Baker v. Amoco Oil Co., 91-2033

• Decision Date: 07 February 1992
• Docket Number: No. 91-2033,91-2033
• Citation: 956 F.2d 639
• Parties: Terry J. BAKER, Plaintiff-Appellant, v. AMOCO OIL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 639

956 F.2d 639

Terry J. BAKER, Plaintiff-Appellant, v. AMOCO OIL COMPANY, Defendant-Appellee.

No. 91-2033.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 9, 1992.

Decided Feb. 7, 1992.

John F. Maloney, Mary A. Moore (argued), McNally, Maloney & Peterson, Milwaukee, Wis., for plaintiff-appellant.

Alexander T. Pendelton, Cook & Franke, Robert F. Johnson, Thomas N. Harrington (argued), Milwaukee, Wis., Richard J. Stevens, Amoco Corp., Chicago, Ill., for defendant-appellee.

Before FLAUM, EASTERBROOK and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

During the early nineteenth century anyone shorter than 1.57 meters was immune from conscription into the French army. Adolphe Quetelet discovered that by the army's measurements there was a statistical deficit of males just over that height and a corresponding surplus of persons just under it. Quetelet inferred that 2,200 of each 100,000 persons either had shrunk themselves or had bribed the measurer to report their height falsely. Lettres a S.A.R. le Duc Regnant de Saxe-Cobourg et Gotha sur la Theorie des Probabilites, appliquee aux sciences morales et politiques 144-45, 401-03 (1846). See Stephen M. Stigler, The History of Statistics 215-18 (1986). This is one of the best examples of detecting crime by statistical techniques--although statistics did not reveal which 2.2% of the population was culpable and who was really shorter than 1.57 meters.

More than a hundred years later Amoco Oil Company used a similar statistical method to conclude that Terry J. Baker was cheating on the price of gasoline--although, like Quetelet, Amoco used pencil and paper rather than computers to work it out. Amoco's retail dealers can buy gas by the tank truck, paying the price on the day of delivery. Dealers seeking to conserve on cash may elect a different method: Amoco fills the station's underground tanks with gasoline, which dealers buy as it passes through the pump to the customer's car. This latter method poses a problem if Amoco changes the wholesale price after it has delivered the gasoline to the underground tank. To learn how much gas is withdrawn while each price is in effect, Amoco requires the dealers on its "Meter Marketing Plan" to take daily inventories. The difference between that day's inventory and the prior day's--reflected in the change of the meter in each pump--is the amount the dealer has bought and must pay for at the price in force that day. Dealers agree by contract to read the meter on each pump every day and to report these readings (and pay for the gas) on a schedule Amoco sets, usually two or three times a week.

You don't have to be a genius to see how to manipulate these reports. If Amoco raises the price effective Wednesday, then the dealer reports meter readings as of the close of business Tuesday greater than those actually on the pump. The report of increased sales means that the dealer buys additional gas on Tuesday, at the lower price. This is called "reading ahead." (The dealer reports a figure "ahead" of the meter.) If Amoco reduces the price effective Saturday, then at the close of business Friday the dealer reports readings less than those shown on the pump. This tactic, called "reading back" (reporting less than the figure on the meter), cuts down the volume of gas paid for at the higher price. Reading ahead on price increases combined with reading behind on price reductions shaves a little off the average price the dealer pays Amoco for each gallon.

During the afternoon of December 18, 1989, Amoco called Baker to announce a price increase of 4cents per gallon for regular unleaded gas effective at 12:01 AM on December 19. Dianna Baker, Terry Baker's wife and the person responsible for sending reports on the volume of gas sold, filled out on December 19 forms purporting to state the readings as of that time. On December 21 Amoco conducted an audit of the sales at one of Baker's four stations. Terry Baker refused to admit the auditor to the office or show him the sheets containing the meter readings for earlier days (although Dianna Baker did copy some of the numbers onto a separate page, by her account "correcting an error" in the records and by Amoco's lying about sales; we need not resolve the conflict). The auditor recorded the numbers on the pumps' meters. Later comparison with the reports Dianna Baker had made showed that five of the readings for 12:01 AM on December 19 exceeded the readings at mid-day of December 21.

Amoco suspected that the Bakers were "reading ahead," buying 4,000 gallons of extra gas before the price increase. The Bakers told Amoco that the discrepancy was attributable to bad weather, which led Mrs. Baker to start from readings early on December 18 and estimate later sales rather than read the meters directly at the appropriate time. According to the Bakers, the same bad weather depressed sales December 18-20, producing the embarrassment on December 21. As Dianna Baker's reports had not suggested that the readings were estimated rather than exact, and the Bakers had not submitted precise readings when the weather improved, Amoco decided to take a closer look at the Bakers' other reports. Peter Feeney, one of Amoco's territory managers, pulled the reports for October through December 1989 from a warehouse. (Apparently Amoco does not enter the daily pump readings into its computer system, although that would assist in catching arithmetical errors as well as in detecting evasion.)

Feeney discovered a striking pattern: the volume at all of the Bakers' stations experienced startling fluctuations around the time of price changes. During November 1989 one of the Bakers' stations sold an average of 3,250 gallons of regular lead-free gas per day. On November 11 the wholesale price rose from 60.8cents to 62.8cents; the Bakers reported sales of 6,375 gallons per day in the two preceding days, and 1,100 gallons per day in the three following days. On November 21 the price dropped from 60.3cents per gallon to 59.3cents per gallon; the Bakers reported sales of 2,600 gallons per day in the three preceding days and 6,100 gallons per day in the two following days. The same pattern appears at all four stations for all three months. Although the Bakers insist that these fluctuations are attributable to chance (for example, one of the stations is near a sports stadium, so sales fluctuate with the timing of contests), luck produces a normal distribution of errors. That is, bad weather or a big game is as likely to occur...