In re Motor Fuel Temperature Sales Practices Lit.

• Decision Date: 21 February 2008
• Docket Number: No. 07-MD-1840-KHV.,MDL No. 1840.,07-MD-1840-KHV.
• Parties: In re MOTOR FUEL TEMPERATURE SALES PRACTICES LITIGATION. (This Document Relates to All Cases).
• Court: U.S. District Court — District of Kansas

Page 1214

534 F.Supp.2d 1214

In re MOTOR FUEL TEMPERATURE SALES PRACTICES LITIGATION (This Document Relates to All Cases).

MDL No. 1840.

No. 07-MD-1840-KHV.

United States District Court, D. Kansas.

February 21, 2008.

MEMORANDUM AND ORDER NUNC PRO TUNC

KATHRYN H. VRATIL, District Judge.

Plaintiffs assert putative class action claims for damages and injunctive relief against various motor fuel retailers in Alabama, Arizona, Arkansas, California, Delaware, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Nevada, New Jersey, New Mexico, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, the District of Columbia and Guam ("the Region").¹ Plaintiffs claim that because defendants sell motor fuel for a specified price per gallon Without disclosing or adjusting for temperature expansion, they are liable under various state law theories including breach of contract, breach of warranty, fraud and consumer protection. Following a transfer order of the Judicial Panel on Multidistrict Litigation under 28 U.S.C. § 1407, the Court has jurisdiction over consolidated pretrial proceedings in these actions. See Doc. # 1 filed June 22, 2007. This matter comes before the Court on defendants' Joint Motion To Dismiss (Doc. # 196) filed October 22, 2007. For reasons stated below, the Court overrules defendants' motion.

I. Legal Standards

On August 30, 2007, the Court ordered that plaintiffs file a consolidated amended complaint as an MDL administrative, and procedural tool designed to narrow the predominant legal issues common to the underlying cases. See Scheduling Order No. 1 (Doc. # 134) at 4.² In ruling on defendants' motion to dismiss for failure to state a claim under Rule 12(b)(6), Fed. R.Civ.P., the Court assumes as true all well pleaded facts in that complaint and views them in a light most favorable to plaintiffs. See Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990); Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984). Rule 12(b)(6) does not require detailed factual allegations, but the complaint must set forth the grounds of plaintiffs' entitlement to relief through more than labels, conclusions and a formulaic recitation of the elements of a cause of action. See Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007). In other words, plaintiffs must allege facts sufficient to state a claim which is plausible — rather than merely conceivable — on its face. See id. The Court makes all reasonable inferences in favor of plaintiffs. See Zinermon, 494 U.S. at 118, 110 S.Ct. 975; see also Rule 8(a), Fed.R.Civ.P.; Lafay v. HMO Colo., 988 F.2d 97, 98 (10th Cir.1993). The Court, however, need not accept as true those allegations which state only legal conclusions. See Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). In reviewing the sufficiency of plaintiffs' complaint, the issue is not whether plaintiffs will prevail, but whether they are entitled to offer evidence to support their claims. See Scheirer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). Although plaintiffs need not precisely state each element of their claims, they must plead minimal factual allegations on those material elements which they must prove. See Hall, 935 F.2d at 1110.

II. Facts

The Consolidated Amended Complaint ("CAC") (Doc. # 186) filed October 8, 2007, alleges the following facts which the Court accepts as true for purposes of this order:

Motor fuel expands when heated. Therefore, a given volume of motor fuel at a warmer temperature has less mass and less energy than the same motor fuel at a cooler temperature. CAC ¶ 3. In 1923, the National Conference on Weights and Measures ("NCWM"), an association which includes representatives from government and the oil industry, recognized that due to temperature expansion, motor fuel purchased solely based on volume was subject to unpredictability and inconsistency depending on fuel temperature at the time of the sale. CAC ¶ 13. The industry decided to standardize sales of motor fuel based on temperature and created what is now known as ASTM-IP D-1250 ("D-1250"). D-1250 defines a standard gallon unit of petroleum as 231 cubic inches at 60 degrees Fahrenheit ("U.S. petroleum gallon").³ CAC ¶¶ 14-16. The U.S. petroleum industry uses D4250 to adjust petroleum sales based on temperature at every stage of the process except at retail. CAC ¶¶ 19-20.

