By Nicole D. Prysby, J.D.
The Commonwealth of Kentucky sufficiently alleged "functional economic unity" between petroleum company defendants and retailers to make a sale of gasoline to the retailers effectively a sale to Kentucky consumers, thereby establishing that the control exception to the indirect-purchaser rule applied, held a federal district court in Kentucky. Therefore, the government could proceed with its antitrust claims against Marathon Petroleum Corporation, Marathon Petroleum Company LP, and Speedway LLC ("Marathon"). The court also held that the Commonwealth’s use of "Marathon" as a shorthand did not require dismissal of the claims because the plain allegation was that all defendants did each act. The court had jurisdiction over out-of-state entity Marathon Corp. because it repeatedly availed itself of the Kentucky market through its extensive sales there and the cause of action arose from its alleged execution of the supply agreements that were the subject of the lawsuit (Commonwealth of Kentucky v. Marathon Petroleum Company LP, September 26, 2018, Hale, D.).
Background. The Commonwealth of Kentucky claimed that Marathon entered into contracts with gasoline retailers for the distribution of its reformulated gasoline that restricted its competitors’ ability to challenge Marathon’s market dominance, because the distribution agreements restricted the retailers’ ability to purchase reformulated gasoline from Marathon’s competitors, and because separate contracts allegedly included deed restrictions preventing competitors from entering the market.
The Commonwealth initially brought the claims against Marathon LP only and later added Marathon Corp.—Marathon LP’s corporate parent—and Speedway—Marathon LP’s sister subsidiary.
All three defendants moved to dismiss all claims for failure to state a claim and Marathon Petroleum Corp. additionally argued that the Commonwealth’s claims against it should be dismissed for lack of personal jurisdiction.
Personal jurisdiction. Marathon Corp. argued that the Commonwealth failed to establish jurisdiction under Kentucky’s long-arm statute, because Marathon Corp. is not incorporated in Kentucky; has no agent for service of process in Kentucky; has no offices, employees, or mailing addresses in Kentucky; has never been licensed to do business in Kentucky; has no operations or customers in Kentucky; and has never entered into any exchange agreements or supply agreements relating to petroleum in Kentucky. The Commonwealth presented several documents indicating that Marathon Corp. repeatedly and systematically conducts business in Kentucky. The documents included renewal supply agreements allegedly entered into by Marathon Corp. that provide for the sale of RFG to unbranded retailers in the Louisville and Northern Kentucky markets. The signatories to the agreements were Marathon Corp. officers, who allegedly signed in their capacities with Marathon Corp. Marathon Corp. claimed that the officers signed the agreements in their capacities with Marathon LP, not Marathon Corp. But the court found that without an evidentiary hearing, it could not weigh the assertions from Marathon Corp. and therefore, it could exercise jurisdiction under Kentucky’s long-arm statute.
The court also held that exercising personal jurisdiction over Marathon Corp. satisfied the due process test. Although it had no offices in Kentucky, its conduct related to the lawsuit created a substantial connection with the Commonwealth. It repeatedly availed itself of the Kentucky market through its extensive sales there and the cause of action arose from its alleged execution of the supply agreements at issue. The travel burden on Marathon Corp. was no greater than for any other defendant and the injuries occurred in Kentucky.
Motions to dismiss. The defendants challenged the Commonwealth’s use of "Marathon" as a shorthand for Marathon Corp., Marathon LP, and Speedway, because in the amended complaint, the Commonwealth sometimes did not differentiate among the various Marathon entities; rather, it alleged generally that "Marathon" engaged in the anticompetitive conduct. This failure to allege what "each" defendant did required dismissal. The court rejected that argument, finding that the plain allegation is that all defendants did each act, and when the complaint is read in a commonsense manner, it states sufficient facts indicating what role each Marathon entity had in the alleged antitrust actions, notwithstanding the Commonwealth’s use of the shorthand "Marathon." Even if imprecise, the use of "Marathon" was acceptable given the complaint’s reference to Marathon as "a fully integrated distributor of gasoline and other petroleum-based products [which] owns and/or operates an integrated refining, marketing and transportation system." The Commonwealth’s reference to Marathon as an integrated corporate unit implies that "Marathon" often acts as a single entity rather than as separate corporate organizations.
The court also addressed an argument from Marathon LP that the government’s federal antitrust claims were barred by the indirect-purchaser rule established in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), and held that the Commonwealth alleged sufficient facts to establish that the control exception applied. Ownership is not necessary for the control exception to apply, so the Commonwealth was not required to allege a parent-subsidiary relationship between Marathon LP and Speedway. The Commonwealth alleged that Marathon LP controls certain of its direct-purchaser retailers through contractual provisions that waive the ability of those retailers to bring antitrust suits on their own, and alleged economic unity among the three defendants. The government claimed that given Marathon’s alleged corporate structure (i.e., its "economic unity"), its dominant market position, and the anticompetitive agreements, Marathon LP controls retail pricing and thus "there effectively has been only one sale" between Marathon LP and Kentucky consumers. That allegation was sufficient to survive a motion to dismiss.
This case is No. 3:15-cv-00354-DJH-CHL.
Attorneys: Elizabeth U. Natter, Kentucky Attorney General, for the Commonwealth of Kentucky. Jason Emil Cellier (Jones Day) and Matthew C. Blickensderfer (Frost Brown Todd LLC) for Marathon Petroleum Co. LP, Marathon Petroleum Corp. and Speedway, LLC.
Companies: Commonwealth of Kentucky; Marathon Petroleum Co. LP; Marathon Petroleum Corp.; Speedway, LLC
MainStory: TopStory Antitrust KentuckyNews
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