Phillips Petroleum Co. v. Federal Energy Admin.

• Decision Date: 27 June 1977
• Docket Number: 77-130,Civ. A. No. 77-90,77-131,77-144 and 77-155.
• Parties: PHILLIPS PETROLEUM COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, Defendant. TENNECO OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants. PENNZOIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants. COASTAL STATES GAS CORPORATION, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants. CONTINENTAL OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.
• Court: U.S. District Court — District of Delaware

435 F. Supp. 1234

PHILLIPS PETROLEUM COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, Defendant.

TENNECO OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.

PENNZOIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.

COASTAL STATES GAS CORPORATION, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.

CONTINENTAL OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.

Civ. A. Nos. 77-90, 77-130, 77-131, 77-144 and 77-155.

United States District Court, D. Delaware.

June 27, 1977.

S. Samuel Arsht and William O. LaMotte, III of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for all plaintiffs.

Paul J. Mode, Jr., Michael S. Helfer and Alan B. Sternstein of Wilmer, Cutler & Pickering, Washington, D. C., for Phillips Petroleum Co.

John P. Mathis of Baker & Botts, Washington, D. C., for Tenneco Oil Co. and Pennzoil Co.

David J. Beck, Laurance C. Mosher, Jr., and J. Todd Shields of Fulbright & Jaworski, Houston, Tex., for Coastal States Gas Corp.

Rush Moody, Jr., Michael J. Henke and P. Shaun Burns of Vinson & Elkins, Washington, D. C., for Continental Oil Co.

James W. Garvin, Jr., U. S. Atty., and John H. McDonald, Asst. U. S. Atty., Wilmington, Del., Barbara Allen Babcock, Asst. Atty. Gen., Stanley D. Rose, C. Max Vassanelli and Robert E. Richardson, Attys., Dept. of Justice, Washington, D. C., for defendants.

LATCHUM, Chief Judge.

Five oil companies¹ have brought these actions to challenge the defendant Federal Energy Administration's ("FEA")² interpretation and anticipated application of a regulatory scheme governing the method by which the plaintiffs raised the prices of their petroleum products as a result of increased costs incurred during a thirteen month period between January 1, 1975 and February 1, 1976. The FEA has moved to transfer these actions to the United States District Court for the Northern District of Ohio, where nine related actions are pending, or, alternatively, to stay these actions until decision is rendered in the Ohio cases;³ additionally, the FEA, invoking the doctrines of ripeness, exhaustion of administrative remedies, and primary jurisdiction, has moved to dismiss these actions or to stay them pending completion of administrative consideration.⁴ This opinion is addressed to the FEA's motion to transfer or to stay pending resolution of the Ohio cases which, if granted, would obviate the need to rule on the FEA's motion to dismiss.

1. Background Facts

In 1973, the FEA, acting pursuant to the Emergency Petroleum Allocation Act ("EPAA"), 15 U.S.C. § 751 et seq., and related legislation, established a complex system for controlling the prices of refined petroleum products. The EPAA allows a refiner to raise the prices of its products to recover increases, on a dollar-for-dollar basis, in its "product costs," principally the cost of crude oil, and its "non-product costs," which encompass most operating expenses. Increased product costs could be recovered either by raising the refiner's products' prices in the month following the month during which the increase occurred or by saving or "banking" the increased costs to justify a later price increase. The FEA, however, determined that non-product cost increases should be recovered only in the month following the month in which the cost increases occurred. Thus, non-product cost increases could not be banked and those non-product cost increases which were not promptly recovered were simply foregone.

This litigation focuses upon the procedure purportedly set forth in FEA regulations for allocating price increases between product and non-product cost increases from January 1, 1975 to February 1, 1976. Refiners, in applying the FEA regulations, apparently have used three general modes for allocating the price increases. Proponents of the "first method" argue that all non-product costs are recovered before any product costs are recovered. This method is most beneficial to the refining industry because it does not reduce the amount of "bankable" cost increases until all "non-bankable" cost increases have been passed on. A second approach, followed by all plaintiffs in these cases and denominated the "proportional method," involves the pro-rata recovery of product and non-product costs. A third sequence, the "last method," treated product costs as having been recovered first; this procedure maximizes unrecovered non-product cost increases which are lost by the oil company if not promptly passed through.

