An article yesterday incorrectly stated that U.S. District Judge Thomas F. Flannery found Exxon Corp. guilty of overcharging for crude oil without holding a hearing. Flannery held several hearings but did not hold a trial in the case.
Exxon Corp. yesterday was ordered to pay about $2 billion in damages for overcharging for crude oil from a large east Texas oil field.
In what Exxon and government lawyers said was the biggest single court damage judgment ever, the Temporary Emergency Court of Appeals here upheld charges by the Department of Energy that Exxon improperly interpreted federal oil price regulations between 1975 and 1981 to reap huge profits.
Under the ruling, the $2 billion in overcharges and interest is to be distributed to the states to be used in energy conservation programs. The court said it would "require a full-scale audit of the entire petroleum industry" to find all of Exxon's customers who should receive damages from the improperly priced oil.
The energy department said the decision is by far the largest the government has ever won against an oil company for violating the federal price control rules set up after the 1973 Arab oil embargo sent petroleum prices soaring.
The special court, established to resolve disputes over federal price controls, found that Exxon overcharged its customers $895.5 million between 1975 and 1981 by improperly classifying oil from what was once one of the nation's largest oil fields -- Hawkins Field in east Texas. Exxon claimed it was permitted by the regulations to sell oil from the field as "new" oil rather than "old" oil. So-called "new" oil, at the time, was selling for about twice the price of "old" oil that was covered by strict price controls.
Adding interest charges, DOE officials said yesterday, the ruling means that Exxon owes more than $2 billion for the overcharges. With each day that the seven-year-old case drags on, the sum grows by an additional $500,000, DOE said.
Exxon officials said they feared that a rash of private lawsuits from Exxon customers who bought the disputed Hawkins Field oil could force the company to pay out millions more.
Within minutes after the long-awaited court ruling, Exxon issued a statement saying it intended to appeal. "We are extremely disappointed," said S. J. Reso, executive vice president for Exxon Co. U.S.A. "We are considering our legal options, including a request for reconsideration and an appeal to the U.S. Supreme Court."
"This case involves hundreds of millions of dollars and some 2,500 companies and individuals who own interests in the Hawkins Field, as well as a number of complex legal issues. We do not think it is proper for such an important suit to be decided without a trial," Reso added. Had Exxon followed DOE's rules as DOE now interprets them, there probably would have been less oil production from the Hawkins Field, Exxon said. Exxon owns about two-thirds of the Hawkins Field.
The temporary emergency appeals court upheld a 1983 decision by U.S. District Judge Thomas F. Flannery that found Exxon guilty of DOE's charges without holding a hearing in the case. Flannery agreed with DOE on all but one aspect of its case. He refused to assess a civil penalty that DOE sought against Exxon for knowingly violating the price control regulations, noting that Exxon never tried to hide how it calculated oil prices from the Hawkins Field.
DOE officials applauded the decision, saying it will have a major impact on 450 pending overcharge cases involving a total of $2.5 billion. DOE has estimated that oil companies overcharged consumers as much as $10 billion under oil price controls, which President Reagan removed eight days after he assumed office in 1981.
"This victory gives the government a great boost in prosecuting" other oil pricing cases, said Rayburn D. Hanzlick, administrator of the Energy Department's Economic Regulatory Administration. Up to now, the largest case won by the government was for $300 million from an Oklahoma oil man who bought cheap oil and sold it as more expensive oil, Hanzlick said.
"This case involves laws and regulations that were new 10 years ago. It has taken this long for the courts to rule on the ones that were controversial. Every court decision makes it easier for other cases," he said. In particular, Hanzlick said, the court's ruling that the damages can be distributed to the states and not to the customers directly will be critical to future cases.
Some of Exxon's customers disagreed with this premise and indicated yesterday that they also will appeal yesterday's ruling. The Petroleum Marketers Association of America, saying it was entitled to about $300 million of the $2 billion sum, said it would appeal because the court refused to hear its objection to the state distribution, which bars the group from collecting any of the award.
Exxon, the nation's largest company, with revenue of $97.3 billion and profits of $5.5 billion, said it had set aside $440 million to cover this and other pricing disputes with the government.