Mobil Oil Corp. v. City of Long Beach

• Decision Date: 17 January 1984
• Docket Number: CV 83-6471-WPG,CV 83-6554-WPG and CV 83-7303-WPG.,CV 83-6467-WPG,CV 83-6494-WPG,No. CV 83-6424-WPG,CV 83-6424-WPG
• Citation: 578 F. Supp. 1197
• Parties: MOBIL OIL CORPORATION, Plaintiff, v. CITY OF LONG BEACH, A Municipal Corporation, Defendant. SHELL OIL COMPANY, Plaintiff, v. CITY OF LONG BEACH, et al., Defendants. TEXACO, INC., Plaintiff, v. CITY OF LONG BEACH, Defendant. EXXON CORPORATION, Plaintiff, v. CITY OF LONG BEACH, Defendant. UNION OIL COMPANY OF CALIFORNIA, Plaintiff, v. CITY OF LONG BEACH, et al., Defendants. STATE OF CALIFORNIA and the City of Long Beach, Plaintiffs, v. TEXACO, INC., et al., Defendants.
• Court: U.S. District Court — Central District of California

578 F. Supp. 1197

MOBIL OIL CORPORATION, Plaintiff, v. CITY OF LONG BEACH, A Municipal Corporation, Defendant.

SHELL OIL COMPANY, Plaintiff, v. CITY OF LONG BEACH, et al., Defendants.

TEXACO, INC., Plaintiff, v. CITY OF LONG BEACH, Defendant.

EXXON CORPORATION, Plaintiff, v. CITY OF LONG BEACH, Defendant.

UNION OIL COMPANY OF CALIFORNIA, Plaintiff, v. CITY OF LONG BEACH, et al., Defendants.

STATE OF CALIFORNIA and the City of Long Beach, Plaintiffs, v. TEXACO, INC., et al., Defendants.

Nos. CV 83-6424-WPG, CV 83-6467-WPG, CV 83-6471-WPG, CV 83-6494-WPG, CV 83-6554-WPG and CV 83-7303-WPG.

United States District Court, C.D. California.

January 17, 1984.

John E. Sparks, Darryl Snider, Brobeck, Phleger & Harrison, San Francisco, Cal., E.A. McFadden, Harold E. Zahner, Los Angeles, Cal., for Union Oil Co. of California.

Robert W. Parkin, City Atty., Robert G. Austin, Deputy City Atty., Long Beach, Cal., for City of Long Beach and John Dever.

John K. Van de Kamp, Atty. Gen., State of California, N. Gregory Taylor, Asst. Atty. Gen., Alan V. Hager, Nancy K. Chiu, Deputy Attys. Gen., Los Angeles, Cal., for Kenneth Cory, Leo McCarthy and Michael Franchetti.

Leslie C. Randall, Mauryne S. Fennell, Tony O. Hemming, Los Angeles, Cal., Robert D. Wilson, White Plains, N.Y., for Texaco Inc.

Andrew J. Kilcarr, Vincent Tricarico, James W. Mullenix, Donovan, Leisure, Newton & Irvine, Washington, D.C., Julia L. Cacciato, Donovan, Leisure, Newton & Irvine, Los Angeles, Cal., for Mobil Oil Corp.; Charles F. Rice, Donald L. Clarke, Charles B. Straus, III, Mobil Oil Corporation, New York City, of counsel.

Bruce G. Warren, Anaheim, Cal., William Simon, John S. Kingdon, Alan M. Grimaldi, Albert O. Cornelison, Jr., Howrey & Simon, Washington, D.C., William G. Winters, Jr., Raymond V. McCord, Houston, Tex., for Shell Oil Co. and Shell California Production Inc.

Philip K. Verleger, David A. Destino, McCutchen, Black, Verleger & Shea, Los Angeles, Cal., Robert Norris, Houston, Tex., for Exxon Corp.

Joseph A. Ball, Clark Heggeness, Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, Cal., for Petro-Lewis Corp., Petro-Lewis Funds, Inc., Petro-Lewis Producing Co. II, and Partnership Properties Co.

MEMORANDUM OF DECISION

WILLIAM P. GRAY, District Judge.

For purposes of this Memorandum, this somewhat simplified recital of facts is believed sufficient. In 1965 plaintiffs Mobil, Shell, Texaco, Exxon and Union ("the oil companies") jointly entered into a "Contractors' Agreement" with the City of Long Beach. Under this agreement, the oil companies have the right and obligation to produce oil from certain properties owned by Long Beach, purchase the oil so produced at prices dictated by the Contractors' Agreement, deduct from the purchase price the expenses of production listed or described in the agreement, and divide with Long Beach the remaining "net profit." The parties have been operating under this contract ever since its execution.