In February, 1976, to the surprise of plaintiffs and many other refiners and in contradiction of the public pronouncements of many of its officials, the FEA announced that its regulatory scheme had required the application of the "last method" for recovering cost increases during the preceding thirteen months. The plaintiffs, in time, responded by filing these broad-based attacks against the FEA's regulatory scheme, charging, inter alia, that the FEA had misconstrued its own regulations, that its regulations were passed without prior notice, were arbitrary and capricious, were in contravention of the EPAA, and cannot be enforced because of plaintiffs' good faith reliance on representations of FEA personnel that the regulations required application of the proportional method.

Nine other oil companies have challenged the pass through regulations in the United States District Court for the Northern District of Ohio although only two of them employed the proportional method. The FEA, citing the burden of carrying on similar litigation in two forums, now seeks to have these actions transferred to the Northern District of Ohio for simultaneous disposition.

2. Transfer Motion

A motion to transfer is governed by 28 U.S.C. § 1404(a) which provides:

"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."

Although the Court must exercise its discretion in evaluating the convenience of the parties, the convenience of the witnesses, and the interests of justice, Solomon v. Continental American Life Insurance Co., 472 F.2d 1043, 1045 (C.A.3, 1973); Kaiser Industries Corp. v. Wheeling-Pittsburgh Steel Corp., 328 F.Supp. 365, 368 (D.Del.1971), subsection 1404(a) confers upon the Court the power to transfer these actions

"only if the plaintiffs had an `unqualified right' to bring the actions in the transferee forum at the time of the commencement of the actions i. e., venue must have been proper in the transferee district and the transferee court must have had power to command jurisdiction over all of the defendants."

Shutte v. Armco Steel Corp., 431 F.2d 22, 24 (C.A.3, 1970), cert. denied, 401 U.S. 910, 91 S.Ct. 871, 27 L.Ed.2d 808 (1971); accord Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964); Hoffman v. Blaski, 363 U.S. 335, 80 S.Ct. 1084, 4 L.Ed.2d 1254 (1960); Solomon v. Continental American Life Insurance Co., supra, 472 F.2d at 1045; American Electronic Laboratories, Inc. v. Dopp, 334 F.Supp. 339, 344 (D.Del.1971); Aetna Casualty and Surety Co. v. Singer-General Precision, Inc., 323 F.Supp. 1141, 1145 (D.Del.1971).

The plaintiffs are incorporated in Delaware.⁵ Venue of an action by a corporation against an officer or agency of the federal government⁶ is regulated by 28 U.S.C. § 1391(e) which reads in part:

"A civil action in which each defendant is an officer or employee of the United States or any agency thereof acting in his official capacity or under color of legal authority, or an agency of the United States, may, except as otherwise provided by law, be brought in any judicial district in which: (1) a defendant in the action resides, or (2) the cause of action arose, or (3) any real property involved in the action is situated, or (4) the plaintiff resides if no real property is involved in the action."⁷

Of the four enumerated conditions, only the fourth—where "the plaintiff resides if no real property is involved in the action"—is relevant to resolution of the question of "where these actions might have been brought." "It has long been settled that `the "residence" of a corporation, within the meaning of the venue statute, is only in the "State and district in which it has been incorporated."' Suttle v. Reich Bros. Construction Co., 333 U.S. 163, 166, 68 S.Ct. 587, 92 L.Ed. 614 (1948)." American Cyanamid Co. v. Hammond Lead Products, Inc., 495 F.2d 1183, 1184 (C.A.3, 1974).⁸ Thus, Delaware is the only residence of these plaintiffs for purposes of subsection 1391(e). Since the plaintiffs do not reside in the Northern District of Ohio, venue would not have been proper in that forum if they had brought these actions there. Accordingly, the Court lacks the power under subsection 1404(a) to transfer these cases to the Northern District of Ohio.

The FEA, however, further argues that plaintiffs' option to intervene in the related actions pending in the Northern District of Ohio when plaintiffs initiated the proceedings in this court satisfies the "where it might have been brought" requirement of subsection 1404(a).

The premise of the FEA argument is that "intervening" in an action is the equivalent for venue purposes of "bringing" an action. The "bringing" of an action is commonly understood as the "initiating" or "starting" of an action. Courts have routinely treated the concept of "bringing" in the context of subsection 1404(a) as the functional equivalent of "starting," e. g., Shutte v. Armco Steel Corp., supra, 431 F.2d at 24, or "bringing initially." E. g., American Electronic Laboratories, Inc. v. Dopp, supra, 334 F.Supp. at 344; see Hoffman v. Blaski, supra. In addition to being at odds with the plain meaning of subsection 1404(a), the FEA's interpretation denies substance to the "where it might have been brought" language in cases where similar litigation is pending elsewhere.

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