No. 96-1287 IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM, 1996 JOSEPH A. IMPARATO, PETITIONER v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT BRIEF FOR THE RESPONDENTS IN OPPOSITION WALTER DELLINGER Acting Solicitor General FRANK W. HUNGER Assistant Attorney General BRUCE FORREST Attorney Department of Justice Washington, D.C. 20530-0001 (202) 514 - 2217 ---------------------------------------- Page Break ---------------------------------------- QUESTION PRESENTED Whether a remedial order issued by the Depart- ment of Energy, which held petitioner jointly and severally liable for petroleum price overcharges with a corporation that petitioner solely owned and con- trolled, exceeded the agency's authority or is based upon findings which are not supported by substantial evidence. (I) ---------------------------------------- Page Break ---------------------------------------- TABLE OF CONTENTS Page Opinions below . . . . 1 Jurisdiction . . . . 1 Statement . . . . 2 Argument . . . . 8 Conclusion . . . . 13 TABLE OF AUTHORITIES Cases: Atherton v. FDIC, 117 S. Ct. 666 (1997) . . . . 11 Citronelle-Mobile Gathering, Inc. v. Herrington, 826 F.2d 16 (Temp. Emer. Ct. App.), cert. denied, 484 U.S. 943 (1987) . . . . 6, 11 Houston Oil and Refining, Inc.: 13 D.O.E. (CCH) "Par" 83,013 (June 4, 1985) . . . . 4 17 D.O.E. (CCH) "Par" 83,011 (Apr. 29, 1988) . . . . 4, 5 Layne & Bowler Corp. v. Western Well Works, Inc., 261 U.S. 387 (1923) . . . . 9 MAPCO Int'l Inc. v. FERC, 993 F.2d 235 (Temp. Emer. Ct. App. 1993) . . . . 8 O'Melveny & Myers v. FDIC, 512 U.S. 79 (1994) . . . . 7, 11 Phoenix Petroleum Co. v. FERC, 95 F.3d 1555 (Fed. Cir. 1996) . . . . 2, 3 Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145 (4th Cir. 1987) . . . . 10 Porter v. Warner Holding Co., 328 U.S. 395 (1946) . . . . 11 Rice v. Sioux City Memorial Park Cemetery, Inc., 349 U.S. 70 (1955) . . . . 9 Sauder v. Department of Energy, 648 F.2d 1341 (Temp. Emer. Ct. App. 1981) . . . . 9, 11 Tillman v. Wheaton-Haven Recreation Ass'n, Inc., 517 F.2d 1141 (4th Cir. 1975) . . . . 10 Tull v. United States, 481 U.S. 412 (1987) . . . . 11 (III) ---------------------------------------- Page Break ---------------------------------------- IV Cases-Continued: Page United States v. Arizona Fuels Corp., 638 F.2d 239 (Temp. Emer. Ct. App. 1980), cert. denied, 451 U.S. 985 (1981) . . . . 9 United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979) . . . . 6, 11 United States v. Pollution Abatement Servs., 763 F.2d 133 (2d Cir.), cert. denied, 474 U.S. 1037 (1985) . . . . 10 United States v. Sutton, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied, 479 U.S. 1030 (1987) . . . . 9 Statutes and regulation: Department of Energy Organization Act, 42 U.S.C. 7101 et seq. . . . . 2 502, 42 U.S.C. 7192 . . . . 2 503, 42 U.S.C. 7193 . . . . 5 503(a), 42 U.S.C. 7193(a) . . . . 2, 6, 10, 11 503(c), 42 U.S.C. 7193(c) . . . . 2 Economic Stabilization Act of 1970, 12 U.S.C. 1904 note (1976) . . . . 2 209, 85 Stat. 748 . . . . 4, 11 211(b)(2), 85 Stat. 749 . . . . 3 211(d)(1), 85 Stat. 749 . . . . 3 Economic Stabilization Act Amendments of 1971, Pub. L. No. 92-210, 85 Stat. 743: 2: 85 Stat. 748 . . . . 5 85 Stat. 749 . . . . 2, 3 Emergency Petroleum Allocation Act of 1973, 15 U.S.C. 751 et seq. (1982) . . . . 2 5(a)(1), 15 U.S.C. 754(a)(1) (1982) . . . . 4 Energy Policy and Conservation Act, Pub. L. No. 94-163, 461, 89 Stat. 955 . . . . 2, 8 Federal Courts Administration Act of 1992, Pub. L. No. 102-572, 102, 106 Stat. 4506-4507 . . . . 3 ---------------------------------------- Page Break ---------------------------------------- V Statutes and regulation-Continued: Page Rivers and Harbors Appropriations Act of 1899, ch. 425, 30 Stat. 1121 . . . . 10 28 U.S.C. 1295(a)(11)-(12) . . . . 3 10 C.F.R. 212.186 (1980) . . . . 3 Miscellaneous: 3A Fletcher, Cyclopedia of the Law of Private- Corporations (1994) . . . . 10 Restatement (Second) of Torts (1979) . . . . 9, 10 ---------------------------------------- Page Break ---------------------------------------- In the Supreme Court of the United States OCTOBER TERM, 1996 No. 96-1287 JOSEPH A. IMPARATO, PETITIONER v. FEDERAL ENERGY REGULATORY COMMISSION, ET AL. