By Chuck Strouse
By Scott Fishman
By Terrence McCoy
By Ryan Yousefi
By Ciara LaVelle, Kat Bein, Carolina Del Busto, and Liz Tracy
By Pepe Billete
By Ryan Yousefi
By Kyle Swenson
Read Part 1
When the verdict came down in 1995, Jim MacDonald was elated. Three years after 22 Southern California service station dealers sued Chevron, and three months after the trial began, a jury ruled that the company had defrauded the dealers and owed them a total of $3.4 million. For MacDonald (ironically he'd won Chevron's coveted Platinum Award while the trial was in progress) the judgment proved the battle had been worth all the time and effort. “We felt vindicated,” he says. “We felt great.”
But Chevron appealed. A three-judge panel overturned the verdict. The company asked for attorney fees; this past March a judge awarded Chevron $6.8 million. The dealers are challenging that award, but if the decision stands, MacDonald and most of the other dealers will have to file for bankruptcy. He's personally on the hook for $687,000 and will have to liquidate his last service station and auto repair business, leaving him with nothing. “I cannot pay even a portion of what they've been awarded against me,” says MacDonald.
MacDonald, who has 44 years with Chevron as both an employee and a dealer, says the reversal has taken a heavy emotional and financial toll on all the dealers, only ten of whom still are in business. He doesn't understand the apparent vindictiveness behind Chevron's pursuit of the cash. Company spokesman Fred Gorell has said Chevron owes a duty to its shareholders to recoup the fees. But MacDonald doubts they'd care much about the extra penny per share the amount represents, even if they could collect it. “They know none of us can pay,” he notes. “There's been no human element in this.”
Dennis DeCota, who heads California's largest dealer trade organization, says Chevron has a broader objective. “They want to send a message on behalf of the industry,” DeCota points out. “The message is, “You can't afford to take us on.'”
As service station dealers across the nation have been forced out of business or squeezed to the brink, they reluctantly have turned to the courts in a last-ditch effort to save their livelihoods. Shell and Texaco, which formed a joint marketing venture in 1998, are facing a flood of antitrust and price-manipulation suits from Connecticut to California. “If there were ever a contest for the most-sued major,” industry newsletter Oil Express recently observed, “Texaco-Shell alliance companies Motiva and Equilon would surely win.”
Dealers are going after other companies as well. A federal court case against ExxonMobil in Corpus Christi, Texas, was in trial at press time; ExxonMobil faces other dealer suits in Florida and New York. Alabama attorney Jim Gunther has suits pending against BP Amoco in Alabama, Tennessee, North Carolina, and South Carolina, with more to follow. And in a case with huge implications for both the industry and consumers, Chevron, Shell, Texaco, Unocal and other refiners face a two-billion-dollar price-fixing suit filed by the State of Hawaii.
Escalating gas prices combined with the steady demise of service station dealers have brought heat on the companies from other states as well as the feds. California Attorney General Bill Lockyer has been investigating high prices on the West Coast since mid-1999. This past August Maryland Gov. Paris Glendening created a task force to study zone pricing, the practice of breaking up metro areas into segments and charging dealers different wholesale prices depending on the zone. Dealers have long complained that zone pricing is used to gouge consumers (and punish uncooperative station owners), and Glendening's executive order underscores the point: “There is indication that zone pricing may be a significant factor in the rising price of gasoline.”
Connecticut Attorney General Richard Blumenthal and U.S. Sens. Barbara Boxer of California and Ron Wyden of Oregon have called for federal intervention to help dealers cope with strong-arm tactics. “Some big oil companies appear to have embarked on an all-out campaign to drive their own franchisees out of business in an effort to tighten their stranglehold over California's gasoline industry,” Boxer wrote to the Federal Trade Commission in December 1999.
The FTC has been conducting its own look at the West Coast as well as last spring's price spike in the Midwest. FTC official Richard Parker recently wrote that the investigation has revealed “detailed information on practices in the industry that raise competitive concerns.”
