The opinion of the court was delivered by: Moran, District Judge.
Before the court is defendants' motion for partial summary
judgment. By consent of both parties this court deferred
decision on this motion pending the result in two consolidated
cases before the Temporary Emergency Court of Appeals, the
court with exclusive appellate jurisdiction over this case. On
December 20, 1983, the appellate court reached its decision.
Plaintiff brought this action to recoup overcharges on
875,900,000 gallons of motor gasoline sold to it by defendants
between August 19, 1973 and January 28, 1981. Plaintiff's
fourth cause of action alleges that defendants increased their
prices beyond the level allowed under the applicable
regulations by misapplying the Federal Energy Agency's
(FEA)*fn1 deemed recovery rule. Defendants' twelfth
affirmative defense alleges the invalidity of that rule.
Defendants move for partial summary judgment asking for
dismissal of plaintiff's fourth cause of action and judgment in
defendants' favor on its twelfth affirmative defense.
Defendants argue that the deemed recovery rule is invalid on
procedural and substantive grounds.
The deemed recovery rule will be discussed only briefly because
both sides are well aware of its mechanics. At the time of
enactment of the deemed recovery rule an oil refiner could not
charge a class of purchasers more than the base price for the
product sold, except under certain specific conditions.
10 C.F.R. § 212.82 (1975).*fn2 A class of purchasers is made up
of purchasers to whom a seller has charged a comparable price
for comparable property pursuant to customary price
differential between purchasers. See 10 C.F.R. § 212.31
(1975). One purpose of the deemed recovery rule was the
maintenance of these price differentials. See Mobil Oil Corp.
v. Department of Energy, 728 F.2d 1477 at 1480,
(Temp.Emer.Ct.App., 1983). The base price for a product was the
cost for that product on May 15, 1973, plus increased product
costs incurred between May 1973 and the measurement month,
usually the month before the sale. See 10 C.F.R. § 212.82(b)
The refiner, though unable to charge more than the base price,
was allowed to charge less than that price. The regulations
allow the refiner to carry over or "bank" the increased product
costs it failed to recover by charging less than the base
price. See 10 C.F.R. § 212.83(e)(1) (1975). Whenever a
refiner added previously unrecouped costs to its price it had
to reduce its bank value accordingly. See generally Mobil Oil
Corp. v. Department of Energy, supra, at 1480-1481.
In September 1975, without prior notice or opportunity for
comment, the FEA promulgated the deemed recovery rule. That
rule required the refiner to pass through its increased costs
uniformly among all classes of purchasers or suffer a cost
recovery penalty. The rule stated that refiners would be deemed
to have recovered their increased costs as if they had
recovered from all classes of purchasers costs equal to the
highest increment actually recovered from any one class. Thus,
if a refiner applied increased costs unequally, by adding
varying increments of increased costs to prices charged to
different classes of customers, the refiner could not bank all
of its unrecouped costs. See id. at 1482-1483;
10 C.F.R. § 212.83(e)(1) (1975).
Plaintiff alleges in its fourth cause of action that defendants
banked increased product costs that the rule required to be
deemed recovered. Plaintiff claims defendants added these
improperly banked costs to prices charged, resulting in prices
above defendants' allowable base price. Defendants counter by
attacking the validity of the rule on both procedural and
Defendants charge that the deemed recovery rule was
procedurally invalid because the FEA failed to give notice and
allow for public comment. They also claim that the FEA did not
meet the stringent conditions required to show cause for
dispensing with notice and public comment. Finally, they claim
that there was insufficient
notice for comment with regard to the repromulgation of the
Defendants' procedural attack against the deemed recovery rule
has been entirely defused by the Temporary Emergency Court of
Appeals decision in Mobil Oil Corp. v. Department of Energy,
728 F.2d at 1480, (Temp.Emer.Ct.App., 1983). In Mobil Oil,
the Court held that the FEA's finding that an announcement of
the deemed recovery rule before promulgation could have caused
serious market distortions was adequate support for its
decision to promulgate the rule without prior notice or
opportunity for comment. Id. at 1490-1494. The Court also
held that subsequent notice of comment on the rule, on December
5, 1974, was also procedurally valid. Id. at 1494-1496. In
short, the Court completely upheld the procedural validity of
The Temporary Emergency Court of Appeals has exclusive
appellate jurisdiction over the questions presently before this
court. See 12 U.S.C. § 1904 note (Economic Stabilization Act
of 1970, § 211(b)(2)). This court is bound by the decisions of
the Temporary Emergency Court of Appeals regarding this issue.
Accordingly, pursuant to Mobil Oil, the court denies
defendants' procedural attack on the deemed recovery rule.
Defendants also attack the deemed recovery rule on two
substantive grounds. First, they claim the rule is inconsistent
with the express provisions of the Emergency Petroleum
Allocation Act of 1973 (EPAA), 15 U.S.C. § 751, et seq., the
enabling act for the regulation in question. Second, they claim
the FEA failed to properly consider the explicit statutory
objectives of the EPAA, as required by the statute. Judicial
review of informal rule-making, as was involved in the
promulgation of the deemed recovery rule, is governed by the
provisions of 5 U.S.C. § 706(2). See Mobil Oil ...