Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

CIBRO PETRO. PRODS. v. SOHIO ALASKA PETRO. CORP.

February 8, 1985

CIBRO PETROLEUM PRODUCTS, INC., Plaintiff
v.
SOHIO ALASKA PETROLEUM CORPORATION, Defendant



The opinion of the court was delivered by: MUNSON

MEMORANDUM - DECISION AND ORDER

The present litigation arises out of dealings between the plaintiff, Cibro Petroleum Corporation, Inc. [CIBRO] *fn1" a New York corporation engaged in the business of refining crude oil, and Sohio Alaska Petroleum Corporation [SOHIO], *fn2" a Delaware corporation which produces, transports and sells crude§ oil and petroleum products in the United States and abroad. During the relevant damage period involved in this litigation, SOHIO was a wholly-owned subsidiary of the Standard Oil Company of Ohio responsible for the marketing of crude oil produced from its Alaska North Slope Crude Oil fields. Cibro Petroleum Products, Inc. is owned by the Cirillo family and is operated with other family-owned petroleum distribution companies.

 Jurisdiction is properly predicated in this action upon 28 U.S.C. §§ 1331 and 1332, and under Section 5(a)(1) of the Emergency Petroleum Allocation Act of 1973 [EPAA or Act], as amended, 15. U.S.C. § 751 et seq., which incorporates by reference the Economic Stabilization Act of 1970, as amended, 12 U.S.C. § 1904. Venue is conferred pursuant to 28 U.S.C. § 1391(a).

 At issue in this litigation is how long defendant SOHIO was obligated to supply crude oil to plaintiff CIBRO under the terms of their supply agreement. CIBRO has pleaded two separate and distinct causes of action. The first cause of action, styled by the parties as the "regulatory cause of action," is based upon the Emergency Petroleum Allocation Act of 1973. CIBRO claims that SOHIO violated the Mandatory Petroleum Allocation Regulations enacted pursuant to the Act when it ceased supplying crude oil to CIBRO in August of 1979. CIBRO contends that SOHIO was obligated under the existing regulatory scheme to§ supply crude to CIBRO through January 28, 1981, the date controls were lifted on the sale of crude oil under the Mandatory Petroleum Allocation Regulations. CIBRO seeks damages in excess of $20.8 million.

 Under its regulatory cause of action, CIBRO claims that SOHIO was compelled as a matter of federal regulatory supply crude oil for approximately seventeen months after the date SOHIO discontinued supplying crude oil. CIBRO maintains that resolution of this cause of action depends upon whether the supply agreement made the subject of this litigation contains a "specific termination date." CIBRO. contends that, if there is no specific termination date stated in the agreement, a "supplier-purchaser" relationship was created under applicable federal regulations which preempt the contractual provisons in the agreement that waive application of those regulations.

 CIBRO's second cause of action lies in the realm of contract law. This claim for damages concerns when notice to terminate the supply agreement could effectively have been given. If notice of termination could have been given at any time during the initial term of the contract, then the contract was for a maximum of eleven months expiring on August 31, 1979. If, as CIBRO claims, notice of termination could not have been given until the end of the initial eleven month contractual term, the contract was for a minimum of seventeen months, or until February of 1980.

 It should be noted that because CIBRO's damage claim under under the the regulatory cause of action is more extensive than contract claim, i.e., the contract cause of action seeks damages for six additional months while the regulatory cause§ of action would extend the contract eight months, if the court concludes that CIBRO should prevail under both the regulatory claim and the contract claim, CIBRO's contract damages will be subsumed within its regulatory cause of action damages.

 One additional collateral issue has been raised by CIBRO in this case. Under the contract between the parties, SOHIO was entitled to request an increase in the price it charged CIBRO for crude oil once every 90 days or in. the event of a change in the official selling price of OPEC marker crude oil. CIBRO claims that SOHIO violated this contractual provision when it increased its price within 90 days of its last increase and not in response to a change in the official OPEC marker price. CIBRO claims that the request was based upon a unilateral decision of the Saudi Arabian government to increase production of crude by one million barrels per day which did not constitute an official§ OPEC marker price change.

