By Don Resnikoff and Tracy Rezvani
A gasoline price-fixing lawsuit brought by D.C. Attorney General Irving Nathan was thrown out of court this month, ruling the District has no grounds to bring such an action. The legal complaint filed by Nathan against ExxonMobil and local gasoline distributors would have blocked anticompetitive exclusive dealing contracts by distributors (often called “jobbers”). This could have reduced gasoline prices in the District.
On what grounds did the Attorney General (AG) file suit?
The AG’s action charged violation of a local statute with limited proof requirements, the Retail Service Station Act, D.C. Code §§ 36-301.01 et seq. (the “RSSA”), which prohibits distributors from enforcing exclusive dealing contracts with gasoline retailers.
Nathan’s public statements and various court filings report in some detail the facts that support an antitrust enforcement action. In a press release announcing the suit, he said, “Under the District’s gasoline marketing law, a retail gasoline dealer is free to purchase a brand of gasoline from any supplier of the brand. Our suit seeks to end these unlawful supply restrictions, increase wholesale competition, and bring down retail prices at the pump.”
He also explained the gasoline market’s dysfunction in a letter published by the Washington Post.
The facts outlined in Nathan’s letter are straightforward: "Vertically imposed supply restrictions, while perhaps 'benign' in a truly competitive market, have great potential to harm competition and raise consumer prices in one dominated by a single large supplier. The unusually high prices at many D.C. pumps should surprise no one. The District’s lawsuit challenging exclusive supply agreements is brought against a single, large gasoline wholesaler that supplies about 60 percent of the city’s stations, including almost all of the Exxon, Shell and Valero brand stations."
What was the opinion of the court?
The legal action against ExxonMobil was not dismissed on the merits of the case. Instead, the Court ruled that the AG lacked standing under the relevant Subchapter of the RSSA: “Until such time as the [DC] Council changes its position, the Court finds that the Attorney General has no standing to bring actions under that Subchapter of III of the RSSA, more specifically, D.C. Code § 36-303.01(a)(6) and (a)(11)."
The court’s conclusion is that while the RSSA vests authority in the Mayor (and by extension the AG) to bring actions under certain Subchapters of the RSSA, the authority does not include AG actions under Subchapter III, the Subchapter on which the Attorney General's Complaint is based. Instead, the court concluded, subchapter III permits only actions by particular affected dealers.
It should also be noted that Judge Iscoe’s opinion includes a footnote telling ExxonMobil that it could indeed be held liable under the RSSA for the alleged conduct.
What does the court’s dismissal mean for distributors?
According to the Washington Times, “the decision will allow the Capitol Petroleum Group owner Eyob “Joe” Mamo to keep in place ‘exclusive supply agreements’ that require 27 independent operators to run gas stations he owns to purchase gasoline from his distribution company.”
The reason dominant distributors can successfully use exclusive dealing requirements to keep prices high is that the exclusivity requirement locks in the retailer and prevents the retailer from shopping for a lower wholesale price. Retailers forced to pay high wholesale prices have little choice but to pass on the high price to consumers. If consumers in particular neighborhoods have limited ability to avoid the locked-in retailers, then those consumers are likely to share the experience of high prices being passed on to them.
What do the gasoline experts say?
Experts like John Townsend II of the AAA and antitrust expert David Balto have publicly pointed out that a duopoly of local gasoline distributors has used exclusive dealing contracts with gasoline retailers that keep prices artificially high.
The Washington Times also reports that AAA Mid-Atlantic calculated “the average cost for a gallon of unleaded gas in the District was $3.87 — well above the regional average of $3.64 a gallon.”
“It’s some of the most expensive gas on the East Coast,” spokesman John B. Townsend II told the Washington Times. He also indicated that “the cause was the way distributors control the prices in the city.”
How could the Attorney General and the District move forward?
The public interest would be served by a trial of the facts alleged by the attorney general. The trial would serve the interests of the consuming public as well as gasoline retailers.
The DC Council should consider vesting authority in the Mayor and AG to bring an action under the relevant Subchapter III. This would require D.C. Council to fix the statute to provide the necessary authority to Attorney General Nathan. Council Member Mary Cheh (Ward 3) has announced that she plans to introduce emergency legislation in June that would grant the city authority to sue again.
Alternatively, if the lower court decision is not reversed on appeal, Nathan could consider further court action under D.C. Code § 28-4502, the District’s antitrust statute (which is substantively identical to the federal Sherman Act).
Private plaintiffs could also sue; but, that requires plaintiffs with a David v. Goliath kind of courage, and substantial financial resources.
Opinion
What would be unfortunate for District residents is to leave this question unresolved: Does anticompetitive conduct by distributors who dominate the market pushing gasoline prices up in DC?
There is good reason to believe that if the court reached the antitrust merits, the District would prevail, and certainly enough reason to so believe for a trial on the merits to be appropriate.
The AG Nathan’s action relied on a relatively narrow local statute, with limited proof requirements, that prohibits exclusive dealing. But the much broader antitrust point, is that there is good reason to believe that a trial on the merits would lead to the conclusion that ExxonMobil and the defendant jobbers have used their market power and exclusive dealing requirements in ways that have caused artificially elevated pricing of gasoline.
The issues of anticompetitive conduct raising local gasoline prices should not be ignored, and the AG’s staff should be permitted to present relevant proofs so a factual finding can be made in a court of law.
Some may have the opinion that a judicial proceeding permitting proofs of anticompetitive conduct by the Attorney General in Court is undesirable, but such an opinion would make sense only if there were strong reason to believe that the AG’s allegations are unfounded. And, there is good reason to believe Attorney General Nathan’s allegations are correct.
More About The Authors
Don Resnikoff is a lawyer who has had DC gasoline retailers as clients.
Tracy Rezvani is a Shareholder at Rezvani Volin & Rotbert P.C. The views she expresses are her own, and are not offered on behalf of her firm.