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT BRIEF FOR THE RESPONDENTS IN OPPOSITION OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1-26) is reported at 95 F.3d 1126. The opinion and order of the district court (Pet. App. 27-34) are unreported. The order of the Federal Energy Regulatory Com- mission (Pet. App. 35-43) is reported at 65 F.E.R.C. (CCH) "PAR" 61,022. The Department of Energy's reme- dial order is reported at 17 D.O.E. (CCH) "PAR" 83,011 (1988). JURISDICTION The judgment of the court of appeals was entered on September 10, 1996. A petition for rehearing was denied on November 18, 1996. Pet. App. 44 - 45. The petition for a writ of certiorari was filed on February (1) ---------------------------------------- Page Break ---------------------------------------- 2 13, 1997. The jurisdiction of this Court is invoked under 28 U.S.C. 1254 (1). STATEMENT 1. The Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C. 751 et seq. (1982), which incor- porated by reference portions of the Economic Stabi- lization Act of 1970 (ESA), 12 U.S.C. 1904 note (1976), required the President to promulgate regulations providing for the mandatory allocation of crude oil, in amounts and at prices specified in the regulations. The President's authority under those statutes ex- pired in 1981. Energy Policy and Conservation Act (EPCA), Pub. L. No. 94 -163, 461, 89 Stat. 955. A savings provision, however, preserved enforcement proceedings based on acts committed or liability in- curred prior to the expiration date. Ibid. The regulations controlling the allocation and price of crude oil were enforced by the Department of Energy (DOE) and its predecessor agencies through the issuance of remedial orders. 42 U.S.C. 7193(a); see generally Phoenix Petroleum Co. v. FERC, 95 F.3d 1555, 1560 (Fed. Cir. 1996). Pursuant to Section 503(c) of the Department of Energy Organization Act (DEOA), a DOE remedial order is reviewable by the Federal Energy Regulatory Commission (FERC), which may affirm, modify or vacate the order. 42 U.S.C. 7193(c). FERC's order constitutes final agency action that is subject to judicial review in federal district court. 42 U.S.C. 7192, 7193(c). Before April 29, 1993, district court decisions in cases arising under the ESA and the EPAA were appealable to the Temporary Emergency Court of Appeals (TECA). Economic Stabilization Act Amendments of 1971 (ESAA), Pub. L. No. 92-210, 2, 85 Stat. 749 ---------------------------------------- Page Break ---------------------------------------- 3 (ESA 211 (b)(2)). Under Section 211 (d)(1) of the ESA, a remedial order could not "be enjoined or set aside * * * unless a final judgment determines that such order is in excess of the agency's authority, or is based upon findings which are not supported by sub- stantial evidence." Ibid. After TECA was abolished, appellate jurisdiction to review agency action under the EPAA was transferred to the United States Court of Appeals for the Federal Circuit. Federal Courts Administration Act of 1992, Pub. L. No. 102- 572, 102, 106 Stat. 4506-4507; see also 28 U.S.C. 1295(a)(11)-(12). The Federal Circuit has held that it applies "the standard of review applied by TECA," and, with "great deference" to DOE's determinations, it will "approve the DOE decision if there is a rational basis for it." Phoenix Petroleum, 95 F.3d at 1567. 2. On May 24, 1984, the Economic Regulatory Ad- ministration (ERA) in DOE issued a proposed remedial order alleging that, during the period from June 1979 through August 1980, Houston Oil & Refining Co. (Houston), a corporation solely owned and operated by petitioner, resold in excess of 50 million barrels of crude oil in transactions that had no economic function other than to increase the price of crude oil in violation of DOE's anti-layering regulation, 10 C.F.R. 212.186 (1980). C.A. App. 55-80. The proposed remedial order sought restitution of overcharges in the amount of 57,989,772.44, which represented Houston's gross profits received from the illegal layering, plus applicable interest. Id. at 74. On February 28, 1985, ERA