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CITY OF NEW YORK v. WATKINS

February 7, 1991

CITY OF NEW YORK, Plaintiff,
v.
JAMES D. WATKINS, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 LOUIS F. OBERDORFER, UNITED STATES DISTRICT JUDGE

 In May 1986, two New York City agencies, the Departments of Sanitation and Environmental Protection, applied for restitution for petroleum overcharges from an escrow fund created by an order issued in what is known as the "Stripper Well Litigation." See, e.g., In re Department of Energy Stripper Well Exemption Litigation, 690 F.2d 1375, 1377 - 80 (Temp. Emer. Ct. App. 1982); the Departments later received refunds totalling $ 4,226. On April 16, 1982, and then again on June 29, 1988, the City applied for a refund of approximately $ 1 million from a different, though related, restitutionary fund administered by the Department of Energy's Office of Hearing and Appeals (OHA). The OHA denied this application on the ground that the earlier application for the " Stripper Well refund" waived the City's right to refunds from the fund administered by the OHA. See Decision and Order of the Department of Energy, City of New York, June 21, 1989 (Plaintiff's Motion for Summary Judgment, Exhibit F) [hereinafter, "Final Decision"]. The City of New York appealed that decision to this Court, and it now seeks summary judgment, inter alia, on the grounds that the release upon which the OHA based its decision was not validly executed. Defendants James J. Watkins, the Secretary of Energy, and George Breznay, Director of the OHA, have filed a cross-motion for summary judgment. As explained below, the release was not validly executed. Accordingly, an accompanying order will deny defendants' motion, grant plaintiff's, and remand this matter to the OHA for further action.

 I.

 Beginning with the Economic Stabilization Act of 1970, see Pub. L. No. 91-379, 84 Stat. 799, and continuing with the Emergency Petroleum Allocation Act of 1973, see 15 U.S.C. § 751 et seq. (1988), until the latter's expiration in 1981, the price and allocation of petroleum in this country were regulated by the federal government. Those controls did not, however, cover all petroleum produced in the country. Of particular interest here, oil produced from certain economically marginal properties, popularly known as "stripper well" leases, was not subject to regulation. See 15 U.S.C. § 753(e)(2) (1973). *fn1" Stripper well leases are properties that produced less than ten barrels per well during the preceding calendar year. See id.

 In 1974, the Federal Energy Administration, the predecessor of the Department of Energy, issued regulations interpreting the so-called stripper well exemption. See Ruling 1974-29 (39 Fed.Reg. 44,414, Dec. 24, 1974). According to these regulations, injection wells, as well as any other wells not used to produce oil, could not be counted as wells for the purpose of calculating the number of barrels per well on a property. See id. Injection wells force fluids into an underground reservoirs of oil in order to create pressure that will in turn increase production in nearby extraction wells. Cf. In re Dep't of Energy Stripper Well Exemption Litigation, 520 F. Supp. 1232, 1276 (D.Kans. 1981) (Appendix A) (presenting a diagram of a typical injection well).

 Oil producers challenged this regulation, and the United States District Court for the District of Kansas originally found it to be invalid. See id. at 1275; Energy Reserves Group, Inc. v. Federal Energy Admin., 447 F. Supp. 1135 (D. Kans. 1978). Pending appeal, the District Court ordered the producers to deposit into a court-supervised escrow account the difference between the revenue that they received as the result of its ruling and the revenue that they would have received under the regulation. See Stripper Well Exemption, 520 F. Supp. at 1241, 1275. When the Temporary Emergency Court of Appeals ultimately affirmed the regulation in question, see In re Dep't of Energy Stripper Well Exemption Litigation, 690 F.2d 1375, the escrow account held $ 1.4 billion dollars in what had just been determined to be petroleum overcharges.

 The District Court then set about determining how to distribute the money to the affected individuals and entities. See In re Department of Energy Stripper Well Exemption Litigation, 653 F. Supp. 108 (D.Kans. 1986). At first, the Court investigated the possibility of tracing the overcharges directly to the affected parties and compensating them. After twenty-two days of hearings, the OHA determined that tracing was impossible. See id. at 110 - 11. Using econometric analysis, the OHA was, however, able to determine what percentage of the fund was attributable to different economic groups. See id. Based upon this analysis, the parties to the Stripper Well litigation, as well as numerous intervenors, negotiated the inaptly named Final Settlement Agreement.

 That Agreement creates three separate restitutionary funds. The first compensates those most directly affected by the overcharges -- refiners, retailers, airlines, investor-owned utilities, surface transporters, and rail and water transporters -- through separate escrow accounts. See Final Settlement Agreement paras. II.B. (Plaintiff's Motion for Summary Judgment, Exhibit A). Refunds from these escrow accounts are often referred to as " Stripper Well refunds." The second fund, administered by state and local authorities, compensates indirectly, for example through programs promoting energy conservation or assisting low income families with their utility bills. The final fund is not really a separate fund at all; instead, the residual funds from the Court's escrow account were placed in an already existing fund used by the DOE to compensate end-users for petroleum overcharges. See Order Implementing the DOE's Modified Statement of Restitutionary Policy Concerning Crude Oil Overcharges, 51 Fed. Reg. 29,689 (August 20, 1986). Because the DOE's end-user restitution program is administered under the authority of 10 C.F.R. Part 205, Subpart V, refunds from this program are generally known as "Subpart V refunds."

 The Final Settlement Agreement provided that the parties would waive any further claims arising out of petroleum overcharging. See Final Settlement Agreement para. III.A.1. Because individuals and entities not party to the Final Settlement Agreement could apply to the industry escrow funds for restitution, the Final Settlement Agreement required applicants for Stripper Well refunds to waive their rights to Subpart V refunds. See id. paras. III.A.2 & 3. For example, the release in the Refiners Escrow Agreement states that the "Grantor hereby extinguishes, discharges, releases, waives, and abandons all Claims," including

 
any claim of Grantor asserting a right to obtain future payment of a share of existing or future monies paid or ordered to be paid based upon or arising out of any Alleged Crude Oil Violation by any Person (whether or not such Person is a Participating Person): (1) in M.D.L. 378, (ii) as a result of any past, pending, or future administrative proceeding in any agency of any State or Federal Government, including DOE, OHA, and the Federal Energy Regulatory Commission (FERC), or (iii) as a result of or for the purpose of satisfying claims of DOE or the United States Department of Justice in any other past, pending, or future litigation in any State or Federal court . . . .

 Release of Claims, Refiners Escrow Agreement para. 3 (Plaintiff's Motion for Summary Judgment, Exhibit C) [hereinafter, "Release"].

 The form of the Release was modified when the Final Settlement Agreement was revised. The Refiners Escrow Agreement originally stated that

 
[a] release shall be acceptable for purposes of distribution if and only if (i) it is in the form attached hereto as Attachment A [the Release], (ii) it is executed by a person with authority to do so on behalf of the Person submitting the Release, (iii) it includes a sworn statement by that person that he has such authority . . . .

 Refiner's Escrow Agreement para. 4. In the Revised Settlement Agreement these formal requirements were relaxed. ...


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