Robert C. MULLINS, d/b/a Clinton Texaco, Edward D. Stokes,
d/b/a Ed's Skyline Texaco, Frank Stone, d/b/a
Frank Stone & Sons and Rudy Thomas,
d/b/a Rudy's Texaco Service,
Plaintiffs-Appellants,
v.
The UNITED STATES DEPARTMENT OF ENERGY, Hazel R. O'Leary,
Secretary of Energy, Office of Hearings and Appeals, George
B. Breznay, Director, Office of Hearing and Appeals,
Economic Regulatory Administration, Paul M. Geier,
Secretary, Economic Regulatory Administration, Defendants-Appellees.
93-1424.
United States Court of Appeals,
Federal Circuit.
March 13, 1995.
Rehearing Denied; Suggestion for Rehearing In Banc Declined
June 8, 1995.
Len W. Ogden, Jr., The Sinnott House, Paducah, KY, argued, for plaintiffs-appellants.
Don W. Crockett, Judicial Litigation Div., Economic Regulatory Admin., U.S. Dept. of Energy, Washington, DC, argued, for defendants-appellees.
Before ARCHER, Chief Judge,* PLAGER and SCHALL, Circuit Judges.
Opinion for the court filed by Circuit Judge PLAGER. Dissenting opinion filed by Chief Judge ARCHER.
PLAGER, Circuit Judge.
Plaintiffs, owners of Texaco service stations, sought a declaratory judgment that the Department of Energy ("Agency") erred in its implementation of special refund procedures for the disbursement of some $1.2 billion that the Agency secured from Texaco, Inc. in settlement of certain Agency enforcement actions. The District Court for the Western District of Kentucky declined to disturb the Agency action, and granted the Agency's motion for summary judgment. Mullins v. United States Dep't of Energy,
BACKGROUND
This case involves a long-running dispute between Texaco, Inc. and the Agency regarding alleged overcharges by Texaco in the sales of petroleum products, in violation of regulations passed under the authority of the Economic Stabilization Act of 1970, 12 U.S.C. Sec. 1904 note (1976) ("ESA"),1 and the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. Sec. 751 et seq. (1976). The sales occurred over a number of years, from 1974 to 1981, and Texaco's potential liability for the alleged violations was in the billions of dollars.
The compliance proceedings initiated by the Agency were still pending in 1988, when the parties agreed on a settlement. The settlement was to cost Texaco about $1.2 billion. The bulk of the settlement fund was to be divided into two pools, one to provide restitution for violations regarding sales of crude oil, the other for violations regarding sales of refined products.
Plaintiffs are potential beneficiaries of the funds designated for the refined products pool.2 As the enormity of the liability and the size of the settlement suggest, the procedures for resolving such a dispute are elaborate and involve a series of decision stages. When all was said and done, the agreed settlement allotted 90% of the fund to the crude oil pool, and 10% to the refined products pool. These percentage allocations not only determine the size of the pool, but they also affect the formula for refunds from the refined products pool.
In the course of the proceedings conducted by the Agency, it was initially estimated that Texaco's maximum liability was about $2.2 billion, attributing 84% to crude oil violations and 16% to refined products violations. Had these percentages prevailed, not only would the refined products pool be larger, but under the formula for refunds plaintiffs' shares would be larger. For example, under the 90-10 split, plaintiff Ed's Skyline Texaco will receive a refund of $3,657, plus interest, whereas the award would be $5,983, plus interest, under an 84-16 split.
Plaintiffs argue that the 90-10 split incorporated in the settlement does not meet the requirement that refunds be distributed in an equitable manner, 10 C.F.R. Sec. 205.282(e) (1994), and the decision to use a 90-10 split is not supported by substantial evidence in the record, as required by ESA Sec. 211(d)(1).
DISCUSSION
The dispute turns on whether there is sufficient evidence in the record to explain why the 90-10 split was chosen, rather than some other numbers, such as the 84-16 allocation initially identified. The answer the Government gives is that the lawyers and Agency officials who handled the case determined that the cost of litigation to prove the violations, and the chances of success in that litigation, were such, in the opinion of the responsible officials, that the amount settled for and the proportions agreed to were fully justified.
Plaintiffs respond, correctly, that that answer is at best conclusory, and finds no detailed support in the record. They ask that we require the Government to explicate with greater specificity exactly why and how the 90-10 numbers were arrived at, and what there was in the litigation that led to these conclusions. At first blush, plaintiffs have a legitimate complaint. The best the record contains are statements such as:
[The Agency's] assessment of the value of refined product and crude oil issues is the result of consideration of the various litigation risks associated with the different cases, the linkage of certain refined product issues which could substantially alter dollar liability amounts, and the relatively early stages of litigation for many of the refined product issues as compared to the crude oil pricing issues.
Final Consent Order with Texaco, Inc., 53 Fed.Reg. 32,929, 32,931 (1988).
