'Hot Fuel' Heats Up Again

Published in CSP Daily News

Judge denies request to reconsider motion to dismiss temperature compensation case

KANSAS CITY, Kansas -- A Kansas federal judge on Wednesday kept alive class-action claims against gasoline retailers in litigation alleging that they sold gasoline without revealing or accounting for temperature expansion, refusing to reconsider a denial of the retailers' motion to dismiss, said a Law360 report. "Defendants' motion for reconsideration of motion to dismiss for lack of subject matter jurisdiction, or, alternatively, for judgment on the pleadings ... is overruled," the court documents said.

The plaintiffs claim that because the defendants sold motor fuel for a specified price per gallon without disclosing or adjusting for gasoline's expansion in warmer temperatures, they are liable under state law theories including breach of contract, breach of warranty, fraud and consumer protection, the report said.

The class-action lawsuit, filed six years ago, represents consumers in 28 states. The plaintiffs sued 120 refiners and retailers for failing to install automated temperature compensation (ATC) devices at retail. They claim that marketers overcharge consumers for fuel in hot weather, when fuel expands in volume at the station, only to shrink later in the car's tank. The trial lawyers said refiners and retailers were pocketing $3.5 billion a year in extra profits from "hot fuel" sales to consumers but abandoned the unjust enrichment claim in March.

Shell, BP, ConocoPhillips, Casey's General Stores, Valero Energy, Wal-Mart and Sam's Club have reached settlements on the matter. Costco settled in 2009.

Seven major oil companies and three large retail chains will spend several millions of dollars to install automated temperature compensation (ATC) at their branded stations.

In June, refiners and retailers said that they would pay $21.6 million into a specially created fund--BP, ConocoPhillips, ExxonMobil and Shell agreed to pay $5 million each, while CITGO and Sinclair agreed to contribute $800,000. Valero agreed to pay $200,000 to contribute to the costs of carrying out the public notice plan and administering the settlement. It also agreed to pay $4.5 million in attorneys' fees and litigation costs as approved by the court.

( Click here for previous CSP Daily News coverage of the "hot fuels" issue.)

QuikTrip, Circle K, Kum & Go and 7-Eleven argued that the court lacked subject matter jurisdiction under the political question doctrine, contending that the definition of a gallon of gasoline could only be determined by Congress. The companies said the 2010 ruling was "clearly erroneous and manifestly unjust."

"Defendants assert that implementation of ATC devices would alter the definition of a 'gallon' and thereby interfere with a 'weights and measures' determination which the Constitution has explicitly committed to Congress," the court documents said. "Defendants argue that through its partnership with state regulators and the National Conference on Weights & Measures (NCWM), Congress has defined a 'gallon' solely in terms of volume."

U.S. District Judge Kathryn H. Vratil was not convinced, said the report. She said that "only by the most strained reasoning--that anything having to do with 'weights and measures' is off limits to federal courts--could this court find that the issues in these suits are exclusively committed to [Congress]."

By allowing the claims in this case to move forward, the district court is moving into legal territory that should be reserved for the National Institute of Standards & Technology (NIST), which Congress designated to define uniform weights and measurement standards, the companies argued.

"By conferring authority on the [NIST] ... Congress chose regulatory expertise, not case-by-case adjudication, as the appropriate policymaking vehicle," they said.

Vratil said, however, "The question here is whether defendants willfully omitted material facts, or engaged in unconscionable acts or practices, in connection with a consumer transaction in violation of the Kansas Consumer Protection Act," the judge said. "This will require determining whether temperature is a material term to a retail motor fuel transaction."

The companies also argued that under a pretrial order, the plaintiffs' claims depended on proof that "the unit of measurement governing fuel sales--the gallon--is inherently misleading." Any remedy would require a judgment about the wisdom of the metric itself, the companies argued.

However, Judge Vratil said that general theory had been in the case from the beginning and was not a new development that could be reconsidered, the report said.

Tristan L. Duncan of Shook Hardy & Bacon LLP, who represents the defendants, told Law360 that the ruling merely "kicks the issues down the road." The challenges will be raised again at the close of the plaintiffs' case and then on appeal if necessary, Duncan said. "We believe that this is a frivolous lawsuit and we do intend to defend it to the full extent," Duncan said.

See File Attachments below to read the full court document.