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SKELLY OIL CO. v. UDALL

July 31, 1968

SKELLY OIL COMPANY, Plaintiff,
v.
Stewart UDALL et al., Defendants



The opinion of the court was delivered by: PRATT

 The case raises the question of Plaintiff's eligibility for an allocation of foreign crude oil under the Mandatory Oil Import Program established in 1959 by Presidential Proclamation 3279. Plaintiff Skelly Oil Company in 1967 was determined by the Administrator, Oil Import Administration, charged by the Secretary of the Interior with the administration of the Program, to be ineligible for an allocation of foreign crude oil on the single ground that Plaintiff was under the "control" of Getty Oil Company, hereinafter sometimes referred to as "Getty." Plaintiff, in asking for a declaratory judgment and injunctive relief, seeks to set aside the action of the Administrator on several grounds:

 1. The failure to grant Plaintiff the authority to participate in the importation of foreign crude oil was invalid because of the Administrator's failure, prior to this action, to grant Plaintiff the hearing as required by the Administrative Procedure Act and Section 20 of the Oil Import Regulation 1;

 2. The Administrator, in his interpretation of Section 4(g) of Regulation 1, was in error when he used stock voting power, rather than economic ownership or independent management as the determining criterion;

 3. If Oil Import Regulation 1 was properly construed by the Administrator and operated to deny Plaintiff's eligibility, the Secretary of the Interior in promulgating said Regulation exceeded the authority delegated to him in Proclamation 3279 and acted contrary to law; and

 4. The failure and refusal of the Oil Import Appeals Board to recognize the special circumstances and exceptional hardship, created by the determination of Plaintiff's ineligibility, was arbitrary and capricious and should be set aside.

 Defendants,* by answer, have questioned the jurisdiction of the Court to consider the subject matter and, while admitting the essential facts, have denied the legal conclusions set forth in the Complaint.

 The Court, after considering the evidence, both oral and written, presented by the parties, and after hearing argument thereon, in accordance with Rule 52 of the Federal Rules of Civil Procedure, makes the following:

 FINDINGS OF FACT

 1. The Mandatory Oil Import Program was established pursuant to Presidential Proclamation 3279, promulgated March 10, 1959. The Proclamation resulted from a determination by the President that mandatory limitations should be imposed on the importation, inter alia, of foreign crude oil by domestic refiners in order "that such imports would not threaten to impair the national security." Basic considerations included encouragement of domestic exploration and development and protection of independent inland refiners threatened by the competitive advantage of integrated companies having access to lower cost foreign crude. The Proclamation provided for a maximum level of imports through a system of allocations and licenses and authorized the Secretary of the Interior to issue regulations implementing the Proclamation and providing for "a fair and equitable distribution among persons having refinery capacity * * * in relation to refinery imports." As a transition from the earlier voluntary program to the Mandatory Program, the Proclamation permitted allocations to be based on the higher of either a declining percentage of the importer's last quota under the voluntary program (the "historical basis") or on the size of current refinery operations (the "import basis").

 2. Pursuant to the authority contained in the Proclamation, the Secretary of the Interior issued Oil Import Regulation 1, which established the Oil Import Administration under the direction of an Administrator to carry out the Mandatory Oil Import Program.

 3. Section 4(g) of Regulation 1, dealing with the matter of eligibility for allocations, provides:

 
"(g) A person is not eligible individually for an allocation of imports of crude oil and unfinished oils or finished products if the person is a subsidiary or affiliate owned or controlled, by reason of stock ownership or otherwise, by any other individual, corporation, firm, or other business organization or legal entity. The controlling person and the subsidiary or affiliate owned or controlled will be regarded as one. Allocations will be made to the controlling person on behalf of itself and its subsidiary or affiliate but, upon request, licenses will be issued to the subsidiary or affiliate."

 The conceded purpose of Section 4(g) was to protect the integrity of Section 10(b) of Regulation 1, which established a "sliding scale" of allocations, depending on total volume of refinery inputs, as a result of which smaller refiners are authorized to import a larger percentage of their inputs than are larger refiners. Section 4(g) was designed to prevent corporations, which controlled other companies having refinery operations from having such companies treated separately for allocation purposes, or from splitting up certain of their operations into separate corporate entities, as a result of which the controlling parent ...


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