 A trial to the court was held in this matter from March 21, 1984 through April 2, 1984. After considering the record, the testimony and demeanor of the witnesses, the exhibits, the arguments of the parties and the applicable law, the court now enters its Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure.

 II

 Commencing in November of 1977 CIBRO and SOHIO began negotiations for the purchase of crude oil. During this initial period of negotiations CIBRO was nearing completion of a refinery in Albany, New York and was seeking a secure long-term source of crude oil from various oil companies. The parties first met in November of 1977 in Houston, Texas at a meeting of the American Petroleum Institute. At that meeting CIBRO's representatives expressed a strong interest in obtaining a crude oil supply contract from SOHIO, and SOHIO's representatives expressed an interest in selling Alaska North Slope Oil [ANS] to CIBRO.

 Thereafter, on March 28, 1978, David Snively, a representative of SOHIO, sent a written assay to CIBRO's Enrique Carrero concerning ANS crude oil. During this period ANS was a relatively new crude oil, having first been produced in early 1977 from the Prudhoe Bay field in the State of Alaska. SOHIO proposed to sell ANS crude oil to CIBRO for a term of "one year, commencing July 1, 1978 and 90 days therafter unless cancelled by either party giving 90 days notice." This type of supply§ agreement is commonly referred to in the oil industry as an "evergreen contract," that is, a contract that will continue ad infinitum until and unless terminated by either party.

 On April 21, 1978, Mr. Snively traveled to New York City with Mr. Christopher Hesketh, a crude oil sales representative of SOHIO and met with representatives of CIBRO, including Christopher Bohlmann, Chief Negotiator for CIBRO and Nicholas Cirillo, Vice-President of Supply and Distribution for CIBRO. At the meeting Mr. Cirillo indicated that SOHIO's proposed 90-day notice of termination provision was not long enough. The parties discussed a possible one-year contact and a one-year, notice of cancellation provision. The meeting concluded with CIBRO agreeing to provide SOHIO with a proposal on the term and notice provisions of the contract.

 After the April meeting Christopher Hesketh assumed responsibility for direct contact with CIBRO and its Chief Negotiator, Christopher Bohlmann. On May 4, 1978 Mr. Bohlmann sent a telex to David Snively containing certain comments and amendments to the draft contract which SOHIO had previously given CIBRO. Paragraph 7 of the proposed draft provided as follows:

 [The contract] Shall be for a period of one year commencing with the date of the first delivery (estimated to be Sept. 1-15, 1978) and evergreen thereafter subject to one year(s) prior written notice of cancellation.

 See Plaintiff's Exhibit No. 14. Thereafter, on June 2, 1978, Mr. Hesketh responded to Mr. Bohlmann's telex stating that:

 Regret we are unable to agree to one year's notice of cancellation after the initial year, but would be willing to increase our proposed 90 days notice to 6 months.

 See Plaintiff's Exhibit No. 15.

 After several revisions of the contract a final draft was sent to CIBRO. The final term clause contained in paragraph 7 of the agreement provides as follows:

 The term of this agreement shall be for a period of 11 months commencing on [October 1, 1978] and ending on August 31, 1979 and continuing thereafter unless terminated by either party providing not less than six (6) months notice of termination in writing. *fn3"

 See Plaintiff's Exhibit No. 3.

 SOHIO commenced deliveries pursuant to its agreement with CIBRO in September, 1978. Pursuant to that agreement the first month's supply of crude oil was sent to the General Crude Oil Company of Houston, Texas and SOHIO began direct deliveries to CIBRO in October, 1978. Thereafter, on January 10, 1979, Christopher Hesketh traveled to New York City and met with Nicholas Cirillo and Enrique Carrero. At that meeting Mr. Hesketh advised CIBRO that SOHIO was not going to continue the contract beyond August 31, 1979. On January 23, 1979, Mr. Hesketh confirmed his oral notice of termination and advised CIBRO that the contract would terminate on August 31, 1979. See Plaintiff's Exhibit No. 4. Thereafter the present litigation ensued.

