Kent v. R.L. Vallee, Inc.

• Decision Date: 06 May 2016
• Docket Number: 617-6-15 Cncv
• Citation: 2016 Vt Super 0506 02
• Parties: JACOB R. KENT, et al., Plaintiffs v. R.L. VALLEE, INC., et al., Defendants
• Court: Superior Court of Vermont

2016 Vt Super 0506 02

JACOB R. KENT, et al., Plaintiffs
v.
R.L. VALLEE, INC., et al., Defendants

No. 617-6-15 Cncv

Superior Court of Vermont, Civil Division, Chittenden Unit

May 6, 2016

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the accompanying data included in the Vermont trial court opinion database is not guaranteed.]

RULING ON DEFENDANTS' MOTION TO DISMISS

Helen M. Toor Superior Court Judge

In this class action, plaintiffs allege price-fixing by defendants, who are wholesale and retail sellers of unleaded gasoline in Chittenden, Franklin, and Grand Isle counties. Specifically, plaintiffs claim violations of the Vermont Consumer Protection Act (VCPA) (9 V.S.A. § 2453) as to wholesale gasoline (Count I) and retail gasoline (Count II), as well as unjust enrichment (Count III). Defendants have moved to dismiss pursuant to V.R.C.P. 12(b)(6), and also on statute of limitations grounds. Each defendant has filed a separate motion to dismiss, with generally overlapping arguments.

PLAINTIFFS' ALLEGATIONS

The following facts are alleged by plaintiffs in their complaint.^[1] The court makes no findings as to their accuracy.

Plaintiffs bring this action individually and on behalf of the class, which consists of Vermont citizens and businesses who purchased unleaded gasoline at retail gasoline stations in

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Chittenden, Franklin, and Grand Isle counties (the "class area") during the class period (January 1, 2005 through the present). Compl. ¶ 2. The defendants are four Vermont corporations: R.L. Vallee, Inc., S.B. Collins, Inc., Champlain Farms/Wesco, Inc., and Champlain Oil Company, Inc. Id. ¶ 1.

Average retail gasoline prices in the class area have been inexplicably and persistently higher than elsewhere in the state-such as Middlebury and Rutland-and other areas of the Northeast and the United States. Id. ¶ 5. Defendants' gross wholesale and retail profits have periodically been: (1) twice the national average; (2) second highest out of 450 gasoline markets measured in the country; and (3) highest within New England. Id. Plaintiffs claim the high prices and profits are the result of a price-fixing agreement among defendants. See id. ¶ 34.

The class area contains a highly concentrated wholesale and retail gasoline market. Defendants collectively own or control at least four of the six meaningful gas suppliers, a 67% market share, and at least 64% of all class area gas stations. Additionally, defendants own and lease back gas pumps at several independently owned stations. Thus, defendants control wholesale pricing and as a result retail pricing at their stations and at several independent stations, with those stations passing on defendants' wholesale prices to consumers. Id. ¶ 6.

Several phenomena persist in the class area and during the class period that generally do not exist in competitive, non-collusive markets. One example alleged by plaintiffs is that defendants' wholesale and retail prices have been nearly identical, and the stations supplied by defendants have adjusted retail prices in direct relation to defendants' wholesale prices. Id. ¶¶ 7, 60-62. More specifically, defendants' wholesale prices have increased and decreased by the same or similar amounts on the same days. Id. ¶ 61. Likewise, retail prices at defendants' stations and stations they supply in the class area (over 100 stations) moved virtually in lockstep. Id. ¶ 62.

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During the class period, S.B. Collins typically sold gas at its Chittenden County station two cents above prices at Champlain Oil and Wesco stations, and three cents above stations owned by R.L. Vallee. Id. ¶ 71. This suggests, plaintiffs allege, that retail prices at Chittenden County stations were simply following collectively fixed wholesale prices. Id. Defendants directly charged a higher price to the independently owned gas stations they supplied, forcing them to charge higher prices to the class. Id. ¶¶ 72-73. If a co-conspirator had an incentive to take market share and profits by lowering its price, the other defendants could simply threaten to lower wholesale prices, thus reducing retail prices and "enforcing] the terms of the cartel." Id. ¶ 73.

Market prices often have not been logically related to terminal rack costs.^[2] Market prices have: (1) increased or remained unchanged in times of declining cost, (2) increased when costs have not changed, and (3) decreased at a disproportionately smaller amount and pace than the decline in costs. Id. ¶ 7. Specifically, plaintiffs allege that from 2010 to 2015, there were six distinct periods of declining terminal rack prices, where defendants increased the price spread between Chittenden County and Rutland. Id. ¶ 69. The average time span of the six distinct periods was 94 days, including one 210-day span where the price spread quadrupled. Id.

