Commonwealth v. Marathon Petroleum Co., LP

• Citation: 191 F.Supp.3d 694
• Decision Date: 08 June 2016
• Docket Number: Civil Action No. 3:15-cv-354-DJH
• Parties: COMMONWEALTH OF KENTUCKY, Plaintiff, v. MARATHON PETROLEUM COMPANY, LP, Defendant.
• Court: U.S. District Court — Western District of Kentucky

191 F.Supp.3d 694

COMMONWEALTH OF KENTUCKY, Plaintiff,

v.MARATHON PETROLEUM COMPANY, LP, Defendant.

Civil Action No. 3:15-cv-354-DJH

United States District Court, W.D. Kentucky, Louisville Division.

Signed June 8, 2016

Elizabeth U. Natter, Laura S. Crittenden, Robyn R. Bender, Sean J. Riley, Benjamin A. Long, Kentucky Attorney General, Frankfort, KY, Helen M. Maher, Boies Schiller & Flexner LLP, Armonk, NY, Michael I. Endler, Boies Schiller & Flexner LLP, Albany, NY, Michael M. Merley, Nicholas A. Gravante, Jr., Boies Schiller & Flexner LLP, New York, NY, Robert R. Sparks, Ronald R. Parry, Theresa L. Nelson, Strauss Troy Co., LPA, Cincinnati, OH, for Plaintiff.

Matthew C. Blickensderfer, Frost Brown Todd LLC, Cincinnati, OH, Sheryl G. Snyder, Frost Brown Todd LLC, Louisville, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

David J. Hale, Judge, United States District Court

The Commonwealth of Kentucky claims that Marathon Petroleum Company has used its dominant position in the Louisville and Northern Kentucky gasoline markets to further its monopoly and thwart competition in violation of federal and state antitrust laws. (Docket No. 28) Marathon argues that the case should be dismissed because the Commonwealth is prohibited from bringing its claims and the complaint fails to state a plausible claim for relief. The Court will deny the motion as to the Commonwealth's federal antitrust, state antitrust, and deceptive practices claims. But because the people of the Commonwealth only conferred an indirect benefit upon Marathon by buying gasoline at allegedly inflated prices, not a direct benefit as required by Kentucky law, the Court will grant the motion as to the Commonwealth's unjust enrichment claim.

I. BACKGROUND

Marathon Petroleum Company, LP is a gasoline distributor. It owns the only refinery in Kentucky, and it is the largest gasoline supplier in Kentucky. (D.N. 18, PageID # 153) It is also the largest reformulated gasoline (RFG)¹ supplier in Louisville and Northern Kentucky. (Id. ) In fact, Marathon's approximate RFG wholesale market share in Louisville and Northern Kentucky is between 90 and 95 percent. (Id. )

The Commonwealth of Kentucky² maintains that Marathon's market share proves that it has a monopoly on RFG in Louisville and Northern Kentucky. (D.N. 31, PageID # 255) The Commonwealth attributes Marathon's dominant market share to illegal manipulation of the market through three types of agreements: exchange agreements, supply agreements, and deed restrictions. (Id. )

First, the Commonwealth alleges that Marathon uses exchange agreements with horizontal competitors—i.e., competitors at the same market level—to keep other potential RFG suppliers out of Kentucky. (Id. , PageID # 158); see Cincinnati Riverfront Coliseum, Inc. v. City of Cincinnati, 556 F.Supp. 664, 667 (S.D.Ohio 1983). Exchange agreements "involve a refiner or supplier agreeing to provide gasoline to a competing refiner for sale in a particular area where that competitor has insufficient supply." (D.N. 28–1, PageID # 219) Marathon has exchange agreements with ExxonMobil, Shell, and BP for delivery of RFG in Louisville and Northern Kentucky. (D.N. 18, PageID # 161)

Second, the Commonwealth alleges that Marathon uses supply agreements with unbranded retailers³ to constrain choice of supplier. (Id ., PageID # 161) These supply contracts are with Kroger and Swifty and require that those retailers purchase all of their gasoline from Marathon or pay a penalty. (D.N. 31, PageID # 261-62; D.N. 28–1, PageID # 218)

Third, Marathon, together with its wholly-owned subsidiary Speedway LLC, has allegedly sold numerous retail gas station properties saddled with deed restrictions that permit gasoline sales on the property only if the gasoline comes from Marathon. (D.N. 18, PageID # 163) Marathon's website states that it has 280 properties in 13 states throughout the Midwest and Southeast with these restrictions. (Id ., PageID # 163-64)

