There are no allegations of criminal culpability here. What is at issue is the government's attempt to recoup money that was wrongfully received. Money so received must be disgorged.
6. Joint and Several Liability Based on the "Animating Force" Theory
Plaintiff challenges FERC's finding that TCC is liable for the reporting violations as an "animating force" of those violations. In holding TCC liable, FERC applied the two-pronged test for "animating force" liability established in Citronelle-Mobile Gathering, Inc. v. Herrington, 826 F.2d 16 (Temp. Emer. Ct. App. 1987), cert. denied 484 U.S. 943, 98 L. Ed. 2d 355, 108 S. Ct. 327 (1987), and Sauder v. Dep't of Energy, 648 F.2d 1341 (Temp. Emer. Ct. App. 1981). Under this test, a party will be liable as an animating force or central figure if it is shown that (1) the party exercised personal control of the firm's regulated operations or participated in the transactions in which the overcharges occurred; and (2) the party personally benefitted from the overcharges.
The Court rejects plaintiff's argument that there is no legal foundation for the application of the "animating force" theory of liability to the present case, and finds that FERC properly applied the test to TCC. FERC's conclusion that TCC is liable as an animating force is based on findings supported by substantial evidence. There is ample factual support in the record to conclude that TCC actively participated in the transactions. From obtaining Champlin's agreement to process the oil, to delivering the crude directly to Champlin and taking possession of the refined products, TCC was intimately involved in the transactions. That TCC did not personally fill out the monthly reports cannot absolve it from liability.
7. Liability Based On the Anti-Circumvention Provision
In addition to DOE's claim that TCC participated in a violation of the reporting regulations, DOE asserts a separate and independent theory of liability against TCC: namely, that TCC circumvented the entitlements regulations by participating in the tripartite arrangement, in violation of the anti-circumvention provision. The anti-circumvention provision states that: "any practice that circumvents or contravenes or results in a circumvention or contravention of the requirements of any provision of this chapter or any order issued pursuant thereto is a violation of the DOE regulations stated in this chapter." 10 C.F.R. § 205.202. DOE maintains that this provision establishes TCC's liability even absent a finding that plaintiff participated in a violation of the reporting regulations.
TCC argues that FERC's decision that TCC violated the anti-circumvention provision is in error for three reasons: (1) the anti-circumvention provision is not a "stand-alone" provision which provides a basis for liability absent the violation of some other, substantive allocation or pricing regulation; (2) the anti-circumvention provision does not give sufficient notice of what acts are prohibited by the provision and thus is unconstitutionally vague; and (3) TCC had no unlawful intent, as evidenced by its having obtained advice from expert energy counsel.
The Court sustains DOE's position. As to the first theory, DOE's interpretation of its own regulation is entitled to great deference. See Thriftway Co. v. Dep't of Energy, 867 F.2d 1577, 1580 (Temp. Emer. Ct. App. 1989); Pennzoil Co. v. Dep't of Energy, 680 F.2d 156, 170 (Temp. Emer. Ct. App. 1982), cert. dismissed, 459 U.S. 1190, 74 L. Ed. 2d 1032, 103 S. Ct. 841 (1982). Here, FERC's finding a violation of the anti-circumvention provision was clearly sustainable. The arrangement had no economic basis and was entered into for the sole purpose of circumventing government regulations.
DOE's position that the anti-circumvention provision is a "stand alone" provision finds support in federal court precedent. In concluding that § 205.202 was a "stand alone" provision, the ALJ relied on United States v. Sutton, Fed. Energy Guidelines Court Decision 1981-84 P 26,490 at 29,558 n.6 (N.D. Okla. 1984), aff'd, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied, 479 U.S. 1030, 93 L. Ed. 2d 828, 107 S. Ct. 873 (1987), in which the Court indicated that it was not necessary to find a violation of another regulation in order to find a violation of § 205.202. 62 FERC P 63,026 (noting that the Sutton decision was binding on FERC). Also relevant to the issue of whether the anti-circumvention regulation provides an independent basis for liability is McWhirter Distrib. Co. v. Texaco, Inc., 668 F.2d 511 (Temp. Emer. Ct. App. 1981). In McWhirter, TECA held that the "normal business practices" rule (10 C.F.R. § 210-.62(a)) -- which is substantively similar to the anti-circumvention regulation -- did not depend upon finding a direct or indirect violation of the allocation or price rules.
Id. at 523.
Common sense dictates that the government need not demonstrate a violation of a separate regulation in order to support liability under § 205.202. As noted in the RO, the anti-circumvention provision was "specifically designed to prevent firms from doing indirectly what they were otherwise prohibited from doing directly." 21 DOE P 83,011. To hold that § 205.202 created liability only where there was an independent basis for liability would render the provision redundant and "turn the broad purpose [of the regulation] on its head." Id.