 III

 A. Statutory and Regulatory Overview

 In response to widespread shortages of petroleum and petroleum products caused by the Arab oil embargo of 1973, Congress enacted the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. § 751, et seq. See generally, Basin Inc. v. Federal Energy Administration, 552 F.2d 931 (Temp. Emer. Ct. App.), cert. denied, 434 U.S. 821, 54 L. Ed. 2d 78, 98 S. Ct. 64 (1977). The Act, which became effective November 27, 1973, was based upon a congressional finding that "a national energy crisis" existed and that "the self-regulatory laws of supply and demand [were] not . . . operating in the petroleum market," and, thus, "[i]t [was]imperative that the Federal Government . . . accept its responsibility to intervene . . . to preserve competition and to assure an equitable distribution of critically short [oil] supplies." conference Report, H.R. Rep. No. 93-628, 93d Cong., 1st Sess. (1973), U.S. Code Cong. & Ad. News, p. 2688. The primary aim of the statute was to deal with "existing or imminent shortages *fn4" and dislocations in the national distribution system." Id. Congress was particularly concerned with protecting "small, independent refiners and marketers from large integrated companies." *fn5" See, e.g., Condor Operating Company v. Sawhill, 514 F.2d 351, 356 (Temp. Emer. Ct. App.), cert denied, 420 U.S. 976 (1975); Basic Inc., supra, 552 F.2d at 936.

 Upon enactment of the EPAA the President was given 15 days to promulgate regulations providing for the mandatory allocation of crude oil, residual fuel oil and refined petroleum products in amounts and at prices to be specified in the regulations. See 15 U.S.C. § 753(a). The Act further contained nine objectives which the regulations were directed to achieve "to the maximum extent practical." Those stated objectives included:

 (A) protection of public health, safety, and welfare (including maintenance of residential heating, such as individual homes, apartments, and similar occupied dwelling units), and the national defense;

 (B) maintenance of all public services (including facilities and services provided by municipally, cooperatively, or investor owned utilities or by any State or local government or authority, and including transportation facilities and services which serve the public at large);

 (C) maintenance of agricultural operations, including farming, ranching, dairy, and fishing activities, and services directly related thereto;

 (D) preservation of an economically sound and competitive petroleum industry; including the priority needs to restore and foster competition in the producing, refining, distribution, marketing, and petrochemical sectors of such industry, and to preserve the competitive viability of independent refiners, small refiners, nonbranded independent marketers, and branded independent marketers;

 (E) the allocation of suitable types, grades, and quality of crude oil to refineries in the United States to permit such refineries to operate at full capacity;

 (F) equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry, including independent refiners, small refiners, nonbranded independent marketers, branded independent marketers, and among all users;

 (G) allocation of residual fuel oil and refined petroleum products in such amounts and in such manner as may be necessary for the maintenance of exploration for, and production or extraction of, fuels, and for required transportation related thereto;

 (H) economic efficiency; and

 (I) minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms.

 15 U.S.C. § 753(b)(1). *fn6"

 Almost immediately the Federal Energy Office [FEO] responded to Congress' mandate by promulgating the Mandatory Petroleum Allocation Regulations. See 10 C.F.R. § 211.63 et seq. These regulations essentially provide, with certain exceptions discussed infra, that all supplier/purchaser relationships in effect on December 1, 1973 must remain in effect for the duration of the program. Section 211.63 provides in relevant part as follows:

 All supplier/purchaser relationships in effect under contracts for sales, purchases, and exchanges of domestic crude oil on December 1, 1973, shall remain in effect for the duration of this program, except purchases and sales made to comply with this program: Provided, however, that (1) any such supplier/purchaser relationship may be terminated by the mutual consent of both parties; (2) the provisions of this paragraph do not apply to the first sale of crude oil pursuant to § 210.32 of this chapter, and (3) the provisions of this paragraph shall not apply to the seller of any new crude petroleum or released crude petroleum, as defined in Part 212, if the present purchaser of such crude petroleum refuses, after notice by the seller, to meet any bona fide offer made by another purchaser . . . .

