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UNITED STATES v. EXXON CORP.

May 17, 1979

UNITED STATES of America, Plaintiff,
v.
EXXON CORPORATION, Defendant



The opinion of the court was delivered by: FLANNERY

MEMORANDUM OPINION AND ORDER

This case involves alleged overpricing in the sale of crude oil, for which the United States seeks to recover 183 million dollars. It began as an administrative proceeding, and might have continued in that forum had the defendant not filed an action for declaratory relief in the Northern District of Texas to resolve certain "purely legal issues." *fn1" The Department of Energy ("DOE") responded by filing a suit of its own in this court. Thereupon Exxon filed a motion to dismiss for want of subject matter jurisdiction, alleging that the Department of Energy must exhaust its administrative procedures before coming to the courthouse. This result is said to flow from (1) the creation by Congress of detailed administrative procedures for the issuance of remedial orders, which implicitly repealed or limited a statute that would allow the DOE to come directly to court; and (2) the Accardi *fn2" doctrine, which mandates that an agency must follow its own established regulations and procedures.

 This argument was ably briefed by both parties. After consideration of the motion to dismiss and the opposition thereto, and a review of the structure and legislative history of the Department of Energy's statutory authority, the court concludes that Exxon's Motion is supported neither by the pertinent legislative history nor by precedent. The court will accordingly deny the motion to dismiss.

 I.

 REGULATORY AND PROCEDURAL BACKGROUND

 To facilitate an understanding of the issues raised in this motion to dismiss, the court will trace briefly the factual and regulatory context of this case. The Department of Energy is charged with the enforcement of price controls which at the time of the events giving rise to this action governed the production and first sale of domestically produced crude petroleum. See Economic Stabilization Act of 1970 ("ESA"), § 203, 12 U.S.C. § 1904 note (1976); Emergency Petroleum Allocation Act of 1973 ("EPAA"), § 4(a), As amended, 15 U.S.C. § 753(a) (1976); Department of Energy Organization Act, ("DOEOA" or "DOE Act"), 42 U.S.C.A. §§ 7131-7352 (Supp.1978); Executive Order 11695 (January 12, 1973) (delegation of power granted to President by ESA); Executive Order 11748 (December 6, 1973) (delegation to Federal Energy Office of power granted to President by EPAA); Executive Order 11790 (June 27, 1974) (abolition of Federal Energy Office; transfer of authority to Federal Energy Administration ("FEA")); Executive Order 12009 (September 15, 1977) (transfer of delegated authority from FEA to DOE). Pursuant to this mandate, the DOE has established a two-tier pricing framework for domestic sales of crude oil in an attempt to stabilize the price of petroleum products while providing some incentive for increased petroleum production. The essential characteristic of this two-tier system is a distinction between "old oil" and "new oil".

 The DOE distinguishes "old oil" from "new oil" by reference to a "base production control level" (hereinafter sometimes referred to as "BPCL") which is determined by measuring the total number of barrels produced in a given base period. See 10 C.F.R. § 212.72 (1978). *fn3" "New crude oil" is the total number of barrels produced in a given field in a period of time, less the base period control level. Id. This new oil, which represents an increase in production over the base period, may be sold at a higher price, known as the "upper tier ceiling price." Id. § 212.74. Old oil is restricted to a lower tier ceiling price. Id. § 212.73. The purpose of this complicated structure is to prevent profiteering in the sale of crude oil from fields which were in production prior to 1972, while providing an incentive for field openings or production increases since 1972. *fn4"

 The defendant, from September 1, 1973 through December 31, 1976, was the operator of an oil field known as the Hawkins Field Unit, in Wood County, Texas. The Hawkins field is presently a "unitized field," as defined by the DOE. *fn5" The unitization, which became effective on January 1, 1975, was designed to improve the efficiency of the field by initiating a program of inert gas injection. This procedure would have had the effect of shifting reservoir fluids across existing lease lines, a procedure which would have been illegal under state law unless the field were unitized. (Complaint PP 26-29) Because the unification took place after 1972, it fell within Federal Energy Administration attempts to grapple with the definition of "property" for purposes of determining a "base production control level" for unitized fields. In September, 1975, the FEA ruled that if a field is unitized after 1972, the unit BPCL is to be determined by reference to the total 1972 monthly production from all of the individual leases in the unit. The FEA reasoned that a different result would allow a single operator successfully to evade ceiling tier prices by manipulating production among the wells in a given unitized field. Rule 1975-15, 40 Fed.Reg. 40832 (1975). The original ruling required the implementation of a unit BPCL immediately upon unification. Id.

