Rainey v. Union Oil Co. of California

• Decision Date: 05 April 1984
• Docket Number: TECA No. 9-77.
• Citation: 732 F.2d 1563
• Parties: James Q. RAINEY and Edwin E. Wampler, Plaintiffs-Appellants, v. UNION OIL COMPANY OF CALIFORNIA, Defendant-Appellee.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

732 F.2d 1563

James Q. RAINEY and Edwin E. Wampler, Plaintiffs-Appellants, v. UNION OIL COMPANY OF CALIFORNIA, Defendant-Appellee.

TECA No. 9-77.

Temporary Emergency Court of Appeals.

Argued December 6, 1983.

Decided April 5, 1984.

Edward G. Modell, with Ronald L. Plesser, of Blum & Nash, Washington, D.C., and Morton R. Galane, with James J. Jimmerson and Thomas W. Davis, II, of Galane & Jimmerson, Las Vegas, Nev., for plaintiffs-appellants.

G. Stewart Stone, Jr., of Steinhart & Falconer, San Francisco, Cal., with Steven Glade, of Gifford & Vernon, Las Vegas, Nev., for defendant-appellee.

Before CHRISTENSEN, JAMESON and McNICHOLS, Judges.

CHRISTENSEN, Judge.

The controlling issue on this appeal is whether plaintiffs-appellants, doing business as Casino Car Wash (Casino), a branded independent marketer of gasoline, substantially complied with a regulation governing designation of a new base period gasoline supplier. Construing the regulation narrowly upon trial of this case before a jury, the district court held that certain information required to be furnished to the designee Union Oil Company (Union) was fatally lacking. Consequently the court withdrew the case from the jury at the close of the evidence and directed a verdict against the plaintiff both as to claimed damages for circumvention of the allocation regulation and intertwined claims. We reverse.

All of plaintiffs' claims were related to, and depended upon, application of the Emergency Petroleum Allocation Act (EPAA) and its regulations and hence we reject the contention of Union that this court lacks jurisdiction. Having determined that jurisdiction is present, we deny Union's motion to dismiss¹ and proceed to the merits of the appeal.

Rainey and Wampler operated Casino, a combined retailed motor gasoline and car wash facility in Las Vegas, Nevada, between August 1978 and August 1979 as a branded independent marketer of Union's gasoline. Theretofore the site had been supplied by Phillips Petroleum Company and Mobil Oil Company. Union is a major integrated oil company and was Casino's sole supplier during the time Rainey and Wampler operated it.

In the first claim of their amended complaint Rainey and Wampler alleged that Union had circumvented its gasoline supply obligation to Casino in violation of section 205.202 of the Mandatory Petroleum Allocation Regulations.² It was further asserted that Union in May of 1979 notified a purchaser who had contracted to buy plaintiffs' interest in Casino that Union would not supply gasoline if the purchase were consummated, thereby disrupting the sale and eventually forcing the closing of the outlet. In a second claim plaintiffs alleged that Union's conduct constituted tortious interference with plaintiffs' prospective business advantage. The third claim charged Union with a breach of an implied covenant of good faith and fair dealing by the renunciation of its base supply obligation at the site in light of its 1978 supply contract to cooperate with Casino in securing an allocation.

The case of course involves the concept of supply-purchaser relationships central to allocation regulations. See, 10 C.F.R. § 211.9 (1979); Zahir v. Shell Oil Co., 718 F.2d 1567 (Em.App.1983); Rossi v. Mobil Oil Corp., 710 F.2d 821 (Em.App.1983); Shell Oil Co. v. Nelson Oil Co., Inc., 627 F.2d 228 (Em.App.), cert. denied, 449 U.S. 1022, 101 S.Ct. 590, 66 L.Ed.2d 484 (1980). Cf., Johnson Oil Co., Inc. v. DOE, 690 F.2d 191 (Em.App.1982); Condor Operating Co. v. Sawhill, 514 F.2d 351 (Em.App.), cert. denied, 421 U.S. 976, 95 S.Ct. 1975, 44 L.Ed.2d 467 (1975). To temper the policy of preserving relationships with suitable flexibility, provision was made by the administrating agency for transfer of obligations to accommodate market developments. The gist of the complaint in this case and the point on which the trial court primarily based its decision involved the following regulation covering change of a base period supplier not through agreement and approval of the agency but simply by the operator's giving of prescribed notices:

(d) Branded resellers. (1) Any wholesale purchaser-reseller of motor gasoline which is a branded independent marketer and which has a base period supplier different from the firm that was its supplier on February 28, 1979 under whose brand it was selling on that date may, at its option designate as its base supplier that supplier which was its supplier on February 28, 1979 and terminate its supplier/purchaser/relationship with all its other base period suppliers. If a designation is so made, the firm that supplied the purchaser on February 28, 1979 will become the purchaser's sole base period supplier and will supply the purchaser's base period volumes as part of its supply obligations.