 10 C.F.R. § 211.63(a). *fn7"

 These regulations afford qualified purchasers of domestic crude oil a right to continue to receive supplies or crude oil from their existing contractual suppliers beyond the initially contemplated term of a supply agreement. In effect, § 211.63 "lock[s] or freez[es] into place the supplier-purchaser relationships that existed before the freeze date of] December 1, 1973." Basin, Inc., 552 F.2d at 933. Thus, this supplier/purchaser rule stabilizes the distribution system and "greatly helps to protect the sources of supply of the small, independent refiners" from victimization on the part of large oil companies in times of shortages. Id. at 936; see also 41 Fed. Reg. 16,662, 16,663 (April 21, 1976).

 Simply stated, the regulation provides that "[i]f a producer of crude oil had been supplying a certain reseller, or if the reseller had been supplying a certain refiner, then the 'freeze' rule required that they continue to do so." Id. at 933. In effect the regulation preempts private contracts which are inconsistent with the regulations or which specify a particular termination date while the emergency program is still in effect. Basin, Inc. v. Federal Energy Administration 534 F.2d 324 (Temp. Emer. Ct. App. 1976). Thus, when the obvious intent of Congress is to give the President broad power to do what reasonably is necessary to accomplish legitimate purposes rendered necessary by a recognized emergency, the court should not interfere with the perogative of the agency to select the remedy which for rational reasons is deemed most appropriate. Condor Operating Co. v. Sawhill, 514 F.2d 351, 359 (Temp. Emer. Ct. App.), cert. denied, 421 U.S. 976, 44 L. Ed. 2d 467, 95 S. Ct. 1975 (1975)

 Once established, a supplier/purchaser relation]ship can be terminated or waived, notwithstanding § 211.63(b), under the following circumstances:

 (d) Termination of Supplier/Purchaser § Relationships. (1) Any supplier/purchaser relationship established under paragraph (b) [§ 211.63(b)] of this section may be terminated as follows:

 (i) At the option of the purchaser, as evidenced by its written consent thereto together with notice of the termination date given to the producer, provided all subsequent purchasers of the crude oil involved have consented to such termination in writing;

 10 C.F.R. § 211.63(d)(1)(i).

 The supplier/purchaser relationship set forth in § 211.63 can also be terminated by the supplier unilaterally, pursuant to 10 C.F.R. § 211.63(d)(iv)(A), where the purchaser is a reseller8 and the constituent components of the regulation are satisfied. Section 211.63(d)(iv) provided at all times relevant to this litigation that a supplier/purchaser relationship could be terminated:

 (iv) By a producer (as defined in Part 212 of this chapter) as to a reseller purchasing crude oil from that producer: Provided, that:

 (A) At least thirty days in advance of any termination under this subdivision (iv), the producer shall give to the reseller purchaser from it whose supplier/purchaser relationship is proposed to be terminated a written termination notice stating the date of termination, the source, quality, and estimated volume of crude oil involved (including the portions of that volume that are priced as lower tier crude oil, upper tier crude oil and uncontrolled crude oil under Part 212 of this chapter), and the name and address of the new reseller to which such crude oil is proposed to be sold.

 Id. However, consistent with the general policy objectives of the EPAA, § 211.63(d)(iv) provides that once a crude oil reseller has been replaced, the new crude oil reseller is obligated to establish a supplier/purchaser relationship with the former reseller's customers. The regulation was designed to permit a supplier to substitute one reseller with another in order to foster greater flexibility in the crude oil distribution system. See generally, Basin, Inc., Interpretation 80-6, 45 Fed. Reg. 25,376 (April 15, 1980).

 B. Application of the Regulations to the Instant Case

 As noted previously, count II of CIBRO's amended complaint asserts that the Mandatory Petroleum Allocation Regulations required SOHIO to continue selling crude oil to CIBRO and that SOHIO breached its obligation when it ceased supplying crude oil on August 31, 1979. In the instant case there is no dispute that SOHIO's sales of crude oil to CIBRO created a supplier/purchaser relationship within the meaning of § 211.63(b)(2). Rather, the central dispute between the parties concerns whether the supplier/purchaser relationship was validly waived by CIBRO and whether SOHIO properly terminated the relationship. The dispositive inquiry with respect to whether the relationship was validly terminated and/or waived concerns whether the contract for the sale of crude oil contains a "specific termination date." CIBRO claims that if there was no specific termination date expressly stated in the supply agreement, SOHIO was obligated to supply crude oil to CIBRO until January 28, 1981, the date federal controls on the allocation of crude oil were removed.

