Klein v. Chevron U.S.A., Inc.

Citation202 Cal.App.4th 1342,12 Cal. Daily Op. Serv. 1015,2012 Daily Journal D.A.R. 1013,137 Cal.Rptr.3d 293
Decision Date09 May 2012
Docket NumberNo. B219113.,B219113.
CourtCalifornia Court of Appeals
PartiesAllen Ray KLEIN et al., Plaintiffs and Appellants, v. CHEVRON U.S.A., INC. et al., Defendants and Respondents.

202 Cal.App.4th 1342
137 Cal.Rptr.3d 293
12 Cal.
Daily Op. Serv. 1015
2012 Daily Journal D.A.R. 1013

Allen Ray KLEIN et al., Plaintiffs and Appellants,
CHEVRON U.S.A., INC. et al., Defendants and Respondents.

No. B219113.

Court of Appeal, Second District, Division 7, California.

Jan. 25, 2012.
As Modified on Denial of Rehearing Feb. 24, 2012.

Review Denied May 9, 2012.

[137 Cal.Rptr.3d 298]Law Office of Timothy P. Dillon, Laguna Beach, Timothy P. Dillon; Carlson, Calladine & Peterson, San Francisco, Guy D. Calladine; Kellogg, Huber, Hansen, Todd, Evans & Figel and David C. Frederick, for Plaintiffs and Appellants.

Latham & Watkins, San Francisco, Darius Ogloza, Brendan A. McShane, Heather L. Potts, Connie D. Sardo and Richard P. Bass, for Defendants and Respondents.

Arnold & Porter, Los Angeles, Ronald C. Redcay and Sean Morris, for BP West Coast Products as Amicus Curiae on behalf of Defendants and Respondents.

Greensfelder, Hemker & Gale and Mary Ann L. Wymore, for Equilon Enterprises as Amicus Curiae on behalf of Defendants and Respondents.

Zelle Hofmann Voelbel & Mason, San Francisco, Daniel S. Mason and Joseph W. Bell, for ConocoPhillips Company as Amicus Curiae on behalf of Defendants and Respondents.

Steptoe & Johnson, Los Angeles, Ruth D. Kahn and Patrick J. Foley, for The National Association of Convenience Stores, and Society of Independent Gasoline Marketers of America, as Amici Curiae on behalf of Defendants and Respondents.

Pillsbury WinthropShaw Pittman, San Francisco, and Kevin M. Fong, for Western States Petroleum Association as Amicus Curiae on behalf of Defendants and Respondents.


[202 Cal.App.4th 1348]


Plaintiffs filed a class action complaint against defendant and respondent Chevron[137 Cal.Rptr.3d 299]U.S.A., Inc. asserting claims for violation of the Unfair Competition Law (Bus. & Prof.Code, § 17200) (UCL or section 17200), violation of the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.) (CLRA), breach of contract and unjust enrichment. Plaintiffs' claims are predicated on Chevron's practice of purchasing wholesale motor fuel in gallon units at a standardized temperature of 60 degrees Fahrenheit, but selling motor fuel to California consumers at an average temperature of approximately 70 degrees. Plaintiffs allege that, because motor fuel expands as it is heated, Chevron's failure to compensate for temperature increases in retail motor fuel, or to disclose the effects of such increases, harms consumers in several ways. First, consumers receive less motor fuel—measured by mass and energy—than they would receive if Chevron adjusted for temperature increases. Second, consumers are led to believe that each gallon of motor fuel contains a standardized amount of energy, when, in fact, the energy content varies depending on the temperature of the fuel at the time of purchase. Third, consumers are unable to determine the actual price of motor fuel or to compare prices between retailers. Fourth, Chevron is able to collect and retain more motor fuel taxes from consumers than it is required to pay to the government.

Chevron filed a demurrer arguing that, as a matter of law, it could not be sued for failing to adjust the temperature of retail motor fuel because California law permitted the practice. The trial court sustained Chevron's demurrer to plaintiffs' claims for breach of contract, unjust enrichment and “unlawful” business practices under section 17200. However, the court overruled Chevron's demurrer to plaintiffs' CLRA claim and their claims for “unfair” and “fraudulent” business practices under section 17200.

[202 Cal.App.4th 1349]

Several months after the court issued its ruling, the California Energy Commission released a statutorily-mandated report examining the benefits of implementing “Automatic Temperature Compensation” (ATC) fuel pump technology that would compensate for temperature increases in retail motor fuel. The report concluded that consumers would not realize any economic benefit from requiring retailers to implement the use of ATC fuel pumps.

Chevron filed a motion for judgment on the pleadings arguing that, in light of the California Energy Commission's (CEC) report, the trial court should dismiss plaintiffs' remaining claims under the judicial abstention doctrine. The trial court granted the motion, ruling that the CEC report demonstrated that the Legislature intended to address the issues in plaintiffs' complaint and that adjudicating plaintiffs' claims would improperly enmesh the court in complex areas of economic policy.

