Mobil Oil Corp. v. Tully, 2-29 to 2-31.

• Decision Date: 10 June 1981
• Docket Number: No. 2-29 to 2-31.,2-29 to 2-31.
• Citation: 653 F.2d 497
• Parties: MOBIL OIL CORPORATION, Atlantic Richfield Company, Gulf Oil Corporation, United Refining Company, Chevron U.S.A. Inc., Amoco Oil Company, Texaco Inc. and Exxon Corporation, Plaintiffs-Appellees, v. James H. TULLY, Jr., Thomas H. Lynch, and Francis Koenig, Constituting the New York State Tax Commission; Robert Abrams, Attorney General of the State of New York; and James L. LaRocca, Commissioner of the New York State Energy Office, Defendants-Appellants. AMERADA HESS CORPORATION, Plaintiff-Appellee, v. James H. TULLY, Jr., Thomas H. Lynch, and Francis Koenig, Constituting the New York State Tax Commission; Robert Abrams, Attorney General of the State of New York; and James L. LaRocca, Commissioner of the New York State Energy Office, Defendants-Appellants. NEW ENGLAND PETROLEUM CORPORATION, Plaintiff-Appellee, v. James H. TULLY, Jr., Commissioner of Taxation and Finance of the State of New York, and Robert Abrams, Attorney General, State of New York, Defendants-Appellants.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

653 F.2d 497

MOBIL OIL CORPORATION, Atlantic Richfield Company, Gulf Oil Corporation, United Refining Company, Chevron U.S.A. Inc., Amoco Oil Company, Texaco Inc. and Exxon Corporation, Plaintiffs-Appellees, v. James H. TULLY, Jr., Thomas H. Lynch, and Francis Koenig, Constituting the New York State Tax Commission; Robert Abrams, Attorney General of the State of New York; and James L. LaRocca, Commissioner of the New York State Energy Office, Defendants-Appellants.

AMERADA HESS CORPORATION, Plaintiff-Appellee, v. James H. TULLY, Jr., Thomas H. Lynch, and Francis Koenig, Constituting the New York State Tax Commission; Robert Abrams, Attorney General of the State of New York; and James L. LaRocca, Commissioner of the New York State Energy Office, Defendants-Appellants.

NEW ENGLAND PETROLEUM CORPORATION, Plaintiff-Appellee, v. James H. TULLY, Jr., Commissioner of Taxation and Finance of the State of New York, and Robert Abrams, Attorney General, State of New York, Defendants-Appellants.

No. 2-29 to 2-31.

Temporary Emergency Court of Appeals.

Argued April 2, 1981.

Decided June 10, 1981.

Edward N. Costikyan, Paul, Weiss, Rifkind, Wharton & Garrison, New York City

(Simon H. Rifkind, Richard D. Friedman and Michael C. Lasky, New York City, on the brief), for defendants-appellants Tully, Lynch and Koenig.

Shirley Adelson Siegel, Sol. Gen., State of N.Y., Albany, N.Y. (Robert Abrams, Atty. Gen. of the State of N.Y., Albany, N.Y., on the brief), for defendants-appellants Robert Abrams and James L. LaRocca.

Thomas R. Trowbridge III, Donovan, Leisure, Newton & Irvine, New York City (James P. Shaughnessy, Washington, D.C., and John M. Freyer, Bond, Schoeneck & King, Syracuse, N.Y., on the brief), for plaintiffs-appellees Mobil Oil Corp., Atlantic Richfield Co., United Refining Co., Chevron U.S.A. Inc., Amoco Oil Co., Texaco Inc. and Exxon Corp.; Edward F. Gerber, Syracuse, N.Y. on the brief for plaintiff-appellee Gulf Oil Corp.; Stanley D. Robinson and Randolph S. Sherman, Kaye, Scholer, Fierman, Hays & Handler, New York City, and William L. Allen, Jr., Hancock, Estabrook, Ryan, Shove & Hust, Syracuse, N.Y., on the brief for plaintiff-appellee Amerada Hess Corp.

Thomas J. Moloney, Cleary, Gottlieb, Steen & Hamilton, New York City (James C. Blair, George Weisz, New York City, Sara D. Schotland, Washington, D.C., and Warner M. Bouck, Bouck, Holloway & Kiernan, Albany, N.Y., on the brief), for plaintiff-appellee New England Petroleum Corp.; Alfred E. Keane, Daniel A. Piloseno, Texaco Inc., White Plains, N.Y., D. Joseph Potvin, Exxon Company U.S.A., Houston Tex.; and Arthur C. Vangeli and Sydney M. Avent, Bala Cynwyd, Pa., of counsel.

Carl R. Ajello, Atty. Gen., State of Conn., Hartford, Conn., Peter W. Gillies, Deputy Atty. Gen., Ralph G. Murphy, Richard K. Greenberg and Robert L. Klein, Asst. Attys. Gen., Hartford, Conn., amicus curiae State of Conn.

Before METZNER, PECK and LACEY, Judges.

METZNER, Judge.

This is an appeal from a judgment entered on an order granting plaintiffs' motion for summary judgment.

In June of 1980, New York State established a 2 per cent tax on the gross receipts of oil companies limited to their revenues derived from activities within the state. 1980 N.Y. Laws ch. 271, 272; N.Y. Tax Law § 182 (McKinney Supp.1980). The statute further provided that the oil companies could not pass the cost of the tax on to consumers by increasing the sales price of their products in this state. Ten oil companies subject to the tax instituted suit to enjoin the anti-passthrough provision based on the Supremacy Clause of the United States Constitution (Art. VI, cl. 2).