 There are two sections of the CIBRO-SOHIO agreement which must be looked to in determining whether the parties' relationship was validly and properly terminated. The first relevant section is the term clause contained in paragraph 7 of the contract. See Plaintiff's Exhibit No. 3, P 7. That section provides as follows:

 Terms

 The term of this agreement shall be for a period of 11 months commencing on October 1, 1978 and ending on August 31, 1979 and continuing thereafter unless terminated by either party providing not less than six months notice of termination in writing.

 The second relevant provision is contained in paragraph 12 of the contract. That section provides an agreement by each party to consent to termination of any supplier/purchaser relationship that might be imposed under 10 C.F.R. § 211.63. Paragraph 12 provides as follows:

 Mutual Intention to Terminate

 The parties hereby agree that under any "freeze" of Supplier/Purchaser relationships imposed under Department of Energy Regulation 10 CFR Section 211.63, or any future governmental regulation which has the same effect which requires the consent of either or both parties to the termination of such relationships such consent to termination shall be given by either party at the request of the other should this Agreement terminate or be terminated in accordance with the termination provisions provided herein. In order to implement the foregoing under Federal regulations, Buyer hereby agrees to include a similar provision in any contract of resale of the Oil purchased under this Agreement.

 See Plaintiff's Exhibit No. 3, § 12.

 CIBRO contends that paragraph 7 clearly indicates that the parties failed to agree that the contract would terminate on a date certain. Specifically, CIBRO claims that the phrase "and continuing thereafter unless terminated by either party . . ." means that the contract is "evergreen" *fn9" in nature and, thus, by definition indefinite. SOHIO, of course, claims that August 31, 1979 is the effective termination date of the contract, provided that notice of termination was provided at least six months prior to termination. According to CIBRO, because the contract could continue after the initial term, i.e., after August 31, 1979, the contract cannot envisage a specific termination date.

 Moreover, CIBRO maintains that, under numerous binding Department of Energy precedents, such "evergreen" contracts have been held as a matter of federal law to lack specific termination dates. SOHIO contends that the language of the term clause, which provides for a "contingent" extension of the contract, does not negate an express end date of August 31,.1979. Rather, such language is merely precatory or permissive and evinces no more than an understanding between the parties that they might contract again in the future. In other words, SOHIO posits that the supply agreement could only continue after August 31, 1979 contingent upon future election, by act or omission of either party, thereby rendering the specified end date a "specific termination date" within the meaning of the supplier/purchaser rule.

 SOHIO further argues that, assuming arguendo the contract lacks a specific termination date, the contract was nonetheless properly terminated because (1) the supplier/purchaser regulation and the relevant DOE interpretations do not require a specific termination date for advance consent to terminate clauses; (2) the provision of the contract which permits the agreement to continue after the initial term constitutes an unenforceable "agreement to agree;" (3) CIBRO validly waived the protections of the supplier/purchaser rule under paragraph 12 of the supply agreement; (4) valid waivers under relevant DOE interpretations do not require a specific termination date; and (5) CIBRO's past resale conduct allowed SOHIO to validly terminate under an alternate regulatory scheme, viz., 10 C.F.R. § 211.63(d)(iv)(A).

 In resolving plaintiff's regulatory cause of action, the court must make a threshold determination with respect to the interpretation of paragraph 7 of the parties' supply agreement. Although during trial a substantial number of evidentiary objections were raised under the parol evidence rule relating to the contract cause of action in this case, *fn10" both parties assert that the parol evidence rule should be applied in resolving the regulatory cause of action. The court agrees.

 In the present case the court concludes that paragraph 7 of the contract may be interpreted solely as a matter of law with respect to whether a "specific termination date" is contained therein. *fn11" Where, as here, the contract's language admits of only one reasonable interpretation, the court need not look to extrinsic evidence of the parties' intent or to rules of construction to ascertain the contract's meaning. See American Home Products v. Liberty Mutual Insurance Co., No. 83-7952, slip op. at 6846 (2d Cir. Nov. 13, 1984). The only determination to be made is the significance of the phrase "and continuing thereafter" and whether this language causes the contract to have a specific termination date vel non. CIBRO's regulatory cause of action is grounded in large part on a number of regulatory interpretations rendered by the DOE (and its predecessor, the Federal Energy Administration) and certain Temporary Emergency Court of Appeals [TECA] decisions which the court finds dispositive of this issue. These Department of Energy interpretations have expressly addressed this question with specific reference to the regulatory provision implicated in count II of CIBRO's amended complaint.