On appeal, plaintiffs argue that the trial court erred in: (1) dismissing their claims arising under the CLRA and the “unfair” and “fraudulent” prongs of the UCL pursuant to the judicial abstention doctrine; and (2) sustaining Chevron's demurrer to their claims for breach of contract, unjust enrichment and “unlawful” business practices under the UCL. Chevron argues that we should affirm the trial court's order granting its motion for judgment on the pleadings, or, alternatively, reverse the trial court's order overruling Chevron's demurrer to plaintiffs' UCL and CLRA claims.

We reverse the trial court's order granting Chevron's motion for judgment on the [137 Cal.Rptr.3d 300]pleadings and affirm in part and reverse in part its order on Chevron's demurrer.

A. Background Facts Regarding the Effect of Temperature on Motor Fuel1
1. The effect of temperature increases on retail motor fuel

Motor fuel expands in volume as it is heated. As a result of this thermal expansion, a gallon of motor fuel at a warmer temperature has less mass and less energy content than a gallon of motor fuel at a cooler temperature. A temperature increase of 15 degrees causes motor fuel to expand in volume by

[202 Cal.App.4th 1350]

approximately one percent, with a corresponding one percent decrease in energy output. For example, when 231 cubic inches of motor fuel, which equals one volumetric gallon, is heated from 60 degrees Fahrenheit to 75 degrees Fahrenheit, the motor fuel will expand to occupy a volume of approximately 233 cubic inches.

To avoid inequities that result from selling motor fuel at different temperatures, the National Bureau of Standards, in conjunction with the American Petroleum Institute, established an industry standard known as “ASTM–IP D 1250” (D 1250). This standard defines a “U.S. Petroleum Gallon” as 231 cubic inches of petroleum at 60 degrees Fahrenheit. The inclusion of a temperature component in the definition of a U.S. Petroleum Gallon “ensure[s] that the amount of fuel [and energy] contained in every defined ‘gallon’ [i]s exactly the same amount.”

For purchases made at the wholesale level, Chevron and other participants in the petroleum industry use D 1250 to adjust for differences in the temperature of motor fuel. This practice is reflected in Business & Professions Code section 135202, which mandates that, for any transaction involving the sale of 5,000 or more gallons of motor fuel, the distributor must offer to sell the fuel “at the temperature-adjusted gallonage of 60 degrees.”

However, when selling motor fuel at the retail level, Chevron does not compensate for increases in fuel temperature. Instead, Chevron sells retail motor fuel based solely on volume, measured in gallon units equaling 231 cubic inches. Because retail motor fuel sold to California consumers is, on average, in excess of 70 degrees Fahrenheit, consumers receive less fuel (measured in terms of mass and energy) than they would receive if the fuel was delivered at the temperature-adjusted standard of 231 cubic inches at 60 degrees Fahrenheit. “As a result, consumers in California [are forced to] spend billions of dollars more each year to purchase the same quantity of motor fuel they would have received” if the fuel was adjusted to 60 degrees Fahrenheit. Moreover, because the temperature of retail motor fuel varies depending on location, “the amount of motor fuel that a consumer actually obtains at a given price varies from retailer to retailer and from purchase to purchase.”

[137 Cal.Rptr.3d 301]2. Chevron's practice of selling non-temperature adjusted fuel enables it to collect more in motor fuel taxes than it is required to pay to the government

Chevron's failure to compensate for temperature increases in retail motor fuel also has significant tax consequences. In California, gasoline is subject to

[202 Cal.App.4th 1351]

a combined state and federal tax rate of approximately 36 cents per gallon, while diesel fuel is subject to approximately 42 cents of taxes per gallon. Under relevant tax laws, motor fuel distributors are required to pay the government motor fuel taxes at the wholesale level based on the total number of U.S. Petroleum Gallons purchased in each transaction.

At the retail level, Chevron passes these taxes on to consumers by charging approximately 36 cents for each gallon of gasoline and 42 cents for each gallon of diesel fuel. Because the temperature of retail motor fuel sold in California is, on average, above 60 degrees Fahrenheit, Chevron collects taxes on more gallons of motor fuel at retail than it is required to pay for at the wholesale level. For example, if Chevron purchased 10,000 U.S. Petroleum Gallons of motor fuel at wholesale, and sold that same motor fuel to consumers at a temperature of 75 degree Fahrenheit, it would be required to pay taxes on 10,000 gallons of fuel, but would collect taxes from consumers on approximately 10,100 gallons.3 Because Chevron and other retailers do not compensate for temperature increases in motor fuel at the retail level, California consumers pay “hundreds of millions dollars” more in purported “taxes” than the retailers actually pay to the government.

3. Temperature Compensation Technology

Technology currently exists that would enable Chevron and other distributors to compensate for temperature differences in motor fuel sold at retail. The State of California...

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