Whether the feds have the resources or political will to go after the oil companies remains to be seen. But the companies have survived other federal inquiries in the past and are confident that the latest round will yield nothing new. “It's important to note that these investigations time after time conclude that it's the marketplace at work setting gasoline prices,” Chevron spokesman Gorell told the Los Angeles Times last December.
Several states have attempted over the years to pass legislation to protect the dealers. While a few have succeeded, most of those efforts have been beaten back by intense industry lobbying. In California, for example, the major oil companies and their trade groups have spent more than $4.7 million on lobbying alone since the beginning of 1999; during that period several state and local pro-dealer laws ultimately were defeated or placed in limbo. Millions more in campaign contributions to key legislators ensure that other initiatives never get a hearing or die in committee.
Faced with that reality, dealers are hoping for relief through the court system. Some have prevailed, winning multimillion-dollar judgments. The recent spate of suits has ferreted out incriminating documents that savvy lawyers are sharing to gain leverage. But the companies have flexed their financial muscle in the courthouse as well, and without some significant legal victories soon, extinction will become a matter of when, not if. “We can't afford to give up the farm,” says Will Woods, director of a Southern California dealer trade group. “They've got so many guns, they can outlast you forever.”
First thing every morning, Houston attorney Robert Steinberg arrives at his office and flips the switch on the toy known as Death Row Marv. Sitting in an electric chair with his limbs bound and electrodes fastened to his body, Marv gets the shock of his life. Across the victim's plastic chest, Steinberg has taped a new name: Shell. “I want to get back our pound of flesh for these dealers,” he explains. “It charges me up.”
Steinberg, whose “Bulldog” T-shirt, leather motorcycle pants, and fondness for obscenities speak for themselves, is one of an expanding army of lawyers filing state and federal lawsuits against Shell on behalf of dealers across the nation. His firm also is going after Exxon in the Corpus Christi suit, and he's exploring other class-action opportunities. “The dealers have worked hard for years for these companies, and the thanks they get is, “You're gone, beat it,'” Steinberg says. “That's unacceptable.”
It's not easy to sue a major oil company, no matter how obvious the transgression. With a seemingly unlimited legal budget, a Shell or an ExxonMobil can throw banks of lawyers and other resources at a case that the cash-strapped dealers can't possibly afford to match. Even when the lawyers work on contingency, as Steinberg does, time is on the companies' side: In a pair of years-old Exxon cases reviewed by the Houston Press(a sister paper of Miami New Times), the list of motions alone ran more than 100 pages. “Their attitude is, “We're Exxon, you're nothing, fuck you,'” Steinberg says.
One of the favored company tactics is to withhold documents requested by the plaintiffs, especially if that material looks bad. Houston service station owner Shoukat Dhanani got into a legal scuffle with Shell after the company canceled his gas supply agreement in 1999, citing as justification a “significant change in marketing strategy” clause in the contract. Asked to produce any documents that outlined the significant change, Shell responded in a court filing that the request was “not relevant” and “proprietary.”
Such obstruction has come back to haunt Shell more than once. A judge in an Indiana case became so incensed at Shell's consistent refusal to obey the rules that he ordered the company to pay the dealers' pretrial legal expenses totaling more than one million dollars. The judge later allowed Steinberg's team to travel to Indianapolis and copy whatever it wanted from the case files. Included in the files is a damaging deposition by a former Shell marketing executive that could weigh heavily in several other cases; the testimony indicates that Shell artificially inflated its wholesale gas price to offset rent rebates.
When the companies do provide documents and offer testimony, they invariably request that the evidence be sealed, claiming that the release of proprietary information could damage their business. Judges usually grant the wish, and in the event a case settles before trial, the seal becomes permanent. Alabama attorney Gunther would love to share some of the documents he procured in a case against BP Amoco that recently settled, but he can't. “I've got smoking-gun kind of evidence,” Gunther says, “but they put that [“confidential'] stamp on everything.”
