VGS CORP. v. UNITED STATES DEPT. OF ENERGY, 5-119.

• Decision Date: 28 November 1986
• Docket Number: No. 5-119.,5-119.
• Citation: 808 F.2d 842
• Parties: VGS CORPORATION d/b/a Southland Oil Company and Globe Asphalt Co., Inc., Plaintiffs-Appellees, v. UNITED STATES DEPARTMENT OF ENERGY and John S. Herrington, Secretary of Energy, Defendants-Appellants.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

808 F.2d 842

VGS CORPORATION d/b/a Southland Oil Company and Globe Asphalt Co., Inc., Plaintiffs-Appellees, v. UNITED STATES DEPARTMENT OF ENERGY and John S. Herrington, Secretary of Energy, Defendants-Appellants.

No. 5-119.

Temporary Emergency Court of Appeals.

Argued June 4, 1986.

Decided November 28, 1986.

Judgment Entered December 9, 1986.

Dennis A. Henigan, Foley & Lardner, Washington, D.C., with whom Edwin Jason Dryer and Jack L. Lahr of the same firm, Alex A. Alston, Jr., Thomas, Price, Alston, Jones & Davis, Jackson, Miss., were on brief for plaintiffs-appellees.

Samuel Soopper, Atty., Office of Gen. Counsel, U.S. Dept. of Energy, Washington, D.C., with whom Catherine C. Cook and Dennis M. Moore, Attys., were on brief for defendants-appellants.

Jerry E. Rothrock and Harry R. Silver, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for amicus curiae Beacon Oil Co.

Sheldon Oliensis, Myron Kirschbaum, Robert B. Bernstein, Kaye, Scholer, Fierman, Hays & Handler, New York City, A.J. Losee, Losee & Carson, Artesia, N.M., Henry L. Stern, Holly Corp. Dallas, Tex., and Thomas W. Houghton, Mayor, Day & Caldwell, Houston, Tex., of counsel, for amicus curiae Navajo Refining Co.

Before METZNER, DUNIWAY^* and WEIGEL, Judges.

METZNER, Judge.

The Department of Energy (DOE) appeals from that part of a mandamus order entered in the United States District Court for the Southern District of Mississippi which directed DOE to pay prejudgment interest from May 8, 1984, to the appellee VGS Corporation, d/b/a Southland Oil Company (Southland). DOE complied with the order for the period October 2, 1985 to December 20, 1985, when it paid Southland the principal amount due. The subject of this appeal is the liability of DOE to pay prejudgment interest for the period from May 8, 1984 to October 2, 1985.

The Department of Energy Organization Act authorizes exception relief from the Petroleum Price and Allocation Regulations, including the entitlements program,¹ for those parties adversely affected by the operation of these regulations. 42 U.S.C. § 7194. Exception relief was awarded on a case by case basis to alleviate serious hardship or gross inequity attributable to the impact of the DOE regulations on a refinery. 10 C.F.R. part 205, subpart D. This relief, awarded prospectively by the Office of Hearings and Appeals (OHA), excused refiners from certain future entitlements obligations for a specified period. Since this relief was based on a projection of a firm's future performance, it was subject to a subsequent review of actual data at the end of the year.

After OHA conducted its review at the end of a refiner's fiscal year, it would issue a final order regarding the relief that the firm was entitled to for the year. If the review determined that the firm was entitled to more exception relief than it had received during the fiscal year an order was issued directing that the refinery be allowed to sell an appropriate number of entitlements on the next entitlements notice. Conversely, if less exception relief should have been granted during the year, the firm was required to purchase additional entitlements on the next entitlements notice.

The details of the entitlements program have been thoroughly delineated in earlier opinions of this court and need not now be repeated. See, Husky Oil Co. v. Department of Energy, 582 F.2d 644 (Temp.Emer. Ct.App.1978); Cities Service Co. v. Federal Energy Administration, 529 F.2d 1016 (Temp.Emer.Ct.App.1975), cert. denied, 426 U.S. 947, 96 S.Ct. 3166, 49 L.Ed.2d 1184 (1976); Pasco, Inc. v. Federal Energy Administration, 525 F.2d 1391 (Temp.Emer. Ct.App.1975).

On February 23, 1981, OHA had issued two orders which changed the method of computing Southland's exception relief for the years 1977 and 1978. As a result Southland was found to have received excessive prospective exception relief and was required to purchase an additional $13.4 million in entitlements on the next monthly notice. This obligation was included in the December 1980 entitlements notice which was issued in February 1981, after President Reagan had ended the price control program. Southland made the additional entitlements purchases. On April 1, 1981, OHA modified the original orders to assess an additional purchase obligation of $1,638,068. This obligation was to be reflected on the next entitlements notice which would have been for January 1981, the last month before decontrol. Although this notice would customarily have been issued by the end of March, it had not been issued by the date of the OHA order.