(2) A wholesale purchaser-reseller which designates a firm as its sole base period supplier, pursuant to this section shall provide, by June 15, 1979, written notice of the designation and the corresponding terminations to any suppliers which supplied the wholesale purchaser-reseller during the base period. Such wholesale purchaser-reseller shall also provide written notice by the same date to the designated supplier of the amount of the wholesale purchaser reseller's base period use which had been supplied by other suppliers during the base period and which is to be supplied by the designated supplier. The notice to the designated supplier shall include the names and addresses of the actual suppliers during the base period and of any wholesale purchaser-reseller and the location of any facility, including any retail sales outlet concerned.

10 C.F.R. § 211.105(d)(1), (2), effective May 1, 1979.

It should also be noted that, pursuant to 10 C.F.R. § 211.106(e), whenever a wholesale purchaser-reseller (such as Casino) was deemed to have gone out of business in accordance with other provisions of the section "the right to an allocation shall be deemed to have been transferred to its successor on the site, provided such successor established the same ongoing business on the site within a reasonable period of time, as determined by FEO, after its predecessor vacates the premises."

There is substantial evidence in the record supporting the following facts favorable to plaintiff's contentions, among others:³

In August 1978, Rainey and Wampler for substantial consideration entered into a series of agreements to acquire the right to lease and operate the premises of Casino. They also leased from others new washing equipment. This facility could not successfully operate without an assured source of gasoline for retail sales in connection with the car wash business. The following month Rainey and Wampler entered into a series of agreements with Union by which Union agreed to supply Casino substantial quantities of gasoline annually from Union's declared surplus.

Additionally, Union agreed that it would recommend to the regulatory agency that it be assigned to supply Casino's base period volume requirements for the duration of the Mandatory Petroleum Regulation program,⁴ since at that time the obligation could be transferred from the old to a new supplier only upon agreement of both and approval by the agency. Effective March 1, 1979, the DOE adopted Activation Order No. 1 to the Standby Allocation and Price Rules, 44 Fed.Reg. 11202 (Feb. 28, 1979). This order in relevant part changed the base period for motor gasoline from the calendar year 1972 to July 1977 through June 1978. While Phillips Petroleum Company was the supplier during the prior period, Mobil Oil Corporation supplied Casino during the new period and hence effective March 1, 1979, became its base period supplier by operation of the Activation Order.

At the time they acquired Casino, Rainey and Wampler had no experience with and little knowledge of the gasoline business. They depended importantly upon representatives of Union for advice. During April 1979 James Foster, area manager of Union at Las Vegas, Nevada, informed the plaintiffs that the DOE allocation regulations had been amended to make Mobil rather than Phillips the Base Period Supplier for Casino. In the latter part of the same month Wampler contacted Mobil's San Diego office and received from it the base period volumes which had been supplied to Casino.

On May 1, 1979, based on this information Wampler delivered to Foster at Union's Las Vegas office a handwritten document identifying Mobil as the base period supplier of Casino and specifying the base period volumes supplied by Mobil. An employee of Union later typed this information on a Form FEO-17 which Wampler had signed in blank during his visit at Union's office on May 1. At that time Rainey, Wampler and Union believed that this form was necessary to effect a change of the base period supplier from Mobil to Union by agreement of the three entities concerned and approval of the DOE.

On May 5, 1979, Rainey spoke by telephone with George Peabody of the DOE's Office of Hearings and Appeals in Chicago, Illinois, and was informed that under section 211.105(d) of the DOE's regulations, as amended effective May 1, 1979, the consensual form FEO-17 was unnecessary and that Casino could designate Union in lieu of Mobil as its base period supplier by sending notices to that effect to Mobil and Union.

Acting on this information Rainey on the same day wrote and mailed separate letters to Mobil's San Diego office and to Foster at Union's Las Vegas office with the intention of effecting a change of Casino's base period supplier from Mobil to Union. No claim has been made that the letter to Mobil was inadequate under the regulations. The letter to Foster is the critical one, and after its caption reads:

As of this date, I spoke with Mr. Peabody, Chicago Dept. of Energy. He informed me of the new Federal Regulation 211.105 effective May 1, 1979. This regulation in effect states that if our supplier of gasoline on Feb. 28, 1979 is different from our base

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