The seals are a two-fold boon to the oil companies: The public never learns the truth, and opposing lawyers are barred from information that could be crucial. If the evidence is to be used at all, it has to be discovered from scratch. “They want everybody to have to reinvent the wheel, so the dealers know it will be more expensive,” says North Carolina plaintiffs' attorney Mark Lamantia.
Confronted with evidence that seems to back the dealers' claims of predatory practices, the companies often resort to legal technicalities as a shield. In an ongoing Florida case against Exxon, for example, the company was accused of failing to provide dealers a promised per-gallon rebate in its wholesale gas price over a twelve-year period. “Exxon contends that whether or not it actually reduced its wholesale prices is irrelevant,” the judge wrote in an order, “because its contracts with its dealers did not create a legal duty actually to do what it always claimed to have done.”
Sometimes the disclaimers are more sweeping. In one of Steinberg's cases, Shell filed a motion that included a telling item. Under Texas law, the motion read, “Shell does not owe a duty of good faith and fair dealing to plaintiffs.”
Unfortunately for the dealers, such motions often succeed, because the laws protecting dealers are limited at best and have few teeth. Congress passed the federal Petroleum Marketing Practices Act in 1978, but the law that went on the books was a watered-down version of the original bill. Subsequent efforts to strengthen it have been unsuccessful. Other federal and state laws protecting dealers have high hurdles that aren't easily surmounted, and oil companies that blast away at them often find sympathetic ears on the bench. “The playing field is about as level as the Himalayas,” remarks Steinberg dryly.
If motions to dismiss fail, and the years haven't drained the dealers of their energy and finances, chances are the companies will offer to settle at the last minute rather than risk going to trial. The structure is always the same: The companies pay out big and admit nothing, occasionally stating for the record that the deal was made to avoid costly litigation. Though the terms usually are sealed forever with the documents, sometimes they leak. Exxon shelled out $5.2 million in Harris County (in which Houston is located) to settle a 1993 Texas price-manipulation case. In a much-publicized collusion case filed by four Western states that dragged on for fifteen years, seven major oil companies agreed to pay $150 million.
Though some of the dealers -- especially those now suing Shell -- have amassed solid evidence and seem less willing to settle on the cheap, results of dealer lawsuits that make it to a jury have been decidedly mixed. Dealers in Michigan won a $2.4 million verdict against Sunoco in 1998, only to see a judge set aside the ruling on appeal. A jury deadlocked in a Florida class-action case against Exxon last year; retrial is set for 2001.
The decision against the dealers in the California Chevron case may have an especially chilling effect on future litigation. When Steinberg sat down with Exxon lawyers in a recent mediation session, the company position was uncompromising; one of them made reference to the $6.8 million in attorney fees. “He said the Chevron case applies to my guys, too, and maybe I should think about that,” Steinberg recalls.
History doesn't seem to deter Steinberg and other lawyers, who have been encouraged by recent rulings in cases. But dealers recognize the odds against them, and most say that all they really want is to be bought out or compensated at a fair price that will enable them to move forward with their lives. Unless companies are brought to their knees in court, however, the defendants aren't likely to give that up voluntarily. “Can you fight the oil companies?” asks South Florida Shell dealer Dimitris Karavokiris. On the verge of losing his business, Karavokiris hasn't sued yet but is weighing his options. “Do we have the money, the time? I don't know, to be honest with you.”
Jack Greco knew better than to believe the battle was won. A Chevron dealer and chairman of the Nevada Gasoline Retailers Association, Greco had helped convince the state legislature to pass a landmark dealer-protection statute in 1987. Known as “divorcement,” the law prohibited oil companies from owning and operating more than fifteen gas stations in Nevada, and it froze the number of company-run locations at existing levels. ARCO, which had been ridding itself of lessee dealers and running the stations itself, was forced to turn half its network back to dealers.
Getting the law through wasn't easy -- ARCO led the opposition, and the company produced reams of paper showing that divorcement in other states led to higher gas prices. Dealer claims of being undercut and driven out of business by company-run operations were mostly anecdotal; where was the proof?