Nor does the Court agree that § 205.202 is Constitutionally void for vagueness, as TCC asserts in its second argument. The record indicates that DOE gave sufficient notice that SRB entitlements were unavailable for TCC-SRCI-Champlin type transactions. DOE made clear to all that the purpose of its regulations was "to prevent refiners from entering into processing agreements . . . for no valid business purpose other than obtaining a portion of the benefits of the small refiner bias." 41 Fed. Reg. 9391, 9393 (1976).
As to TCC's third argument, reliance on advice of counsel that the transactions were not illegal does not insulate TCC from liability under the anti-circumvention provision. DOE found that TCC intended to circumvent the entitlements program, a conclusion which this Court finds to be supported by substantial evidence. TCC gets no solace from its position that it cannot be held accountable for violating the anti-circumvention provision because it relied on the advice of counsel. As stated above, private counsel does not have the ultimate responsibility for enforcing the law. To hold otherwise would create chaos. The fact is that the government found there was a sham transaction. Counsel's advice cannot make it "sham-less."
8. DOE'S Claim for Equitable Restitution
DOE's power to order TCC to refund monies improperly obtained is based on § 209 of the ESA. This power to effect restitution is equitable in nature, and "is usually thought of as a remedy by which [a] defendant is made to disgorge ill-gotten gains or to restore the status quo, or to accomplish both objectives." Sauder v. Dep't of Energy, 648 F.2d at 1348. Another objective of restitution is "to set things right." Id.
Plaintiff maintains that the relief which FERC awarded against TCC was demonstrably based neither on "disgorgement of ill-gotten gains" nor "restoring the status quo," and thus cannot be deemed equitable "restitution" within the meaning of § 209 of the ESA. In support of its claim, TCC makes several, more specific arguments.
First, plaintiff asserts that -- because DOE has not rebutted TCC's expert testimony that the bulk of the value of the entitlement benefits went to Champlin and has failed to show how the three parties divided the benefits -- DOE has not met its burden of proof in showing that TCC was unjustly enriched. This argument is without merit. TECA has made clear that the government's recovery is not limited to the amount which a wrongdoer can be shown to have been enriched by that wrongdoing. See United States v. Sutton, 795 F.2d 1040, 1063 (Temp. Emer. Ct. App. 1986), cert. denied, 479 U.S. 1030, 93 L. Ed. 2d 828, 107 S. Ct. 873 (1987) (holding that "[a] person who is the 'animating force' for regulatory violations is fully liable even though he does not personally receive all benefits of his illegal activities").
Second, TCC argues that requiring TCC to pay DOE the full amount of damages awarded does not restore the status quo because DOE has not recast the transactions as they would have been if TCC had been considered the owner of the crude oil. TCC maintains DOE focused only on the benefits which flowed from the program as a result of the tripartite arrangement, while disregarding the benefits flowing to the program from the same processing transactions.
Accordingly, TCC argues, FERC failed to determine the true effect of the transactions at issue upon the entitlements program. TCC's specific argument has been rejected by OHA in decisions affirmed by TECA and by FERC. See Thriftway Co. v. Dep't of Energy, 14 DOE (CCH) P 83,014, aff'd, 39 FERC P 61,017 (1987), aff'd, 920 F.2d 23 (Temp. Emer. Ct. App. 1990); Morrison Petroleum Co., 55 FERC P 63,004 (1991), aff'd 18 DOE (CCH) P 83,014 (1989). There is substantial evidence to support FERC's finding. This Court finds that DOE's determination of the amount of restitution due is reasonably calculated to approximate the total amount of benefits which the parties improperly received pursuant to the processing arrangements.
Third, TCC asserts that payment of the award to DOE does not restore the status quo because the restitution is not going to the injured parties, i.e. the other refiners who participated in the entitlements program. This argument also must fail. TECA has expressly held that restitution may be paid to DOE even if it is not directly passed to injured consumers. United States v. Exxon, 773 F.2d at 1286 (Temp. Emer. Ct. App. 1985). A wrongdoer must disgorge ill-gotten gains. To go through the process suggested by TCC would render an enforcement agency "toothless."
9. TCC's Claim of Undue Delay by DOE in Bringing the Enforcement Action
TCC contends that DOE unduly and unreasonably delayed in bringing and adjudicating the enforcement action against it. As a result of this delay, TCC contends that the current action is barred by both the statute of limitations and the equitable doctrine of laches. Alternatively, TCC asserts that equity requires at a minimum that the pre-judgment interest charged against TCC be reduced or eliminated. The Court does not agree.
