Mobil Oil Corp. v. Dubno

• Decision Date: 09 July 1980
• Docket Number: Civ. No. H-80-359,H-80-376 and H-80-377.
• Citation: 492 F. Supp. 1004
• Parties: MOBIL OIL CORP. et al. v. Orest T. DUBNO et al. TEXACO, INC., v. Carl R. AJELLO et al. AMERADA HESS CORP. v. Ella T. GRASSO et al.
• Court: U.S. District Court — District of Connecticut

492 F. Supp. 1004

MOBIL OIL CORP. et al. v. Orest T. DUBNO et al.

TEXACO, INC., v. Carl R. AJELLO et al.

AMERADA HESS CORP. v. Ella T. GRASSO et al.

Civ. Nos. H-80-359, H-80-376 and H-80-377.

United States District Court, D. Connecticut.

July 9, 1980.

Richard M. Reynolds, William E. Glynn, Allan B. Taylor, Day, Berry & Howard, Hartford, Conn., for plaintiffs in No. H-80-359.

Robert L. Klein, Paul M. Scimonelli, Ralph G. Murphy, Asst. Attys. Gen., Hartford, Conn., for defendants in all cases.

Francis J. McNamara, Jr., Eric Watt Wiechmann, Cummings & Lockwood, Stamford, Conn., for plaintiffs in No. H-80-376.

Arthur Sachs, Sonja Goldstein, Sachs, Sachs, Delaney & Sachs, Milford, Conn., Robert H. Elliott, Myron C. Baum, Albert G. Lauber, Jr., Caplin & Drysdale, Washington, D. C., for plaintiffs in No. H-80-377.

MEMORANDUM OF DECISION

BLUMENFELD, Senior District Judge.

The plaintiffs, in their respective complaints in these three actions, seek declaratory and injunctive relief against the implementation or enforcement of section 13(b) of Public Act 80-71 of the State of Connecticut.¹ A hearing on the plaintiffs' motion for a preliminary injunction was conducted on June 23, 1980. A hearing on the merits was held on June 30, 1980. The cases are thus ripe for final decision.

I. BACKGROUND

A. The Connecticut Statute

Section 1 of Public Act 80-71 of the 1980 Connecticut General Assembly ("the Act") singles out a narrow group of companies and imposes a two-percent tax on the gross receipts of those companies from their sales in Connecticut. Only a company that is engaged primarily in the refining and distribution of petroleum products and that distributes such products to wholesale and retail dealers for marketing and distribution in Connecticut must pay the tax. Since there are no petroleum refineries in Connecticut, the restrictions on the application of the tax contained in section 1 effectively limit the tax to integrated petroleum companies engaged in both the refining and distribution of petroleum products in a number of states. In contrast, companies that only distribute petroleum products are not taxed on their receipts from sales in Connecticut.

In the ordinary course of business, the cost of a tax such as the gross receipts tax would be passed along to purchasers in the form of higher prices. In order to avoid the predictable application of the tax burden to Connecticut purchasers, the General Assembly enacted section 13 of the Act.

Section 13(a) contains a general statement of legislative intent: "It is ... the intention of the general assembly that the tax imposed under section 1 of this act be construed as a tax upon ... and be collectible from petroleum companies as defined in said section 1, and that such tax shall constitute a part of the operating overhead of such companies." Section 13(a) itself contains no provision respecting the price of petroleum products.

Implementing the intent to have the gross receipts tax treated as an overhead cost, section 13(b) forbids each company subject to the tax to raise its wholesale prices in Connecticut by any amount higher than the average amount by which it raises such prices "in all ports on the eastern coast of the United States." Because of section 13(b), such costs may not be added entirely to prices in Connecticut, but may be recouped only on a pro rata basis from all customers in the states (including Connecticut) to which petroleum products are distributed from east coast ports.

The pricing provisions of section 13(b) apply only to petroleum products "exempt from the federal Emergency Petroleum Allocation Act (P.L. 93-159) `EPAA'." At the present time, these so-called exempt products include home heating oil, diesel fuel, residual fuel oil, automotive motor oil, industrial oil and greases, and aviation fuel.

The plaintiffs in these three actions are petroleum companies subject to the tax imposed by section 1 of the Act and therefore to the pricing provisions of section 13(b). They will be required by sections 1 and 7 of the Act to file quarterly returns and payments of the tax, which the state anticipates will total approximately $60 million in the next year. This court is not asked to decide whether the imposition of the tax is valid. The companies concede that it is and have indicated their intention to pay that tax when due. They challenge only section 13(b), which restricts their ability to pass through the entire cost of the tax to Connecticut purchasers. Pursuant to section 30 of the Act, section 13(b) became effective on July 1, 1980.

