IN RE DEPT. OF ENERGY STRIPPER WELL EXEMPTION LIT., TECA No. 10-73.

• Decision Date: 20 July 1988
• Docket Number: TECA No. 10-73.
• Parties: In re the DEPARTMENT OF ENERGY STRIPPER WELL EXEMPTION LITIGATION. UNITED STATES DEPARTMENT OF ENERGY, et al., Appellants, v. "THE STATES", Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

855 F.2d 865

In re the DEPARTMENT OF ENERGY STRIPPER WELL EXEMPTION LITIGATION.

UNITED STATES DEPARTMENT OF ENERGY, et al., Appellants, v. "THE STATES", Appellees.

TECA No. 10-73.

Temporary Emergency Court of Appeals.

Argued May 4, 1988.

Decided July 20, 1988.

Stephen C. Skubel, with whom Marc Johnston, Office of General Counsel, U.S. Dept. of Energy, Washington, D.C., and Theodore A. Miles, Marcia K. Sowles, and Floyd I. Robinson, Economic Regulatory Admin., U.S. Dept. of Energy, Washington, D.C., were on the brief, for appellants.

Bernard Nash, with whom Edward G. Modell and Eileen P. Shannon, Nash, Railsback & Plesser, Washington, D.C., Andrew P. Miller, Milton B. Whitfield, J. Bradley Ortins, Dickstein, Shapiro & Morin, Neil F. Hartigan, Atty. Gen., and Michael Hayes, Deputy Atty. Gen., Chicago, Ill., Dave Frohnmayer, Atty. Gen., and Donald C. Arnold, Chief Counsel, Dept. of Justice, Salem, Or., Leroy S. Zimmerman, Atty. Gen., Eugene F. Waye and Kathleen Misturak-Gingrich, Deputy Attys. Gen., Harrisburg, Pa., James F. Flug and Paula Dinerstein, Lobel, Novins, Lamont & Flug, Washington, D.C., and John Van de Kamp, Atty., and Yeoryios C. Apallas, Deputy Atty. Gen., San Francisco, Cal., were on the brief, for appellees.

Before GRANT, METZNER and PECK, Judges.

JOHN W. PECK, Judge.

This appeal concerns whether the district court properly interpreted the Final Settlement Agreement approved in In re Department of Energy Stripper Well Exemption Litigation, 653 F.Supp. 108 (D.Kan.1986), as requiring the Department of Energy to credit retroactively the entitlements exception receive order payments authorized prior to the effective date of the Agreement before it could receive its share of the settlement proceeds.

I.

During the existence of petroleum price and allocation controls, the Federal Energy Administration (FEA), later the Department of Energy (DOE), adopted the Entitlements Program so that all refiners and marketers shared equally in the benefits of price-controlled crude oil and in the burdens of uncontrolled crude oil.¹ The major oil companies had greater access to the cheaper, price-controlled oil than did the small and independent refiners. As a part of the Entitlements Program, 10 C.F.R. 211.67, a firm could request and obtain exception relief from the DOE and its predecessors when a regulation imposed a special hardship, inequity or unfair distribution of burdens on the firm. The Entitlements Program attempted to deal with this inequity by requiring refiners with proportionally greater access to cheaper, price-controlled oil to make cash payments, in the form of the purchase of entitlements, to refiners with less access to price-controlled oil. The Office of Hearing Appeals (OHA) generally facilitated entitlements exception relief by directing that appropriate adjustments be made to a firm's obligations under future entitlements lists. See, e.g., Delta Refining Co., 2 FEA ¶ 83,078 (1975).

Although allocation and price controls were terminated as of January 28, 1981, a number of entitlements exception relief orders were outstanding and other applications for relief were still pending at that time. DOE was faced with the question of whether to continue to issue entitlements lists and, if not, whether and how to implement outstanding orders and pending applications for entitlements exception relief.

The OHA continued to process exception claims until June 28, 1984, when DOE issued a final decision that the public interest would be best served if DOE did not issue any further entitlements notices. 49 Fed. Reg. 27410 (1984). See Texaco, Inc. v. DOE, 795 F.2d 1021 (Temp.Emer.Ct.App.), cert. dismissed, 478 U.S. 1030, 107 S.Ct. 10, 92 L.Ed.2d 766 (1986) (after challenges by some refiners, the DOE's decision was upheld by this court; petition for certiorari was dismissed pursuant to the Final Settlement Agreement in the Stripper Well case). The DOE then announced that it would hold a proceeding concerning the treatment of outstanding entitlements exception "receive orders". Subsequently after notice and comment, OHA announced that it would pay final adjudicated entitlements receive orders from crude oil overcharge funds that it held in escrow. 50 Fed.Reg. 27402 (1985).

