WASHINGTON -- As reported yesterday in CSP Daily News, the U.S. Supreme Court heard opening arguments in its first antitrust case of the new year, Texaco & Shell Oil v. Dagher, a class-action suit against the two Majors by 23,000 gas station owners. The case will determine whether Texaconow a part of Chevronand Shell Oil violated the Sherman Antitrust Act by setting one price for the products that their gasoline marketing joint venture, Equilon, sold to the stations.
In "spirited" questioning, the justicesled by Chief Justice John Robertsseemed skeptical [image-nocss] of arguments by a lawyer for the station owners that ChevronTexaco Corp. and Shell Oil Co. violated antitrust laws and fixed prices, said a report by the Associated Press.
Roberts described the station owners' arguments as "a very artificial hook." Other justices, including David Souter and Stephen Breyer, wondered whether the arguments were weak because the price was set by the legitimately formed joint venture.
In 1998, when ChevronTexaco was still Texaco, the company joined with Shell to form Equilon Enterprises and Motiva Enterprises to handle refining and marketing of their gasoline. Equilon focused on the western United States, while Motiva handled the eastern United States and Saudi Arabia.
The two ventures charged the same wholesale price for Texaco and Shell gasoline, which were sold as separate products under the companies' brand names.
In 1999, several gasoline distributors filed a class-action lawsuit in California, alleging that Texaco and Shell had used Equilon to fix gasoline prices in violation of antitrust provisions of the Sherman Act.
Justice Antonin Scalia said he did not believe the Federal Trade Commission (FTC) would have approved the joint venturesas it had doneif the two oil companies had dominated the market.
"Anybody can fix prices.... It's illegal per se," countered attorney Joseph M. Alioto, who represents the station owners. The companies do not have to be the biggest in the business, he said, to control the market.
Neither Scalia nor Roberts seemed swayed.
If the joint ventures are not supposed to set the prices, who is, Roberts asked. He said the joint ventures must price their products, and it should not matter whether they are sold as a new brand or under the Shell and Texaco labels.
The court's decision could resonate across the business world, affecting how future joint ventures and mergers are structured, not just with oil companies. The ruling also could be significant in signaling how the Roberts court will interpret antitrust laws.
The Equilon and Motiva ventures lasted from 1998 to 2001, when Texaco sold its share to win approval of its purchase of Chevron.
Alioto told the justices the joint ventures were launched when crude oil prices were at their lowest since the Great Depression. That is why, he alleged, the two oil companies created Equilon and Motiva to drive the prices up.
In court papers, the station owners said they paid $1 billion or more in excessive charges.
A trial court judge dismissed the lawsuit against the oil companies. But the San Francisco-based 9th Circuit U.S. Court of Appeals reversed, ruling the case should go forward because there was evidence that the ventures had improperly restrained trade.
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