The plaintiffs contend that Connecticut's action is barred by reason of provisions in the federal Constitution and laws. Their primary argument is that section 13(b) is pre-empted by federal regulation and thus cannot stand under the Supremacy Clause of the Constitution.² U.S.Const., art. VI, cl. 2. Analysis of this contention requires examination of the federal statutory and regulatory scheme on which the plaintiffs rely, a task to which we now briefly turn.

B. The Federal System for the Pricing of Petroleum Products

When Congress enacted the EPAA, it found that shortages of various petroleum products "constituted a national energy crisis" requiring action by the federal government. 15 U.S.C. § 751(a)(3). To alleviate this crisis in the "national distribution system" for such products, id. § 751(b), the Congress authorized the President to promulgate regulations governing the allocation and pricing of crude oil, residual fuel oil, gasoline, kerosene, distillates, LPG, refined lubricating oils, and diesel fuel throughout the United States. Id. 753(a).³ The Congress specifically instructed the President to keep in view the national scope of the subject to be regulated, requiring that his regulations should provide, to the maximum extent practicable, for the "equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States. . ." Id. § 753(b)(1)(F) (emphasis added).⁴

The understanding of Congress that the allocation and pricing of petroleum products is a national problem requiring federal regulation is reflected also in the legislative history of the EPAA. When Senator Henry Jackson, sponsor of Senate Bill 1570, first introduced the bill on April 13, 1973, he underscored the importance of Congress' actions "to build a coordinated and rational fuels and energy policy." 119 Cong.Rec. 12317, quoted in S.Rep. No. 93-159, 93d Cong., 1st Sess. 21 (1973). Later, Senator Jackson as floor manager of the bill during the Senate debates urged that one of the reasons that Congress should enact mandatory rather than voluntary measures to address the fuel supply problem was to avoid piecemeal action by the states:

"Further, if the Federal Government fails to establish effective regional or national allocation plans, we will invite piecemeal action by the States. Our fuel shortage problems are national problems; they must be recognized and resolved at the Federal level."

119 Cong.Rec. 17764 (1973).

In response to the EPAA the President, acting through a series of executive agencies now submerged in the Department of Energy ("DOE"), has promulgated a comprehensive system of regulations governing the allocation and pricing of petroleum products. See 10 C.F.R. Parts 210-212. Regulations pursuant to the EPAA were originally issued on December 27, 1973, 39 Fed.Reg. 744 (1974), and were shortly thereafter comprehensively reorganized and revised, 39 Fed.Reg. 1924 (1974). On January 10, 1975, in clarifying its definition of "covered products" which were subject to price regulation under the EPAA, the Federal Energy Administration ("FEA") emphasized its intention to regulate to the full extent of the authority granted under the Act:

"With respect to `covered products' (i. e. those products which are subject to FEA price regulations) the intent of the FEO Federal Energy Office, and now the FEA, has always been to exercise its regulatory authority under the EPAA with respect to all products that are subject to that Act. Previous definitions of `covered products' as set forth in the Mandatory Petroleum Price Regulations were in no way intended to restrict the scope of the price regulations to anything less than all the products subject to the EPAA."

40 Fed.Reg. 2795 (1975).⁵ Accordingly, as of that date "covered products" subject to price regulation under the EPAA included crude oil, residual fuel oil, and "refined petroleum products," such as gasoline, kerosene, fuel oil and other distillates, refined lubricating oils, diesel fuels, propane, and butane. Id.⁶

Congress supplemented the EPAA in 1975 by adding 15 U.S.C. § 760a as part of the amendments enacted under the Energy Policy and Conservation Act, P.L. 94-163. That section authorizes the President to amend the EPAA regulations to exempt the allocation and pricing of "crude oil, residual fuel oil, or any refined petroleum product or refined product category" from the general price and allocation regulations contained in 10 C.F.R. According to section 760a(c)(2), the President must submit any such amendment for congressional approval and must accompany the submission with a statement of his rationale for the amendment. When proposing to exempt a product from price control, the President is required to state to Congress his finding

"that competition and market forces are adequate to protect consumers and that exempting such oil or refined product category will not result in inequitable prices for any class of users of such oil or product."

15 U.S.C. § 760a(d)(1)(B) (emphasis added). The President must also send to Congress with each proposed amendment his views as to the "potential economic impact" of the proposed exemption, including, where practicable, his views on "the State and regional impacts of such amendment"; "the effects of such amendment on the availability of...