Tesoro Alaska Company v. Union Oil Company of California
305 P.3d 329
Alaska2013Background
- Tesoro and Union Oil entered two crude-oil purchase contracts (2000; 2001–2002) for Alaska North Slope (ANS) crude with title passing at TAPS Pump Station No. 1. Price = West Coast (Reuters/Telerate) average for prior month less $1.35/barrel (marine) less the applicable TAPS tariff.
- Contracts required Tesoro to nominate and ship on Unocal Pipeline space when directed; invoices showing the tariff deductions were issued and paid during contract performance.
- At the time the interstate (FERC) and intrastate (RCA) TAPS tariffs were identical. Tesoro later challenged intrastate tariffs before the Regulatory Commission of Alaska (RCA); RCA ordered refunds to Tesoro (principal + 10.5% interest). Pipeline companies issued refunds in 2008.
- Union Oil claimed the RCA refunds (on the theory the contract passed through actual tariff payments and any refunds belonged to Union). Tesoro claimed the contract used an industry-standard netback pricing referencing interstate tariffs (so refunds belong to buyer).
- Superior Court granted summary judgment to Union Oil for the principal refunds (but awarded only contractual prejudgment interest to Union Oil, not the RCA 10.5%); both parties appealed.
Issues
| Issue | Tesoro's Argument | Union Oil's Argument | Held |
|---|---|---|---|
| Meaning of “Unocal [Pipeline] TAPS tariff” in pricing formula | Term is part of a netback pricing formula tied to West Coast market; deduct the interstate (FERC) tariff as a theoretical transport charge, irrespective of actual destination or later RCA adjustments | Term refers to the actual tariff paid for each barrel (a penny‑for‑penny pass‑through); any refund from RCA therefore flows to Union Oil under contract | Court: The contract employed a standard netback pricing scheme referencing the interstate tariff; meaning favors Tesoro — reverse superior court judgment for Union Oil and remand to enter judgment for Tesoro |
| Reliance on trade usage and extrinsic evidence | Industry practice for ANS pricing is netback to a widely traded market (West Coast) using interstate tariff; parties are sophisticated and presumed to know this usage | Union Oil points to internal emails and post‑litigation affidavits suggesting intent to reimburse actual costs | Court: Trade usage expert evidence persuasive; post‑litigation affidavits insufficient to create genuine factual dispute; no material fact issue remains |
| Entitlement to RCA-ordered interest component of refunds | (Tesoro) If refund belongs to buyer, buyer gets both principal and statutory RCA interest | (Union) If refund belongs to Union, Union should receive RCA statutory interest (10.5%) rather than only contract prejudgment interest | Court: Did not reach Union Oil’s cross-appeal because it held Union Oil not entitled to refunds; remanded to enter judgment for Tesoro (refund entitlement resolved in Tesoro’s favor) |
| Appropriateness of summary judgment | No genuine dispute of material fact given netback trade usage and lack of contemporaneous contrary evidence | Union Oil argued there were factual disputes about parties’ intentions | Court: Summary judgment for Tesoro appropriate because Union Oil produced only post‑litigation subjective evidence that did not create a triable issue |
Key Cases Cited
- Amerada Hess Pipeline Corp. v. Regulatory Comm’n of Alaska, 176 P.3d 667 (Alaska 2008) (RCA order affirmance relevant to tariff refund proceedings)
- Anderson v. Alyeska Pipeline Serv. Co., 234 P.3d 1282 (Alaska 2010) (standard of review for summary judgment)
- Hartley v. Hartley, 205 P.3d 342 (Alaska 2009) (contract ambiguity and use of extrinsic evidence to determine reasonable expectations)
- Keffer v. Keffer, 852 P.2d 394 (Alaska 1993) (use of extrinsic evidence and contract interpretation principles)
- Chambers v. Scofield, 247 P.3d 982 (Alaska 2011) (trade usage and contract interpretation)