But ARCO drew the ire of lawmakers by refusing to turn over documents, even in the face of only the second legislative subpoena in Nevada history. Eventually the state assembly issued a contempt citation, after which ARCO produced the requested information, but only after securing an agreement that no one but the three subcommittee members could view the documents and that they couldn't reveal the details within.
The dealers had succeeded in obtaining one confidential report -- a 1982 outline of the company's plan to eliminate dealers as part of its makeover into a low-cost competitor -- which they passed out to legislators and the media. Coupled with the other documents (which, according to one committee member, showed that ARCO was pumping thousands of dollars per month into its operations to keep them in the black), the revelation helped propel the divorcement bill into law. “That thing passed like a ball of fire,” Greco says.
The law solidified the position of the remaining dealers in Nevada, reversing a dramatic shift toward company-run stations the previous five years. And though the oil industry steadfastly claims that divorcement leads to higher gas prices, Nevada had a different experience, at least according to a 1996 ARCO letter to the state attorney general. “During most of 1995 and year-to-date 1996,” the letter stated, “Reno and Las Vegas prices, excluding taxes, have been among the lowest on the West Coast.”
Periodic behind-the-scenes industry efforts to repeal divorcement in Nevada were thwarted over the years, but in 1997 a provision was slipped into an energy deregulation bill at the end of the legislative session. Strapped for time and cash, the dealers agreed to a compromise that essentially grandfathered in existing dealers while allowing companies to add to their retail holdings. “They wore us out,” says dealer consultant Tim Hamilton, who helped craft the deal. “We didn't have the resources to fight.”
Five states plus Washington, D.C., have active divorcement statutes, but the oil industry has been able to hold the line in recent years. The same holds true for other legislation aimed at protecting dealers and limiting the ability of companies to control the retail market. These include prohibitions against companies from selling gas below cost and “open supply” laws that would allow dealers to buy from any wholesaler of the same brand; dealers who lease their stations are otherwise restricted to buying directly from the company at whatever price the company sets. The past two years saw rejection of both divorcement and open supply laws in California and Arizona, where high gas prices have kept the issue on the front burner.
For the dealers such laws represent their only chance for survival beyond the courts. But the public also benefits, they argue: With the dealers gone, no marketplace barriers exist to keep the companies from charging what they want at the pump. “The dealers are competitors on the street,” says a Shell marketing manager who asked to remain anonymous. “Get rid of the competition, and basic economics tells you the price goes up.”
The oil companies offer consistent explanations for why they oppose divorcement, though only Equiva, one of the Shell-Texaco joint venture companies, would respond to questions. According to its prepared statement, divorcement represents “government intrusion into the marketplace.” Moreover it reduces competition by restricting a class of trade -- company operations -- from operating freely, to the detriment of the public.
It's not clear how replacing dozens of independent dealers with a single entity enhances competition. Regardless the industry has produced plenty of studies to show divorcement is anti-consumer. An industry-funded study in Maryland, where a divorcement law has been in place since 1973, found that prices went up in that state after the law was passed. The state Department of Fiscal Services made the same finding in a 1988 report.
A 1987 study commissioned by the Maryland Comptroller's Office, however, found just the opposite. Over a seven-year period, the study concluded, “the total savings enjoyed by Maryland motorists relative to motorists in non-divorcement cities was over $102 million.”
Tim Hamilton has argued the benefits of divorcement just about everywhere the issue has been raised. He has facts and figures to counter every oil company argument about divorcement and other dealer protection laws, and he's faced off many times with industry experts in public debates. Misinformation, he says, is their stock-in-trade. “If Walt Disney was still alive, their noses would bust a hole in the wall,” Hamilton comments.
