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ATLANTIC RICHFIELD CO. v. UNITED STATES DOE

August 20, 1991

ATLANTIC RICHFIELD COMPANY, Plaintiff,
v.
UNITED STATES DEPARTMENT OF ENERGY, et al., Defendants, and DON VAN VRANKEN on behalf of himself and all others similarly situated, and SINCLAIR OIL CORPORATION, Intervenor-Defendants



The opinion of the court was delivered by: FLANNERY

 THOMAS A. FLANNERY, UNITED STATES DISTRICT JUDGE

 Plaintiff Atlantic Richfield Company ("ARCO") brings this action to set aside a ruling by the Office of Hearings and Appeals ("OHA") of the United States Department of Energy ("DOE"). ARCO's summary judgment motion is opposed by the government defendants and by intervenor-defendants the Van Vranken class and Sinclair Oil Corporation. As discussed below, the Court will uphold the decision of the OHA and deny ARCO's motion for summary judgment.

 I. Background

 A. The Regulatory Background

 Between 1973 and 1981, the federal government regulated the prices of petroleum and petroleum products. Under the regulatory system, oil refiners could charge no more than a fixed maximum price for products subject to the regulations ("covered goods.") The regulations allowed, however, for refiners to incorporate increased production costs into the prices of their covered goods. The formula for allocating costs to price increases for each type of covered good was known as the "V factor," and it entailed dividing the total volume of a given covered good sold by the total volume of all covered goods sold. The resulting fraction was used to determine the amount of increased costs that could be attributed to each type of covered good. Refiners had the option of either increasing prices of covered goods or banking the increased costs to offset overcharges. *fn1"

 Also on April 30, 1974, the DOE, in an attempt to remedy this situation, passed without notice or the opportunity for comment an emergency regulation ("the 1974 amendment") intended to prevent refiners from incorporating the costs of producing exempt goods into prices charged for covered goods. The 1974 amendment redefined the V factor to add the volume of exempt goods to the denominator of the V factor. *fn2"

 Throughout the regulatory scheme, it was necessary for refiners to obtain DOE permission to allocate increased costs among the prices charged for covered goods. Permission was sought by filing with DOE a Refiner's Monthly Cost Allocation Report ("RMCAR" or "Report.") Following promulgation of the 1974 amendment, ARCO consistently filed RMCARs utilizing the amended V factor. In contrast, two other refiners challenged application of the 1974 amendment. One refiner, Getty, applied for and was granted administrative relief. Another refiner, Mobil, chose to challenge the validity of the 1974 amendment in federal court. In Mobil Oil Corp. v. DOE, 610 F.2d 796 (Temp. Emer. Ct. App. 1979), cert. denied, 446 U.S. 937, 64 L. Ed. 2d 790, 100 S. Ct. 2156 (1980) (Mobil I), the Temporary Emergency Court of Appeals ("TECA") found the 1974 amendment to be invalid based upon the lack of notice and opportunity for comment. Later, in Mobil Oil Corp. v. DOE, 647 F.2d 142 (Temp. Emer. Ct. App. 1981) (Mobil II), TECA permitted Mobil to reallocate its costs in accordance with the unamended V factor. DOE attempted to revive and retroactively implement the 1974 amendment in 1981, but this regulation was also struck down by TECA. Mobil Oil Corp. v. DOE, 678 F.2d 1083, 1090 (Temp. Emer. Ct. App. 1982) (Mobil III).

 On three separate occasions in 1980 and 1981, ARCO requested permission from DOE to refile its previous RMCARS using the unamended V factor. *fn3" On all three occasions ARCO's requests were denied. *fn4" ARCO submitted a fourth request to resubmit its previous RMCARS on March 24, 1982. DOE never responded to this request. ARCO did not further pursue this latest request.

 B. The Van Vranken Litigation and Subsequent Events

 In 1979, Don Van Vranken, on behalf of a nationwide class of petroleum product resellers, brought an action against ARCO in the Northern District of California alleging that ARCO had overcharged resellers for covered goods purchased between 1974 and 1982. *fn5" On April 4, 1988, ARCO moved for summary judgment on the ground that the Mobil decisions allowed it to retroactively reallocate its costs without reference to the invalidated amended V factor. Van Vranken v. Atlantic Richfield Co., 699 F. Supp. 1420, 1421-22 (N.D. Cal. 1988). The practical result of such reallocation would have been to allow ARCO to retroactively increase its costs and thereby increase its banks to offset any overcharge liability. Id. The District Court rejected ARCO's contentions and held that the Mobil trilogy did not provide authorization for non-party refiners to automatically reallocate past production costs. Id. at 1424.

 The District Court decision was upheld by TECA in Van Vranken v. Atlantic Richfield Co., 890 F.2d 421 (Temp. Emer. Ct. App. 1989), cert. denied, 494 U.S. 1005, 110 S. Ct. 1298, 108 L. Ed. 2d 475 (1990). TECA rejected ARCO's arguments that the Mobil decisions provided authority for retroactive reallocation of its costs. First, TECA held that the Mobil decisions did not require reallocation. Id. at 423. TECA noted that "neither Mobil I nor Mobil II required Mobil to retroactively reallocate costs," and that "nothing in the regulations required that costs for exempt goods be attributed to covered goods when calculating the maximum allowable price for covered goods." Id. Retroactive reallocation would be required, TECA held, if ARCO's previous cost allocations had been unlawful. Id. But because it was not unlawful for ARCO to have priced its covered goods below the fixed maximum price, as it had done by utilizing the amended V factor formula, ARCO was not required to retroactively reallocate its costs. Id.

 Second, TECA rejected ARCO's argument that the Mobil decisions permitted it to reallocate its costs. TECA found that the invalidation of the 1974 amendment by the Mobil courts did not excuse ARCO from compliance with DOE regulations relating to resubmission of RMCARs, and that those regulations conditioned resubmission upon written permission from DOE. See id. at 424. The Court concluded that "ARCO sought, but did not obtain, permission from the DOE to retroactively reallocate costs. . . . ARCO's failure to obtain permission from the DOE precludes it from any relief by this court." Id. (footnote omitted). *fn6" TECA also held that ARCO waived its right to relief by not challenging the regulations implementing the amended V factor in a timely manner, as had Mobil and Getty. Id. at 424-25.

 Seizing upon language in TECA's decision suggesting that retroactive cost allocation could only be accomplished with DOE permission, ARCO filed an application with DOE to resubmit its RMCARs on December 12, 1989. Administrative Record ("R.") at 38. Again, DOE never responded to ARCO's request. In contrast to its actions following its March 1982 request, ARCO decided to treat DOE's silence as a denial of its application and appealed to the OHA. R. at 1. On February 1, 1991, OHA upheld DOE's ...


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