 This last requirement subsequently was rescinded, apparently in recognition of the time lag between a unitization and any real changes in production, to permit producers to implement a unit BPCL either on the effective date of the unitization or at the time that production patterns underwent a "significant alteration." See 41 Fed.Reg. 4931 (February 3, 1976). This rescission, which took place on February 1, 1976, was followed on September 1, 1976, by a detailed definition of "significant alteration in producing patterns." 41 Fed.Reg. 36171 (August 26, 1976); See 10 C.F.R. § 212.75 (1978).

 In January, 1977, the FEA clarified the effect of the detailed definition of "significant alteration in producing patterns." The clarification indicated that units formed before February 1, 1976, like the Hawkins Field Unit, were not controlled by the new definition, but that the definition would be used as "guidance" in such cases. Ruling 1977-2, 42 Fed.Reg. 4409 (1977). The FEA also stated that it would permit unit operators to attempt to justify a date of "significant alteration in producing patterns" on reasonable bases other than those specified in the definition.

 On January 10, 1978, the Department of Energy issued a "Notice of Probable Violation" to Exxon Company, U.S.A., a division of the defendant, alleging that Exxon Company had engaged in certain activities in anticipation of the inert gas injection enhanced recovery program, that this had caused a dramatic change in production patterns, and that Exxon had continued to calculate amounts of "new," "released," and "stripper well" crude oil on a lease-by-lease basis until September, 1976. This, together with continued computation on an allegedly improper basis after September, 1976, allegedly resulted in the sale of "old" oil as "new" oil at the higher ceiling price, resulting in overcharges in $ 183,305,019.79.

 The Department of Energy then requested permission from the Attorney General to file this suit, which was filed on June 8, 1978. It contains allegations identical to those in the administrative NOPV proceeding, which was terminated on June 9, 1978.

 II.

 SUBSEQUENT LEGISLATION DID NOT DEPRIVE THE DEPARTMENT OF ENERGY OF DUAL ENFORCEMENT AUTHORITY

 The defendant characterizes this action as a bold and blatant circumvention of DOE's own administrative procedures, and argues that "Congress conditioned jurisdiction upon the requirement that the DOE first proceed through its administrative compliance process, which includes a review by the independent Federal Energy Regulatory Commission ("FERC")." (Memorandum in Support of Motion to Dismiss, p. 4). Exxon recognizes that Section 205 of the Economic Stabilization Act of 1970 originally provided DOE's predecessors with the authority to go to court without first resorting to administrative procedures. Exxon argues, however, that subsequent legislation establishing administrative machinery for DOE and its predecessors "completely changed" the statutory scheme. First, Exxon maintains that amendments to the Economic Stabilization Act in 1971 "signalled the character and nature of the limitations to be placed on the . . . judicial enforcement power." (Id. at 7). Second, according to Exxon, the agency's own practice since 1971 confirms the absence of judicial enforcement power. Finally, Exxon maintains that the establishment by Congress of a complex and detailed administrative enforcement scheme in the Department of Energy Organization Act reinforced a Congressional restriction on direct access to the courts.

 The Department of Energy urges the court to look to the plain language of Section 209 of the Economic Stabilization Act, As amended, 12 U.S.C. § 1904 note (1976), which contains no requirement that DOE exhaust its administrative procedures. The DOE also urges the court to refrain from repealing by implication a facially clear statute, particularly when the intent of Congress, according to the DOE, was not to bar direct suits, but to provide for procedural protections in those cases that were processed administratively.