At retail, defendants, sell a gallon of motor fuel based solely on volume (i.e. 231 cubic inches) without regard to temperature. Defendants advertise and sell the fuel at a specified price per gallon without expressly defining the term "gallon." CAC ¶ 38. Consumers purchase motor fuel under the belief that they get what they pay for in terms of intended use of the fuel, not simply to acquire a particular volume of fuel. CAC ¶ 27. The average fuel temperature for the Region is greater than 70 degrees Fahrenheit. Thus, consumers in the Region often purchase motor fuel at temperatures above 60 degrees Fahrenheit and unknowingly receive less fuel (i.e. fewer molecules and less mass) than if they purchased the fuel at (or adjusted to) the 60 degrees Fahrenheit industry standard. CAC ¶¶ 3, 6, 39. Therefore, these consumers commonly receive less motor fuel than what they pay for. Plaintiffs pay billions of extra dollars every year because retailers deliver fuel which is — on average — at least 10 degrees higher than the industry standard without making any correction in price and/or volume. CAC ¶ 17.

By selling "hot" fuel without adjusting price or volume for temperature, defendants generate hidden profits in the form of excess reimbursement for taxes paid on wholesale purchases. CAC ¶ 9. At the wholesale level, defendants pay federal and state motor vehicle fuel taxes based on standardized, temperature-adjusted gallons, i.e. U.S. petroleum gallons. CAC ¶¶ 9, 66-67. As part of the price per gallon of motor fuel, defendants pass along to consumers the cost of these taxes. CAC ¶ 69. In so doing, defendants seek reimbursement from customers to recoup the cost of fuel taxes which they previously paid. CAC 169. Some retailers affirmatively state in labels attached to retail pumps that the posted price for a gallon of motor fuel includes a certain amount allocated to fuel taxes. CAC ¶ 69. Because defendants sell retail motor fuel at an average temperature greater than 60 degrees Fahrenheit without adjusting for temperature, they sell more gallons of fuel than they have purchased. CAC ¶ 9. On these extra gallons, defendants claim and receive reimbursement from plaintiffs for motor fuel taxes which they did not actually pay. CAC ¶¶ 9, 71-72.

Temperature compensation equipment is available to defendants, so they are able to adjust the overall price for motor fuel based on a standardized gallon at 60 degrees Fahrenheit. CAC ¶¶ 40-41. In Canada, where temperature compensated retail sales, are in the industry's economic interest, defendants have actively sought and facilitated the use of temperature compensation equipment at the retail level. CAC ¶¶ 42-43. In the United States, where temperature compensated retail sales are not in the industry's economic interest, the industry has opposed efforts to require installation of temperature compensation equipment at retail pumps. CAC ¶ 48.

In the 1970s, the petroleum industry justified its refusal to sell temperature compensated fuel with flawed survey information which purported to demonstrate that the average temperature of motor fuel sold throughout the United States was 56 degrees Fahrenheit and that the effect of temperature expansion was therefore in the consumers' favor. CAC ¶¶ 51-52. In 1979, however, the American Petroleum Institute ("API") conceded that its prior statements were wrong and that the overall average temperature of motor fuel in the United States exceeded 60 degrees Fahrenheit. CAC ¶ 53.

The industry has continued to resist selling temperature-adjusted fuel by pointing to alleged costs in implementing temperature compensation technology. CAC ¶ 54. In this effort, defendants have propounded flawed data and information to the public and government. CAC ¶ 55. In the 1970s, defendants estimated total replacement costs in excess of $6 billion to install temperature-adjusted equipment at each retail motor fuel pump. Today, industry officials have reduced the estimate to $2.2 billion. CAC ¶ 55.

As members of various trade organizations, defendants have pressured manufacturers of automatic temperature compensation equipment to not sell such equipment in the United States. CAC ¶¶ 56-57.

Defendants do not disclose to consumers that they do not sell motor fuel in accordance with the industry standard gallon of 231 cubic inches at 60 degrees Fahrenheit. CAC ¶ 60. After plaintiffs filed these lawsuits, some defendants placed notices at pumps informing consumers that fuel is dispensed by the gallon (231 cubic inches) and that fuel temperature affects the energy content of each gallon dispensed. The notices do not inform customers of the actual fuel temperature or make adjustments to the price of fuel. CAC ¶¶ 61-64.

III. Plaintiffs' Claims

Plaintiffs assert the following claims. As noted, for purposes of ruling on defendants' motion to dismiss, the Court accepts plaintiffs' factual assertions as true.

A. Unjust Enrichment (Counts I, II And III)

Plaintiffs assert that by charging consumers for federal and state motor fuel taxes in excess of amounts which defendants have actually paid (Counts I and II) and not adjusting for thermal expansion when they sell motor fuel which is warmer than 60 degrees Fahrenheit (Count III), defendants have been unjustly enriched. See CAC ¶¶ 84-109.

B. Breach Of Contract (Count IV)

Plaintiffs allege that...