 In light of these interpretations the court finds that the language of the contract is clear and unambiguous, and, thus, the question of whether the agreement contains a specific termination date will be determined solely by reference to the terms of paragraph 7. Accordingly, the parol evidence rule will operate to bar all extrinsic evidence relating to this issue, including evidence of trade usage and custom in the petroleum industry proferred at trial. *fn12"

 C. DOE Interpretations

 As a preliminary matter, the court notes that DOE rulings are entitled to substantial deference in this case. As early as 1945, and consistently thereafter, the Supreme Court has announced certain "fundamentals" about judicial interpretation of rules:

 Since this involves an interpretation of an administrative regulation a court must necessarily look to the administrative construction of the regulation if the meaning of the words used is in doubt. The intention of Congress or the principles of the Constitution in some situations may be relevant in the first instance in choosing between various constructions. But the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.

 Bowles v. Seminole Rock Co., 324 U.S. 410, 414 (1945); United States v. Larionoff, 431 U.S. 864, 872-73, 53 L. Ed. 2d 48, 97 S. Ct. 2150 (1977); see also 2 Davis, Administrative Law Treatise § 7:22 (2d ed. 1979). Thus, an administrative interpretation is entitled to substantial deference unless plainly erroneous or inconsistent with the regulation. *fn13" See United States v. Larionoff, 431 U.S. 864, 872-873, 53 L. Ed. 2d 48, 97 S. Ct. 2150 (1977); Udall v. Tallman, 380 U.S. 1, 4, 13 L. Ed. 2d 616, 85 S. Ct. 792 (1965).

 Moreover, an agency's interpretations are entitled to particular deference when, as here, Congress has provided DOE with expansive discretion in implementing a complex allocation scheme for the petroleum industry:

 [S]uch cases are only episodes in the evolution of adjustment among private interests and in the reconciliation of all these private interests with the underlying public interest in such a vital source of energy for our day as oil. Certainly so far as the federal courts are concerned the evolution of these formulas belongs to the Commission and not to the judiciary. A controversy like this always calls for fresh reminder that courts must not substitute their notions of expediency and fairness for those which have guided the agencies to whom the formulation and execution of policy have been entrusted. . . . It is not for the federal courts to supplant the Commission's judgment even in the face of convincing proof that a different result would have been better.

 Powerine Oil Co. v. Federal Energy Administration, 536 F.2d 378, 385 (Temp. Emer. Ct. App. 1976), quoting Railroad Com. v. Rowan & Nichols Oil Co., 310 U.S. 573, 580-584, 84 L. Ed. 1368, 60 S. Ct. 1021 (1940).

 As noted previously, and of particular importance for purposes of the present discussion, DOE regulations effectively preempt all private contracts which are inconsistent. with those regulations. For purposes of count II of CIBRO's amended complaint, 10 C.F.R. § 211.63 has specifically been held to supersede private contractual provisions which conflict with the supplier/purchaser rule. See Condor Operating Co., supra, 514 F.2d 351 at 361. *fn14"

 In Condor, Condor Operating Company, a crude oil supplier, entered into a contract with Phillips Petroleum Co., a crude oil refiner, to sell certain crude oil to Phillips. Condor challenged in the district court a remedial order issued by the FEA which required it to continue supplying crude oil to Phillips, notwithstanding a contractual provision which provided that Condor had the option to cease supplying crude oil to Phillips provided that proper notice was effected. The district court concluded that FEA's determination that the supplier/purchaser rule superseded the contract was invalid. TECA reversed, holding that the supplier/purchaser relationship created under § 211.63 was a valid rule intended, inter alia, to protect small and independent refiners from severe economic dislocations and hardships. TECA determined that the rule should be upheld.