Defendants have earned outsized gross profits, often in the top 10 of 450 gasoline markets measured in the United States. Id. ¶ 7. Defendants were able to achieve "abnormal and exorbitant" profits on the sale of gasoline within the class area. Id. ¶ 63. Their profit margins exceeded the margins realized by comparable gas stations outside of the class area within comparative markets in Vermont and throughout the United States. Id. ¶ 64. The Oil Price Information Service, a company that tracks the terminal and retail prices of gasoline throughout the country, found that

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the Burlington area was the most profitable gasoline market for retailers in the northeast United States and often in the top ten nationwide. Id. ¶ 8.

Defendants have maintained their wholesale and retail market shares despite numerous opportunities to compete on price to acquire market share. Id. ¶ 7. In competitive markets and during periods of declining costs, profit-motivated competitors would typically decrease prices to take more market share. Id. ¶ 67. However, that did not happen among defendants during the class period and within the class area. Id.

Defendants have frequently acquired real property on which they have imposed deed restrictions barring future use as gas stations to further limit competition or dilution of market share. Id. ¶ 7. Additionally, defendants have used Vermont environmental laws to obstruct the entry of low-cost gasoline providers and to extract unreasonable covenants that prevent or limit competition. Id.

With regard to those barriers to entry, plaintiffs allege two examples within the class area. First, in 2010 R.L. Vallee opposed Walmart's bid to build a discount store in Franklin County until it was written into the permit that "there shall be no sale of gasoline for automobiles." Id. ¶ 50. Second, R.L. Vallee has partnered with Wesco since 2007 to oppose Costco's plans to build a filling station in Colchester, Vermont. Id. ¶ 51. The entry of Costco into the market "would have meant the addition of a major low cost player acting outside of the cartel." Id. Plaintiffs allege three additional examples, all of them outside of the class area. Two involved deed and permitting restrictions at gas stations in Plainfield in 2012 and 2013-2014, while the other involved the closing of a gas station in St. Johnsbury in 2014. See id. ¶¶ 52-54.

When confronted by federal and state elected officials, Defendants have given pretextual or plainly false explanations for their pricing behavior, such as claiming they did not make a profit,

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or that they lost money on gasoline for substantial periods within the class period. Id. ¶¶ 7, 75, 8081. While the issue at the legislative hearings was why a certain area of Vermont had higher prices than elsewhere in the state, defendants tried to confuse the issue by interjecting: (1) factors that apply throughout Vermont; (2) irrelevant comparisons between Vermont and other states; and (3) other "nonsensical red-herrings" that could not have explained the high price of gasoline within the class area. Id. ¶ 82. This was a "blatant attempt at misdirection" to conceal ongoing price coordination. Id. ¶ 83.

The proffered justifications for high gas prices provided by defendants at the hearings included freight differences, the high cost of living in Vermont, high terminal costs, fluctuation in wholesale price with limited turnover, overhead which can vary from location to location, labor costs, environmental compliance, repair costs, health insurance, utility costs, credit card fees, cost of crude available in Vermont, law enforcement authority reluctance to pursue people stealing gas, property taxes, costs to build gas stations and replace underground storage tanks, variable sales volumes, amenities such as hot coffee and made-to-order food, and clean bathrooms with fresh flowers. Id. ¶¶ 84-85. Additionally, the R.L. Vallee CEO gave an "irrelevant speech" about alleged environmental violations of a possible competitor, and how much his company is appreciated in the community. Id. ¶ 86. The hearing testimony summarized above, plaintiffs allege, does not explain the high price of unleaded gasoline in the class area, and only further demonstrates that defendants engaged in a price-fixing conspiracy. Id. ¶¶ 75, 80-87.

Additionally, the Federal Trade Commission concluded that gas prices in the greater Burlington area in late June 2012 were 10 to 43 cents a gallon higher than the FTC's computer model predicted they should be. Id. ¶ 9. Plaintiffs allege further evidence of collusive behavior in that defendants temporarily reduced their prices and profit margins before August 2012 and

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January 2013 legislative hearings investigating high gas prices in northwestern Vermont. Id. ¶ 74. These price reductions were executed despite rising costs for the purpose of masking illegally high prices charged at all other times, and demonstrates that defendants had control of the market. Id.

Plaintiffs allege that...