Data may be conflicting, but one fact is undeniable: When faced with a divorcement initiative, the industry will do whatever it takes to defeat it. Despite the usual industry lobbying barrage, the San Diego County Board of Supervisors passed a local divorcement ordinance in 1998 in response to perceived gas price gouging. The Western States Petroleum Association, an industry trade group, sued the board for $50 million. The ordinance was withdrawn.
Everyone has a breaking point, and Mike Fiori had reached his. The Cleveland Shell dealer had seen his profits nose-dive after months of high wholesale gas prices and a huge rent increase. Though his dealer rep had promised Fiori that Shell would keep him competitive, the stations around him were selling at a price that left him no margin with which to work. One of his service bays had a broken lift, but no repair was forthcoming. A dealer for 35 years, he saw his life's work going down the tubes.
In November 1999 Fiori called his rep for the umpteenth time and complained about a station up the street underpricing his cost. “He told me that they're making money, and that's the way it is, and if you don't like it, too bad,” Fiori remembers. “He talked to me like I was some kind of garbage.”
Fiori slammed down the phone, but seconds later called back. No one picked up. Enraged, he left a message on the answering machine. “I said, “The next time I see you, I'll slap the shit out of you,'” he recalls.
That afternoon he got a phone call from Shell security in Houston asking about his “threat.” The rep later filed charges against him, and this past March, Fiori heeded the advice of his lawyer, pleaded no contest to a minor charge, and paid a $200 fine.
Two days later Shell terminated his lease, citing a clause that prohibits criminal activity. Fiori is fighting the eviction in court.
Shell would not comment on pending litigation, nor would other oil companies contacted by the Houston Press, but dealers who allegedly violate the terms of their leases can expect hard times from their suppliers. Especially, it seems, if they make noise. Los Angeles-area Shell dealer Keith Fullington set up a makeshift prison cell this past May to protest the company's pricing practices. After he invited local television stations to film him behind bars, Shell sued. Fullington had to dismantle the cell, and this fall he got official word that his lease won't be renewed after it expires next year.
Even if the squeaky wheels win lawsuits, they have no guarantees of cooperation. As part of his 1993 settlement, Houston Exxon dealer David Vawter was required to make a “good faith effort” to sell his station. Seven years and ten good faith efforts later, Vawter is still in business thanks to Exxon's rejection of every potential buyer. Recently, like Fullington, he was notified that his station no longer is in the company's long-range plan.
Chevron has been particularly aggressive with agitators. Hawaii Chevron dealer Frank Young, who often has accused oil companies of colluding to inflate wholesale prices, is fighting an eviction notice for not keeping his station open the required number of hours. Alan Bowdish, an Oregon Chevron dealer and head of the state's dealer organization, repeatedly has found himself in the highest-priced zone in his area. In Arizona Jesse Lugo sued Chevron and later settled after the company evicted him in 1997. Lugo, perhaps not coincidentally, had been legislative director for the state's dealer group.
And lest anyone miss the message, Chevron products manager W.J. Berghoff sent a letter to its remaining lessee dealers in Western states in November 1999, announcing a new “market value” rent program. Under the program rents would double on average, and new fees would compound the monthly bill. Not to worry, though, as the boldface type in the first paragraph noted: “There will be no immediate effect on the rent you pay, because Chevron will temporarily waive these new rents.... While we hope it will not be necessary to actually implement this program by withdrawing the rent waiver, Chevron must have the flexibility to respond quickly should the need arise.”
What that need might be was spelled out quite clearly. Citing five state and local government initiatives to protect dealers in California, Oregon, and Arizona that had been given “serious consideration,” Berghoff stated that his company had to be prepared for the worst if they were passed. “Chevron can no longer ignore this threat,” he wrote.
Chevron officials subsequently denied that the letter constituted a threat of their own. But imagining the result of such a shift would not be difficult: Shell went to a similar rent program in 1998, and since then its dealers have been dropping like flies. Even if dealers somehow could survive the hike, the additional costs would have to be passed on to consumers, raising pump prices even higher than the recent record levels. “This letter provides evidence of a price-increasing action by Chevron based on punitive, political, anti-competitive motives,” wrote Oregon Sen. Ron Wyden in a follow-up letter to the FTC. “The letter to lessee-dealers makes clear that Chevron is exploiting its enormous market power to raise gas dealer prices.”