 In noting that Congress validly enacted the EPAA with obvious intent to give the President and his delegates broad power to do what reasonably is necessary to accomplish legitimate

 The effect of invalidating the administrative action here would be far-reaching. The authority of the FEA, or its counterpart under any future stablization plan, to cope with an energy crisis on the basis of a coordinated and balanced plan could be rendered questionable indeed. Essential powers of government to meet this or other crises in perilous times would be frustrated by the adoption of an excessively rigid and unprecedented construction inhospitable to broad realities. A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld as a permanent change.

 Id. at 362. Moreover, in summarily rejecting Phillips' fifth amendment challenge, the court observed that:

 A reasoned decision for the temporary suspension of usual ownership prerogatives based upon broad national needs does not constitute necessarily an unconstitutional taking; and the issue of whether it does properly turns upon the circumstances of each case. United States v. Central Eureka Mining Co., 357 U.S. 155, 78 S. Ct. 1097, 2 L. Ed. 2d 1228 (1958). The regulation of future action based on rights previously acquired by the person regulated is not per se prohibited by the constitution. Fleming v. Rhodes, 331 U.S. 100, 67 S. Ct. 1140, 91 L. Ed. 1368 (1947). Reasonable and practical regulations which are generally fair and equitable, although not necessarily so as applied to a particular person, are not unconstitutional when general regulations are necessary to accomplish an appropriate congressional purpose.

 Id. at 361, quoting Bowles v. Willingham, 321 U.S. 503, 88 L. Ed. 892, 64 S. Ct. 641 (1944).

 Thus, in the instant case the court may validly apply § 211.63, notwithstanding the fact that the CIBRO-SOHIO agreement contains a provision wherein the supplier/purchaser rule is specifically waived. However, as will be discussed .in further detail infra, DOE has established certain rigorous standards for determining whether § 211.63 will apply to contracts which disclaim its applicability. Once a supplier/purchaser relationship is established, the purchaser is entitled to continued access to crude oil from its supplier for the duration of the allocation program unless consent to termination is given in advance, or the requirements of § 211.63 are specifically waived. Because of the strong policy objectives underlying the EPAA, however, both TECA and the DOE have established stringent requirements for determining when, and to what extent, advance consent to terminate or waiver clauses will serve to[ preempt § 211.63.

 CIBRO relies principally upon three DOE interpretations which in substance conclude that advance written consent to terminate clauses contained in supply contracts must contain a specific termination date in order to comply with the termination provision contained in 10 C.F.R. § 211.63(d)(1)(i). See Arizona Fuels Corporation, Interpretation 1979-18, 44 Fed. Reg. 60,266 (October 19, 1979); Giant Industries, Interpretation 1981-2, 46 Fed. Reg. 27,279 (May 18, 1981), petition for reconsideration denied, 46 Fed. Reg. 46,299 (September 18, 1981); and Murphy Oil, Interpretation, 1981-17M, 47 Fed. Reg. 13,771 (April 1, 1982). SOHIO primarily relies upon three interpretations of the FEA, in existence at the time of the parties' agreement, which hold that 10 C.F.R. § 211.63 may be contractually waived by the parties under certain limited circumstances. See State of Alaska, Interpretation 1977-7, 42 Fed. Reg. 31,143 (June 20, 1977); Alaska Petrochemical Company, Interpretation 1978-1, 43 Fed. Reg. 5797 (Feb. 10, 1978); and The Permian Corporation, Interpretation 1978-45, 43 Fed. Reg. 34,436 (August 14, 1978).

 The primary issue in the Arizona Fuels case was whether the termination clause in the parties' agreement constituted consent to terminate in accordance with 10 C.F.R. § 211.63(d)(1)(i). Arizona Fuels was a small independent refiner who contracted with Comp-Cal Corporation, resellers of crude oil, to purchase domestic crude oil from Trans World Corporation. The agreement between Arizona Fuels and Comp-Cal included an advance consent to terminate provision whereby the agreement was "to continue unless cancelled by either party giving a minimum of sixty-five (65) days prior written notice to the other party." Id. at 60,267. The agreement between Comp-Cal and Trans World contained a similar provision. Trans World ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.