'Hot Fuel' Retool

Judge asks refiners, retailers to rework automatic temperature compensation settlements

Published in CSP Daily News

By  Carole Donoghue, Petroleum Editor

KANSAS CITY, Mo. -- Refiners and chain retailers are reworking their proposed settlement deals in the "hot fuel" class-action lawsuit after the judge in the case rejected many of their offers.

In general, the refiners agreed to pay $21.2 million into a special settlement fund. After payment of attorney's fees, claims administration and other expenses, two thirds of what was left was to be used to reimburse retailers for the costs of installing automatic temperature compensation (ATC) at retail or putting decals on dispensers that explain the effect of temperature on energy content.

The other third was to go to state weights and measures departments to help defray the costs of overseeing ATC.

The settlements were negotiated in the month before the first scheduled trial of the first "hot fuel" case, when the ultimate outcome of the litigation was in doubt. On September 24, however, a jury returned a verdict in favor of the industry, finding that refiners and retailers did not willfully fail to disclose the effects of temperature on the energy content of fuel.

But now Judge Katherine H. Vratil said the plans by Shell, BP, ExxonMobil, Citgo, Sinclair, ConocoPhillips and Valero do not fully address the needs of the class-action plaintiffs. She also said that she wants the deals for Casey's and Sam's Club Inc., which includes Wall-Mart, to be amended. The only agreement she approved was for Dansk Investment Group (formerly USA Petroleum).

Judge Vratil said she could not see how dispenser decals would benefit class members, and asked for more details on the number of dispensers to be converted to ATC. She also asked why the settlements limited payment to retailers to no more than 25% of the funds in each of the first two years after the deals were effective. To delay disbursement would diminish the value of the settlements by discouraging retailers from acting quickly to install ATC, she said.

The settlements provide that, after six years, any funds unspent would be given to a governmental for charitable purposes but didn't name the entity that would get the money. Vratil also questioned some of the individual deals. Why, she asked, was CITGO to pay only $800,000 into the ATC pot, with the money to go strictly to W&M agencies and not to retailers, while BP was kicking in $4.9 million? Also, why was ExxonMobil settlement more restrictive than BP's? ExxonMobil was given the right to object to any payment of more than $10,000 to an individual retailer, wholesaler or W&M department.

She also wanted tweaks to the Casey's and Sam's Club settlement. Casey's has agreed to convert its existing dispensers and install ATC at new sites over the next five years. Sam's Club will install the equipment over the same time frame in 19 states, and at another six states if it starts to buy gasoline on a temperature adjusted basis as a wholesaler. Both will also put disclosure stickers on dispensers. Vratil wants a provision requiring both to report their progress directly to the court, and not just to an attorney appointed to monitor the companies' compliance with the agreement.

Attorneys for Caseys and Sam's Club have agreed to the changes. Refiners will also adjust some of the settlements to address Vratil's concerns. For example, some firms will now make funds available only for retailers and wholesalers who install ATC and delete the provision reimbursing marketers for decals. They will also delete the two-year, 25% limit on payments.

Judge Vratil also had questions about the Valero settlement, which would allow the company to post the temperature of its diesel and unleaded regular on dispensers as reflected on the automatic tank gauge system installed at stations in 24 states. For three years after the effective date of the settlement, any marketer who complies would be included in a release of any claims filed under the settlement.

Vratil noted that throughout the trial, refiners had claimed that underground tank temperatures can differ materially from dispensed fuel temperatures. She said that she wants Valero to show how class members would benefit and also detail how many Valero stations do not have tank gauge equipment.

Judge Vratil set a January 7 date for a trial of the cases involving BP, CITGO, Exxon, Shell, Sinclair and Valero unless the settlement agreements could be changed. Attorneys for both refiners and the plaintiffs asked her to void that date, saying they would have new deals worked out shortly.

There are 30 other cases involving other retailers, such as RaceTrac, Sunoco, Hess, Sheetz and Tesoro.

Rather than send those cases back to their original states to be decided, the class-action attorneys have suggested that the Kansas court hold a federal bellwether trial of those claims in late 2013 because of its six years' of experience with the Kansas case. A similar bellwether trial could be held at state level, they said in court motions. They say California would be a good venue for a state trial, where actions are pending against Chevron, G&M Oil, Circle K, Kroger and Flying J, among others.

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