When FTC attorney Eugene Higgins reported on ARCO's pricing practices in late 1982, he didn't mince words. Recommending a full-bore antitrust investigation, Higgins concluded that ARCO was selling gas below its cost. Though he could not be sure why ARCO would choose to lose money, he wrote, “The answer would appear to be that ARCO will raise the price of its gasoline after its selective price-cutting has forced the closing of a sufficient number of the cost-efficient independent stations and intimidated the rest of the independents.”
Higgins closed his report with a quote from former Supreme Court Justice Louis Brandeis: “[We] should be under no illusions as to the value or effect of price-cutting. It has been the most potent weapon of monopoly -- a means of killing the small rival to which the great trusts have resulted most frequently. It is so simple, so effective.”
Shortly thereafter Higgins was reassigned to a minor matter in Iowa. The ARCO investigation died. “They blew him off into the cornfields,” says Nevada dealer Jack Greco.
The FTC is investigating allegations that oil companies deliberately have run up gas prices. Results were supposed to be ready by now but have been delayed indefinitely, and as each day passes, the likelihood that anything will come of it grows more remote. The momentum generated by two-dollars-per-gallon gas in the Midwest has slowed (especially since prices fell within days of a congressional outcry), and consumers seem used to the idea of paying substantially more at the pump than they did a year ago.
The companies have a pile of answers to the pricing question, backed by industry analysts and experts. OPEC, with its soaring crude prices, has been the chief whipping boy -- nevermind that most of the crude serving the West, where prices are highest, comes from California and Alaska and costs the Chevrons and BP Amocos a fraction of OPEC's price to produce. Persistent supply shortages, even if the companies have the ability to rectify them, provide another ready excuse. Zone pricing at the retail end simply “recognizes market conditions and how those conditions affect prices,” as Equiva's prepared statement explains.
While some Federal Trade Commission staffers might like to penetrate the propaganda haze, they can't get out of the starting gate. Swamped by the spate of oil company and other big-ticket mergers, the agency is ill equipped to evaluate those deals let alone devote scarce money and personnel to antitrust claims. “The merger wave strains the FTC resources to the breaking point,” agency chairman Robert Pitofsky told the House Judiciary Committee earlier this year.
In fact only 50 employees in the agency's Bureau of Competition are left to scrutinize antitrust cases, as one-third of its staff has been transferred to the merger side. And Congress is loath to increase the bureau's numbers, which were cut in half during the Reagan-Bush years and have never recovered.
Even if FTC staffing levels were beefed up, any efforts at blocking the oil industry might encounter resistance from other quarters. The companies continue to spread their wealth in selected political circles to further their agenda, and they expect a return on their investment. Industry contributions to federal campaign coffers over the 21 months since January 1999 have topped $14 million, not including millions more spent on lobbyists. As Chevron spokesman Jack Coffey recently told the Associated Press, the industry spends vast sums on lobbyists “to be sure our business operations can continue in the way we want them to continue.”
In that environment the companies are having a field day. Texaco and Shell have admitted publicly that since they merged their marketing operations, both now price their gas the same. “They've equalized the price of two different products that ordinarily would be competing in the marketplace,” explains Los Angeles attorney Tom Bleau. The admission has inspired Bleau to file a price-fixing case against the companies in federal court, but there has been no concurrent peep from regulators.
Nor has a wave of station swaps among companies that began in the late Eighties resulted in any visible concern. In 1993, for example, Chevron swapped 66 stations in the Washington, D.C., area for 59 Exxon stations in South Florida; this past August, Shell sold all 27 of its stations in the Orlando area to BP Amoco. The swaps enable the companies to instantly increase their market share in regions where they already have a strong presence while bailing out of more marginal markets. Almost every one of the swaps has spelled trouble for dealers, who often are given a choice: Buy their stations at a premium or find something else to do.
