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MOBIL Oil Corp. v. Tully

decided: January 28, 1981.

MOBIL OIL CORP., ATLANTIC RICHFIELD CO., UNITED REFINING CO., INC., AND GULF OIL CO., CHEVRON U.S.A. INC., AMOCO OIL CO., TEXACO INC. AND EXXON CORP., PLAINTIFFS-APPELLEES,
v.
JAMES H. TULLY, JR., THOMAS H. LYNCH, AND FRANCIS KOENIG, CONSTITUTING THE NEW YORK STATE TAX COMMISSION; ROBERT ABRAMS, ATTORNEY GENERAL OF THE STATE OF NEW YORK; AND JAMES L. LAROCCA, COMMISSIONER OF THE NEW YORK STATE ENERGY OFFICE, DEFENDANTS-APPELLANTS ; NEW ENGLAND PETROLEUM CORP., PLAINTIFF-APPELLEE, V. JAMES H. TULLY, JR., COMMISSIONER OF TAXATION AND FINANCE OF THE STATE OF NEW YORK, AND ROBERT ABRAMS, ATTORNEY GENERAL, STATE OF NEW YORK, DEFENDANTS-APPELLANTS; AMERADA HESS CORP., PLAINTIFF-APPELLEE, V. JAMES H. TULLY, JR., THOMAS H. LYNCH AND FRANCIS KOENIG, CONSTITUTING THE NEW YORK STATE TAX COMMISSION; ROBERT ABRAMS, ATTORNEY GENERAL OF THE STATE OF NEW YORK, AND JAMES L. LAROCCA, COMMISSIONER OF THE NEW YORK STATE ENERGY OFFICE, DEFENDANTS-APPELLANTS .



Appeal from an order of the United States District Court for the Northern District of New York, Judge Neal P. McCurn, declaring the anti-passthrough provision of New York State's tax upon the gross receipts of oil companies doing business within the State to be preempted by the Emergency Petroleum Allocation Act, 15 U.S.C. § 751 et seq. and the Mandatory Petroleum Price Regulations, 10 C.F.R. §§ 212.1, 212.82 and 212.83, and enjoining the enforcement thereof. Affirmed as to the inapplicability of the Tax Injunction Act, 28 U.S.C. § 1341, dismissed as to the preemption issue.

Before Mulligan and Van Graafeiland, Circuit Judges and Werker, District Judge.*fn*

Author: Mulligan

On June 18, 1980, New York Governor Hugh Carey signed into law two bills, Senate Bills 10188 and 10261, which created a new Section 182 of the New York Tax Law and established a 2% tax on the "gross receipts" of oil companies doing business in New York. 1980 N.Y. Laws, ch. 271, 272 (N.Y.Act); N.Y.Tax Law § 182 (McKinney Supp.1980). The express purpose of the tax is to raise additional revenue to aid the State's ailing public transportation system. N.Y. Act, ch. 272 § 1. Indeed, it has been estimated by the New York State Division of the Budget that the new tax would raise an additional 235 million dollars annually. Oil companies were reported to have reaped unjustifiably high profits as a result of market conditions and were therefore deemed to be an appropriate source of revenue. N.Y. Act, ch. 272 § 1. In order to ensure that the oil companies, and not the consuming public, bore the burden of the tax, the legislature provided in Section 4(12)(a) of the Act (the anti-passthrough provision) that:

(t)he tax imposed by this section and any penalty which may be assessed under this subdivision shall be a liability of the oil company, shall be paid by such company and shall not be included, directly or indirectly, in the sales price of its products sold in this state.

N.Y.Tax Law § 182(12)(a) (McKinney Supp.1980). Companies which are found to have passed on the cost of the tax through product pricing are subject to a penalty equal to 100% of the tax liability for the year in which the violation occurs. N.Y.Tax Law § 182(12)(b)(2). In addition, the legislature hinged the viability of the tax itself upon the validity of the anti-passthrough provision. In 1980 N.Y. Laws, ch. 272, § 5 (the self-destruct provision), the legislature provided that:

(i)f the provisions of (the anti-passthrough section) is (sic): (i) adjudged by any court of competent jurisdiction to be invalid and after exhaustion of all further judicial review; or (ii) held in a formal opinion or ruling issued by the federal Economic Regulatory Administration or any other federal agency of competent jurisdiction to be violative of the provisions of the federal Emergency Price Allocation Act of 1973, as amended, or the federal Mandatory Petroleum Price Regulations (10 CFR 212) promulgated pursuant thereto, or any successor federal law or regulation, and thereby rendered inoperative, and after exhaustion of all appeals therefrom, then, in either of such events, all of the provisions of this act shall cease to be in force and effect (ten days thereafter).

