MADISON, Wis. -- A federal judge has ruled that Wisconsin's Unfair Sales Act is unconstitutional. Magistrate Judge William Callahan has ruled that because the state does not actively supervise the minimum markup law, it violates federal antitrust laws and the supremacy clause of the U.S. Constitution, said the Associated Press.
Callahan's ruling came as he threw out a lawsuit filed in U.S. District Court in Milwaukee by Lotus Business Group LLC against Flying J. Inc. Kenosha-based Lotus operates the Lotus Travel Center in DeForest. It alleged that stations [image-nocss] operated by Ogden, Utah-based Flying J in Black River Falls and Oak Creek were illegally selling fuel at a price lower than the law allowed.
Lotus attorney Robert Hankel said he did not know yet whether the decision would be appealed to the 7th Circuit Appeals Court. The statute has been under attack all over the place for years from publicity to court cases, he said. Inevitably, somebody's going to find a hole in it, I guess.
The law makes it illegal for retailers to sell gasoline without marking it up either 6% over what they paid or 9.18% over the average local wholesale price, whichever is higher. Violators face stiff fines from regulators and can be sued by competitors for selling fuel too cheaply. Passed in 1939, the law was intended to ensure fair competition and prevent larger companies from driving smaller ones out of business. It includes an exemption allowing stations to match competitors' prices.
Callahan said the state has not actively supervised the law as required under the Constitution in order to be immune from federal antitrust laws. He noted in his ruling that 1998 was the only time in the past 68 years that the percentage of the wholesale markup was changed, from 6% to 9.18%. Since then, Callahan wrote, inflation has gone up 27% while gasoline prices have risen 200%. The continued use of the 9.18% markup, despite the rise in retailers' fuel costs, does raise concerns about a lack of active supervision by the state, he said. Market conditions have no doubt changed drastically since 1998, but there have been no changes to the provisions of the minimum markup statute to reflect those changed conditions.
The state's requirement that an average gasoline price be used to determine retail prices, instead of the actual cost to an individual seller, also is troubling, the judge said. The law requires retailers to sell all products at least at the cost they paid. Only gasoline, alcohol and tobacco must be sold at about 9% above cost. The judge's ruling pertains only to the portion of the law related to gasoline sales.
Petroleum Marketers Association of America (PMAA) president Dan Gilligan said that it was too early for the group to comment on the specifics of this ruling. But he told CSP Daily News, The Wisconsin law has been a great benefit to consumers by keeping more competitors in the marketplace.It isunfortunate that this benefit is nowat risk. Let's hope some avenues forpreserving competition will emerge.
In a statement obtained by CSP Daily News, Bob Bartlett, president of the Wisconsin Petroleum Marketers & Convenience Store Association (WPMCA), said: We are still investigating the effect of [the] decision. We hope this case is immediately appealed.
The group vehemently disagrees with the notion that there has been no supervision because the Department of Agriculture, Trade & Consumer Protectionthe state agency responsible for administering the lawhas been and continues to be actively engaged in the administration of Wisconsin's Unfair Sales Act and in monitoring compliance with the Act. Furthermore, the Wisconsin legislature has reviewed the law many times since 1998. We believe this qualifies as 'active supervision' by the state.
Bartlett added, One of the most troubling aspects of the magistrate's decision is that there was no mention of the meeting competition component of the law. Thisis the true determinant of street prices and the reason why Wisconsin's Unfair Sales Act does not guarantee a 9.18% profitor any percent profitfor retailers. The notion that retailers earn from 20 to 30 cents profit per gallon of gasoline is simply wrong.
Flying J did not respond to a CSP Daily News' inquiry. But Jonathan Dibble, the company's attorney, told the Journal Sentinel that the retailer has never engaged in predatory pricing, but does keep prices low while still making a profit. Wisconsin's minimum markup law is a relic that does not work as well as free market forces, he said. The cost of operating a station has dropped in recent years with automated payment and cameras to police consumers, he said. "Some stations were taking that margin and laughing all the way to the bank and the consumer was paying for it, for margins that were too high," he told the paper.
Wisconsin Governor Jim Doyle, a longtime opponent of the markup, said he hoped the decision would spur the legislature to repeal it. "You could have a simple law that I've always proposed to fight against predatory marketing, to simply say you cannot sell a product below costthat's it," he told the newspaper. "I've always been in favor of getting rid of it."
But he noted overturning the law would be difficult because "there are a lot of forces that go to work to keep it in place."
Doyle also questioned the effect of the new ruling because Callahan is a magistrate judge. Because both parties agreed to jurisdiction, however, Callahan's decision carries the same weight as that of a federal district judge, said the report. An appeal would go to 7th Circuit U.S. Court of Appeals in Chicago.
The leaders of the Republican-run Assembly and the Democrat-led Senate said they supported the law, but that they would review it in light of the new decision. "We'll have to look at the court case and see if they're going to force us to change it," Senate Majority Leader Judy Robson (D) told the paper. She said the provision protects mom-and-pop operations.
Assembly Speaker Mike Huebsch (R) said he, too, supports the law. Assembly Republicans are split on the issue, he said. The Assembly is unlikely to act on the law until it studies the ruling and monitors any appeals, he said. "I believe at this time we will allow our law to stand in place and probably see very little action immediately," Huebsch told the paper. His district includes the headquarters of Kwik Trip, which he said supports the law. But Huebsch said he has heard more from small merchants who want to preserve the measure.
The state attorney general's office declined to participate in the lawsuit, but said in a June 27 letter to the judge that it may get involved if the issue of the law's constitutionality is raised on appeal. Kevin St. John, spokesperson for Wisconsin Attorney General J.B. Van Hollen, told AP that the ruling is being reviewed and a decision on whether to appeal it will be made later.
In his ruling, the judge noted that because the state did not participate, no evidence was presented showing that it actively supervises the law as it relates to fuel sales.
Hankel said he did not know why the state did not get involved in the case earlier. It's their statute that we were simply following, and my client takes it on the chin because their statute doesn't pass muster, he told AP. The decision is what it is. It's pretty much up to the state now what happens to the minimum markup law.
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