High Court Rules for Oil Firms
A Texaco Inc. and Shell Oil Co. joint venture didn’t break antitrust law when it set pump prices in the Western United States, the Supreme Court said Tuesday, ending a years-long battle over allegations that the companies inflated prices and forced dealers out of business.
The 8-0 ruling was applauded by the oil companies and by major corporations outside the industry that saw the case as a threat to joint ventures of all kinds.
Gas station dealers, their attorneys and a consumer group blasted the high court’s conclusion as a blow to motorists. They said the decision would give businesses wide latitude to reduce competition and control prices.
Justice Clarence Thomas, writing for the court, agreed with the companies’ argument that it was legal for the historic competitors to charge the same price for their different brands, which once varied widely in cost in different markets. Thomas said the pricing policy “amounts to little more than price setting by a single entity.”
Justice Samuel Alito Jr. didn’t participate in the deliberations because he joined the court after the Jan. 10 oral arguments in the case, which was brought by service station owners, primarily from Southern California.
Hearing about the decision Tuesday was “like somebody dumped cold water on my head,” said former Shell dealer Kevork Sislian, who joined the lawsuit after he lost his Los Feliz district station and now runs a Los Angeles dry-cleaning business. “It means we lost everything we had.... Our future was depending on this.”
Shell Oil Co., the U.S. arm of Royal Dutch Shell, said in a statement that it was gratified that the justices upheld a U.S. District Court decision that “neither Shell nor the joint ventures violated any antitrust law.” Donald Campbell, a spokesman for Chevron Corp., which bought Texaco in 2001, said, “We are pleased the Supreme Court has upheld our position that it was not illegal price fixing for this joint venture to set the selling price for its own gasoline, just as any other business does.”
The case grew out of the formation in 1998 of Equilon Enterprises, a joint venture that consolidated the refining, marketing and retail operations of Texaco and Shell in the West. The Federal Trade Commission approved the venture along with a similar operation in the East.
Within a year, Shell and Texaco dealers complained that gasoline prices had jumped by 40 cents a gallon in Los Angeles at a time when crude oil prices were falling. They said the venture was forcing dealers out of business and leading to station closures in places where Texaco and Shell stations had been competing.
Fouad “Fred” Dagher, one of more than two dozen dealers in the lawsuit, said the decision was a shock. “I’m disappointed in the whole system,” said Dagher, who lost six of his nine Shell stations after the joint venture began.
The oil companies never disputed that they equalized the prices at Shell and Texaco stations after the venture was created, but they denied that they did so illegally.
The district court agreed with the companies and threw the case out. It was revived in June 2004 by a U.S. 9th Circuit Court of Appeals ruling. Texaco sold its stake in the venture as a condition of its 2001 merger with Chevron Corp. The Supreme Court decision rejected the dealers’ claim that the venture amounted to an automatic violation of antitrust laws.
The high court indicated that the dealers would have to prove there were anti-competitive effects on the market and then prove that those effects were not outweighed by beneficial effects such as cost savings that would be passed along to customers, according to Gillian Hadfield, a law professor at USC.
“The court is not saying any joint venture can price any way it wants,” Hadfield said. But, she said, “It’s a signal to potential antitrust plaintiffs that it’s going to be harder to prove these cases.”
The case was being closely watched by companies and business groups that had urged the Supreme Court to overturn the appeals court ruling because they believed it would stymie commerce.
“The 9th Circuit decision created a great deal of uncertainty for existing joint ventures,” said W. Stephen Smith, an antitrust expert at Morrison & Foerster who filed a brief with the high court on behalf of several banking trade groups.
The Supreme Court ruling, he said, is “a significant and positive development for those industries that rely on the use of the joint venture structure to provide better products and services at cheaper prices.”
Thomas Bleau, one of several attorneys who represented the dealers, said, “We’re very disappointed by the ruling and feel that big oil has created an exception to the rule against price fixing that is further eroding our antitrust laws.”
Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, said the court’s ruling was tantamount to giving oil companies free rein.
“This is the ultimate example of, ‘Unless you catch the oil executives actually smoking cigars and carving up a market, there cannot be an antitrust prosecution,’ ” he said.