MAPCO Intern. Inc. v. FERC

• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals
• Writing for the Court: GRANT, METZNER and BROWN
• Citation: MAPCO Int'l Inc. v. Fed. Energy Reg'l Comm'n, 993 F.2d 235 (Temp. Emer. Ct. App. 1993)
• Decision Date: 29 April 1993
• Docket Number: 120.,No. DC-119,DC-119
• Parties: MAPCO INTERNATIONAL INC., Plaintiff-Appellant, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Defendants-Appellees. MAPCO INTERNATIONAL INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Counterclaimant-Appellant.

993 F.2d 235

MAPCO INTERNATIONAL INC., Plaintiff-Appellant, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Defendants-Appellees.

MAPCO INTERNATIONAL INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Counterclaimant-Appellant.

Nos. DC-119, 120.

Temporary Emergency Court of Appeals.

Argued: March 15, 1993.

Decided: April 29, 1993.

COPYRIGHT MATERIAL OMITTED

Richard F. Ahern and Don Crockett, Judicial Litigation Div., Economic Regulatory Admn., U.S. Dept. of Energy, Washington, DC, were on the briefs for defendants-appellees and defendant-counterclaimant-cross-appellant.

James P. Denvir, Jerry E. Rothrock, Daniel Joseph and Anne C. Christman, Akin, Gump, Hauer and Feld, Washington, DC, were on the briefs for appellant Mapco and appellee Mapco.

Dina R. Lassow, James F. Flug and Henry Banta, Lobel, Novins, Lamont and Flug, Washington, DC, were on the briefs for amicus curiae The States.

Before GRANT, METZNER and BROWN, Judges.

GRANT, Judge:

Before this court are the consolidated appeals of TECA Nos. DC-119 and 120.¹ They arise from a Remedial Order RO issued by the Department of Energy DOE² on April 21, 1986, against MAPCO International MAPCO, charging MAPCO with violations of certain crude oil resale regulations and ordering payment of overcharges. On January 30, 1992, the district court granted the DOE's motion for summary judgment and affirmed the final agency decision by upholding its RO. MAPCO Intern. Inc. v. F.E.R.C., 783 F.Supp. 639 (D.D.C.1992). On May 11, 1992, the district court awarded the government prejudgment interest but disallowed interest for the periods of undue administrative delay. MAPCO Intern. Inc. v. F.E.R.C., 791 F.Supp. 315 (D.D.C.1992).

MAPCO and the government defendants have cross-appealed, and fourteen states have filed a brief as amici curiae. For the reasons presented below we affirm in part and reverse in part.

I. BACKGROUND³

MAPCO is a company incorporated in July 1978 by its parent (Mapco, Inc.) to do business as a crude oil "reseller."⁴ It transacted "in-line" transfers of the crude oil by arranging to buy from one reseller and sell to another at a higher price.⁵ It frequently resold crude oil in various transactions in which the company did not take physical possession of the crude oil by transporting, gathering, or storing it. According to MAPCO, such transactions were a common feature of the industry prior to price controls, and MAPCO continued to engage in them after price controls were abolished in early 1981.

In the latter half of the 1970s there was a large increase in the number of resellers and a change from the traditional reselling activities of gathering, storing and transporting crude oil, as they had historically done in the past, to an almost instantaneous transfer of title from a seller to a buyer. In response the DOE promulgated a new set of regulations in 1978, designated 10 C.F.R. Part 212, Subpart L, that applied to resales of crude oil. In general, the regulations were established to limit the legitimate resellers (those gathering and moving the crude oil) to a "permissible average markup" (PAM) of their prices each month, and to deny price markups for resales in which no legitimate reselling service was performed. This latter activity, which inflated prices of crude oil when none of the services traditionally associated with resale of crude oil was performed, is called "layering." The layering rule provides:

The price of crude oil charged by a reseller which in a sale performs no service or other function traditionally and historically associated with the resale of crude oil shall not exceed the actual price paid by the reseller of the crude oil, less any amount received in an exchange and any amount received in excess of the amount paid in a matching purchase and sale transaction having the same effect as an exchange, plus any amount paid in an exchange and any amount paid in excess of the amount received in a matching purchase and sale transaction having the same effect as an exchange.

42 Fed.Reg. 64856, 64865 (Dec. 29, 1977), reprinted at 10 C.F.R. § 212.186.

On June 30, 1983, the DOE issued a Proposed Remedial Order PRO alleging that, in 105 in-line transactions between August 1978 and November 1980, MAPCO failed to perform any function traditionally associated with the resale of crude oil, and had engaged in these transfers solely to inflate the price of crude oil to down-stream purchasers.⁶ R. 6022 ff. The DOE charged that MAPCO had violated the prohibition against layering and had charged prices that resulted in excessive markups. R. 6036-39. The Office of Hearings and Appeals OHA affirmed the PRO in its Remedial Order of April 21, 1986. MAPCO Int'l Inc., 14 DOE ¶ 83,019 (1986). It ordered MAPCO to pay restitution exceeding $1.99 million plus interest. Id. at 86,168.