TCC maintains that DOE's issuance of an amended PRO in June 1989 constituted commencement of a new action, and that the new action was barred by the Petroleum Overcharge Distribution Act of 1986 ("PODRA"), 15 U.S.C. § 4504. PODRA provides that "the commencement of a civil enforcement action shall be barred unless such action is commenced before the later of (A) September 30, 1988; or (B) six years after the date of the violation upon which the action is based." 15 U.S.C. § 4504(a)(1). The ALJ, in a decision upheld by FERC, found that the amendment "relates back" to the date the PRO was issued (December 15, 1986). He found that the amended PRO does not constitute a new action, and accordingly is not barred by PODRA. 62 FERC P 63,020; 65 FERC P 61,214. The ALJ and FERC correctly analyzed the applicable statute of limitations and properly concluded that PODRA does not bar this action. Id.
The decision to reject TCC's laches defense was within FERC's authority and supported by substantial evidence. The standard articulated in PODRA contemplates that an enforcement action could be brought more than six years after the events at issue. TCC's contention that it was unfairly prejudiced by DOE's failure to bring the action until after the entitlements program ended is without merit.
As evidence of unfair prejudice, TCC claims that a loss of evidence prevented it from proving: (1) that Champlin received most if not all of the benefits from receipt of SRB entitlements; and (2) that the scope of the Champlin Consent Order was sufficiently broad as to release Champlin from all civil liability to DOE based on the tripartite processing arrangement at issue here. As discussed elsewhere in this opinion, neither of these issues is determinative of TCC's liability. Therefore, it cannot be said that TCC has been unfairly prejudiced by the delay.
The Court also notes that equity does not support application of the laches defense in this case. The evidence shows that TCC was involved in a sham transaction designed solely to obtain SRB benefits to which the parties involved in the transaction were not entitled. As noted by the ALJ, "a finding of laches would result in condoning transactions which were nothing more nor less than shams . . . [and] permit TCC to keep its share of the excess SRB entitlements." 62 FERC P 63,026.
The Court also rejects TCC's claim that DOE's delay in bringing the enforcement action precludes the award of any pre-judgment interest against TCC. In addition to the reasons cited in rejecting TCC's laches defense, which also are pertinent here, the Court notes that TECA has ruled that "an award of prejudgment interest in an RO is certainly not in excess of the agency's authority" and can be overturned only if the order was based upon findings not supported by substantial evidence. MAPCO Int'l, Inc. v. FERC, 993 F.2d 235, 248 (Temp. Emer. Ct. App. 1993) (rejecting this Court's decision to reduce interest on the grounds that the government had unduly delayed prosecution). Because the Court finds that FERC's finding was based upon substantial evidence, this Court will uphold the decision.
Imposition of prejudgment interest in this case does not lack equity. TCC has had the use of monies received under the tripartite processing arrangement for nearly 20 years. Further, TCC has had the use of the more than $ 1.2 million it owes in restitution during the entire pendency of this action. Money has a "time value," and unless TCC is required to include the time value of money in the amount of its liability, there will not have been full disgorgement of ill-gotten gains.
TCC has asserted numerous reasons, some quite creative, why it should not be held liable. However, even the best legal representation and most inventive arguments cannot mask the fact that TCC engaged in sham transactions designed solely to obtain SRB benefits to which the parties were not entitled. The Court will grant judgment for defendants on all counts. An appropriate Order accompanies this Memorandum Opinion.
UNITED STATES DISTRICT JUDGE
This matter comes before the Court on plaintiff's motion for summary judgment on Counts 2-18 of the complaint in the above captioned case. Defendants have cross-moved for summary judgment on all Counts. An approximately four-week trial was held on Count 1. As to the remaining Counts, the parties have briefed and orally argued their motions. For the reasons stated in the foregoing opinion, the Court hereby
ORDERS that plaintiff's motion for summary judgment be DENIED; the Court
FURTHER ORDERS that defendants' motion for summary judgment be DENIED IN PART, and GRANTED IN PART. Defendants' motion for summary judgment is DENIED as to Count 1 and GRANTED as to the remaining Counts; the Court
FURTHER ORDERS that JUDGMENT IN THE AMOUNT OF $ 1,202,143.07, PLUS PRE- AND POST-JUDGMENT INTEREST, BE ENTERED FOR DEFENDANTS and, after a trial on the merits, the Court finds that plaintiff is not entitled to offset said judgment based on the July 20, 1982, global settlement the government entered into with the Champlin Petroleum Company.
UNITED STATES DISTRICT COURT