filed a motion with DOE's Office of Hearings and Appeals (OHA) seeking to add petitioner as a party to the enforcement pro- ceedings. ERA based its motion on petitioner's "per- sonal involvement in [Houston's] allegedly illegal con- ---------------------------------------- Page Break ---------------------------------------- 4 duct" and on his role as "the 'central figure' behind the alleged regulatory violations." Houston Oil and Refining, Inc., 13 D.O.E. (CCH) "PAR" 83,013 at 86,060 (June 4, 1985). ERA asserted that petitioner, who was the "100% owner, chairman of the board, and presi- dent" of Houston, "dominated and controlled" Hous- ton's illegal activity. Id. at 86,061. ERA also relied on the fact that petitioner signed the "Crude Oil Reseller Self-Reporting Forms," which were filed each month with DOE and set forth detailed informa- tion on Houston's prices, costs and compliance with the pricing regulations. ERA further reasoned that petitioner had admitted that he was "completely fa- miliar" with the allegedly illegal transactions. Ibid. On April 29, 1988, OHA issued a remedial order finding that Houston and petitioner violated the anti- layering regulation and were jointly and severally liable for making restitution in the amount of 57,989,772.44, plus interest. Houston Oil and Re- fining, Inc., 17 D.O.E. (CCH) "PAR" 83,011, at 86,123 (Apr. 29, 1988). OHA concluded that its "authority to hold corporate officers individually liable is grounded in the agency's broad authority to order restitution" un- der Section 209 of the ESA, as incorporated by Sec- tion 5(a)(1) of the EPAA, 15 U.S.C. 754(a)(1) (1982). 17 D.O.E. (CCH) "PAR" 83,001, at 86,132. 1. OHA explained that ___________________(footnotes) 1 Section 209 provide: Whenever it appears to any person authorized by the President to exercise authority under this title that any individual or organization has engaged, is engaged, or is about to engage in any acts or practices constituting a violation of any order or regulation under this title, such person may request the Attorney General to bring an action in the appropriate district court of the United States to enjoin such acts or practices[.] * * * In addition to ---------------------------------------- Page Break ---------------------------------------- 5 liability may be imposed on an individual under a "central figure" theory of liability "if it can be shown that: (1) he exercised personal control of the firm's regulated operations or participated in the trans- actions in which the overcharges occurred; and (2) he personally benefitted from the overcharges." Id. at 86,133. OHA observed that, "[u]nlike the grounds for imposing liability by 'piercing the corporate veil,' under this 'central figure' theory the corporate of- ficer or director is liable as an actor, not as an owner." Ibid. Based on its review of the record, OHA found that, because petitioner "played a central role in causing the regulatory violations," he was respon- sible for refunding the overcharges. Id. at 86,134. FERC affirmed the remedial order. Pet. App. 35-43. With respect to the imposition of personal liability, the Commission concluded that petitioner "had not put forward or argued any equities that might miti- gate against individual liability." Id. at 41. 3. The United States District Court for the Southern District of Texas sustained FERC's order. Pet. App. 27 - 34. The district court held that 42 U.S.C. 7193 authorized DOE "to order appropriate relief," including the imposition of personal liability, for violations of DOE's price control regulations. Id. at 30. The court explained that "personal liability may be imposed when 'the individual's wrongful conduct causes the violation of a statute and accompanying regulations such as the crude oil pricing laws.' " Ibid. ___________________(footnotes) such injunctive relief, the court may also order restitu- tion of moneys received in violation of any such order or regulation. ESAA 2, 85 Stat. 748. ---------------------------------------- Page Break ---------------------------------------- 6 (quoting Citronelle-Mobile Gathering, Inc. v. Herr- ington, 826 F.2d 