Case No. RC272-00391
August 26, 1998
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Supplemental Order
Names of Petitioners:Varity Kelsey-Hayes Company f/k/a Fruehauf Corp.
Varity Kelsey-Hayes Company f/k/a Fruehauf Corp.
Fruehauf Trailer Corp.
Fruehauf Trailer Corp.
Fruehauf Trailer Services, Inc.
Fruehauf Trailer Services, Inc.
Dates of Filing:April 6, 1998
February 18, 1998
May 15, 1998
December 8, 1995
May 15, 1998
July 23, 1997
Case Numbers:RC272-00391
RK272-04813
RG272-01087
RK272-03178
RG272-01086
RK272-04812
On December 24, 1987, Fruehauf Corporation (Fruehauf) filed with the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) an Application for Refund (Case No. RF272-23184) in the Subpart V crude oil proceeding. The application requested a refund for purchases of crude oil products made by Fruehaufs trailer and automotive divisions. The trailer division manufactured trailers and trailer components and the automotive division manufactured automotive parts. The products purchased by these two divisions included gasoline, middle distillates, residual fuels, propane and tractor fuel. On April 1, 1991, this Office issued a Decision and Order granting a crude oil overcharge refund to Fruehauf of $83,452 based on purchases of 104,315,216 gallons of refined petroleum products between August 19, 1973, and January 27, 1981 (the crude oil price control period) and a per gallon volumetric refund amount of $0.0008. Fruehauf Corp., Case Nos. RF272-23184 and RD272-23184 (April 1, 1991).
On December 8, 1995, a company named Fruehauf Trailer Corporation (FTC) filed an Application for Supplemental Refund (Case No. RK272-03178) based on the refund previously granted to Fruehauf. (1) On July 23, 1997, a company named Fruehauf Trailer Services, Inc. (FTS), filed a competing Application for Supplemental Refund (RK272-04812). Finally, on February 18, 1998, Fruehauf itself, now operating as Varity Kelsey-Hayes Company (Kelsey-Hayes), filed a competing Application for Supplemental Refund (Case No. RK272-04813). Each of these applications is now pending before us.
I. Factual Background
In investigating this matter, we have discovered that FTCs and FTSs essential claim is that in 1991, this Office incorrectly granted a portion of the original refund to Fruehauf. In 1989, Fruehauf sold the assets of its trailer division to FTC. FTC claims that in that 1989 agreement, it purchased from Fruehauf the right to the crude oil overcharge refund based on the trailer divisions petroleum product purchases and has retained that right to refund. In 1996, FTC filed for Chapter 11 bankruptcy. During those bankruptcy proceedings, FTC sold the trailer business assets to FTS in a March 1997 agreement. FTS claims that one of those assets is the right to a crude oil overcharge refund for the trailer divisions purchases of refined petroleum products.
II. Analysis
A. Crude Oil Proceeding Deadline
We find that FTSs and FTCs applications are untimely. Both applications were mailed and received well after the June 30, 1995 crude oil deadline. We have dismissed or denied all late crude applications that were not mailed by the deadline. The fact that both applications were submitted as applications for supplemental refund does not render the claims timely. We consider these applications to be applications for original refunds, since their claims challenge the propriety of the original Fruehauf refund. However, whether these applications are considered to be for original refunds or supplemental refunds, granting them would be inappropriate, for the following reasons.
To permit the filing of claims by new parties after the deadline would defeat the purpose of a deadline, which was to permit the completion of the refund proceeding. See, e.g., Gulf Oil Corp./Hinds Gulf, 25 DOE ¶ 85,025 (1995); Gulf Oil Corp./New York Telephone Co., 23 DOE ¶ 85,161 (1993). Under the Petroleum Overcharge and Distribution Act of 1986, 15 U.S.C. § 4501 et seq., the OHA has the responsibility (i) "expeditiously" to provide direct restitution to parties injured by actual or alleged regulatory violations and then (ii) to disburse the remaining funds for indirect restitution. The crude oil refund proceeding was open for nearly nine years, from July 28, 1986 to June 30, 1995. During that time, OHA received over 100,000 applications. The June 30, 1995 date is therefore a reasonable deadline, which will permit OHA to complete the direct restitution phase and disburse the remaining funds for indirect restitution. Nor can we choose to grant only a supplemental refund. To find otherwise would open the door to all firms and individuals wishing to question the correctness of any of the over 91,000 original refunds granted in the crude oil proceeding. For reasons of finality and administrative efficiency, the supplemental process cannot be used as a back door way for new applicants to challenge the propriety of original refund grants.
