Koch Refining Co. v. United States Dept. of Energy

• Decision Date: 29 December 1980
• Docket Number: 4-80-315.,Civ. No. 4-80-292
• Citation: 504 F. Supp. 593
• Parties: KOCH REFINING COMPANY, a Delaware corporation, Plaintiff, and Ashland Oil, Inc., a Kentucky corporation, Plaintiff-Intervenor, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor. STATE OF MINNESOTA, by its Attorney General Warren Spannaus and its Energy Agency, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.
• Court: U.S. District Court — District of Minnesota

504 F. Supp. 593

KOCH REFINING COMPANY, a Delaware corporation, Plaintiff, and Ashland Oil, Inc., a Kentucky corporation, Plaintiff-Intervenor, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.

STATE OF MINNESOTA, by its Attorney General Warren Spannaus and its Energy Agency, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.

Civ. Nos. 4-80-292, 4-80-315.

United States District Court, D. Minnesota, Fourth Division.

December 29, 1980.

Joe A. Walters, William E. Flynn, and Douglas J. Franzen, O'Connor & Hannan, Minneapolis, Minn., for plaintiff Koch Refining Co.

Gordon G. Busdicker, James B. Loken, and John F. Beukema, Faegre & Benson, Minneapolis, Minn., for plaintiff-intervenor Ashland Oil, Inc.

James Hamilton, Ginsburg, Feldman, Weil & Bress, Washington, D. C., for plaintiff Koch Refining Co. and plaintiff-intervenor Ashland Oil, Inc.

Warren R. Spannaus, Atty. Gen., State of Minnesota, and Dwight S. Wagenius and William P. Donohue, James E. Lackner, Sp. Asst. Attys. Gen., St. Paul, Minn., for plaintiff State of Minnesota.

Thomas K. Berg, U. S. Atty., and Stephen G. Palmer, Asst. U. S. Atty., Minneapolis, Minn., and Paul G. Wallach and Thomas A. Schweitzer, Regulatory Litigation Div., U. S. Dept. of Energy, Washington, D. C., for defendants U. S. Dept. of Energy, Charles W. Duncan, Jr., Robert G. Bidwell, Jr., and Melvin Goldstein.

Thomas C. Kayser and Gary J. Haugen, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., Michael J. Madigan, Edward L. Rubinoff, and David A. Holzworth, Akin, Gump, Hauer & Feld, Washington, D. C., and William C. Streets, Mobil Oil Corporation, New York City, of counsel, for defendant-intervenor Mobil Oil Corp.

MEMORANDUM INCORPORATING FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT

MacLAUGHLIN, District Judge.

This matter is before the Court on the motions of defendant-intervenor Mobil Oil Corporation (hereinafter "Mobil") for the entry of judgment on the merits and on the motion of defendant U. S. Department of Energy (hereinafter "DOE") to dismiss or, in the alternative, for summary judgment. The Court will treat these motions as calling for a final determination on the merits. This memorandum constitutes the Court's findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52(a).

The Court has jurisdiction over the subject matter pursuant to the Emergency Petroleum Allocation Act of 1973 (hereinafter "EPAA"), 15 U.S.C. § 754(a)(1), which incorporates the judicial review provisions of Section 211 of the Economic Stabilization Act of 1970 (found as a note to 12 U.S.C. § 1904), 28 U.S.C. §§ 1331, 2201, and 2202.

Factual Background

This is an action for judicial review of a Decision and Order of the Office of Hearings and Appeals (hereinafter "OHA") of the U. S. Department of Energy, entitled Mobil Oil Corporation, 5 DOE ¶ 80,171 (Apr. 17, 1980).¹ A complete statement of the factual and procedural background of this case may be found in the Court's Memorandum of August 18, 1980, which, inter alia, ordered a preliminary injunction prohibiting the reclassification of the refineries of plaintiff Koch Refining Company (hereinafter "Koch") and plaintiff-intervenor Ashland Oil, Inc. (hereinafter "Ashland") under the Canadian Crude Oil Allocation Program (hereinafter "CAP"). See Koch Refining Co. v. U. S. Department of Energy, 497 F.Supp. 879 (D.Minn.1980). The facts adduced by the Court in that memorandum are herein incorporated by reference.

The matter is now before the Court for final judgment on the merits. The Court has carefully considered the extensive memoranda of the parties, the administrative record, the evidence and arguments proffered for its consideration at the preliminary injunction hearing, and is convinced that judgment should be entered in favor of Koch, Ashland, and the State of Minnesota.

The Merits

The Court finds that plaintiffs are entitled to prevail on the issue of whether the OHA erred in holding that the Economic Regulatory Administration (hereinafter "ERA") had no authority to consider equitable factors in redesignation determinations. The Court expresses no opinion at this time on the merits of any other issues in the case.

