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Valero Marketing and Supply Co. v. Southcap Pipe Line Co.

September 29, 2010


The opinion of the court was delivered by: Wilkerson, Magistrate Judge



Plaintiffs Valero Marketing and Supply and Premcor Refining Group filed this lawsuit in August 2006, alleging that Defendant Southcap Pipe Line Company improperly removed 418,357 barrels of crude oil from Plaintiffs' inventory on Southcap's space on the Capline pipeline system.

This matter now comes before the Court after submission of the evidence at a six-day bench trial, which began on October 26, 2009. After the Court's partial grant of summary judgment in favor of Defendant (Doc. 135), four counts of Plaintiffs' complaint remained for trial. After the close of evidence, Plaintiffs filed a motion to amend the complaint to conform to the evidence adduced at trial (Doc. 182), which the Court granted (Doc. 196). After that amendment, four counts of the complaint remain before the Court:

Count I: Liability for loss of the oil under the Interstate Commerce Act ("ICA"); Count II: Liability for violation of Southcap's tariff;

Count III: Unjust discrimination and preference, in violation of the ICA; and Count VI: Declaratory Judgment in favor of Plaintiffs.

Based upon the testimony and exhibits submitted at trial, the Court finds in favor of Defendant Southcap on all counts. Pursuant to Fed. R. Civ. P. 52(a), the Court makes the following Findings of Fact and Conclusions of Law.



1. Defendant Southcap Pipeline Company ("Southcap"), an interstate common carrier, is one of five joint owners of the Capline crude oil pipeline system which runs from St. James, Louisiana, to Patoka, Illinois. Southcap's ownership in the pipeline entitles it to use approximately 21% of the pipeline's capacity (Doc. 151, Stipulated Facts 1, 7).

2. Southcap generates revenue by transporting crude oil on its space in the Capline pipeline system. Southcap does not buy, sell, trade, or refine crude oil (Dennis Ramsey Trial Transcript, pp. 240-41).

3. Southcap operates under a tariff on file with the Federal Energy Regulatory Commission ("FERC") (Doc. 151, Stipulated Fact 1).

4. Plaintiff Valero Marketing and Supply Company ("Valero") is the crude oil supply and petroleum marketing division of Valero Energy Corporation, a publically traded petroleum refining and marketing company. Valero Energy Corporation acquired Premcor, Inc. on September 1, 2005. That acquisition made Plaintiff Premcor Refining Group ("Premcor") a wholly-owned subsidiary of Valero Energy Corporation (Doc. 151, Stipulated Fact 3).

5. Since the September 1, 2005, acquisition, Southcap has dealt with Valero Marketing and Supply as the successor to Premcor Refining Group (Pl. Exhs. 340, 352).

6. Plaintiff Premcor, the shipper, contracted with Defendant Southcap, the carrier, to ship crude oil on Southcap's space in the Capline system during the period relevant to this action (Doc. 151, Stipulated Fact 4).

7. After it acquired Premcor, Valero assumed control over Premcor's inventory-related activities, including crude oil movement (Doc. 151, Stipulated Fact 6).

Capline Pipeline System

8. The Capline pipeline system is jointly owned by five common carrier pipeline companies: Southcap, Marathon Pipe Line LLC, Amoco Pipeline Company, BP Oil Pipeline Company, and Plains All American Pipeline L.P. (Doc. 151, Stipulated Fact 8).

9. By contractual arrangement, Capline is operated by Shell Pipeline Company ("Shell"). Shell manages the receipt, transportation, and delivery of all the crude oil shipped on Capline. Shell maintains records that document the movement of all oil in the Capline pipeline system (Doc. 151, Stipulated Facts 9-10).

10. Crude oil is shipped on Capline in either "common stream" or "segregated" batches. A common stream batch, which is oil of like quality, is usually owned by more than one shipper. Any of the shipper/owners can take delivery of oil in a common stream batch (Doc. 151, Stipulated Facts 11-12).