On October 2, 1985, the OHA began issuing Orders approving the payments of receive orders. Although OHA's Order did not authorize immediate payment to those firms, it directed the establishment of interest-bearing accounts within the DOE Deposit Fund Escrow Account in the name of each applicant. See Amber Refining, Inc., 13 DOE ¶ 85,217 (October 2, 1985). Between December 14, 1985 and June 16, 1986 approximately $73 million was paid to sixteen firms holding receive orders. This amount was paid out of the crude oil overcharge escrow account and it is this amount which is at issue in this appeal.

During this same approximate time period, and beginning December 1, 1985, the DOE entered into settlement negotiations with the States in the Stripper Well Exemption Litigation through its chief negotiator, Avrom Landesman. At all times Landesman represented to the States that DOE would be responsible for funding the entitlements exception relief receive orders. On January 23, 1986, Landesman and Marshall Staunton, then Acting Administrator of the Economic Regulatory Administration, executed a Memorandum of Understanding along with the States' Negotiating Committee and many other parties to the Stripper Well litigation. Record at 325-27. Paragraph II.10 of the Memorandum of Understanding states as follows:

The Settlement Agreement shall specifically exclude any and all claims or adjudications for payment to applicants for exception relief from the crude oil Entitlements Program which have been or may be granted by the DOE's Office of Hearings and Appeals, the Federal Energy Regulatory Commission, or any Court. DOE agrees to provide all funds necessary to fund such relief out of its share of funds under the Settlement Agreement or funds not otherwise restricted by that Agreement and DOE's obligations shall not affect the amount or timing of payment to any party made pursuant to the Settlement Agreement. (emphasis added)

The agreement between DOE and the States concerning DOE's responsibility to provide all funds to pay entitlements exception relief receive orders was carried forward and incorporated into Paragraph V.G of the Final Settlement Agreement of the Stripper Well Exemption Litigation (the Agreement) that was completed on March 21, 1986, which states as follows:

G. Preservation of Entitlements Claims. This Agreement specifically excludes and preserves any and all claims by a Refiner applicant against DOE for payment by DOE of (i) exception relief from the crude oil Entitlements Program including, but not limited to, exceptions or adjustments based on or pursuant to Delta/Beacon or Naptha Entitlements relief, which has been or may be granted by the ERA, OHA, the Federal Energy Regulatory Commission, or any court or (ii) any adjustments or changes to the draft January 1981 Notice or Entitlements Adjustment Notice. This Agreement also specifically excludes any and all claims by a Refiner against DOE for interest on such adjustment or change or exception relief and for attorneys' fees and costs incurred in connection with such relief. DOE agrees to provide all funds necessary to fund and pay all amounts determined to be due any Refiner pursuant to or as a result of any such adjustments or changes or relief including such interest and attorneys' fees, if awarded, out of its share of funds under this Agreement, or out of funds (other than funds resulting from violations or alleged violations except Alleged Crude Oil Violations) to which no other Party has a claim by virtue of this Agreement. DOE's obligations shall not affect the amount or timing of any payment to any other Party made pursuant to this Agreement. (emphasis added)

The entire Agreement was subject to modification during the review process, but no changes were made to Paragraph V.G. On June 16, 1986 a proposed order approving the Final Settlement Agreement was submitted to the district court by the liaison counsel for the Refiners "on behalf of all parties to the Settlement Agreement." Record at 334-35. This proposed order included the following language in one of its provisions:

IT IS FURTHER ORDERED that all entitlements exception relief paid by DOE after December 1, 1985, shall be deemed to be available for distribution in calculating the amount to be distributed to the States under Paragraph IV.B. of the Agreement, and shall be deemed to be funds received or retained by DOE under the Agreement.

This proposed order was not incorporated into the district court's opinion approving the Agreement on July 7, 1986. The court did not address any of the specifics concerning the entitlements exception relief orders.

In an August 4, 1986 Decision and Order of the Department of Energy, Record at 341, the DOE stated that it would be obligated to fund those receive orders which had not been paid at the time the Settlement was approved. The DOE did not dispute the fact that those payments made after the Agreement was finalized would be made from DOE's share of the Settlement funds. On October 30, 1986, the States filed a motion with the district court to enforce what the States alleged were DOE's obligations under Paragraph V.G. The DOE filed its opposition to the States' motion. After hearing oral argument and examining the extrinsic evidence presented by affidavits and deposition testimony, the district court issued its Opinion and Order granting the States' motion. The court found that the language of Paragraph V.G is "clear" and exhibits "a specific intent that DOE's obligation operate retroactively." The court held that the Agreement by its very terms states that DOE should provide all funds for all entitlements exception relief receive orders, including funds for payments...