With no help in sight from elected officials, and the court route posing a major financial risk, service station dealers are at a crossroads. Too stubborn to throw in the towel but too streetwise to ignore reality, they waffle between two distasteful options. “I've spent my life building this business, and I'm not gonna let them take it away from me,” Cleveland Shell dealer Jerry Gorczyca declares defiantly. Moments later he changes course. “I don't know if we're fighting a losing cause and we should just let go, or if we should keep on fighting.”
After 39 years Gorczyca is saddened by the changes he's seen, and not just in the gas business. Before, a man was only as good as his word. Relationships were built to last, with customers as well as suppliers, and loyalty was rewarded in kind. All the institutions that gave meaning to the word community -- florists, funeral parlors, hardware stores -- operated on the same principles. Those principles, Gorczyca laments, seem as distant today as the dealers he's seen driven away.
“What they built this country on, the small people, they're going to eliminate 'em.”
Running on Empty
Luis Konski sees the humor. A Miami attorney who makes part of his living suing major oil companies on behalf of dealers, he has experienced firsthand the arrogance -- and power -- of his adversaries. “It is very presumptuous of us to take on the big oil companies,” says Konski. “We should just lie down and let 'em walk all over us.”
Having worked dealer cases as long as anyone in the area, Konski runs into the same obstacles over and over again. The companies are very careful to put only certain things in writing, and the dealers are too trusting to realize that what they were told verbally means nothing. “They're promised the world, and it's all on a handshake,” he says. “An oral agreement is only as good as the paper it's written on.”
A Miami federal court case against Exxon offers special insight into oil company tactics, both before and after an action is filed. Beginning in 1982 Exxon introduced a “discount for cash” program to attract more price-conscious consumers. The company also instituted a three percent fee to the dealer on credit-card sales. To offset the fee, dealers were supposed to get a 1.7-cent-per-gallon reduction in their wholesale gas price. But documents and testimony showed that except for two brief periods in 1982 and 1991, the dealers never got the break over the twelve years of the program.
After a shocked group of dealers heard company executive Jim Carter admit at a national meeting that they hadn't been receiving the discount, they filed a class-action suit in 1991. The amount Exxon saved by depriving the 12,000 dealers in 37 states of their penny-plus per gallon is eye-popping, according to their attorney. With interest, says Jay Solowsky, “the aggregate is around a billion dollars.”
Exxon wasn't about to let the case proceed smoothly. As records show the company immediately flooded the court with every conceivable motion, slowed the discovery process, challenged witnesses, and otherwise obstructed progress. Eight years later the case finally went to a jury, which was unable to reach a verdict. A new trial is set for January 2001.
Even if the dealers win the next go-round, they face numerous appeals and challenges that eventually could reach the state Supreme Court. “We're probably looking at a four-year road,” Solowsky says. In the interim the dealers must wait, and the waiting is painful. “This is not a windfall for them,” he says. “This is money that was taken out of their pockets, and some of them desperately need it.”
Delay is nothing new to Solowsky, who has several oil company notches in his belt from previous cases. “They institutionalized the process of stonewalling,” he says.
As they while away the days, Florida dealers aren't likely to get much help from state lawmakers. Florida passed a divorcement statute in 1974 that fixed three percent as the maximum number of stations a refiner could run as company operations in the state. The law remained dormant while a series of appeals wound through state and federal courts, but ten years later, it was finally upheld.
The major oil companies mounted a campaign to have divorcement repealed in the 1985 session and eventually cut a deal with wholesale distributors who previously had favored it. The compromise was company support for passage of a bill that prohibits below-cost pricing, which the distributors wanted, in exchange for killing off divorcement.
Konski says the substitute hasn't worked as advertised, mirroring opinion in the six other states that have similar predatory pricing laws. “In my judgment it has been fairly ineffective,” he opines. “So far, there have been maybe four or five actions” in fifteen years.