What's Behind the 'Hot Fuel' Settlements?

Details point to strategy motivating "sudden rush" to settle

KANSAS CITY, Mo. -- What appears to be a sudden rush by majors and some convenience store chains to settle the "hot fuel" class-action case after five years of court arguments may not be as dire as it seems for marketers.

The original claims by the class-action attorneys made against 100-plus refiners and marketers have been considerably weakened by rulings in the past few days by Judge Kathryn H. Vratil, CSP Daily News has learned.

"Some of the cases are settling, but at the end of the day the class-action case against the industry has become very weak because a lot of the claims they have made are now moot," said Holly Alfano, vice president with the National Association of Truck Stop Operators (NATSO).

Currently, the case is scheduled to go to trial May 7, but there may be other settlements before that.

The class-action attorneys, representing consumers in 28 states, have encountered substantial hurdles in their case, according to court documents.

Originally, they had claimed that refiners and retailers were pocketing $3.5 billion a year in extra profits by selling so-called "hot fuel" to consumers. They also accused them of benefitting by collecting tax dollars that were never passed over to Uncle Sam, and of conspiring together to put pressure on Gilbarco to drop plans to produce and sell automatic temperature correction (ATC) pumps in the U.S.

They have already abandoned the $3.5 billion unjust enrichment claim, voluntarily dismissing it last month. They have also seen some of their leading clients drop out of the case entirely.

Given their diminishing claims, marketers are puzzled as to why Shell, BP and ConocoPhillips, along with Casey's General Stores Inc. (as reported yesterday in a Morgan Keegan/CSP Daily News Flash; see also Related Content below), would suddenly settle out of court. It could be that they have done the math and decided that it's cheaper to settle than stay in, given that they do not run their own retail operations are more, said Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA).

"I think we're finally getting our day in court, and hopefully this case will come to a conclusion soon," he told CSP Daily News, noting the favorable rulings the judge has made.

Casey's may have decided to settle because it has only a few stores that would be affected by the case, according to one CSP Daily News source.

Ankeny, Iowa-based Casey's did not respond to a request for comment by press time.

Along with damages, the class-action attorneys have asked for an injunction that would bar retailers from selling fuel that is over 60-degrees Fahrenheit if the price has not been adjusted to account for temperature expansion. They also want marketers to be required to disclose that energy decreases as the temperature of fuel increases, and to install dispensers equipped with automatic temperature compensation (ATC) devices.

Currently, ATC devices on dispensers are not approved for use in the United States under weights and measures standards. In 2009, a leading committee of the National Conference on Weights & Measures recommended withdrawing a proposed ATC amendment. It said an "overwhelming majority" of comments were opposed to the concept because of economic factors. It also cited the lack of benefits to consumers and absence of uniformity in the market place, and the burden it would lay on state weights and measures officials.

One of the battleground states in the case is Kansas. Refiners have argued that the state could not adopt ATC at retail without making regulatory changes, while the plaintiffs say state rules already allow for the temperature-correction at the pump. The issue in the state has been complicated by a difference of opinion among state regulators which led to conflicting statements about ATC.

Costco has been posting labels on its pumps in Kansas that disclose how temperature affects motor fuel. State Weights & Measures Division director Timothy Tyson testified in a deposition that he considered the Costco decals to be true. He also said he was not aware of anything that would prevent a retailer from posting the temperature of their fuel.

Judge Vratil has ruled that Kansas law allows the sale of fuel in gross gallons but she did not rule on whether ATC was prohibited at stations. If the plaintiffs win at trial, she added, they could outline then what form of injunctive relief against refiners and retailers they wanted.

However, if Costco can post labels on its pumps, and if nothing prevents other retailers from doing the same, she could order that stations to disclose such information without requiring regulatory action by Kansas W&M. And, as in the pending Costco settlement, she noted, she could order the industry to take "all reasonable steps to seek regulatory approval of implementing ATC."

The class-action attorneys also claimed that refiners and retailers, through their trade associations, conspired to prevent the adoption of ATC at retail by coordinating their lobbying campaigns by putting pressure on Greensboro, N.C.-based pump manufacturer Gilbarco Inc.

The trade groups named are the National Association of Convenience Stores (NACS), PMAA, American Petroleum Institute (API), NATSO and Society of Independent Gasoline Marketers of America (SIGMA).

Gilbarco sells ATC-equipped dispensers outside the United States. In Canada, for example, more than 90% of retailers sell fuel through ATC pumps. It had asked California, through what marketers called a "backdoor approach," to certify ATC pumps for use in the state.

The class-action attorneys cited an internal Shell memo that noted, "If we buy any dispensers from Gilbarco, we need to have somebody call and tell them to back off if they want to sell anything to us. With all the recent changes in marketing, do we still have any company-owned stores?", wrote Jayme Cox, manager of government affairs for Shell in the Southwest.

They also quoted an email from current NACS chairman Tom Robinson to a Gilbarco official that said that the potential costs of ATC for marketers are "enormous" and that marketers were dubious of claims by Gilbarco that it had only sought the certification at the request of a customer.

Gilbarco president Martin Gafinowitz later told Congress that it had received one order for an ATC pump following news articles about hot fuel. Gilbarco said it didn't feel "pressured" by marketers, but that it understood from the "negative market reaction" that customers did not intend to buy the pumps and so decided not to take final steps to develop the product.

Judge Vratil dismissed the conspiracy claim. She said that the theory was flawed because it did not show that any of the refiners or marketers was able to direct or control the policies of the trade groups.

Lawyers for the class-action plaintiffs could not be reached at press time.

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