United States v. Merit Petroleum, Inc.

• Decision Date: 30 March 1984
• Docket Number: No. 5-99.,5-99.
• Citation: 731 F.2d 901
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. MERIT PETROLEUM, INC., Respondent-Appellant.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

731 F.2d 901

UNITED STATES of America, Plaintiff-Appellee, v. MERIT PETROLEUM, INC., Respondent-Appellant.

No. 5-99.

Temporary Emergency Court of Appeals.

Argued December 14, 1983.

Decided March 30, 1984.

Charles W. Sorenson, Jr., Dept. of Justice, Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., Daniel K. Hedges, U.S. Atty., Houston, Tex., and Lawrence A.G. Moloney, Dept. of Justice, Washington, D.C., and Charles L. Cope, Dept. of Energy, Washington, D.C., of counsel, were on the brief, for the United States of America.

James R. Myers, Andrews & Kurth, Washington, D.C., with whom Bruce R. Coulombe, Washington, D.C., of the same firm, was on the brief for respondent-appellant, Merit Petroleum, Inc.

Before INGRAHAM, DAUGHERTY and BROWN, Judges.

WESLEY E. BROWN, Judge.

This is an action to enforce an administrative subpoena issued by the United States Department of Energy in August, 1981, in connection with an audit of Merit Petroleum which began in November, 1978. Merit appeals from an Order of the District Court entered on August 17, 1983, enforcing the subpoena upon a finding that Merit had "refused, without good cause, to produce records as required," by the 1981 subpoena.

In order to illustrate the nature of the delay which has occurred in this case, the Court will set out briefly the background of this appeal.

In November, 1978, a civil audit of Merit was commenced, upon notice to Merit, and with a request for records of purchases and sales of crude oil during the audit period of November 1, 1973, through October 31, 1978.

On January 28, 1981, a Notice of Probable Violation (NOPV) was issued by the DOE (Ex. 8, R. 26-56). This notice superseded a previous NOPV which had been issued on April 3, 1980.

On January 30, 1981, the President signed Executive Order No. 12287, 46 Fed. Reg. decontrolling crude oil and eliminating certain record-keeping and reporting requirements.

On August 31, 1981, the civil subpoena which is the subject matter of this case, was served on Merit Petroleum. It requested records for the period of November, 1978 through December, 1980. (Deft.Ex. 2, R. pp. 3-8). This subpoena was issued in connection with a DOE investigation into whether or not Merit had: "violated the provisions of the Mandatory Petroleum Price and Allocation Regulations (10 CFR, Part 210, 211, and 212) and Administrative Procedures and Sanctions (10 CFR, Part 205) with regard to purchases and sales of crude oil."

Merit refused to produce additional records, and on September 10, 1981, requested a Review of the subpoena under provisions of 10 CFR § 205.8(b)(4). (Deft.Ex. 4, R. pp. 17-19). Alleged reasons for the subpoena's invalidity included some of the same grounds alleged in this appeal, that is, absence of authority in agent Louthan to issue the subpoena; unlawful issuance in view of Executive Order No. 12287, inconsistence with DOE enforcement policy, improper influences by Congressional Committee, issuance for improper purposes; and the claim that the documents requested were already within the possession of the DOE.

The request for Review was denied by implication due to the failure of the DOE to modify or rescind the subpoena within ten days after request. The subpoena therefore became effective on September 28, 1981. 10 CFR 205.8(b). (Jones, Letter of 9/18/81, R. 20).

In March, 1982, the first petition to enforce the subpoena was filed, and a Show Cause hearing was had on January 13, 1983. On that date, the government's petition was dismissed, without prejudice, apparently upon technical grounds. R. 1114, 796, 849.

Sometime in March or April, 1983, the DOE "Office of Special Investigations" referred Merit's audit to the Department of Justice for criminal investigation, and a Grand Jury was convened about that time. R. 1007, 1065-1068, R. 783, 1047-48. A Grand Jury subpoena was served upon Merit May 9, 1983 (R. 783), and Merit was advised that it was a target of the investigation. R. 783. No Indictment had been returned at time of appeal.

On May 17, 1983, the DOE obtained a second Show Cause Order to enforce the subpoena served in August, 1981. An evidentiary hearing was held on August 2nd, and on August 17, 1983, the District Court entered its Order enforcing the subpoena. This order is the subject matter of this appeal.

It should also be noted that in May, 1983, the DOE issued to Merit a "Proposed Remedial Order," which modified some allegations of the "Notice of Probable Violation" previously filed, adding new allegations concerning violations of Subpart L pricing regulations during the period of November, 1978, through December, 1980. R. pp. 770-71, 1005, 1094-95, 10 CFR § 212.181.

