US Oil Co., Inc. v. Koch Refining Co.

• Decision Date: 07 July 1981
• Docket Number: No. 79-C-659.,79-C-659.
• Citation: 518 F. Supp. 957
• Parties: U. S. OIL CO., INC., Plaintiff, v. KOCH REFINING CO., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

518 F. Supp. 957

U. S. OIL CO., INC., Plaintiff, v. KOCH REFINING CO., Defendant.

No. 79-C-659.

United States District Court, E. D. Wisconsin.

July 7, 1981.

John E. Varnum, Batzell, Nunn & Bode, Washington, D. C., Gilbert W. Church, Foley & Lardner, Milwaukee, Wis., for plaintiff.

Wayne E. Babler, Jr., Quarles & Brady, Milwaukee, Wis., for defendant.

MEMORANDUM AND ORDER

WARREN, District Judge.

There are several motions currently pending before the Court which are ripe for resolution. These motions are the subject of this memorandum and order.

Plaintiff's Motion for Leave to File an Amended Complaint

Plaintiff, U.S. Oil, has moved to amend its complaint for a second time since it was originally filed in August of 1979. The proposed second amended complaint adds three defendants and one cause of action. The new defendants are, Koch Industries, the parent corporation of the defendant Koch Refining, and two other subsidiaries of the parent corporation, Wood River Oil & Refining Co. and Koch Fuels, Inc. (formerly Gustafson Oil Co.). The proposed seventh cause of action alleges that the defendants violated 10 CFR § 210.62, which prohibits changes in the "normal business practices in effect during the base period specified in Part 211 for ... allotted products ...; discrimination among purchases of allocated products ... and practices which constitute means to obtain a higher price than permitted by the regulations." 10 CFR § 210.62(a)(b)(c). Plaintiff alleges that defendants changed their credit policies and discriminated against the plaintiff in the pricing of allocated products. For these violations, plaintiff demands consequential and incidental damages.

Defendant Koch Refining Co. opposes plaintiff's motion to amend contending that the new defendants will be seriously prejudiced and that the seventh cause of action seeking consequential and incidental damages is barred by this Court's previous decision regarding such damages in a suit for overcharges. The claimed prejudice arises from the defendant's assumption that plaintiff will seek to relate its cause of action against the new defendants back to the date of the original complaint. Assuming this to be true, defendant asserts that the new defendants will be prejudiced by their inability to assert the statute of limitations as a defense. In addition, defendant contends that the plaintiff has been fully aware of the proposed defendants since the inception of the lawsuit. Therefore, it argues, the motion is untimely.

With regard to the new proposed cause of action, defendant contends that it is merely a restatement of a claim this Court held was invalid in its earlier decision in September of 1980. U. S. Oil v. Koch Refining, 497 F.Supp. 1125, 1126 (E.D.Wis.1980). Because the claim is based on an allegation of overcharges by the defendant, defendant alleges that, in accordance with the Court's prior ruling, consequential and incidental damages are not recoverable.

Under Rule 15 of the Federal Rules of Civil Procedure, the Court may grant leave to file an amended complaint if it determines that justice requires it. The decision is left to the Court's sound discretion. In exercising that discretion, however, the Court should consider any possible prejudice to the defendant and whether or not the amendment might be futile. Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); see 6 Wright & Miller, Fed.Prac. & Pro. § 1487 n. 58.

In examining the proposed second amended complaint, the Court concludes that the defendant has not demonstrated any significant prejudice that may result from joining the other defendants. In addition, the Court finds no prejudice in the plaintiff's failure to amend at an earlier time. Furthermore, although plaintiff suggests in its reply brief that service of process on the defendant Koch Refining Company is sufficient, the Court does not reach this issue because defendants have not had an opportunity to respond. Therefore, any question regarding the jurisdiction of the Court over the new defendants must await further motions.

Defendants' objections to the new cause of action stated in the proposed second amended complaint merits some discussion. In its previous ruling, the Court held that section 210 of the Economic Stabilization Act of 1970 (ESA) provided the exclusive remedy for an action for overcharges. The Court held that "consequential damages are not recoverable in an action for overcharges." 479 F.Supp. at 1133. Plaintiff's proposed seventh cause of action seeks consequential damages for the defendant's violation of 10 CFR § 210.62(a)(b) and (c). Plaintiff alleges a change in credit policy toward it and price discrimination.