Therefore, we find that FTSs and FTCs applications should have been filed before the crude oil proceeding was closed and must dismiss their claims on grounds of lateness. However, since FTC and FTS have brought to our attention information challenging the validity of Fruehaufs right to receive its original refund, we will examine that information. As we stated in the original Fruehauf Corp. decision, The determination made in this Decision and Order is based upon the presumed validity of the statements and documentary material submitted by the applicant. This determination may be revoked or modified at any time upon a finding that the basis underlying the refund application is incorrect. As explained below, we find that the basis underlying Fruehaufs refund application was partially incorrect at the time the original refund was issued in 1991.
B. Right to Refund for Petroleum Product Purchases of the Trailer Division
Under OHA precedent, the right to a refund generally remains with the owner of the business that made the purchases for which the refund is sought. There are two exceptions to this rule. The first is where the business is a corporation and the stock of the corporation is sold. The second is where an agreement transferring the business (i) specifically includes the transfer of the right to the refund or (ii) contains language so broad as to encompass the transfer of the right to a refund. Primerica Corp., 27 DOE ¶ 85,001 at 88,003 (1998) (quoting Primerica Corp., 26 DOE ¶ 85,050 at 88,139 (1997)).
FTC and FTS both claim that the 1989 agreement meets the second prong of this test. In that 1989 purchase and sale agreement, Fruehauf sold assets relating to Fruehaufs trailer business (and related trucking fleet) to FTC. Fruehauf retained the automotive business, the wholly-owned subsidiary, Kelsey-Hayes. Section 1.01(ff)(x) of the 1989 agreement includes among the assets of the trailer business being sold to FTC, all claims, causes in action, choses in action, rights of recovery . . . of any kind pertaining to, and arising out of, the Trailer Business. This Office has in the past found this type of language sufficient to transfer the right to refund. See, e.g., Gulf Oil Corporation/Marine Fueling Division, 25 DOE ¶ 85,011 at 88,027 (1995). We agree that the 1989 agreement transferred Fruehaufs right to refund for purchases of the trailer division to FTC, two years before Fruehauf received its 1991 refund.(2) Therefore, Fruehauf was not entitled to receive a refund for those trailer division purchases.
C. Dividing the Refund Between the Trailer Division and the Automotive Division
Because Kelsey-Hayes retained the automotive components division of Fruehauf in the 1989 agreement, it is entitled to a supplemental refund based on the purchases of that division. We requested that all the applicants submit information regarding the proper division of the original refund between the trailer and automotive divisions. None of the applicants has retained any records which would document how Fruehaufs refined petroleum product purchases during the refund period were split between the two divisions. However, for the following reasons, we conclude that FTSs estimate of the proper division of the refund is more reasonable. That estimate is that the trailer division and the automotive division each purchased one-half of the total amount of petroleum products bought by Fruehauf.
1. Kelsey-Hayes information
Kelsey-Hayes submitted information from Mr. Luke Contos and Mr. Ian MacNeill, employees of Kelsey-Hayes. Kelsey-Hayes is asserting that the automotive division, purchased about 90 percent of the total refined petroleum purchases made by Fruehauf as a whole. First, Kelsey-Hayes notes that according to the original application, Fruehauf purchased gasoline for the executive company car program. Kelsey-Hayes then asserts that since the automotive division was thriving and the trailer business foundering at this time, it believes that the automobile executives must have been using more gasoline than the trailer division executives. It therefore estimates that the automotive division purchased 70 percent of the total amount of gasoline purchased, 6,002,000 gallons. However, Kelsey-Hayes gives no reason for estimating that particular percentage.