In this appeal, Merit has raised three basic issues:

(a) Whether or not the district court erred in enforcing the subpoena; (b) whether or not the district court erred in denying discovery; and (c) whether the Emergency Petroleum Allocation Act and the Emergency Petroleum Conservation Act are unconstitutional under the Supreme Court's ruling in I.N.S. v. Chadha, ___ U.S. ___, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983).

VALIDITY OF THE SUBPOENA

As the first issue, Merit claims that the subpoena was invalid because the DOE lacked authority to issue such subpoena because of the presidential executive order deregulating crude oil prices, and because of the absence of any authority delegated to Mr. Louthan, the issuing agent. In addition, Merit claims that the DOE already possesses the requested documents, that its purpose in issuing the subpoena has already been "fulfilled," and that the subpoena was issued because of improper Congressional influence, and/or for the improper purpose of criminal prosecution.

The attempt to challenge DOE jurisdiction upon the basis of the presidential Executive Order is completely frivolous, in view of the EPAA savings clause, 15 U.S.C. § 760g,¹ and the decisions of this Court in United States v. LaJet, Inc., 685 F.2d 1378, 1381 (TECA 1982); United States v. Thriftyman, Inc., 704 F.2d 1240, 1244 (TECA 1983).

See also, United States v. Armada Petroleum Corp., 562 F.Supp. 43, 48-49 (S.D. Tex.1982), aff'd, 700 F.2d 706 (TECA 1983), where the district court rejected the same argument made by Merit's counsel, Andrews & Kurth.

Likewise, the challenge to the authority of Mr. Louthan, who issued the subpoena in this case, is without merit. Again, counsel for Merit, Andrews & Kurth, has previously, and unsuccessfully, contested the authority of Louthan and his supervisor, L.K. Jones. See United States v. Armada Petroleum Corp., supra, 562 F.Supp. at 49; United States v. RFB Petroleum, Inc., 703 F.2d 528, at 533 (TECA 1983).

Merit's claim of improper Congressional influence is without merit. Such claim was essentially addressed and rejected by this Court in United States v. RFB Petroleum, Inc., supra, 703 F.2d at 532. The Court against notes that counsel for Merit, Bruce R. Coloumbe, of Andrews and Kurth, was also counsel of record for RFB Petroleum, Inc. The Court has compared the Merit brief on this issue, with the brief filed on behalf of RFB, which is of record here (R., pp. 935-945). Large portions of such briefs are identical. In view of the fact that a panel of this Court decided RFB Petroleum on March 2, 1983, and the Merit brief in this action was not filed until October 6, 1983, we find the failure of Merit's counsel to cite United States v. RFB Petroleum, to be completely reprehensible.²

Merit's contention that the subpoena is unenforceable in view of the issuance of the Notice of Probable Violation (NOPV), the issuance of the Proposed Remedial Order, presented in May, 1983, and the ongoing criminal investigation, is without merit.

All of these events occurred almost two years after the subpoena was issued, and they do not alter the civil purpose of the subpoena, that is, an investigation into Merit's compliance with regulations. Even though the DOE has managed to make some factual determinations without the requested documents, the agency continues to have a legitimate interest in obtaining all records pertinent to its civil investigation. This issue was addressed directly by this Court in United States v. Thriftyman, Inc., supra, 704 F.2d at 1247, 1248, where the appellant argued that a NOPV demonstrated that the civil investigation was complete before subpoenas were ever issued:

We conclude, however, that the issuance of the NOPV did not require a conclusion that the civil investigation by the DOE was complete and that the subpoenas were therefore issued solely for a criminal investigation ... And we find nothing in the statutes or regulations that requires the DOE to end its investigation for civil purposes when it issues a NOPV ....

* * * * * *

Further, we note that the procedures concerning an administrative enforcement proceeding, including the issuance of a NOPV and the filing of a Motion for Discovery, do not limit the authority of the DOE to initiate judicial civil enforcement actions in coordination with the Department of Justice. 10 CFR § 205.190. Consequently, the commencement of an administrative enforcement proceeding does not necessarily demonstrate that civil investigations by the DOE are complete.

In Securities and Exchange Comm'n v. Dresser Indus., 628 F.2d 1368 (D.C.Cir. 1980), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980), an en banc court determined that the general rule that an IRS summons could not be enforced once a case had been referred for criminal prosecution, did not apply in the context of an SEC subpoena, since, unlike the IRS Code, the SEC statutes had no provision terminating its authority upon referral. While this Court has refrained from reaching the issue of the applicability of Dresser Industries to a DOE subpoena enforcement proceeding,³ we now adopt the reasoning of Dresser Industries, and hold that since the DOE statutes have no provision comparable to the Internal Revenue Code which would terminate...