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ORANGE & ROCKLAND UTILS., INC. v. HOWARD OIL CO.

June 14, 1976

ORANGE AND ROCKLAND UTILITIES, INC., Plaintiff,
v.
HOWARD OIL COMPANY, INC., Defendant


Tenney, District Judge.


The opinion of the court was delivered by: TENNEY

MEMORANDUM

TENNEY, District Judge.

 Defendant Howard Oil Company, Inc. ("Howard") seeks an order of this Court pursuant to Rules 12(b) and 26(c) of the Federal Rules of Civil Procedure: (1) dismissing or staying this action upon the grounds (a) that this action is barred under the doctrines of primary administrative jurisdiction and exhaustion of administrative remedies, (b) that plaintiff has failed to join an indispensable party, and (c) that there is another action pending between the same parties, wherein plaintiff seeks most of the same overcharges alleged herein; and (2) staying discovery pending the determination of this motion. For the reasons set forth below, the Court will order the trial of this action stayed pending the prior ruling of the Federal Energy Administration regarding the issues raised herein.

 Facts

 Plaintiff, Orange and Rockland Utilities, Inc. ("O&R"), is a New York corporation with its principal place of business located at Spring Valley, New York. Plaintiff is engaged in the production, distribution, and sale of electric energy to the citizens of Orange, Rockland, and Sullivan Counties, New York. In the generation of electric energy, plaintiff depends almost entirely on No. 6 residual fuel oil for fuel. Defendant, Howard, is also a New York corporation with its principal place of business located in Queens, New York. Defendant is engaged in the transport, storage, and sale of petroleum products, including No. 6 residual fuel oil.

 Plaintiff produces most of its electricity at two generating plants: the Lovett Plant located at Tompkins Cove, New York, and the Bowline Plant located at Haverstraw, New York. In 1971, defendant entered into two contracts for the supply of fuel oil to these two plants. These contracts are known by the parties as the "Lovett contract" dated January 1, 1971, and the "Bowline contract" dated September 1, 1971.These 1971 contracts continued to be in full force until 1973 when defendant contended that its fuel supply had been so interrupted that it had to invoke the force majeure provision of the contract to relieve it of its obligation to plaintiff under the 1971 contracts. Consequently, the parties entered into a so-called "best efforts" agreement whereby defendant agreed to supply fuel oil to plaintiff on a "best efforts" basis. This latter contract was to run from January of 1974 through December of 1976.

 In December of 1975, plaintiff commenced an action against defendant in the New York State Supreme Court for Rockland County. In this action plaintiff sought damages for breach of the "Lovett" and "Bowline" contracts, for fraudulently inducing plaintiff to enter into the "best efforts" agreement, and for breach of the "best efforts" agreement. The thrust of the complaint is that defendant was not justified in invoking the force majeure provision of the contracts of 1971 so as to relieve it of liability under those contracts, and that by doing so with knowledge that it was not so entitled to act, defendant fraudulently induced plaintiff to enter into the "best efforts" contract. In the alternative, the complaint alleges that even if the "best efforts" contract were to be deemed to be the controlling instrument between the parties, the defendant miscalculated its prices under the latter contract and was thereby in breach of the latter agreement. The State Supreme Court action has been transferred to New York County by agreement of the parties and is pending at the present time.

 The sale of fuel oil by defendant to plaintiff was controlled as to price by the provisions of the Economic Stabilization Act, 12 U.S.C. § 1904 Note, and the rules promulgated pursuant to the Act. These rules were first promulgated, in August of 1973, by the Cost of Living Council and were adopted by the Federal Energy Office on December 27, 1973. The rules which govern the maximum lawful price which may be charged by a reseller such as defendant are codified in 10 C.F.R. § 212.93.

 On February 23, 1976, the Federal Energy Administration ("FEA") issued a Notice of Probable Violation to defendant following an audit of defendant's books and records. The FEA generally alleged that defendant had illegally overcharged plaintiff for fuel oil during the period November 1973 through December 1974. Under pertinent FEA regulations, defendant was lawfully permitted to pass along certain costs to its customers such as plaintiff to the extent that these costs exceeded defendant's "weighted average inventory cost" as of May 15, 1973. Specifically, the FEA alleged that defendant had, through improper accounting practices, incorrectly calculated the weighted average inventory cost as of May 15, 1973. Since the costs which could be passed along to the fuel purchaser on a dollar-for-dollar basis included the difference between the weighted average unit cost of a product presently in inventory and the weighted average unit cost of that product in inventory on May 15, 1973, and since the calculation of the weighted average unit costs as of May 15, 1973, was improper on the low side, the result was a higher than permitted pass-through of costs to customers such as O&R. In addition, the FEA alleged that Howard had apparently mischaracterized, as part of its costs of inventory, certain transportation costs incurred in the delivery of the product to its customers. This Notice of Probable Violation was met with a denial by Howard and the investigation is ongoing.

 Then, on March 9, 1976, plaintiff instituted the instant lawsuit seeking damages for a willful overcharge on the sale of No. 6 residual fuel oil to plaintiff during the period November 1973 through March 1974 in the amount of $1,277,362. The gravamen of the complaint is that, through improper accounting practices, defendant miscalculated its weighted average unit cost of inventory as of May 1973 with the result that the costs which could be lawfully passed along to the plaintiff were inflated to the extent that the base inventory was miscalculated. In addition, there is an allegation that some improper transportation costs were passed along in this calculation. Plaintiff seeks the treble damages provided for by statute in the amount of $3,832,086, together with costs and fees. *fn1"

 The instant motion was brought on by defendant to stay or dismiss the action for a variety of previously-mentioned reasons.

 Primary Jurisdiction and Exhaustion of Administrative Remedies

 Defendant urges the Court to either dismiss this action or to stay its hand based on the doctrines of primary jurisdiction and exhaustion of administrative remedies.

 The doctrine of exhaustion of administrative remedies is long-settled and well founded and provides "that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted." Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S. Ct. 459, 463, 82 L. Ed. 638 (1938) (emphasis added). The doctrine is premised upon the theory that where an administrative body has been given the responsibility for the oversight of activity under a statute and enforcement of the statute, and where that agency presumably possesses a particular expertise in the area, a court would initially defer questions within ...


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