The CAP regulations grant the ERA authority to change initial priority designations. 10 C.F.R. § 214.34 provides in relevant part:

(a) Supplemental affidavits and changes in initial designation. Refiners and other firms that own or control priority refineries shall correct any errors contained in affidavits filed pursuant to Subpart D of this part by filing a supplemental affidavit pursuant to § 214.41(b). Affidavits shall be so supplemented to reflect any changes in the access of the refiner or other firm to alternative sources of crude oil. Based on information set forth in any such supplemental affidavit or in any affidavit filed after February 10, 1976, the DOE may change its initial priority designation as to a refinery or other facility, may determine that a particular refinery or other facility is no longer eligible to receive Canadian crude oil rights under this part or may make an initial priority designation as to that refinery or other facility. Any such action taken by the DOE under this paragraph (a) may be based, in whole or in part, on information available to the DOE from sources other than the affidavits filed pursuant to Subpart D of this part.

(emphasis supplied).

Plaintiffs contend, and the ERA determined, that this regulation allows the ERA to use its discretion in considering whether to change a priority designation. The federal defendants and Mobil argue that the ERA must reclassify a refinery once it obtains sufficient access to non-Canadian crude, the factor used in initial designations pursuant to 10 C.F.R. §§ 214.33 and 214.21. The interpretation of the regulation by the federal defendants and Mobil is plainly erroneous.²

As with any statute or regulation, the starting point is the commonly understood wording of the regulation itself. Tenneco Oil Co. v. FEA, 613 F.2d 298, 302 (Em.App.1979). It provides that the DOE "may" change its initial designation upon receiving supplemental affidavits. "May" is a permissive word, Burglin v. Morton, 527 F.2d 486, 488 (9th Cir. 1975), cert. denied, 425 U.S. 973, 96 S.Ct. 2171, 48 L.Ed.2d 796 (1976), and will be construed to vest discretionary power, unless the context of its use clearly indicates a purpose to use it in a mandatory sense. United States v. Bowden, 182 F.2d 251, 252 (10th Cir. 1950). See Standard Oil Co. v. DOE, 596 F.2d 1029, 1043 (Em.App.1978) (court found no circumstances compelling conclusion that "may" intended to be mandatory).

Presumptively, therefore, the ERA has discretion with respect to reclassification. If the supplemental affidavits show that a first-priority refinery now has access³ to non-Canadian oil in an amount that would have warranted the initial designation of the refinery as second priority, the ERA may reclassify the refinery. But it is under no duty to do so.⁴

The context of § 214.34 does not transform the permissive words of the regulation into a mandatory duty to reclassify based on the access standards used for initial designations. The regulation makes no reference to §§ 214.33 or 214.21, and one cannot assume that § 214.34 incorporates the standards of those sections. Moreover, the CAP regulations ordinarily use the term "shall" when a mandatory duty is imposed upon the DOE. See 10 C.F.R. §§ 214.31(a), (b), (i); 214.32(b), (d); 214.33(a), (b); 214.35. Where any term is employed in one part of a regulation and is excluded in another, it should not be implied where excluded. Diamond Roofing Co., Inc. v. Occupational Safety & Health Review Commission, 528 F.2d 645, 648 (5th Cir. 1976). This rule is clearly applicable when the words "shall" and "may" are used in the same set of regulations; "shall" imposes a mandatory obligation and "may" grants discretion. Farmers' & Merchants Bank v. Federal Reserve Bank, 262 U.S. 649, 662-63, 43 S.Ct. 651, 656, 67 L.Ed. 1157 (1923) (Brandeis, J.); Bennett v. Panama Canal Co., 475 F.2d 1280, 1282 (D.C.Cir.1973); Publix Oil Co. v. DOE, CIVIL 2-80-73 (E.D.Tenn., July 19, 1980).

Indeed, when one reads the regulation against the background of the context and philosophy of the CAP, the conclusion is inescapable that the ERA must have discretion to consider equitable factors.⁵ The CAP was enacted pursuant to the EPAA and was designed to ameliorate the nation's, and this region's, severe shortage of crude oil. See Twin City Barge & Towing Corp. v. Schlesinger, 603 F.2d 197, 209 (Em. App.1979) (quoting House Report No. 94-340); Pasco, Inc. v. FEA, 525 F.2d 1391, 1394 (Em.App.1975). The purpose of the CAP is to provide the DOE with the "greatest degree of flexibility possible in order to cope with the present energy crisis." Mobil Oil Corp. v. DOE, CIVIL 79-6950 (S.D.N.Y., Aug. 7, 1980).⁶See Placid Oil Co. v. FEA, 465 F.Supp. 1199, 1204 (N.D.Tex.) (the "very nature" of the EPAA "contemplates substantial administrative flexibility"), aff'd, 600 F.2d 813 (Em.App.) (per curiam), cert. denied, 444 U.S. 928, 100 S.Ct. 268, 62 L.Ed.2d 184 (1979).

The need for ERA flexibility is illustrated by the facts of the instant case. At the preliminary...