The federal government yesterday lost what one of its attorneys had called "easily the most important piece of enforcement litigation we have now against the oil companies."
The Temporary Emergency Court of Appeals here upheld lower court decisions that the federal government was wrong in 1975-76 in attempting to force 15 oil companies to refund $1.3 billion to their customers in a dispute over pricing regulations.
The oil companies argued that the government had unfairly tried to reinterpret complex rules set in 1973-74, and the courts agreed with the refiners.
The two U.S. District Court cases were won in January by Phillips Petroleum Co. (joined by five other refiners) in Delaware, and Standard Oil Co. of Ohio (joined by eight other refiners) in Cleveland.
The central issue in both cases was the treatment of so-called "nonproduct costs" that refiners would be allowed to pass through to consumers while oil price controls were in effect.
Nonproduct costs include operating and marketing expenses, such as labor costs. The Federal Energy Administration, and its successor, the Department of Energy, maintained in court that the major oil companies should not be allowed to pass through these nonproduct costs.
The oil companies argued that while the regulations were in effect FEA auditors gave the major oil companies ambiguous and erroneous interpretations of the pricing regulations, which the agency later rescinded.
The appeals court agreed with U.S. District Court Judge John Manos in Cleveland that the government regulations were "remarkably inept and self-contradictory."
The court said there was "confusion and uncertainity among both FEA officials and the refiners" about the regulations in question and that "refiners informed high-level FEA officials" as to the manner in which they were applying the regulations.
The court said that while the FEA could have issued interpretations to clear up the confusion, it "did not decide which [interpretation] was correct until the end of the relevant preiod."
In 1976 the FEA attempted to force the oil companies to return an estimated $1.3 billion that had been collected from customers when the nonproduct costs in question were passed through.
The appeals court agreed with the lower courts in its ruling that the FEA had "violated the procedural requirements" of both the Administrative Procedures Act and the Federal Energy Administration Act in adopting preamble regulations in 1976 ordering the recovery of alleged oiver-charges.
The courts expressly stated that the agency interpretations "could not properly be given retroactive effect." The government had told the oil companies that they had misinterpreted earlier regulations and now had to make it up, even though FEA staffers had allowed them to pass the costs through originally.
Energy Department officials tried to lessen the impact of the decision yesterday by saying that they felt the decision would have little or no bearing on other cases being brought by the office of special counsel in DOE against several oil companies for alleged overcharges. The case preceded the creation of the special counsel's office.
The Temporary Emergency Court of Appeals was set up as part of the Economic Stabilization Act of 1970 to hear all appeals of cases involgving geovernment price control regulations.