11. Crude oil may enter Capline at either St. James, Louisiana, or Liberty, Mississippi (Doc. 151, Stipulated Fact 13).

12. Crude oil arrives at St. James via either connecting common carrier pipelines or tankers at the St. James docks. At Liberty, crude is received by connecting common carrier pipelines (Doc. 151, Stipulated Facts 14-15).

13. Oil exits Capline at connecting pipelines at Collierville, Mississippi, or Patoka, Illinois (Doc. 151, Stipulated Fact 16).

14. There is no long-term storage in the Capline system; oil is constantly moving (Ramsey Tr. Trans., pp. 228, 313-14; Joint Exhibit L, Barker Deposition, pp. 73-74).

15. Batches of crude are shipped back-to-back. As a result, some interfacial mixing occurs at the head and tail end of a batch of crude oil. Such mixing occurs normally on a pipeline system, but it is not so significant that entire batches are degraded (Ramsey Tr. Trans., pp. 466-467).

Nomination Process

16. A shipper provides written notice to a Capline carrier that it intends to ship crude oil on the shipper's space by filing a nomination, which includes the date, locations, volume, and destination for delivery (Doc. 151, Stipulated Fact 17).

17. Southcap's tariff requires that each nomination identify "in writing the Crude Petroleum type, quality, quantity, and final destination point" (Doc. 151, Stipulated Fact 18).

18. Southcap must approve each nomination before the oil is shipped. After approval, Shell schedules the shipment. Nominations are also filed with any connecting carriers (Doc. 151, Stipulated Facts 19-20).

Oil Movement Documentation

19. When crude oil enters the pipeline at the St. James or Liberty points of entry, it passes through a "custody transfer meter." That meter generates a "custody transfer meter ticket." The oil passes through another custody transfer meter at Collierville or Patoka and another ticket is generated (Doc. 151, Stipulated Facts 21-22).

20. The custody transfer meter ticket contains a batch number, date and time of receipt or delivery, location, method of entry, location of exit, directions for delivery, the identity of the person operating the meter, and the oil type, quality, and quantity (Doc. 151, Stipulated Fact 23).

21. Shell maintains the custody transfer meter tickets and uses them to create a split-ticket number that Shell assigns to each crude oil shipment entering Capline. Shell uses these split-ticket numbers to create monthly Pipeline Carrier Reports, Connecting Carrier Reports, and a Monthly Report (also called an "Oil Volume Statement") for each carrier (Doc. 151, Stipulated Fact 26).

22. A Pipeline Carrier Report shows the volume and type of crude organized by shipper on a given carrier's space for each month (Doc. 151, Stipulated Fact 27).

23. A Connecting Carrier Report shows the volume and crude type, by shipper, received by or from Capline for each month (Doc. 151, Stipulated Fact 28).

24. A Monthly Report (also called an "Oil Volume Statement"), created by Shell and sent to the carriers, summarizes all of a carrier's activities for a month, including opening and closing inventories, receipts, and deliveries. Premcor, a shipper, did not regularly receive the Oil Volume Statements sent from Shell to Southcap, except within the context of this litigation (Doc. 151, Stipulated Fact 29).

25. Oil Volume Statements from January 1998 through December 2005 appear in the trial record (Pl. Exhs. 136-231; Def. Exhs. 1486-1491).

26. Based on the Pipeline Carrier Report, Connecting Carrier Report, and Oil Volume Statement, provided by Shell, Southcap prepares a monthly Statement of Oil Account ("Monthly Statement") for each of its shippers (Doc. 151, Stipulated Fact 32).

27. Southcap prepares invoices for transportation services based on the Monthly Statements (Doc. 151, Stipulated Fact 33).

28. Each Monthly Statement reports a shipper's opening and closing inventories, receipts and deliveries during the month, any accounting adjustments, and the shipper's line fill requirement. Southcap issued the Monthly Statements to Premcor until it was acquired by Valero in 2005. After the acquisition, Southcap sent the statements to Valero (Doc. 151, Stipulated Fact 34).

29. On a monthly basis, Shell compares the total book inventory on Capline to the total physical inventory and resolves any differences that ...

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