Justices Will Review $1.3-Million Verdict on Pricing by Texaco

WASHINGTON —  The Supreme Court agreed today to review a $1.3-million verdict against Texaco for price discrimination in a case that could force big changes in product distribution practices of businesses everywhere.

The justices will hear arguments next term in Texaco’s appeal of a U.S. 9th Circuit Court of Appeals decision upholding the jury verdict against the oil giant.

At issue is whether manufacturers such as Texaco can sell their product to wholesalers at a lower price than to retailers if such pricing results in less retail competition.

A federal jury in Washington state found Texaco guilty of price discrimination for selling gasoline to 11 Spokane retailers at higher prices than to two independent wholesalers, who in turn sold the gas to other retailers who competed with the Texaco stations.

A federal law known as the Robinson-Patman Act generally prohibits the sale of like goods to different purchasers at a different price but allows manufacturers to offer discounts to wholesalers to compensate them for the distributional services they perform.

In this case, the jury concluded that the wholesale discount was illegal because it did not merely reflect the wholesaler’s distribution costs but was passed on to other retailers whose customers were the same as the Texaco retailers’.

The case began when Ricky Hasbrouck, owner of Rick’s Texaco, filed suit along with 10 other station owners accusing Texaco of price discrimination. The suit alleged that from 1972 until 1981 Texaco sold gas at lower prices to John Dompier Oil Co. and Gull Oil Co., both of which supplied and operated a chain of retail stations in Spokane.

During a three-week trial, the Texaco station owners presented testimony that they had lost sales and profits as a result of the competition from Dompier and Gull. A jury agreed and awarded them $449,900, which was automatically tripled by law.

The verdict was affirmed by the appeals court in March.

Appealing to the nation’s highest court, Texaco argued that the verdict “puts in question the normal pricing practices of countless businesses across the country and jeopardizes the continued role of wholesalers in the American economy.”

“In calling for suppliers to sell at different prices within the wholesale level of trade based upon each wholesaler’s costs, the decision departs from established precedent, from practicality and from congressional intent,” Texaco said.

Lawyers for the Texaco dealers opposed the appeal, arguing that Dompier and Gull Oil were not wholesalers but retailers in disguise.

The National Assn. of Manufacturers sided with Texaco in the case, telling the court that the lower court ruling would “deter if not make impossible the use of independent local businesses as distributors.”