Antitrust Law Daily Oil refiners may have illegally conspired to manipulate wholesale prices in California
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Thursday, June 21, 2018

Oil refiners may have illegally conspired to manipulate wholesale prices in California

By E. Darius Sturmer, J.D.

Putative class action claims brought by a gas station operator alleging that eight major oil refiners violated federal and California antitrust law by conspiring to manipulate the wholesale gasoline market in California were sufficiently stated to survive dismissal, the federal district court in San Diego ruled. Taken as true, the plaintiff’s "extensive and detailed factual allegations" of the defendant refiners’ activities surrounding price spikes in 2012 and 2015—including "tightly synchronized multiple refinery shutdowns" for allegedly pretextual reasons, simultaneous exports, an orchestrated run on the market, and joint public exaggerations regarding supply disruptions—supported a plausible inference of agreement for purposes of a Sherman Act violation. The defendants’ attacks on the complaint’s allegations of wholesale price increases and parallel conduct were unpersuasive (Persian Gulf Inc. v. BP West Coast Products LLC, June 19, 2018, Lorenz, M.).

Suing on behalf of gasoline wholesalers statewide, plaintiff Persian Gulf Inc. asserted that the defendants had conspired to create a false impression of reduced supply, when in fact they possessed the inventory and production capacity to supply the California market. According to the plaintiff, the California market was distinct from that of the rest of the country by virtue of its unique seasonal gasoline formulation requirements, and the defendants control more than 92 percent of it. Persian Gulf averred that the defendants were able to manipulate the market through their uniform practice of keeping industry and operational data to themselves while spreading misleading information to the public, a disparity they exploited by then sharing much of their real operational information, including refinery shutdowns and planned output, with each other through secret exchange agreements.

The defendants’ arguments "ignored the big picture that emerge[d] from the totality of the allegations," in the court’s view. Their actions were parallel, the court confirmed. Moreover, the complaining gas station operator had asserted, in its amended complaint, "more than just parallel conduct and a bare assertion of conspiracy," including "several instances of [the d]efendants’ conduct against self-interest."

While parallel conduct "can sometimes be attributed to conscious parallelism spurred by individual reactions to similar market pressures," the court said that in this case the defendants’ actions, as alleged, "were extreme." The court cited examples of such allegations, including the defendants’ run on the market in 2012 following an advance notice from Exxon of a refinery power failure and separate instances in which Exxon and Tesoro acted against their self-interest in deliberately shutting down or deciding not to repair certain refineries during a time of rising prices. The idling of an tanker and shutdowns in 2015 were also extreme acts unlikely to have occurred "without an agreement that other [d]efendants would not take competitive advantage."

Declaring that another factor independently supporting an inference of conspiracy was "simultaneous action by multiple competitors made for no other reason than to manipulate the market," the court described the defendants’ refinery output reduction and shutdown actions as "tightly coordinated" and devoid of any other reason beyond manipulation. Persian Gulf also alleged other factors further supporting the inference of conspiracy when considered in the light of multiple instances of extreme action against self-interest and of closely coordinated action aimed at manipulation, the court noted, including a common motive and membership to numerous trade and lobbying associations. The plaintiff offered specific facts in its complaint describing how they used one of these trade associations to spread misinformation to the public and roil the market. Also, the price spikes resulting from the alleged actions were inconsistent with economic fundamentals in the California market at the relevant times. Finally, observing that gasoline prices in the market in 2012 and 2015 and the defendants’ profits "reached historically unprecedented highs," the court pointed out that the defendants conduct and its consequences "were sufficiently extreme to prompt government investigation into deliberate manipulation of the California market.

Because the same analysis applied to the plaintiff’s California Cartwright Act claim as its Sherman Act claim, and its Unfair Competition Act claim was entirely derivative of the alleged Cartwright Act violation, the defendants’ motion to dismiss those claims were denied as well.

A motion for dismissal filed jointly by the defendants—BP West Coast Products LLC, Chevron U.S.A. Inc., Tesoro Refining & Marketing Company LLC, Equilon Enterprises LLC d/b/a Shell Oil Products US, ExxonMobil Refining & Supply Co., Valero Marketing and Supply Co., ConocoPhillips, and Alon USA Energy, Inc.—was denied.

The case is No. 3:15-cv-01749.

Attorneys: Alexandra S. Bernay (Robbins Geller Rudman & Dowd LLP) for Persian Gulf Inc. Robert Andrew Sacks (Sullivan & Cromwell LLP) for BP West Coast Products LLC. Daniel G. Swanson (Gibson, Dunn & Crutcher LLP) for Chevron USA Inc. David Craig Kiernan (Jones Day) for Tesoro Refining & Marketing Co. LLC.

Companies: Persian Gulf Inc.; BP West Coast Products LLC; Chevron USA Inc.; Tesoro Refining & Marketing Co. LLC

MainStory: TopStory Antitrust CaliforniaNews

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