Appealing to the next administrative level, MAPCO sought to have the Federal Energy Regulatory Commission FERC declare the Mandatory Petroleum Price Regulations, including Subpart L, invalid. On December 10, 1987, the Commission's Order concluded that it had no authority to declare the DOE regulations invalid. R. 7301-04. At that point MAPCO moved the issues from the administrative to the judicial sphere.

Joined by two other firms, MAPCO filed a declaratory judgment action in district court, asking the court to require FERC to determine the validity of the layering rule. That action was dismissed on October 27, 1988 as unripe. While the district court action was under advisement, the agency's Administrative Law Judge issued his ruling on June 29, 1988, affirming the Remedial Order. R. 7315-31.

On April 11, 1991, MAPCO filed its first amended complaint, asking the court to declare that the FERC unlawfully failed to consider its defenses and to order the FERC to decide MAPCO's appeal of the RO, which had been issued 5 years before. While MAPCO's petition was pending in district court, FERC issued its final Order of July 17, 1991 affirming the RO. R. 7704-07. The Commission reiterated its decision that general legal challenges to the layering rule, made without reference to particular facts before it, were not within the scope of Commission review. It reminded MAPCO that it had ample opportunity to advance legal objections to the layering rule that related to specific facts in its case. Thereafter the district court ordered the parties to file summary judgment motions in light of the FERC ruling.

On January 30, 1992, the court granted the government's motion for summary judgment. MAPCO, 783 F.Supp. at 647. Designating the layering rule as interpretative, it found that the rule was procedurally valid and clear on its face. Id. at 643-44. It then affirmed FERC's affirmance of the RO. Id. at 647. Its ruling on prejudgment interest, issued on May 11, 1992, imposed prejudgment interest on MAPCO but adjusted the amount by tolling the periods during which administrative agencies took longer than six months to decide a pending matter. MAPCO, 791 F.Supp. at 317.

MAPCO appeals, challenging the procedural validity and the DOE's interpretation of the layering rule. It also contends that the DOE's finding that MAPCO violated the "permissible average markup" rule is arbitrary and capricious. The government cross-appeals the district court's reduction of MAPCO's obligation to make full restitutionary payment of all prejudgment interest.

II. SCOPE OF REVIEW

An appellate court's examination of the summary judgment determination of the district court is a de novo review of the record and controlling law. Bush v. United States, 989 F.2d 509, 509-10 (Temp.Em.Ct.App.1993) (citations omitted). However, judicial review of an agency action is statutorily limited by § 211(d)(1) of the Economic Stabilization Act of 1970: The order may be set aside only if it is "in excess of the agency's authority, or is based upon findings which are not supported by substantial evidence." 12 U.S.C. § 1904 note; Pratt v. Watkins, 946 F.2d 907, 909 (Temp.Em.Ct.App.1991). The Temporary Emergency Court of Appeals TECA recognizes the DOE's administrative expertise and accord the agency's determination great deference. Research Fuels, Inc. v. U.S. Dept. of Energy, 977 F.2d 601, 606-07 (Temp.Em.Ct.App.1992); Thriftway Co. v. Dept. of Energy, 920 F.2d 23, 25 (Temp.Em.Ct.App.1990). Therefore, this court must approve the DOE decision if there is a rational basis for it. Id.; Behm Family Corp. v. Dept. of Energy, 903 F.2d 830, 833 (Temp.Emer.Ct.App.1990).

It is also "well established `that an agency's construction of its own regulations is entitled to substantial deference.'" Martin v. Occupational Safety and Health Review Commission, 499 U.S. 144, ___, 111 S.Ct. 1171, 1175, 113 L.Ed.2d 117 (1991) (quoting Lyng v. Payne, 476 U.S. 926, 939, 106 S.Ct. 2333, 2341, 90 L.Ed.2d 921 (1986)).

In situations in which "the meaning of regulatory language is not free from doubt," the reviewing court should give effect to the agency's interpretation so long as it is "reasonable," that is, so long as the interpretation "sensibly conforms to the purpose and wording of the regulations."

Id., 499 U.S. at ___, 111 S.Ct. at 1176 (citations omitted). Accord, Thriftway Co. v. Dept. of Energy, 867 F.2d 1577, 1580-81 (Temp.Em.Ct.App.1989). Thus our review of the agency's regulations is circumscribed: We determine solely "whether the regulations were issued in excess of agency authority, are arbitrary or capricious, or otherwise not in accordance with law." McCulloch Gas Processing Corp. v. Dept. of Energy, 650 F.2d 1216, 1220 (Temp.Em.Ct.App.1981).

III. DISCUSSION

A. Procedural Challenge to Layering Rule

At the time the layering rule was promulgated, section 7(i)(1)(B) of the Federal Energy Administration Act of 1974 FEAA established the notice requirements for agency rulemaking:

Notice of any proposed rule, regulation or order ... shall be given by publication of such proposed rule ... in the Federal Register....

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