Texaco, Inc. v. Department of Energy

795 F.2d 1021, 1986 U.S. App. LEXIS 37321

• Court: Temporary Emergency Court of Appeals
• Decided: May 30, 1986
• Docket: Nos. 3-44 through 3-49
• Status: Published

Opinions

POINTER, Judge.

Executive Order 12287 exempted as of January 28, 1981, all crude oil and refined petroleum products from further price and allocation controls under the EPAA.¹ Plaintiffs brought these actions to challenge the subsequent decision of the Department of Energy (DOE) not to publish a list of entitlements under the EPAA for the first twenty-seven days of January 1981 or a “clean-up” list of final adjustments in the entitlements program. The District Court held that DOE, having failed to rescind its regulation before October 1, 1981, was required to publish the two lists. 604 F.Supp. 1493 (Del.1985). We reverse.

I. THE ENTITLEMENTS PROGRAM

The regulations establishing the entitlements program were promulgated in late 1974 by the Federal Energy Administration, DOE’s predecessor. 10 C.F.R. § 211.-67. Operation of the program has been discussed by this court in several decisions ² and need not be described in detail here. In general, it established a mechanism for allocating the benefits of lower-cost price-controlled crude oil equitably throughout the country — not by physically allocating oil, but by a system of cash transfers among the refiners based upon their relative access to such oil.

Refiners having access to a disproportionately large share of price-controlled crude were required to buy “entitlements” from refiners having access to a disproportionately small share of such oil. Entitlements were calculated monthly, with the list of payments published during the second month after the transactions on which the calculations were based; e.g., the entitlements published in January 1975 (the first published) were based on purchases of price-controlled crude in November 1974.

Although included within the allocation regulations, the program also played a significant role under the pricing regulations: amounts paid by refiners required to buy entitlements could be added to the prices at which they could sell their products, while amounts received by refiners had to be deducted in determining the maximum prices they could charge. In this manner, the economic consequences of the program were in essence passed by the refiners to their customers, who shared the ultimate benefits of price-controlled crude without regard to whether particular refiners serving their region of the country had access to such oil.

II. DECONTROL

Although terminating the allocation and price controls as of January 28,1981, Executive Order 12287 clearly authorized DOE to publish, if it chose to do so, further entitlements based on refiners’ purchases of crude oil prior to that date.³ DOE did in fact publish in February a list of entitlements based on purchases of crude oil by refiners during December 1980 and — but for several legal proceedings — it no doubt would have also published the lists at issue in this litigation. However, DOE was enjoined from issuing these additional lists until December 7, 1981, the date when cer-tiorari was denied in the Mobil Oil case.⁴ After that date, DOE on its own initiative delayed issuance of the lists pending a resolution of other litigation involving the post-decontrol status of the “Tertiary Incentive Program.”⁵ By the time these cases had been concluded, the Department had begun to reassess its basic position regarding the additional entitlements. Ultimately, in June 1984 following public hearings, it decided not to publish either list.⁶

III. THIS LITIGATION

The amounts at stake are substantial— more than $400 million. Not surprisingly, several of the companies that would receive payments brought actions to compel publication of the notices, and several that would be obliged to make payments intervened to support DOE’s new position. The critical disputes, involving questions of law, were submitted to the district court on cross motions for summary judgment. Ruling in favor of the plaintiffs, the court held that DOE was required by its regulations to issue these notices⁷ and that DOE lacked the power to revoke those regulations after September 80, 1981, the expiration date for the EPAA prescribed by 15 U.S.C.A. § 760g, The district court did not reach the secondary issue as to whether, if DOE had the power to do so in 1984, it acted legally in deciding to revoke the entitlements regulations.

