kiefer, Drumright and Jenks, Oklahoma, in violation of Section 1 of the Act of February 19, 1903 (32 Stat. 847), as amended by the Act of June 29, 1906 (34 Stat 587, Sec. 2 (Comp. St. Sec. 8597)). The shipments were all made by the Gypsy Oil Company between December 2, 1916, and the early part of 1919, but the freight charges were paid by defendant, and it alleged that they were under the lawful rate, the contention being that the difference in amount between the rate on gasoline and what was paid (rate on unrefined naptha) constituted a concession. Prior and subsequent to December 2, 1916, the tariff gave a rate to Port Arthur of 33 cents per 100 on gasoline in tank cars, but on that date a rate regularly established of 19 1/2 cents per 100 on unrefined naptha in tank cars became effective and continued throughout the time covered by all shipments in controversy. There were, then, the two rates between points of origin and destination, one on gasoline in tank cars, the other on unrefined naptha in tank cars, both listed in the tariff under the general heading: 'Oils.' Prior to December 2 shipments were made at the rate on gasoline, and the commodity was so designated by the shipper, thereafter the same commodity was shipped to Port Arthur at the rate on unrefined naptha, and the commodity so designated. The indictment charges that the commodity shipped was in each instance gasoline; hence the burden was on the prosecution to establish that the commodity was gasoline, -- not unrefined naptha. When the trial opened it was stipulated, among other things:

'Throughout the aforesaid period (covering the shipments), and prior thereto the Gulf Oil Corporation was a corporation organized and existing under the laws of the State of New Jersey; that the Gypsy Oil Company was a corporation under the laws of the State of Oklahoma; that the Gulf Refining Company was a corporation organized and existing under the laws of the State of Texas; that the Gulf Pipe Line Company was a corporation organized and existing under the laws of the State of Texas; and during said period all of the capital stock of the Gypsy Oil Company, Gulf Refining Company and the Gulf Pipe Line Company was owned and controlled by the Gulf Oil Corporation, except that the directors of each of the three last mentioned companies held shares in each of said companies sufficient to qualify them as directors.'

We gather from the record that the Gulf Oil Corporation has its main office and conducts its principal business at Pittsburgh, Pa., that the Gulf Refining Company owns and operates an oil refining plant at Port Arthur, that the Gulf Pipe Line Company is a carrying company owning a pipe line from the Oklahoma oil fields to the defendant's refinery at Port Arthur through which crude oil is carried to the refinery, and that the Gypsy Oil Company owns and operates at Kiefer, Drumright and Jenks what are known as casing-head compression plants, into which natural gas is conducted and its alleged gasoline content extracted in liquid form by condensation under compression.

The evidence shows that when crude oil reaches the refinery at Port Arthur it is put through the distilling process. As heat is applied the component parts known as the lighter ends vaporize first, and all of them, down to what is called the kerosene cut, when taken off and condensed into liquid form, are technically and commercially known by the generic name of naptha, which embodies gasoline, benzine and naptha. By further distillation those three may be separated, coming off in vapor in the order named for condensation, the naptha part being then designated as heavy, crude or painter's naptha. A part of this crude or painter's naptha is shipped in tank cars to the compression plants at Kiefer and Drumright. Their product, if exposed, will again become gaseous. Its vapor tension is more than ten pounds to the square inch, and there are restrictions by the Interstate Commerce Commission on its shipment on account of its dangerous character. One of the witnesses testified that if it were shipped and the dome of the tank car in which it was contained were removed at the end of the route it would all escape in the air. The crude or painter's naptha having a gravity around 54, which the defendant shipped to the casing-head compression plants, was for the purpose of mixing or blending with the product of those plants, which served two purposes; the blending reduced the vapor tension, and when that was brought below ten pounds the restrictions on shipment were not so severe, and secondly, the naptha acted as a sponge to the casing-head condensate (commonly known as casing-head gasoline) and prevented to a great extent evaporation. The blending at the two plants was in the ratio of 30 to 35% naptha to 65 to 70% casing-head gasoline. At the Jenks plant another method was pursued. Instead of blending the casing-head gasoline with the naptha the casing-head was exposed and permitted to evaporate until its most volatile parts had escaped; it was then steamed and the vapor tension thus reduced below ten pounds. This was the commodity,-- blended from two plants and weathered from the other,-- shipped under the 'unrefined naptha' rate, but which the indictment charges to be gasoline.

Prior to December 2, 1916, the condensates of the three plants and the blended commodity of the two plants were commonly known to and spoken of as gasoline by those employed at the plants. While shipments from the three plants were moving to Port Arthur after December 2 as unrefined naptha, the same commodity was shipped from those plants to the Gulf Oil Corporation at Pittsburgh as gasoline. There was no rate on unrefined naptha to that point. The gravity of casing-head gasoline was around 85, but the blended and weathered commodities had an average gravity of 76. Gravity is said to express the ratio of densities of oil and water at given temperatures. In the oil industry it is of some weight but not a controlling guide to determine the gasoline content, or whether the particular product is gasoline. There are many specifications for that purpose in which there are slight differences, those for aeroplane gasoline, fighting gasoline for bombing planes, gasoline that meets the different tests of different States, etc. All of them give an approximate overpoint, that is, the degree of heat when vaporization begins, and the degree of heat known as the dry point, when vaporization is complete. The uniform requirement is the per cent. of recovery. The distillates must equal 95% or more of the gasoline put through the still on a test. Out of 100 gallons at least 95 gallons must be recovered. The highest recovery gotten from the blended and weathered products shipped to Port Arthur was 88%, and it went as low as 76%. Crude naptha is a part of the oil off the crude oil as far down as the kerosene cut. The first thing that the defendant does at its refinery is to put the oil in the crude still, and naptha therefrom is the first cut. It is then pumped away to tanks and agitators, and is given a sulphuric acid treatment to remove the impurities. It is known as the naptha fraction and contains gasoline, benzine and naptha. It then goes to the steaming still for the purpose of making various cuts out of it. Gasoline is the lightest of the three and comes over first, benzine the intermediate, and naptha the remainder and heaviest cut. Naptha applies to all of them as a body. After the division into gasoline, benzine and naptha the gasoline is given further treatment, and if it does not meet specifications it is necessary to blend it with other refinery products of lower or higher volatility, and sometimes with both. None of the commodity received from Oklahoma and here in question was ever shipped out from defendant's refinery in the condition in which it was received. It was testified that that would be criminally negligent, that it was not fit to be put on the market, too volatile and dangerous, that it had to be refined when it got to Port Arthur by further blending with the still products. A very high gravity gasoline is made at the refinery in the distillation of crude oil, which also is never shipped as gasoline because dangerous, and because it would not meet any specifications for gasoline, and this is always used at the refinery for blending with the commodity that comes from Oklahoma. The commodity as finally treated and blended at Port Arthur and shipped from there to the market as gasoline contains not more than 25% and as low as 5% of what was received from Oklahoma, shipped as unrefined naptha. The remaining 75 to 95% consists of refinery gasoline and painter's naptha, obtained through distillation from the crude oil at Port Arthur. The blending process frequently has to be done the second time. Distillation tests must be made to meet specifications. Compressed air is turned into the tank for thorough mixing, so as to get the distillation tests accurately. The unrefined naptha shipped from Oklahoma has various names among employes at the refinery, such as...