The plaintiffs-appellees, ten oil companies concededly subject to the tax, instituted these actions in the Northern District of New York against the defendants-appellants, New York State Tax Commission, New York State Attorney General and the Commissioner of the New York State Energy Office, seeking declaratory and injunctive relief. The oil companies argued that the anti- passthrough provision was invalid (a) because it conflicted with the Emergency Petroleum Allocation Act, 15 U.S.C. § 751 et seq. (EPAA) and the Federal Mandatory Petroleum Price Regulations, 10 C.F.R. §§ 212.1, 212.82 and 212.83, issued thereunder and was therefore preempted by the Supremacy Clause of the United States Constitution (U.S.Const. art. VI, cl. 2); and (b) because it violated the Commerce and Due Process Clauses of the United States Constitution. At no time did the plaintiffs attack the validity of the tax itself. The plaintiffs, after expedited discovery, moved for summary judgment while the defendants moved to dismiss the actions for lack of federal jurisdiction under 28 U.S.C. § 1341, the Tax Injunction Act. By order dated September 4, 1980, the District Court denied the defendants' motion to dismiss and granted summary judgment in favor of the plaintiffs.

In a memorandum and decision dated September 19, 1980, Judge Neal G. McCurn held that the anti-passthrough provision was in effect a price control and not a rule of tax incidence. Mobil Oil Corp. v. Tully, 499 F. Supp. 888 at 894 (N.D.N.Y.1980). The court therefore held that the Tax Injunction Act, 28 U.S.C. § 1341 was inapplicable. Id. In addition, because the "price control" provision was found to be in conflict with the EPAA and the regulations issued thereunder, Judge McCurn declared that the provision was preempted by federal law with respect to exempt and non-exempt petroleum products. Id. at 907, 910. Judgment was entered on September 19, 1980 but on motion by the defendants-appellants, the District Court stayed enforcement until October 31, 1980. Mobil Oil Corp. v. Tully, 499 F. Supp. 888 (N.D.N.Y.1980). The stay was continued by this court in a ruling from the bench at oral argument on October 30, 1980.

The defendants-appellants appeal from Judge McCurn's order denying their motion to dismiss and granting the plaintiffs-appellees' motion for summary judgment. The appellees have moved before this court to dismiss the appeal for want of appellate jurisdiction. Arguing that this case "arises under" the EPAA, the appellees' position is that exclusive jurisdiction over all issues in this case is vested in the Temporary Emergency Court of Appeals (TECA) by virtue of Section 5 of the EPAA, 15 U.S.C. § 754(a)(1), which incorporates the review provisions of Section 211(b)(2) of the Economic Stabilization Act. 12 U.S.C.A. § 1904, note (West Supp.1980). Thus, this case and its companion case also decided today, Mobil Oil Corp. v. Dubno, 639 F.2d 919 (2d Cir. 1981) require an analysis of the appropriate allocation of appellate jurisdiction between a court of appeals and the TECA.

I

The Motion to Dismiss

(a) Preemption

The threshold issue on this appeal is whether this court has jurisdiction to hear it. The appellee oil companies have argued that Section 211(b)(2) of the ESA, 12 U.S.C.A. § 1904, note (West Supp.1980), provides that the Temporary Emergency Court of Appeals (TECA) has "exclusive jurisdiction of all appeals from the district courts of the United States in cases and controversies arising under (ESA)." Section 5 of the EPAA, 15 U.S.C. § 754(a)(1), incorporates by reference the jurisdictional provisions of § 211 of the ESA where there is judicial review of the regulations promulgated under Section 753(a) of the EPAA (mandatory allocation of crude oil, residual fuel oil and refined petroleum products) as well as any order or action taken by the President or his delegate under the chapter.

In Coastal States Marketing, Inc. v. New England Petroleum Corp., 604 F.2d 179 (2d Cir. 1979) we held that a case or controversy arises under the ESA or EPAA where the district court has adjudicated an "ESA issue." (The court used that expression to mean issues involving the ESA and the EPAA as well as regulations promulgated under both statutes. Id. at 182 n.3). The Tenth Circuit has indicated that an ESA issue is one "involving the construction, applicability and effect" of the EPAA, Mountain Fuel ...


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