The allegations of a change in credit practice or policy towards the plaintiff differs in kind from an allegation of overcharging. Consequently, the Court's ruling excluding consequential damages in an action for overcharges would not be controlling. Under the liberal interpretation of 210(a) of the ESA adopted by the Temporary Emergency Court of Appeals in Newman Oil v. Atlantic Richfield Co., 597 F.2d 275, 279 (TECA), cert. denied, Atlantic Richfield Co. v. Newman Oil, 444 U.S. 842, 100 S.Ct. 84, 62 L.Ed.2d 55 (1979), the plaintiff's claim is not futile or frivolous. Plaintiff's claim of consequential damages because of alleged price discrimination is similar to an action for overcharges. Plaintiff alleges that it was charged more for allocated products than the defendant could lawfully charge. However, in a very conclusory fashion, it also alleges that defendant discriminated against it by charging it presumably more than others in its class.

Although plaintiff pleads an overcharge in its proposed seventh cause of action, there is no requirement under section 210.62(b) that there be an overcharge. In addition, a change in credit policies toward the plaintiff need not involve an overcharge as defined in section 210(c) of the ESA. Because of these differences between a claim under section 210(b) of the ESA and a claim under 10 CFR § 210.62, the Court finds that section 210(b) of the ESA does not bar a claim for consequential damages. Under section 210(a) of the ESA, a claim for consequential damages for a violation of section 10 CFR § 210.62(a)(b) and (c) is permissible. See Eastern Airlines v. Mobil Oil Co., 512 F.Supp. 1231 (S.D.Fla.1981). (10 CFR § 210.62 creates a separate and distinct cause of action under 210(a) of the ESA). Based on the foregoing, the Court finds that plaintiff's motion to amend its complaint must be and is hereby granted.

Motion to Strike the Defendant's Sixth Affirmative Defense

The plaintiff has also moved to strike the defendant's sixth affirmative defense, alleging that the defense is insufficient as a matter of law. Under Rule 12(f) of the Federal Rules of Civil Procedure, a court may order stricken from any pleadings any insufficient defenses or scandalous matters. A motion to strike an affirmative defense will be denied "if the defense set forth is sufficient as a matter of law or if it fairly presents a question of law or in fact that the court ought to hear." Angel v. Ray, 285 F.Supp. 64, 65 (E.D.Wis.1968). In determining whether to grant a motion to strike, the Court must treat all well pleaded facts as admitted and cannot consider matters outside the pleadings. 5 Wright & Miller Fed.Prac. & Pro. § 1380 at 786-88. If matters outside the pleadings are presented and considered, the motion shall be treated as a motion for partial summary judgment and the responding party should have an opportunity to conduct discovery and present evidence in opposition to the motion pursuant to Rule 56 of the Federal Rules of Civil Procedure. While plaintiff has submitted matters outside the pleadings, the Court will not consider them. Therefore, the Court will treat this as a motion to strike under Rule 12 of the Federal Rules of Civil Procedure.

Defendant's sixth affirmative defense states:

There is no case in controversy for the reason that the plaintiff has recovered all alleged overcharges in the form of prices it charged to its customers as allowed by law and plaintiff has no standing to assert the interests of its customers in this action.

The essence of this defense is that plaintiff was not harmed by any overcharges because it passed on these overcharges to its customers.

Plaintiff objects to the assertion of the pass-on defense because it contends that the Supreme Court in Hanover Shoe, Inc. v. United Shoe Machine Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968) and Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), barred the use of such a defense. Hanover Shoe, Inc. v. United Shoe Machine Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231, was an antitrust action for treble damages for alleged overcharges which resulted from the defendant's violation of the antitrust laws. As one of its defenses, the defendant asserted that plaintiff was not damaged because it passed on all of its overcharges to its customers. The Supreme Court held that defendant could not allege and present a pass-on defense.

The Court based its decision on two grounds. First, it found that proving such a defense would involve "long and complicated proceedings involving massive evidence and complicated theories." Id. at 493, 88 S.Ct. at 2231. To prove the defense, the Court noted that not only would defendant have to prove that the plaintiff passed on all costs but also that the higher prices did not effect the plaintiff's profit margin or total sales and its pricing methods. Id. The second reason for barring the pass-on defense as enunciated by the Court was that in all likelihood, violators of the antitrust laws, if allowed to assert the defense, would be able to retain "the fruits of the illegality." The Court reasoned that the ultimate consumer who bore the cost of the overcharges would have such a small stake in any potential...