Southland brought suit in federal court seeking declaratory and injunctive relief from these three orders. The district court issued a preliminary injunction in favor of Southland on May 13, 1981. This injunction required that the January 1981 entitlements notice, which had not as yet been issued, should include entitlements sales on Southland's behalf equal to the sum Southland had paid for entitlements under the OHA orders of February 23, 1981. The injunction further required that when Southland received this money, it should be placed in an interest-bearing escrow account along with the $1,638,068 that Southland had not yet paid under the April 1, 1981 order. The fund was to be used to repay Southland to the extent it prevailed before the Federal Energy Regulatory Commission (FERC) where Southland was administratively challenging the contested OHA orders.

In July 1981 DOE published a regulation establishing a clean-up entitlements notice. In August it then sought to dissolve the preliminary injunction because of the existence of the July regulation. It stated to the court:

"Southland alleged here that it would suffer injury because there was no mechanism in place that would assure that Southland would receive its money when and if it prevailed in its application for exception relief. That mechanism is now firmly in place...."

The court denied the motion to lift the injunction.

Nothing further happened in this matter until July 6, 1982, when DOE announced that it was seeking public comments as to whether it should publish the January entitlements notice. 47 Fed. Reg. 30,279 (July 13, 1982). If these notices were not published, the district court's preliminary injunction could not be implemented.

On October 18, 1983, a FERC presiding officer issued a proposed order finding that the disputed OHA orders of February 23, 1981 and April 1, 1981 improperly calculated Southland's exception relief. Southland Oil Co./VGS Corp., 25 FERC ¶ 62,118. The proposed order sought to make Southland whole by relieving it of the remaining purchase obligation of $1,638,068 under the April 1 order, and by providing that an additional $5,956,038 be transferred to Southland in the form of entitlements payments on the next entitlements notice. The January 1981 notice had still not been issued. On May 8, 1984, FERC adopted this proposed order as a final order. Southland Oil Co./VGS Corp., 27 FERC ¶ 61,205.

On June 28, 1984, DOE decided not to issue further entitlements notices. At that time, however, it stated that it would initiate a public proceeding to consider how to implement outstanding exception relief. On January 9, 1985, DOE decided that it would use crude oil overcharge funds held by DOE in the Stripper Well² litigation to pay holders of exception relief, but only if OHA found that refiners were injured as a class by violations of energy price regulations. OHA so found on June 21, 1985. 50 Fed. Reg. 27,400, 27,401 (July 2, 1985). DOE also stated that payments would be withheld because of the continuing litigation in Texaco v. Department of Energy, 795 F.2d 1021 (TECA 1986), and that "any payment pursuant to this order will be placed in an interest-bearing escrow account pending the outcome of that litigation." 50 Fed.Reg. at 27403, n. 1.

On July 12, 1985, the scene moves back to the district court which at that time issued a declaratory judgment that DOE had an "unconditional and non-discretionary obligation" to pay Southland, 613 F.Supp. 243. The court found DOE's position regarding method and timing of payment to be "totally frivolous," and its record to be one of "delay-delay-delay."

DOE honored this order on October 2, 1985, to the extent of segregating funds in the Stripper Well account necessary to pay exception orders. It established separate interest-bearing accounts in the United States Treasury for each claimant to be released upon the completion of the Texaco litigation. Amber Refining Inc., et al., 50 Fed. Reg. 41,572 (October 11, 1985). DOE announced that interest on the exception orders would start to run from October 2, 1985.

On December 4, 1985, the district court ordered full restitution to Southland within 20 days. In addition, DOE was directed to pay interest on the amount due from May 8, 1984, the date of the FERC order. The basis for this direction was twofold: (1) Southland's recovery was liquidated at that time, and (2) DOE's objection to honoring the FERC order was frivolous. An order directing payment of exception relief had been entered in Navajo Refining Co. v. Department of Energy in September 1985, and a request for a stay in that case was argued before this court on December 10, 1985. The stay was denied at the conclusion of oral argument. Judge Daugherty stated at the time that "the public interest is fundamentally against the delay imposed by D.O.E. in this case, and ... against the principles of good government and proper treatment of its citizens, including its corporate citizens...." Navajo Refining Co. v. Department of Energy, TECA No. 10-62. Transcript of Proceedings, December 10, 1985, at 45.

On December 20, 1985, DOE paid Southland the exception relief awarded by FERC, but included interest only from October 2, 1985. It appealed that part of the court's order requiring it to pay interest from May 8, 1984, the date of the FERC order, to October 2, 1985.

Discussion

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