In 1980, Congress enacted the "Windfall Profit Tax on Domestic Crude Oil," 26 U.S.C. § 4986 et seq., which imposed upon the producer of the crude oil "An excise tax ... on the windfall profit from taxable crude oil removed from the premises during each taxable period." Id. § 4986. The plaintiff companies, in computing the net profit to be shared with Long Beach, have been deducting as expenses the Windfall Profit Taxes paid by them. Long Beach contends that they are not entitled to do so under the Contractors' Agreement. After some negotiation in attempt to resolve the matter, Long Beach, on October 13, 1983, filed an action in California Superior Court that seeks, among other things, to recover from the oil companies the additional net profit that it would have received but for such deductions. The oil companies, defendants in that action, have caused it to be removed to this court, where it bears No. CV 83-7303-WPG ("the State action"). A few days before the State action was filed, each of the oil companies filed in this court a separate complaint seeking a declaratory judgment to the effect that such company has properly charged its Windfall Profit Tax payments against its net profits account.

Long Beach has moved for dismissal of the five actions brought by the oil companies. Such motion will be granted for reasons stated in this Memorandum. For the same reasons, the State action will be remanded to the California Superior Court. In view of these rulings, this court declines to act upon the oil companies' motions for summary judgment in their respective cases.

I. Substantial Federal Question.

The first issue here raised by the parties is whether this court has subject matter jurisdiction under 28 U.S.C. § 1331. "Congress has given the lower federal courts jurisdiction to hear, originally or by removal from a state court, only those cases in which a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law." Franchise Tax Board v. Laborers Vacation Trust, ___ U.S. ___, ___, 103 S.Ct. 2841, 2856, 77 L.Ed.2d 420, 442 (1983). The plaintiffs do not assert that the Windfall Profit Tax statute creates a cause of action, and I find no substantial federal question here.

A. Interpretation Of The Windfall Profit Tax.

The oil companies insist that the Contractors' Agreement includes excise taxes in the list of proper charges against net profit and that the only task for the court is to interpret the Windfall Profit Tax to determine whether it imposes an excise. On the other hand, Long Beach acknowledges, as it must, that the subject statute, in its very words, does impose an excise tax. According to Long Beach, the question for the court is whether or not the terms of the Contractors' Agreement and the manner in which the oil companies have operated under it justify treating the subject tax as a deductible expense in computing net profits. As counsel for Long Beach asserted at the hearing on the motion to dismiss, "What we are arguing is that under the contract, after they have paid the tax, how they account for it within the terms of that contract." (Transcript, p. 54, lines 18-20). Long Beach's side of the argument is set out at paragraph 20 of its complaint (in Case No. 83-7303-WPG):

The City and the State contend that under the terms of the Contractors' Agreement ..., windfall profit taxes are not proper charges to the contractors' net profits account. In other words, windfall profit taxes are not the type of costs incurred by the contractors that the contracts contemplate to be reimbursable to them so as to reduce net profits.

It is true, as counsel for Shell has pointed out, that paragraph 28 of the Long Beach complaint asserts that "The windfall profit tax is in the nature of a profits tax ...." But the paragraph goes on to argue that under the terms of the Contractors' Agreement its payment is not chargeable to the contractors' net profits accounts. Long Beach thus contends that the document that needs interpretation is not the Windfall Profit Tax statute but, instead, it is the Contractors' Agreement.

Long Beach therefore argues that the plaintiff oil companies are creating a non-existent controversy over the meaning of the statute and using this, in effect, as a defense to a state-law controversy over the contract language. I agree.

Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed.2d 1194 (1950), teaches that "if but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking." 10A C. Wright, A. Miller & M. Kane, FEDERAL PRACTICE & PROCEDURE, § 2767 at 744-45 (2d ed. 1983) (quoted in Franchise Tax Board v. Construction Laborers Vacation Trust, ___ U.S. ___, ___, 103 S.Ct. 2841, 2850, 77 L.Ed.2d 420, 435 (1983). See also Public Service Commission of Utah v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1950) ("Where the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction ...") (dictum); Alton Box Board Co. v. Esprit de Corp, 682 F.2d 1267, 1274 (9th Cir.1982) ("A claim does not arise under federal law within the meaning of section 1331 where it relies on federal law only to establish an immunity or defense which would preclude the declaratory judgment defendant from successfully litigating against the declaratory judgment plaintiff a claim arising under state law.")

It is clear that the real controversy between the parties concerns the contract language. In light of the foregoing, I conclude that no substantial federal question is raised in the oil companies' complaints.

B. Alleged Fourteenth Amendment Violation.

Shell contends that in challenging or threatening to sue the oil companies for having deducted the subject taxes in computing net profits, the City and State "... took arbitrary state action to impair Shell's property interest under the Contractors' Agreement." (Shell memorandum in opposition, in Case No. 83-6467-WPG, p. 16). I believe that such a contention borders on the frivolous. Long Beach and the State have taken nothing. To the contrary, Long Beach is seeking a judicial determination that it has a right to more money than the oil companies have accorded it pursuant to their contractual obligations. This issue simply involves a dispute over a contract. Whether Long Beach is correct or not in its contention, it is acting in full accordance with due process of law.

Inasmuch as the controversy involved in this litigation presents no substantial federal question arising either under the Constitution or a statute, section 1331 does not provide jurisdiction for this court.

II. ...