16, 25 (Temp. Emer. Ct. App.), cert. denied, 484 U.S. 943 (1987)). The court also concluded that petitioner's "argument that state corporate law should apply is without merit because federal law governs questions involving rights of the United States which arise under nationwide federal pro- grams." Id. at 32 (citing United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979)). After determining that DOE had not shifted the burden of proof to petitioner (ibid.), the court concluded that "[t]he agency's findings that [petitioner] was the central figure in the regulatory violations, personally bene- fitted from the overcharges, and is personally respon- sible for restitution are supported by substantial evidence." Id. at 33. 2 4. The court of appeals affirmed. Pet. App. 1-26. The court of appeals held that DOE properly imposed personal liability on petitioner "because of his per- sonal involvement in Houston's illegal conduct." Id. at 12. 3. The court concluded that "DOE does have statutory authority to impose liability upon a 'cen- tral figure' such as [petitioner]," explaining that Section 503(a) of DEOA, 42 U.S.C. 7193(a), "ex- pressly grant[s] DOE the authority to enforce the ___________________(footnotes) 2 The court also upheld DOE's findings as to Houston's liability and rejected petitioner's constitutional challenges to the remedial order and the anti-layering regulation. Pet. App. 31-33. 3 The court also rejected petitioner's arguments that the Fifth Circuit, rather than the Federal Circuit, had jurisdiction over petitioner's appeal and that DOE's remedial order was unconstitutional. Pet. App. 6-7, 9-12, 19-20. Petitioner does not raise those issues before this Court. ---------------------------------------- Page Break ---------------------------------------- 7 EPAA/ESA by issuing [a remedial order]." Pet. App. 18. The court also rejected petitioner's argument that "the central figure theory is dependent upon 'federal common law' principles rejected by" this Court in O'Melveny & Myers v. FDIC, 512 U.S.C. 79 (1994). Pet. App. 19. The court reasoned that O'Melveny & Myers involved the federal government's assertion of "state causes of action," while this case involves "a DOE agency action undertaken pursuant to one federal law, the [DEOA], in order to enforce federal regulations issued under another federal law, the EPAA/ESA." Ibid. The court then turned to the imposition of personal liability in this case. It first observed that TECA's precedents "conditioned central figure liability on two findings: (1) the individual must be found to have caused a violation; and (2) under the circumstances and equities of the case, it is equitable to impose liability." Pet. App. 21. Applying those standards, the court observed that petitioner did not challenge "that he was a central figure in Houston's overcharges." Id. at 22. Instead, petitioner argued that DOE improperly shifted to him the burden of proving that liabililty would be inequitable by inferring from peti- tioner's 100% ownership of Houston that he per- sonally benefitted from the overcharges. The court rejected that argument: We agree that DOE made a prima facie show- ing that [petitioner] personally benefitted from the overcharges. First, * * * almost immediately after Houston was organized, it began engaging in transactions in violation of the layering regula- tion. Secondly, Houston has not challenged the ---------------------------------------- Page Break ---------------------------------------- 8 amount of alleged violations or the manner in which the amount was calculated. * * * Lastly, and most importantly, the record indicates that [petitioner] was the president and 100% owner of Houston during the period of overcharges. Id. at 24 (internal citations, brackets and quotation marks omitted). Based on the evidence that peti- tioner's "solely owned corporation collected almost 58 million in overcharges," and the lack of any "evidence as to where those funds went," the court concluded that "[t]he inescapable inference is that [petitioner] personally benefitted from the over- charges." Ibid. It reasoned that if the unlawful