Plaintiffs claim that the state statute is in conflict with the Emergency Petroleum Allocation Act (EPAA) (Pub.L. 93-159, 15 U.S.C. § 751 et seq.) and the regulations adopted thereunder. The district court, 499 F.Supp. 888, agreed with that position and appeals followed to this court and the Court of Appeals for the Second Circuit.

The prosecution of the appeal in this court was stayed pending determination by the Court of Appeals.

On January 28, 1981 the Court of Appeals held that the district court in disposing of the question of preemption, had disposed of an EPAA issue over which this court had exclusive appellate jurisdiction. Mobil Oil Corp. v. Tully, 639 F.2d 912 (2d Cir. 1981).¹

The question before this court is limited to whether the anti-passthrough provision of the New York Tax Law is invalid under the Supremacy Clause. The plaintiffs do not challenge the imposition of the tax. However, an affirmance of the district court's finding of unconstitutionality will void the tax. Section 12, L.1980 c. 271, as added by L.1980, c. 272, § 5.

In Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947), the Court set forth the criteria to be applied in determining whether the exercise by a state of its police power in the adoption of a statute may be challenged successfully under the Supremacy Clause.

"Congress legislated here in a field which the States have traditionally occupied. See Munn v. Illinois, 94 U.S. 113 24 L.Ed. 77; Davies Warehouse Co. v. Bowles, 321 U.S. 144, 148-149 64 S.Ct. 474, 477-478, 88 L.Ed. 635. So we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress. Napier v. Atlantic Coast Line R. Co., 272 U.S. 605, 611 47 S.Ct. 207, 71 L.Ed. 432; Allen-Bradley Local v. Wisconsin Employment Board, 315 U.S. 740, 749 62 S.Ct. 820, 825, 86 L.Ed. 1154. Such a purpose may be evidenced in several ways. The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. Pennsylvania R. Co. v. Public Service Comm'n, 250 U.S. 566, 569 40 S.Ct. 36, 37, 63 L.Ed. 1142; Cloverleaf Butter Co. v. Patterson, 315 U.S. 148 61 S.Ct. 834, 85 L.Ed. 1515. Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject. Hines v. Davidowitz, 312 U.S. 52 61 S.Ct. 399, 85 L.Ed. 581. Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose. Southern R. Co. v. Railroad Commission, 236 U.S. 439 35 S.Ct. 304, 59 L.Ed. 661; Charleston & W. C. R. Co. v. Varnville Co., 237 U.S. 597 35 S.Ct. 715, 59 L.Ed. 1137; New York Central R. Co. v. Winfield, 244 U.S. 147 37 S.Ct. 546, 61 L.Ed. 1045; Napier v. Atlantic Coast Line R. Co., supra."

Preemption in this area is compelled "whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose." Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977).

Even if Congress has not foreclosed the field, a state statute is void to the extent of actual conflict with a federal statute. Ray v. Atlantic Richfield Co., 435 U.S. 151, 158, 165, 98 S.Ct. 988, 994, 998, 55 L.Ed.2d 179 (1978); Hill v. Florida, 325 U.S. 538, 65 S.Ct. 1373, 89 L.Ed. 1782 (1945). This standard was recently outlined by the Supreme Court in Chicago and North Western Transportation Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317, 101 S.Ct. 1124, 1130, 67 L.Ed.2d 258 (1981):

"... when Congress has chosen to legislate pursuant to its constitutional powers, then a court must find local law pre-empted by federal regulation whenever the `challenged state statute "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."' Perez v. Campbell, 402 U.S. 637, 649 91 S.Ct. 1704, 1711, 29 L.Ed.2d 233 (1971) quoting Hines v. Davidowitz ... supra, 312 U.S. at 67-68 61 S.Ct. at 404."

Judge McCurn found it unnecessary to decide whether Congress had intended that there be exclusive federal control over allocation and pricing of petroleum products, resting his decision on the "conflict" standard for preemption. We, too, do not reach the "occupation of the field" question; we find sufficient basis under the conflict standard to exclude the State from exercising its police power in enacting the anti-pass-through provision.

The procedure in analyzing possible preemption under the conflict standard is to compare the two statutes; and second, to determine whether there is a conflict between them. This second inquiry focuses on the nature of the activity which the state has attempted to regulate, rather than the method of regulation used. Chicago and North Western Transportation Co. v. Kalo Brick & Tile Co., supra, 450 U.S. at 317-18, 101 S.Ct. at 1130.

With the advent of the Arab oil embargo in 1973, this country was faced with a national crisis in the flow of energy supplies and inflation. Congress addressed the problem in the passage of the EPAA. The statute stated that shortages of crude oil, residual fuel oil and refined petroleum products existed which would create severe economic hardships that would jeopardize the normal flow of commerce and "constitute a national energy crisis which is a threat to the public health, safety, and welfare, and can be averted or minimized effectively through prompt action by the Executive branch of Government." Section 751(a)(3). The statute went on to say that "the authority granted under this chapter shall be exercised for the purpose of minimizing the adverse impacts of such shortages or dislocations on the American people and the domestic economy." Section 751(b). Section 753(b)(1)(F) states, as one of the objectives of the statute, the "equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices ...."

Senator Jackson, as floor manager of the bill, said, "Our fuel shortage problems are national problems; they must be recognized and resolved at the Federal level." 119 Cong.Rec. 17764 (1973). Finally, the...