Regarding the middle distillate purchases, Kelsey-Hayes states that these consisted of a fuel that it called bunker fuel #2. The applicant asserts that it had very large boilers at its automotive division plants in Jackson, Michigan and Detroit, Michigan. Each of these plants were started with bunker fuel #2. The applicant states that, the quantities stated, [24,556,400 gallons], could well have been used at the Kelsey facilities . . . . See Letter from Mariann McNally, Associate General Counsel, Kelsey-Hayes, to Dawn L. Goldstein, Staff Attorney, OHA (February 17, 1998). The applicant therefore claims that 100 percent of the middle distillates on the original purchase schedule are due to the automotive division.
Regarding the residual fuel purchases, Kelsey-Hayes states that these consisted of a fuel that it called bunker fuel #6. It asserts that the main users of this product were the Jackson and Detroit automotive plants. The applicant states that these boilers were so huge, the Detroit plant could have well consumed in the neighborhood of half the [residual fuel] volumes listed on the schedule and the Jackson plant most likely accounted for the remainder of the bunker fuel #6 consumption. Id. Kelsey-Hayes therefore claims that the automotive division purchased all of the residual fuel, 27,339,816 gallons, claimed by Fruehauf.
Regarding the propane purchases, Kelsey-Hayes asserts that this product was used heavily in automotive division foundries. Afterburners on furnaces which used propane were in constant operation, and in Kelsey-Hayes estimation, account for 90 percent of the 24,663,000 gallons shown on the purchase schedule.
Finally, regarding tractor fuel, Kelsey-Hayes notes that this product was used to fuel the trucking fleet which operated on behalf of the entire company. The trucking fleet delivered products manufactured by both divisions all over the country. Kelsey-Hayes claims that the trailer division sold a much lower volume of manufactured products than the automotive division, and therefore estimates that the trailer division bought only 20 percent of the tractor fuel used. It again gave no reason for using that particular percentage.
2. FTSs information
FTS now employs Timothy L. McKowen, formerly Fruehaufs Director of Facilities Engineering, who was responsible for filling out the original 1987 crude oil application. He filled out the purchase schedule attached to the Fruehauf application by using copies of forms which had been completed by all of the companys divisions. These forms listed the divisions refined petroleum product purchases during the price control period. He now estimates that the trailer division purchased about fifty percent of the total refined petroleum product purchases of Fruehauf and the automotive division purchased the other fifty percent. See Records of Telephone Conversations between Timothy L. McKowen and Dawn L. Goldstein (April 3, 1998, April 15, 1998, August 12, 1998).
Mr. McKowen bases this estimate on his memory of the data he collected in filling out the application, his extensive knowledge of the refined petroleum product purchases of the trailer division, and the fact that the two divisions were roughly equal in sales amounts during the 1970's. Contrary to Kelsey-Hayes assertions, he notes that the trailer division did not encounter financial trouble until the 1980's, well after the refund period. This difficulty eventually caused that divisions sale in 1989. Even Kelsey-Hayes acknowledged that the trailer division only reached the verge of bankruptcy in 1989. See Letter from Mariann McNally to Dawn L. Goldstein at 1 (February 17, 1998). Moreover, Mr. McKowen states that during the refund period, the entire company had sales of approximately $2.7 billion dollars and that the trailer division accounted for approximately $1.3 billion of those sales. It is therefore very difficult to credit one of Kelsey-Hayes most important assertions, that the trailer division was foundering for the entire 1973-1981 refund period.
Mr. McKowen also supplied details supporting extensive petroleum product purchases by the trailer division. He explained that Fruehauf had 13 manufacturing plants and 80 to 81 sales and service branches. In contrast, the automotive division had about 15 or 16 plants and no sales and service branches. (These numbers of plants and branches stayed consistent throughout the refund period.) Even though the trailer division had a slightly smaller number of manufacturing plants, its manufactured products, trailers and trailer components, were much larger than the automotive divisions manufactured products, automotive parts. Thus, the trailer divisions plants used much more space, requiring more heating fuel. Moreover, eighty percent of the sales and service branches were heated with fuel oil and used steam cleaners which also required fuel oil.
.
Moreover, Mr. McKowen disagrees with FTSs statements regarding the tractor fuel use by the trucking fleet. Even though much of the fleet delivered automotive parts for the automotive division, he notes that it was still the trailer division which purchased the fuel for that fleet. He also notes that Fruehauf maintained 300 tractor trailers using both diesel and gasoline as part of that trucking fleet.