IV. THE POWER OF DOE TO ACT AFTER SEPTEMBER 30, 1981

Section 18 of the EPAA, as last amended, reads in pertinent part as follows:

The authority to promulgate and amend any regulation or to issue any order under this Act shall expire at midnight September 30, 1981, but such expiration shall not affect any action or pending proceedings, administrative, civil or criminal, not finally determined on such date, nor any administrative, civil, or criminal action or proceeding, whether or not pending, based upon any act committed or liability incurred prior to such expiration date. 15 U.S.C. § 760g.

Plaintiffs argue that this language authorized DOE to issue further entitlement notices after September 30, 1981, but deprived DOE after that date of any power to decide not to issue such notices.⁸ We disagree. That DOE’s general regulatory powers under the EPAA expired on September 30, 1981, is, of course, clear. However, the two “savings” clauses in Section 18 empowered DOE to decide after that date what action, if any, to take on matters such as these entitlements.⁹ Issuance — or non-issuance — of a January 1981 entitlements list and of a clean-up list was an administrative proceeding that (1) was pending (but not finally determined) on the expiration date and (2) was based upon acts occurring prior to such expiration date. Moreover, the particular procedure which DOE utilized, equivalent to that of formal rulemaking,¹⁰ was an administrative proceeding regarding acts occurring or potential liabilities incurred prior to October 1, 1981, and accordingly was permissible under the second of the savings clauses even if viewed as separate from any proceeding pending on that date.

The legislative history of 15 U.S.C.A. § 760g, although sparse, does not suggest a contrary interpretation. The second of the two savings clauses was inserted by a conference committee presumably to allay a concern that, after expiration of EPAA, DOE might lack the power to issue entitlements based on crude oil refined while the program was in effect. Although the Senators voicing this concern apparently assumed that DOE would issue such entitlements if it was so empowered, they spoke in terms of assuring that DOE would have the authority — not the duty — to issue such entitlements.¹¹ The critical fact, moreover, is that, whatever the Congressional motivations or assumptions, the language incorporated into § 760g was written in a way that authorized DOE to issue or not issue such entitlements after the expiration date.¹²

V. RETROACTIVITY

Plaintiffs alternatively argue that DOE’s decision not to issue entitlements based on crude oil purchased prior to decontrol on January 28,1981, constitutes impermissible retroactive action. The parties disagree as to whether this decision should be viewed as retroactive, as to what judicial standard should be applied in evaluating a retroactive action, and as to whether this action would be valid under that standard.

Focusing on the fact that prior to publication of the list of entitlements a refiner had no right to payment or obligation to pay, defendants argue that DOE’s decision was not retroactive. Focusing on the fact that the regulations in place on the date of decontrol called for payments to be made based on events that had already occurred, plaintiffs argue that the decision was retroactive. Both positions are partially correct, for, like many administrative actions, DOE’s decision had both retroactive and prospective components.

As this court stated in Standard Oil Co. v. DOE, 596 F.2d 1029, 1063-64 (TECA 1978):

We are mindful of the holding of the Supreme Court in SEC v. Chenery Corp., 332 U.S. 194, 203, 67 S.Ct. 1575, 1581, 91 L.Ed. 1995 (1947), that agency action “might have a retroactive effect [is] not necessarily fatal to its validity. Every case of first impression has a retroactive effect____” The validity of the agency action depends upon the “balance” between the “mischief of producing a result which is contrary to a statutory design or to legal or equitable principles” and “the ill effect of the retroactive application of a new standard.” Id. As the court noted in Retail, Wholesale and Department Store Union v. NLRB, 151 U.S.App.D.C. 209, 219, 466 F.2d 380, 390 (1972), “[w]hich side of this balance preponderates is in each case a question of law, resolvable by reviewing courts with no overriding obligation of deference to the agency decision ...” The court concluded that among the factors to be considered are “(1) whether the particular case is one of first impression, (2) whether the new rule represents an abrupt departure from well established practice or merely attempts to fill a void in an unsettled area of law, (3) the extent to which the party against whom the new rule is applied relied on the former rule, (4) the degree of burden which the retroactive order imposes on a party, and (5) the statutory interest in applying a new rule despite the reliance of a party on the old standard. Id.”

