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10/19/70 Gulf Oil Corporation Et Al v. Walter J. Hickel

October 19, 1970






Leventhal and Robinson, Circuit Judges, and Davies,* Judge, United States District Court for the District of North Dakota.


This case involves a challenge to a decision of the Oil Import Administrator, affirmed by the Oil Import Appeals Board, which denied the application of plaintiff-appellants, Gulf Oil Corp. and its affiliate in Puerto Rico (hereafter collectively "Gulf"), for an import allocation authorizing importation of 3,539 barrels per day (b/d) of foreign crude oil into Puerto Rico. Gulf brought this action to challenge the decision, on grounds of arbitrariness and exceptional hardship.

The District Court ruled "that the decision of the Board is reasonable and consistent with the evidence presented and is not arbitrary or capricious." Accordingly it denied the motion for summary judgment filed by Gulf, and granted the motions for summary judgment filed by defendants, Secretary of Interior et al., and by intervenor, Commonwealth Oil Refining Co. We affirm. I. Background and Administrative Rulings

This court has had occasion in the past to consider the history and purpose of the oil import quota program. *fn1 The program began because of an influx of cheaply produced foreign oil in the 1950's that threatened to discourage domestic production and exploration. Controls over the importation of foreign crude oil were imposed in furtherance of these objectives: (1) to preserve a great national industry and (2) thereby to prevent impairment of our national security by insuring an adequate amount of domestic oil and refined petroleum products in time of national emergency. *fn2

These quotas were instituted on a mandatory basis by Presidential Proclamation No. 3279 of March 10, 1959, *fn3 issued under the authority of 19 U.S.C. § 1862. Section 3(a) of the Proclamation authorized the Secretary of the Interior to issue implementing regulations thereunder, and section 4(a) authorized the Secretary to establish an Appeals Board to consider petitions by persons affected by such regulations. Section 3(b) (2) of the Proclamation, as amended, relates to oil imports into Puerto Rico and is set forth, in relevant part, in the footnote. *fn4

The Secretary implemented the Proclamation with duly published Oil Import Regulations. Section 15 of Oil Import Regulation 1 provided for quotas for refineries in Puerto Rico. The footnote contains the text of § 15 as it stood in 1968 when Gulf filed the application in controversy. *fn5 Section 15, setting a maximum allocation for imports of foreign crude oil into Puerto Rico, is in furtherance of the large design of the overall regulatory scheme, to restrict importation of foreign oil into the continental United States. The allocation is made to applicants with refinery capacity in Puerto Rico and is based on the volumes needed to satisfy domestic Puerto Rican demand, plus the amount of oil and oil products sold and shipped into the continental United States in 1965, which was chosen as a historical base year.

The controversy before us concerns the application of the regulation to a complex fact situation. Prior to 1965, Gulf had entered into an exchange arrangement with Esso International, Inc. Esso had an agreement to buy from another Puerto Rico refiner, appellee Commonwealth Oil Refining Company, Inc. (Commonwealth), the requirements of Esso for refined products for sale in Puerto Rico. However, Esso found it more economical to buy the finished products it needed for sale in San Juan from Gulf's affiliate, Caribbean Gulf Refining Corporation (Caribbean), because Caribbean's refinery was close to San Juan, while Commonwealth's refinery was in Ponce, and involved a relatively uneconomic trans-shipment of the products. An exchange was arranged, with Gulf delivering to Esso in San Juan, and Commonwealth, on direction of Esso, delivering to Gulf in Ponce an equal amount of finished products, which Gulf shipped into the continental United States. This amounted in volume to 3,539 barrels per day in 1965.

In 1966, when a pipeline connecting Ponce and San Juan was completed, Esso cancelled its arrangement with Gulf and Caribbean and thenceforth it used products supplied by Commonwealth, moved by pipeline from the Ponce refinery, to satisfy its San Juan demand.

The issue is whether Gulf should get credit in its Puerto Rico import allocation for the 3,539 bø of products it shipped in 1965 into Districts I-IV, the pertinent section of the continental United States, even though those petroleum products were not refined by Gulf.

In its opinion the Board considered the relationship of the regulation governing imports of crude oil into Puerto Rico to the overall regulatory scheme limiting imports of foreign crude oil into Districts I-IV -- which cover the great bulk of U.S. refinery output and demand

The Board conceives of the fundamental issue in this appeal as represented by the question, what criteria determine the size of a Puerto Rican refiner's allocation to import crude and unfinished oils. In District I-V the answer is given by reference to recent eligible imports (or, to a lesser and diminishing degree, to historical imports). For Puerto Rico the answer is apparently quite different, namely, the refiner's estimate of product requirements for the year ahead. Yet the dissimilarity to the input formula applied to refiners in the 50 states may be more apparent than real. In Puerto Rico projected demand is taken as the reflection of refiner's future requirements for crude, i.e., the link between inputs and refinery allocation is present.

At the close of 1967 or early 1968 a policy decision was made to eliminate shipments of petroleum products from Puerto Rico to District V and to limit such shipments to the other Districts to the 1965 level (except for special arrangements tied to development of the Puerto Rican economy). The device chosen for making these restraints effective was a limit placed on the individual refiner in Puerto Rico, with penalty (in the form of loss of future allocation) to any who might breach its individual limit. There is no intimation in Proclamation or Regulations that these specific ...

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