Friday, December 1, 2006

Texaco v. Dagher, No. 04–805 (U.S. Supreme Court, February 28, 2006.)

Several lawsuits were filed in the wake of the 1998 combining of Shell and Texaco’s marketing businesses. Probably the last active lawsuit was thrown out by the U.S. Supreme Court in a unanimous decision written by Justice Clarence Thomas. Oral argument was held on January 10 and the decision was issued in record time on February 28, 2006.
No Price Fixing
The theory of the case filed in California was that the motive for the formation of the new company called Equilon (Equiva on the east coast) was to fix the price of gasoline sold to Shell and Texaco dealers and eliminate competition between them in violation of the Sherman Act.
If Shell and Texaco had gotten together and agreed to charge the same price to their retailers without forming the joint company, that would clearly have violated federal anti-trust law, a so called per se violation. But, the oil companies convinced the U.S. District Court Judge that the “joint venture” (actually a Delaware limited liability company) made all the difference because Shell and Texaco were now one company instead of two in competition and the oil company’s lawyers argued that they had to charge the same prices to avoid a violation of price discrimination laws by dealers.
On appeal, the Ninth Circuit Court of Appeals in San Francisco saw through the ruse and reinstated the suit saying that Equilon’s “price-optimization” policy was price-fixing by a different name. The opinion stated that far from enhancing competition the merger allowed Shell and Texaco to raise prices as crude oil prices fell. When crude reached near-historic lows, dropping $10 to $12 a barrel between September 1998 (Shell and Texaco formed Equilon in June of 1998) and February 1999, Equilon raised its prices 40¢ per gallon in the Los Angeles area and 30¢ in Seattle and Portland.
The reversal of the Ninth Circuit Court of Appeals by the Supreme Court was expected in light of the abandonment of strict enforcement of anti-trust laws by the federal government and courts. A victory by dealers would have been of major significance because of the large amount of money that could have been awarded against Shell and Texaco and could even have been tripled under the federal anti-trust law.
Score Card
Of all the lawsuits filed after the formation of Equilon, only one was successful. Abrahim vs Equilon was filed by this law firm on behalf of over forty California Shell and Texaco Dealers alleging that Shell and Texaco had failed to offer its lessee dealers the right to purchase the station properties that were being transfered to Equilon as required by California law.
As with the Dagher case, the U.S. District Court in San Diego threw out the case, but the Ninth Circuit reversed and sent the case back for trial. Equilon agreed to binding arbitration of the dealer’s claims on the eve of trial. Arbitration was conducted last year, resulting in an award of $10 million to the remaining 19 dealers.
Texaco was subsequently gobbled up by Chevron, collapsing Equilon, and Shell’s right to use the Texaco name expires this year.