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DERBY & CO. v. DOE

August 25, 1981

DERBY & CO., INC. and Phibro Corporation, Plaintiffs,
v.
DEPARTMENT OF ENERGY and James B. Edwards, Secretary of Energy, Defendants



The opinion of the court was delivered by: MOTLEY

MEMORANDUM OPINION

Currently before the court are a motion to dismiss by defendant, the United States Department of Energy (DOE), and a cross motion for summary judgment by plaintiffs, Derby & Co., Inc. (Derby) and Phibro Corp. (Phibro). For the reasons given below, the court concludes that jurisdiction may not properly be exercised over this action at this time. Accordingly, DOE's motion to dismiss the complaint is granted.

 The Facts

 Broadly speaking, this action involves a controversy over to what extent, if any, DOE may regulate the purchase and sale by American companies of certain petrochemicals outside the borders of the United States. As necessary background to the court's discussion, three matters will be described in some detail: (1) certain relevant statutes and DOE regulations, (2) recent actions by DOE which have precipitated this law suit, and (3) plaintiffs' allegations as stated in their complaint.

 (1) Relevant Statutes and Regulations

 In 1973 Congress enacted the Emergency Petroleum Allocation Act, 15 U.S.C. § 751 et seq. (1976), as amended (EPAA). EPAA directed the president to promulgate regulations governing the allocation and prices of crude oil and various refined petroleum products. See 15 U.S.C. § 753(a). The jurisdictional reach of these regulations was defined as "all crude oil, fuel oil, and refined petroleum products produced in or imported into the United States." Id.

 The president established the Federal Energy Office (FEO) *fn1" which adopted existing petroleum price regulations *fn2" that had been promulgated by the Cost of Living Council (CLC) pursuant to The Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note (1976) (ESA). The FEO was subsequently replaced by the Federal Energy Administration pursuant to the Federal Energy Administration Act, 15 U.S.C. § 761 et seq. (1976 and Supp. III 1979) (FEAA), which was in turn replaced by the Department of Energy (DOE) pursuant to Department of Energy Organization Act, 42 U.S.C. § 7101 et seq. (Supp. III 1979) (DOEOA).

 The regulations originally adopted by the FEO from the CLC applied by their own terms "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. In turn, Subpart C provides in pertinent part that the "prices charged for imports, but only the first sale into U.S. commerce, are exempt." 10 C.F.R. § 212.53(b). Finally, it must be kept in mind that the court's entire discussion concerns the impact of a regulatory scheme which is no longer in effect because the President has recently issued an Executive Order rescinding all oil pricing and allocation regulations. See 46 Fed.Reg. 9909 (Jan. 30, 1981).

 Administrative Interpretations by DOE

 At the heart of this controversy stand two administrative decisions by the DOE Office of Exceptions and Appeals (OEA), A. Johnson & Co., 3 FEA P 80,546 (CCH) (OEA January 16, 1976) (A. Johnson) and Energy Cooperative, Inc., 5 DOE P 82,534 (CCH) (Office of Hearings and Appeals March 6, 1980) (ECI). These two decisions provide the framework for this litigation. The court proposes to examine them in some detail because the court's disposition of the instant case flows directly from its interpretation of these two actions by DOE.

 Utilizing a procedure available under DOE regulations, *fn3" A. Johnson & Co., Inc. (A. Johnson), a United States corporation, asked for an opinion from DOE's general counsel as to whether certain transactions were subject to DOE pricing regulations. The transaction for which an interpretation was requested involved the purchase of naphtha from Compagnia Shell de Venezuela (Compagnia Shell) by an unincorporated foreign office of A. Johnson. The purchase took place in Venezuela. A. Johnson then resold the naphtha to Trans Ocean Petroleum, Inc. (Trans Ocean), another United States corporation. This transaction also took place in Venezuela. Trans Ocean then imported the naphtha into this country and sold it to Pace Oil Co. (Pace) in Wilmington, Delaware. Plaintiffs have provided a useful diagram of this transaction which is reproduced in the margin. *fn4" Situs of Transaction Parties Compagnia Shell (a foreign corporation) ! ! ! Venezuala ! v A. Johnson (a United States corporation) ! ! ! Venezuala ! v Trans Ocean (a United States corporation) ! ! I M P O R T ! ! United States ! v Pace (a United States corporation)

 In considering the series of transactions just described, the general counsel framed the issue to be decided as: "Which, if any, of these transactions is subject to FEA price regulations?" 42 Fed.Reg. at 23739. He then concluded that the sale from Trans Ocean to Pace was subject to regulation, but the other transactions were not. A. Johnson then appealed to the FEA Office of Exceptions and Appeals (OEA), seeking a ruling that the Trans Ocean-Pace sale was the exempt "first sale" for purposes of 10 C.F.R. § 212.53(b).

 OEA rejected A. Johnson's position, and affirmed the general counsel. OEA reasoned that the "first sale" into U.S. commerce was the sale from A. Johnson to Trans Ocean, which made the sale from Trans Ocean to Pace a "wholly domestic transaction." A. Johnson & Co., supra, 3 FEA at p. 80697. The OEA then discussed the operation of the "first sale" exemption at some length as the exemption applied to oil trading outside the boundaries of the United States. The OEA reasoned as follows:

 
In view of the issues which Johnson raises in the present case, we have determined that the Interpretation should be modified to take into account additional factors which have an important bearing on the factual issue of whether the covered products which a firm purchases outside the territorial limits of the United States are destined for importation into the United States.
 
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 the goods for importation into the United States. Consequently, the last sale of the goods prior to their arrival in an American port will generally be the "first sale into U.S. commerce" as that term is used in 10 CFR 212.53(b). As a result the price established in the sale pursuant to which the goods arrive at an American port is subject to the FEA Mandatory Petroleum Price Regulations. The presumption that allocated products which an American-domiciled firm purchases abroad are destined for importation into the United States may however be rebutted by a showing that the past operating history of the firm indicates that a substantial portion of the allocated product or products which it purchases have in fact not been imported into the United States. The burden of making the showing necessary to rebut the presumption rests with the firm.

 A. Johnson & Co., supra, 3 FEA at p. 80,698.

 The second DOE decision at the heart of this litigation is Energy Cooperative, Inc., 5 DOE P 82,534 (CCH) (Office of Hearings and Appeals March 6, 1980) (ECI). ECI involved allocation and exception relief granted to a small independent refiner owned and operated by a number of agricultural cooperatives in the midwest. On September 12, 1979, ECI filed an Application for Exception and Petition for Special Redress with the OHA. After holding hearings, OHA issued an order providing for a temporary exception for ECI from DOE's oil entitlement program, *fn5" and also providing for allocation of oil to ECI under the DOE Buy/Sell program. *fn6" This allocation was to have been supplied by the Permian Corporation (Permian), a wholly owned subsidiary of ...


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