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COASTAL STATES MKTG. v. NEW ENGLAND PETROLEUM

April 4, 1979

COASTAL STATES MARKETING, INC., Plaintiff,
v.
NEW ENGLAND PETROLEUM, CORPORATION, Defendant



The opinion of the court was delivered by: WERKER

MEMORANDUM DECISION

This action was commenced by the plaintiff Coastal States Marketing, Inc. ("Coastal") against the defendant New England Petroleum Corp. ("Nepco") to recover sums allegedly due under a modified contract for the sale of low sulphur fuel oil. A nonjury trial was held before the Court in May 1978 and Nepco was found liable to Coastal for $ 192,936.06 with interest, costs and disbursements. Judgment was entered for Coastal on May 30, 1978. *fn1" This matter is presently before the Court on Nepco's motion for leave to reopen discovery and to amend the pleadings and pretrial order, for permission to present additional evidence, and for an order vacating the judgment herein.

BACKGROUND

 Coastal is a Texas corporation with its principal place of business in Houston, Texas. Nepco is incorporated in New York and has its principal place of business in New York, New York.

 This action arose from a written agreement entered into by the parties on February 5, 1974 and subsequently modified on March 15, 1974 providing for the sale of low sulphur fuel oil. Pursuant to the modified agreement, Coastal was to deliver 40,000 metric tons of oil to Nepco's vessel F.O.B. a main Caribbean port at $ 12.70 a barrel. On March 26, 1974, Coastal delivered 31,952 barrels of oil, which it had purchased from Compania Shell de Venezuela ("CSV"), to Nepco's vessel at Punta Cardon, Venezuela. On June 27, 1974, Coastal requested payment of $ 405,790.40 from Nepco to cover the purchase of the oil, and on July 25, 1974, Nepco directed its bank to transfer $ 212,854.34 from its account to Coastal's account at the same bank. Nepco withheld the balance of $ 192,936.06 on the ground that this amount was due and owing from Union Western Trading Corp., a "sister company" of Coastal. Nepco contended that Coastal had consented to this deduction from the purchase price of its March 26th delivery of the 31,952 barrels of oil.

 Coastal commenced this action in February 1976 to recover the unpaid balance of $ 192,936.06 from Nepco, with interest, costs and disbursements. Discovery was completed, a pretrial order was filed, and the case was designated ready for trial on August 12, 1977. In March 1978, some seven months later, Nepco made a request, followed by a formal motion, for leave to reopen discovery on the issue of illegality. Nepco sought additional discovery to obtain information which it claimed would establish that Coastal had illegally overcharged Nepco in the transaction which formed the basis of this action. The motion was denied on May 15, 1978.

 Following the trial and entry of judgment for Coastal, Nepco filed an appeal with the Court of Appeals for the Second Circuit, raising as the sole issue the propriety of this Court's denial of its motion for additional discovery. On October 17, 1978, after the appellate briefs had been filed but prior to oral argument, Nepco submitted a letter to the Court of Appeals stating that the Department of Energy (the "DOE") had issued a Proposed Remedial Order ("PRO") to Coastal States Gas Corporation, the plaintiff's parent corporation, and stating further that the House of Representatives Subcommittee on Oversight and Investigation, Committee on Interstate and Foreign Commerce, had conducted public hearings on the legality of a number of oil transactions entered into by Coastal and its parent in 1973 and 1974. Coastal filed a letter responding to Nepco's letter on October 26, 1978.

 On October 31, 1978, the Court of Appeals issued an order remanding the action to this Court. The remand order directed Nepco to bring to my attention the matters referred to in the October 17th letter and granted Nepco permission to make the instant motion. After having reviewed the letter as well as all of the materials submitted in connection with this motion, I am of the opinion that Nepco's motion must be denied in all respects.

 DISCUSSION

 The price regulations of the Federal Energy Administration (the "FEA") *fn2" apply to "each sale or purchase of a covered product in the United States except as provided in Subpart C." 10 C.F.R. § 212.2. *fn3" One of the exemptions provided by Subpart C is the "prices charged for imports, but only the first sale into U.S. commerce . . . ." 10 C.F.R. § 212.53(b). Accordingly, all transactions subsequent to the "first sale into U.S. commerce" are governed by the FEA regulations.

 Nepco contends that the sale of the oil from CSV to Coastal was the first sale into U.S. commerce. *fn4" Consequently, Nepco alleges, its subsequent purchase of the oil from Coastal was subject to FEA regulation. Coastal argues, on the other hand, that the first sale into U.S. commerce was the transaction between it and Nepco.

 The first sale exemption has been the subject of discussion in at least three agency decisions. In A. Johnson & Co., *fn5" the FEA was faced with a situation almost identical to the one presently before the Court. In that case, A. Johnson & Co. ("Johnson"), a U.S. corporation, purchased a covered product from CSV, the same company from which Coastal purchased the oil in the instant action, and resold it to Trans Ocean Petroleum, Inc. ("Trans Ocean"), an unrelated U.S. corporation. In both transactions, the physical transfer of the oil as well as passage of title occurred in Venezuela. Trans Ocean subsequently imported the oil into the United States, reselling it to another unrelated U.S. corporation. Johnson Appeal, 3 FEA at 80,695-96. The FEA held that the first sale into U.S. commerce, and thus the exempted transaction, was the sale of the oil from Johnson to Trans Ocean. Id. at 80,699. In the instant action, Coastal purchased oil from CSV and resold it to Nepco. Passage of title and delivery in both transactions took place in Venezuela. Nepco subsequently imported the oil into the United States. The transaction between Coastal and Nepco thus directly correlates to the transaction between Johnson and Trans Ocean, which was held to be the exempted first sale into U.S. commerce.

 Despite this direct correlation, Nepco argues that the Johnson Appeal is supportive of its position. Nepco points to the broad language in that case concluding that:

 
If a firm that is domiciled in the United States purchases an allocated product outside the United States a rebuttable presumption will be established that the firm is purchasing ...

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