 The court embarks on this interpretive journey by examining the language of the statute. Section 209 of the Economic Stabilization Act of 1970, As amended, 12 U.S.C. § 1904 note (1976), applicable to the DOE through Section 5(a)(1) of the Emergency Petroleum Allocation Act, 15 U.S.C. § 754(a)(1) (1976), states:

 
Whenever it appears to any person authorized by the President to exercise authority under this title That any individual or organization has engaged, is engaged, or is about to engage in any acts or practices constituting a violation of any order or regulation under this title, Such person may request the Attorney General to bring an action in the appropriate district court of the United States to enjoin such acts or practices, and upon a proper showing a temporary restraining order or a preliminary or permanent injunction shall be granted without bond. Any such court may also issue mandatory injunctions commanding any person to comply with any such order or regulation. In addition to such injunctive relief, the court may also order restitution of moneys received in violation of any such order or regulation. (emphasis added)

 The predecessor of Section 209 was Section 205 of the ESA of 1970, 84 Stat. 796. It contained essentially the same language, but without the clarification requiring the agency to request the Attorney General to bring the action, and without the provision in the final sentence clarifying the court's power to order restitution. Exxon recognizes that the original section 205 empowered the agencies exercising authority under the Act to go directly to court, but contends that this power was granted Only because of the absence of administrative procedures in the ESA of 1970. (Memorandum in Support of Motion to Dismiss, p. 6-7).

 In 1971 Congress decided, partly at the urging of the President, to amend the ESA of 1970. Exxon maintains that the expressions of legislative intent which accompanied these amendments made it clear that Congress intended that the agency employ administrative procedures before proceeding to court. This contention, however, is unsupported by the legislative history of the amendments.

 II.A. Economic Stabilization Act Amendments of 1971

 The 1971 amendments to the ESA of 1970 were introduced as an administration bill on October 19, 1971. The Senate Committee on Banking, Housing, and Urban Affairs held hearings on the bill in early November, and reported a clean bill (S. 2891) to the Senate on November 18, 1971. The original bill contained a Section 205, which is identical to the present Section 209. It also contained a section 207, exempting functions exercised under the Act from the provisions of the Administrative Procedure Act, and a section 208, providing for judicial review. See Economic Stabilization Legislation: Hearings on S. 2712 before the Senate Committee on Banking, Housing, and Urban Affairs, 92d Cong., 1st Sess. 3-9 (1971).

 Contrary to the position taken by Exxon, the Hearings do not indicate in any way that the Congress contemplated limiting the agency's power to proceed to court without first resorting to the administrative process. The comments made by L. Patrick Gray, the ABA representatives, and others focused, as Exxon admits, on the applicability of the Administrative Procedure Act. Id. at 19-20. (statement by Charles L. Walker, Under Secretary of the Treasury); 33, 43, 50-51, 56 (statements by L. Patrick Gray regarding section 208 and ability of individual to go to court). The "Gray Memorandum" was submitted to clarify the Administration's position on this point and to set forth the reasons justifying a partial exemption from the APA. Id. at 90-94. It is true that the "Gray Memorandum" stated that "(i)t is expected that this review process will proceed first through the administrative review steps provided by the agency regulations." Id. at 93. This comment was made, however, in the course of the discussion of sections 207 and 208. Nowhere does the "Gray Memorandum" evince an intent to render nugatory the expanded scope of Section 205. A similar conclusion is compelled by an examination of the comments of the American Bar Association. Id. at 169 ("(o)ur interest . . . centers about Section 207 which excludes the functions . . . from the operation of the Administrative Procedure Act"). Therefore, after reviewing the hearings, the court concludes that the Committee was concerned not with preventing agencies from going directly to court, but with providing adequate procedural protections for those matters which were addressed at the agency level while ensuring speed and consistency in decisions.

 This conclusion finds support in the later history of the Act. The Senate report discusses Section 207 and the applicability of the APA, directs the agencies to issue regulations providing a method for obtaining interpretations of or exceptions from rules, and refers to L. Patrick Gray's testimony about "the fullest type of administrative review." S.Rep.No. 507, 92d Cong., 1st Sess. 7-8 (1971), U.S.Code Cong. & Admin.News 1971, pp. 2283, 2290. It goes on to discuss Section 209 (renumbered from section 205 during the preparation of a clean bill), as follows:

 
The principal enforcement tool to be used by the Government is likely to be an injunction sought by the Attorney General. Such an injunction may be brought under section 209 of the Economic Stabilization Act, as amended by this bill, upon the request of any person authorized to exercise authority under this Act to the Attorney General that a violation of some regulation or order has occurred, is occurring, or is about to occur. The court granting such an injunction may also grant a mandatory injunction ordering any person to comply with a regulation or order. In addition to injunctive relief, the court may also order restitution of moneys received in violation of any regulation or order. It was not certain that, in these circumstances, there was an inherent equitable power in the court to set things right and order restitution. Restitution has been granted in several cases ...

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