Regarding propane, he notes that the trailer division operated hundreds of forklifts, each of which used propane. Its Decatur plant used natural gas usually but also had a backup system of eight 80,000 gallon tanks of propane. He notes further that some of the trailer divisions sales and service branches had backup propane systems as well. These systems were used when these branches normal heating fuel, natural gas, was unavailable or more expensive. He therefore estimates that the trailer division used at least 50 percent of the propane bought by the corporation as a whole.
Overall, we find FTSs assertions regarding the proper division of petroleum purchases between the automotive and trailer divisions to be more balanced and credible. Mr. McKowen filled out the original application, has direct knowledge of the volumes included in that application and his estimates are therefore more credible. In contrast, Kelsey-Hayes assertions are based on assertions by employees for whom the applicant did not provide any evidence of deep or direct knowledge regarding the salient points. An applicants estimation method must produce a result that is reasonably likely to be less than or equal to its actual purchases. Continental Steel Corp., 25 DOE ¶ 85,103 at 88,270 (1996) (citations omitted). We therefore cannot accept Kelsey-Hayes one-sided, seemingly uninformed estimates. Due to these reasons, we find Mr. McKowens estimate, that the trailer division purchased half of the refined petroleum products purchased by the company, to be more reasonable.
Rather than requiring Kelsey-Hayes to repay the automotive business portion of the initial refund, we will subtract the erroneous refund from the volume of Kelsey-Hayes supplemental refund. The erroneous refund granted in the initial proceeding was 50 percent of $83,452, which is equal to the supplemental refund that the firm is eligible to receive. Accordingly, there is no additional refund due to the firm.
It Is Therefore Ordered That:
(1) The Decision and Order issued by the DOE on April 1, 1991, Fruehauf Corporation, Case Nos. RF272-23184 and RD272-23184, is hereby modified with respect to Fruehauf Corporation (Case No. RF272-23184, redesignated RC272-00391).
(2) The volume claim approved for Fruehauf Corporation, Case No. RF272-23184, shall be changed in the Office of Hearings and Appeals database from 104,315,216 gallons to 52,157,608 gallons.
(3) The Application for Supplemental Refund for Case No. RF272-23184 filed by Varity Kelsey- Hayes, f/k/a Fruehauf Corporation, Case No. RK272-04813, is hereby granted. For the reasons explained in the Decision and Order above, no further refund will be granted at this time to Varity Kelsey-Hayes, f/k/a Fruehauf Corporation, nor shall any repayment be required.
(4) The Application for Refund filed by Fruehauf Trailer Corporation, Case No. RG272-01087, is hereby dismissed.
(5) The Application for Supplemental Refund for Case No. RG272-01087 filed by Fruehauf Trailer Corporation, Case No. RK272-03178, is hereby dismissed.
(6) The Application for Refund filed by Fruehauf Trailer Services, Inc., Case No. RG272-01086, is hereby dismissed.
(7) The Application for Supplemental Refund for Case No. RG272-01086 filed by Fruehauf Trailer Services, Inc., Case No. RK272-04812, is hereby dismissed.
(8) To facilitate the payment of future refunds, Varity Kelsey-Hayes, f/k/a Fruehauf Corporation, shall notify the Office of Hearings and Appeals in the event that there is a change in its address, or if an address correction is necessary. Such notification shall be sent to:
Director of Management Information
Office of Hearings and Appeals
Department of Energy
1000 Independence Avenue, S.W.
Washington, D.C. 20585-0107
(9) The determinations made in this Decision and Order are based upon the presumed validity of the statements and documentary material submitted by the applicants. This Decision and Order may be revoked or modified at any time upon a determination that the basis underlying a refund application is incorrect.
(10) This is a final Order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date:August 26, 1998
(1) For information pertaining to the second supplemental distribution of Subpart V Crude Oil Overcharge refund monies, see State of Montana, 25 DOE ¶ 85,059 (1995). This Office is granting supplemental refunds based on a $0.0008 per gallon volumetric.
We further note that FTC received both original and supplemental crude oil overcharge refunds under Case No. RF272-91023 based on its own purchases during the price control period of 449,754 gallons of petroleum products. Those refunds are not at issue in the present case.
(2) We need not consider the 1997 FTC/FTS agreement since we are focusing only the validity of Fruehaufs 1991 refund.