over- charges remained in petitioner's corporation he "would have directly benefitted by the increased value of the corporation," and that petitioner similarly would have benefitted if the funds had been distributed to him or others at his behest. Id. at 24 - 25. Thus, the court concluded, "[t]here was no [burden] shifting; [petitioner] simply failed to defend against the gov- ernment's evidence." Id. at 25 (quoting MAPCO Int'l Inc. v. FERC, 993 F.2d 235, 245 (Temp. Emer. Ct. App. 1993)). ARGUMENT The court of appeals' decision is correct, and this case does not present any legal issue of continuing importance. Accordingly, review by this Court is not warranted. 1. The statutory provisions and regulations in- volved here have no continuing force. The govern- ment's authority to regulate petroleum prices under the EPAA expired on September 30, 1981. EPCA 461, 89 Stat. 955. There are no remaining admin- istrative proceedings arising under DOE's price ---------------------------------------- Page Break ---------------------------------------- 9 control regulations. There remain three cases before the Federal Circuit involving a DOE remedial order, but none of those cases raises the question presented in this case. Petitioner argues only that the decision of the court of appeals is wrongly decided. He suggests no reason-and we know of none-why, notwithstanding the winding up of the price-control enforcement pro- gram, this case involves an issue of substantial impor- tance warranting this Court's review. See Rice v. Sioux City Memorial Park Cemetery, Inc., 349 U.S. 70, 79 (1955); Layne & Bowler Corp. v. Western Well Works, Inc., 261 U.S. 387, 393 (1923). 2. In any event, the arguments petitioner advances lack merit. a. The court of appeals correctly followed a con- sistent line of TECA precedent that upheld the impo- sition of personal liability on individuals who directly participated in price control regulatory violations and who personally benefitted from those infractions. See Citronelle-Mobile Gathering, Inc. v. Herrington, 826 F.2d 16 (Temp. Emer. Ct. App.), cert. denied, 484 U.S. 943 (1987); United States v. Sutton, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied, 479 U.S. 1030 (1987); Sauder v. Department of Energy, 648 F.2d 1341 (Temp. Emer. Ct. App. 1981), United States v. Arizona Fuels Corp., 638 F.2d 239 (Temp. Emer. Ct. App. 1980), cert. denied, 451 U.S. 985 (1981). Petitioner is mistaken in arguing (Pet. 11) that the imposition of personal liability on those who partici- pate in regulatory wrongdoings "has no foundation in American jurisprudence." It is commonplace in tort law that the breach of a duty imposed by statute may be tortious, see generally Restatement (Second) of Torts 874A (1979), and violation of price control ---------------------------------------- Page Break ---------------------------------------- 10 statutes is a textbook example of such tortious conduct, id. 874A cmt. F, illus. 11. Similarly, it is commonplace in the law of corporations that a cor- porate officer or director who participates in a tort is personally liable even though the wrongful act is performed in the name of, or for the benefit of, the corporation. See generally 3A Fletcher, Cyclopedia of the Law of Private Corporations 1135, at 290 (1994) ("Personal liability for the torts of officers does not depend on the same grounds as 'piercing the corporate veil,' that is inadequate capitalization, use of the corporate form for fraudulent purposes, or failure to comply with the formalities of corpo- rate organization. The true basis of liability is the officer's violation of some duty.") (footnote omitted). Accordingly, there are many contexts, other than the former price control regulations, in which cor- porate officers have been held liable for violating statutorily imposed duties. See, e.g., Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145, 149 (4th Cir 1987) (president and sole stockholder held personally liable for willfull trademark infringement); United States v. Pollution Abatement Servs., 763 F.2d 133, 135 (2d Cir.) (directors and shareholders held jointly liable with corporation for