The Commonwealth asserts that these agreements, coupled with Marathon's monopoly power, have caused wholesale and retail prices of gasoline to be substantially higher than those found in comparable competitive markets. (D.N. 31, PageID # 256) Thus, the Commonwealth sued Marathon, alleging violations of §§ 1 and 2 of the Sherman Act,⁴ § 3 of the Clayton Act,⁵ and Kentucky common law. (D.N. 18) Marathon has moved to dismiss the complaint, arguing that the Commonwealth is prohibited from bringing these claims. In the alternative, Marathon argues that the Commonwealth fails to allege a plausible factual basis to support a finding of unlawful conduct by Marathon. (D.N. 28–1, PageID # 214)

II. STANDARD

To survive a motion to dismiss for failure to state a claim, the Commonwealth's "complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (applying the motion-to-dismiss standard to the plaintiffs' antitrust claims)). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Factual allegations are essential; "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice," and the Court need not accept such statements as true. Id. A complaint whose "well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct" does not satisfy the pleading requirements of Rule 8. Id. at 679, 129 S.Ct. 1937. Legal conclusions will not carry a complaint past the motion-to-dismiss stage in the absence of supporting factual allegations, and a plaintiff whose complaint is deficient is not entitled to a fishing expedition for facts to support it. See id. at 678–79, 129 S.Ct. 1937.

III. DISCUSSION

The Commonwealth supports its legal conclusions with factual allegations. At this stage, that is enough. Marathon argues—in a motion that reads more like a motion for summary judgment than a motion to dismiss—that the Commonwealth only alleges conclusions, as opposed to plausible facts. (See D.N. 28–1) Specifically, Marathon argues that the Commonwealth lacks the authority to bring its claims and that even if it does have the authority, its claims fail as a matter of law based on Iqbal 's plausibility standard. (Id. ) The Court will address each argument in turn.

A. The Commonwealth's Authority

Marathon contends that the indirect-purchaser rule prohibits the Commonwealth from bringing its federal and Kentucky antitrust claims for damages. It also contends that the Commonwealth is prohibited from bringing this claim due to its lack of parens patriae authority and the applicable statute of limitations. (Id. )

1) Indirect-Purchaser Rule

Section 4 of the Clayton Act states that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue." 15 U.S.C. § 15. In Hanover Shoe, Inc. v. United Shoe Machinery Corp. , 392 U.S. 481, 487–88, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), the Supreme Court held that an antitrust defendant could not defend antitrust violations by claiming that the plaintiff "passed on" an illegal overcharge to the plaintiff's customers. Later, in Illinois Brick Co. v. Illinois , 431 U.S. 720, 737–38, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the Supreme Court made Hanover Shoe reciprocal, holding that an indirect purchaser could not bring a federal antitrust claim even if the antitrust violation's effects were passed down. However, the Illinois Brick Court acknowledged an exception to Hanover Shoe . Id. at 735–36, 97 S.Ct. 2061. A "situation in which market forces have been superseded and the pass-on defense might be permitted is where the direct purchaser is owned or controlled by its customer." Id. at 736, n. 16, 97 S.Ct. 2061.

This acknowledgment in Illinois Brick led to the "control exception." See Jewish Hosp. Ass'n of Louisville, Ky., Inc. v. Stewart Mech. Enter., Inc. , 628 F.2d 971, 975 (6th Cir.1980). The Sixth Circuit has found that the control exception "is limited to relationships involving such functional economic or other unity between the direct purchaser and either the defendant or the indirect purchaser that there effectively has been only one sale." Id. ; see Perkins v. Standard Oil Co. , 395 U.S. 642, 648, 89 S.Ct. 1871, 23 L.Ed.2d 599 (1969) (holding that having a sixty percent-owned subsidiary was sufficient control); In re Western Liquid Asphalt Cases , 487 F.2d 191, 199 (9th Cir.1973) (finding evidence that the defendants controlled their direct customers either by acquiring their stock or by arranging to finance their purchases).

The Commonwealth alleges sufficient facts to support the application of the control exception here. (D.N. 18, PageID # 151-55). It claims that Speedway is the wholly-owned subsidiary of Marathon. (Id ., PageID # 153) The Commonwealth also alleges that the exchange and supply agreements, coupled with Marathon's dominant market position, give Marathon control over petroleum suppliers. (Id ., PageID # 155) Finally, it asserts that it is suing on behalf of consumers who purchase gasoline at retail outlets owned or controlled by Marathon. (Id ., PageID # 156) At this stage, the allegations are sufficient to support a finding that the control exception applies.

Marathon's contention that the Supreme Court's holding in Kansas v. UtiliCorp United, Inc. , 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990), rejects any exception to the indirect-purchaser rule is misguided. The UtiliCorp Court concluded: "[E]ven assuming that any economic assumptions underlying the Illinois Brick rule might be disproved in a specific case, we think it an unwarranted and counterproductive...