At bottom, then, the question is whether a reviewing court would be in a better position to judge the rationality of the settlement if it knew more about what the officials who settled the dispute thought about the litigation alternative. It is well established that agencies have a duty to provide reviewing courts with a sufficient explanation for their decisions so that those decisions may be judged against the relevant statutory standards, and that failure to provide such an explanation is grounds for striking down the action. Securities and Exchange Comm'n v. Chenery Corp.,
Here, however, the particular piece of information being sought does not involve factual matter as such. Rather, what is at issue is a judgment call, made by Agency officials, regarding how they wanted to invest Agency resources, what terms to accept and what chances there were of doing better in court than in the settlement, and what the public interest required. Even assuming all the considerations that went into that judgment call could fairly be presented to a court, the call regarding whether to settle and on what terms nevertheless would remain one peculiarly the province of the executive, and not the judiciary. Much like the decisions of prosecutors regarding who to prosecute and who not, some decisions simply do not lend themselves to traditional notions of judicial review.3
Plaintiffs point to the fact that by selecting a ratio for the pools that is less favorable to plaintiffs, the Government ends up with more money in the crude oil pool, and thus with more money for the Government. That is true, but far from decisive. There is an assumption that government officials perform their duties properly and in good faith. Spezzaferro v. Federal Aviation Admin.,
As the trial court observed,
[i]t is not unreasonable that the informed judgment of those involved in the enforcement proceedings and settlement with Texaco could conclude that only $120 million would be sustainable at trial. Likewise, it is not unreasonable that the same informed judgment could conclude that the crude oil cases have a proportionately greater settlement value than the refined products cases.
Mullins,
We have examined the other issues raised by plaintiffs, and find them either to be mooted by our disposition of the case, or otherwise without merit. The judgment of the trial court is
AFFIRMED.
ARCHER, Chief Judge, dissenting.
I cannot join the majority's opinion for, in my view, the administrative record does not disclose a rational basis for the Department of Energy's decision on how to allocate the Texaco settlement. Without such a rational basis, the agency's action is arbitrary or capricious under our statutory standard of review and cannot be sustained.
One of the purposes of the legislation at issue here, the Economic Stabilization Act of 1970, 12 U.S.C. Sec. 1904 note, as incorporated in the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. Sec. 751 et seq., is to provide restitution to purchasers of petroleum products for overcharges by oil producers in contravention of regulatory price controls. See generally Texas American Oil Corp. v. United States Dep't of Energy,
The majority affirms the trial court's judgment sustaining Energy's action because it is a "judgment call," involving policy matters beyond the purview of the judicial branch. While I certainly agree with the majority that courts should not substitute their own policy judgments for those of the cognizant agency, this axiom of agency law does not, in my view, warrant the wholesale abdication of our statutory role on review. Whether this agency action is characterized as "rule-making" or "adjudication," it must satisfy the "arbitrary or capricious" test set forth in 5 U.S.C. Sec. 706(2)(A).1 I conclude that, on this record, it does not.
An agency action subject to 5 U.S.C. Sec. 706(2)(A) "may be invalidated by a reviewing court under the 'arbitrary or capricious' standard if [it is] not rational and based on consideration of the relevant factors." Federal Communications Comm'n v. National Citizens Committee for Broadcasting,
The 10% allocated by Energy to refined products overcharges may be reasonable in light of the estimated 16% of Texaco's maximum possible liability that Energy attributed to refined products overcharge allegations during the settlement. But the conclusory basis Energy gives for its actions could just as easily justify a 5% or a 15% allocation. Without more, we simply cannot review whether or not such an allocation was arbitrary or capricious. Moreover, in spite of the presumption of regularity accorded to governmental actions, I would not so readily discount the fact that the United States has a significant pecuniary interest in the outcome of how the settlement monies are apportioned in this case and that its interest is diametrically opposed to that of the appellants.
I would vacate the district court's judgment with instructions to remand the case to the agency for further development of the factual record underlying the agency's decision.
Notes
Chief Judge Archer assumed the position of Chief Judge on March 18, 1994
Because the entire ESA is printed at 12 U.S.C. Sec. 1904 note (1976), this opinion cites the ESA thus: ESA Sec. ----
The refined products pool is available to pay restitution to specific retailers of Texaco products. For the crude oil pool, 20% was allocated to satisfy the claims of injured purchasers of crude oil, and the balance was divided equally between the states and the federal government as indirect restitution
At oral argument, the Government raised the question of whether it would be proper to require the Government to disclose its litigation strategies, since that might have bearing on other pending matters
Because I conclude Energy's action cannot be sustained under the "arbitrary or capricious" test, I need not discuss whether the agency action also meets the requirements of the "substantial evidence" test, which some Temporary Emergency Court of Appeals precedent applies to agency regulations, as well as orders. See International Drilling & Energy Corp. v. Watkins,