violations of Rivers and Harbors Appropriation Act of 1899), cert. denied, 474 U.S. 1037 (1985); Tillman v. Wheaton-Haven Recreation Ass'n, Inc., 517 F.2d 1141, 1144 (4th Cir. 1975) (corporate directors held jointly liable with corporation for vio- lation of civil rights statutes). Petitioner does not contest DOE's finding that he caused the regulatory violations at issue. Thus, the court of appeals correctly held that the remedial order issued to petitioner was authorized by 42 U.S.C. 7193(a), which permits DOE to issue such orders to ---------------------------------------- Page Break ---------------------------------------- 11 any "person [who] has violated any regulation" pro- mulgated under the EPAA. b. Contrary to petitioner's suggestion (Pet. 27-29), the court of appeals' decision does not conflict with this Court's decision in O'Melveny & Myers v. FDIC, 512 U.S. 79 (1994), which reiterated that there is no general federal common law. The decision in O'Melveny & Myers involved the law to be applied when the FDIC asserts a cause of action under state law. Id. at 83; see also Atherton v. FDIC, 117 S. Ct. 666, 670-674 (1997) (state law applies when FDIC, acting as receiver, sues former officers and directors of failed federal savings association for negligence and breach of fiduciary duty). The court of appeals correctly held that O'Melveny & Myers does not support the application of state law in an enforce- ment proceeding by a federal administrative agency acting pursuant to a comprehensive statutory and regulatory scheme that imposes duties on corporate officers. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979) ("This Court has consistently held that federal law governs questions involving the rights of the United States arising under nationwide federal programs.") Based on Section 209 of the ESA and 42 U.S.C. 7193(a), DOE determined that an individual responsi- ble for a violation of the former federal price controls is liable in restitution in order to restore "the status quo." Tull v. United States, 481 U.S. 412, 424 (1987) (quoting Porter v. Warner Holding Co., 328 U.S. 395, 402 (1946)). Such liability "is necessary to effective enforcement" of the federal statute and DOE's imple- menting regulations. Sauder, 648 F.2d at 1348; see also Citronelle-Mobile, 669 F.2d at 721 ("The primary underlying policy of the ESA is to insure effective ---------------------------------------- Page Break ---------------------------------------- 12 enforcement of the pricing regulations," and "restitu- tion is appropriate and necessary to enforce compli- ance.") (internal quotation marks omitted). Accord- ingly, the court of appeals correctly determined that federal law governed this proceeding. c. Petitioner argues (Pet. 22) that DOE improp- erly shifted the burden of proof to petitioner because "DOE attempted to force [petitioner] to prove he did not receive the overcharges." The court of appeals reviewed the extensive administrative record, how- ever, and correctly determined that DOE had "made a prima facie showing that [petitioner] personally benefitted from the overcharges" (Pet. App. 24 (in- ternal brackets omitted)), and that petitioner simply failed to offer any contrary evidence. 4. That factbound issue does not warrant this Court's review. ___________________(footnotes) 4 Petitioner similarly argues (Pet. 21) that "[I]t is totally il- logical and a violation of the principles of the law of restitution to find [petitioner] liable for the full amount of [Houston's] overcharges with no proof that [petitioner] * * * received any of the overcharges." The court of appeals properly con- cluded, however, that petitioner did benefit from the over- charges. Pet. App. 24 - 26. The remedial order simply restored the status quo by requiring petitioner to refund the amount of the overcharges involved in the regulatory violations. ---------------------------------------- Page Break ---------------------------------------- 13 CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. WALTER DELLINGER Acting Solicitor General FRANK W. HUNGER Assistant Attorney General BRUCE FORREST Attorney APRIL 1997