Plaintiffs contend that retroactive action is invalid unless compelled by an overriding statutory interest, citing Mobil Oil Corp. v. DOE, 678 F.2d 1083 (TECA 1982). Mobil, however, involved a “repromulgation” of a regulation previously invalidated in judicial proceedings, and the court acknowledged that it was applying a more stringent standard of review than would ordinarily govern retroactive rulemaking. Id., at 1088.

The correct standard is whether, notwithstanding its retroactive aspects, DOE’s decision was reasonable in the circumstances. See Pennzoil Co. v. DOE, 680 F.2d 156, 175 (TECA 1982) (“fundamental criterion is one of reasonableness”), cert. dism., 459 U.S. 1190, 103 S.Ct. 841, 74 L.Ed.2d 1032 (1983); National Helium Corp. v. FEA, 569 F.2d 1137, 1145 n. 18 (TECA 1977) (“retroactive rule of administrative agency is invalid, generally speaking, only if unreasonable”); People of California v. Simon, 504 F.2d 430, 438-39 (TECA 1974) (“retroactive rule is invalid, generally speaking, only if unreasonable”); cf. Mapco Inc. v. Carter, 573 F.2d 1268, 1280 (TECA 1978) (“laws and regulations of the federal government are subject to change by lawful means. No law or regulation is immune to change by lawful means and no person can reasonably assume the contrary.”)

The various factors recited in Standard Oil, as quoted above, are useful when weighing retroactive actions on the scale of reasonableness. The particular administrative decision at issue here — what to do with further entitlements after decontrol — was essentially a matter of “first impression,” in which the agency was called upon to “fill a void” regarding the entitlements program caused by sudden elimination of price and allocation controls. As to “reliance,” plaintiffs contend that, when they were obtaining crude oil the first twenty-seven days of January 1981, they expected under the then-current regulations to receive payments in March 1981. DOE, however, disputes any such reliance at the time of purchases, emphasizing that until collection of information from the entire industry no company could know the identity and amounts of entitlements. This lack of reliance is dramatically illustrated by the fact that, for many months following decontrol, Texaco — the lead plaintiff — was among those companies which sought injunctions against further issuance of entitlements.

Plaintiffs view the “burden” resulting from DOE’s decision as the same $400 million which they and certain other refiners would have received had the final two lists been published. Plaintiffs fail to take account of the fact that under the regulations in force prior to decontrol they would have been required to pass these amounts through to their customers in the form of reduced maximum prices. Moreover, the agency properly considered the “burden” that would have resulted to other refiners had it published the final lists — namely, obligations of like amount, which under competitive conditions existing after decontrol could not have been passed through to the customers of refiners called upon to pay such amounts.

The parties — joined by numerous amici —vigorously disagree as to the economic consequences that will result if additional entitlements are or are not published — and as to who, if anyone, will receive a $420 million “windfall.” Such issues are ones as to which the courts traditionally give particular deference to the views of other branches of government. This principle was recently reaffirmed with regard to retroactive legislation in Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 104 S.Ct. 2709, 2718, 81 L.Ed.2d 601 (1984):

[T]he strong deference accorded legislation in the field of national economic policy is no less applicable when that legislation is applied retroactively. Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches____

To be sure ... retroactive legislation does have to meet a burden not faced by legislation that has only future ef-fects____ But that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose.

We need not decide whether this standard applies to economic regulation by executive departments, for we conclude that DOE’s decision not to publish further entitlements, although partially retroactive, satisfies the more rigorous test of reasonableness as announced in cases such as Pennzoil, National Helium, and People of California, supra.

VI. CONCLUSION

DOE had the power to decide after September 30, 1981, not to issue further entitlements. Its decision in 1984 not to issue such entitlements, although in part retroactive, was reasonable in the circumstances created by decontrol and therefore valid. The decision of the District Court is REVERSED, with directions to enter judgment on behalf of the defendants.

1 . Emergency Petroleum Allocation Act of 1973, 15 U.S.C.A. §§ 751 et seq. (1976 and Supp.1985).

2 . See, e.g., Pasco, Inc. v. FEA, 525 F.2d 1391 (TECA 1975); Cities Service Co. v. FEA, 529 F.2d 1016 (TECA 1975), cert. denied, 426 U.S. 947, 96 S.Ct. 3166, 49 L.Ed.2d 1184 (1976); Mobil Oil Corp. v. DOE, 659 F.2d 150 (TECA), cert. denied, 454 U.S. 1110, 102 S.Ct. 687, 70 L.Ed.2d 651 (1981).

3 . Section 3 of Executive Order 12287 reads as follows: "The Secretary of Energy may ... take such actions as he deems necessary to implement this Order, including the promulgation of entitlements notices for periods prior to this Order and the establishment of a mechanism for entitlements adjustments for periods prior to this Order.” Appellants devoted a substantial part of their initial briefs to support the proposition that this language was permissive, not mandatory — Le., that the order did not by its terms require issuance of these additional lists. Ap-pellees do not, however, argue for any such interpretation of the Order and, indeed, acknowledge that (subject to appropriate standards) DOE would have had authority prior to October 1, 1981, to revoke the entitlements regulations.

4 . Mobil Oil Corp. v. DOE, 520 F.Supp. 420 (N.D. N.Y.1981), vacated, 659 F.2d 150 (TECA), cert. denied, 454 U.S. 1110, 102 S.Ct. 687, 70 L.Ed.2d 651 (1981).

5 . Union Oil Co. v. DOE, 688 F.2d 797 (TECA 1982), cert. denied, 459 U.S. 1202, 103 S.Ct. 1186, 75 L.Ed.2d 433 (1983).

6 . DOE is not the only party to have reversed its position regarding the final lists. For example, Texaco, the lead plaintiff in this litigation, was initially one of those seeking to enjoin DOE from issuing further entitlements after decontrol. See Diamond Shamrock Corp. v. Edwards, 510 F.Supp. 1376 (D.Del.1981). Although perhaps irritating to a court and grounds for skepticism, such changes are not impermissible. As noted in Montana Power Co. v. EPA, 608 F.2d 334, 349 (9th Cir.1979), "it does not matter that [a party] ‘switched horses in midstream’ as long as it ‘was astraddle a good horse when it reached the other side.”’ See also Public Service Comm'n v. FPC, 511 F.2d 338, 353 (D.C.Cir. 1975) (agency may "switch rather than fight the lessons of experience”).

7 . See DOE v. Brimmer, 673 F.2d 1287, 1293 (TECA 1982) ("the Department is obliged to issue these lists [of entitlements] under its own regulations").

8 . In August 1981 Justice Brennan issued a stay in Mobil Oil, presumably believing that DOE might have lacked the authority to publish further entitlements. This stay, which was not lifted until certiorari was denied on December 7, 1981, would have had the anomalous effect, according to the plaintiffs’ position, of requiring DOE to publish these entitlements.

9 . Unlike those found in some statutes, these savings clauses are not drawn so narrowly as to permit survival only of agency enforcement actions. See City of Long Beach v. DOE, 754 F.2d 379 (TECA 1985), holding that Section 18 empowers the Department to grant exception relief after decontrol and distinguishing United States v. California, 504 F.2d 750 (TECA 1974), cert. denied, 421 U.S. 1015, 95 S.Ct. 2423, 44 L.Ed.2d 684 (1975).

10 . Since DOE did in fact proceed ultimately by notice, comment, and public hearing, this court need not decide whether that procedure was required.

11 . See 121 Cong.Rec. S28706 (Sept. 11, 1975).

12 . Were the statute ambiguous, the interpretation by the agency — namely, that it had the power to act under the savings clauses — would certainly be a reasonable one and therefore entitled to deference by the courts. See Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 2881-83, 81 L.Ed.2d 694 (1984).