Pumped Dry

Gas station dealers find big oil blocking the way in their struggles against extinction

Last of a series
(see Part I: "Paying the Price," October 26)

When the verdict came down in 1995, Jim MacDonald was elated. Three years after 22 Southern California service station dealers sued Chevron, and three months after the trial began, a jury ruled that the company had defrauded the dealers and owed them $3.4 million. For MacDonald -- ironically, he'd won Chevron's coveted Platinum Award while the trial was in progress -- the judgment proved that the battle had been worth all the time and effort. "We felt vindicated," he says. "We felt great."

But Chevron appealed. A three-judge panel overturned the verdict. The company asked for attorney fees; last March a judge awarded the company $6.8 million. The dealers are challenging that award, but if the decision stands, MacDonald and most of the other dealers will have to file for bankruptcy. He's personally on the hook for $687,000 and will have to liquidate his last service station and auto repair business, leaving him with nothing. "I cannot pay even a portion of what they've been awarded against me," says MacDonald.

Attorney Robert Steinberg: "I want to get back our pound of flesh for these dealers."
Deron Neblett
Attorney Robert Steinberg: "I want to get back our pound of flesh for these dealers."

MacDonald, who has 44 years with Chevron as both an employee and a dealer, says the reversal has taken a heavy emotional and financial toll on all the dealers, only ten of whom are still in business. He doesn't understand the apparent vindictiveness behind Chevron's pursuit of the cash. Company spokesman Fred Gorell has said Chevron owes a duty to its shareholders to recoup the fees. But MacDonald doubts they'd care much about the extra penny per share the amount represents -- even if they could collect it. "They know none of us can pay," he says. "There's been no human element in this."

Dennis DeCota, who heads California's largest dealer trade organization, says Chevron has a broader objective. "They want to send a message on behalf of the industry," DeCota says. "The message is, you can't afford to take us on."

As service station dealers across the nation have been forced out of business or squeezed to the brink, they reluctantly have turned to the courts in a last-ditch effort to save their livelihoods. Shell and Texaco, which formed a joint marketing venture in 1998, are facing a flood of antitrust and price-manipulation suits from Connecticut to California. "If there were ever a contest for the most-sued major," industry newsletter Oil Express recently observed, "Texaco-Shell alliance companies Motiva and Equilon would surely win."

Dealers are going after other companies as well. A federal court case against ExxonMobil in Corpus Christi was in trial at press time; ExxonMobil faces other dealer suits in Florida and New York. Alabama attorney Jim Gunther has suits pending against BP Amoco in Alabama, Tennessee, North Carolina and South Carolina, with more to follow. And in a case with huge implications for both the industry and consumers, Chevron, Shell, Texaco, Unocal and other refiners face a $2 billion price-fixing suit filed by the state of Hawaii.

Escalating gas prices combined with the steady demise of service station dealers have brought heat on the companies from other states as well as the feds. California Attorney General Bill Lockyer has been investigating high prices on the West Coast since mid-1999. In August, Maryland Governor Paris Glendening created a task force to study zone pricing, the practice of breaking up metro areas into segments and charging dealers different wholesale prices depending on the zone. Dealers have long complained that zone pricing is used to gouge consumers (and punish uncooperative station owners), and Glendening's executive order underscores the point: "There is indication that zone pricing may be a significant factor in the rising price of gasoline."

Connecticut Attorney General Richard Blumenthal and U.S. senators Barbara Boxer of California and Ron Wyden of Oregon have called for federal intervention to help dealers cope with strong-arm tactics. "Some big oil companies appear to have embarked on an all-out campaign to drive their own franchisees out of business in an effort to tighten their stranglehold over California's gasoline industry," Boxer wrote to the Federal Trade Commission last December.

The FTC has been conducting its own look at the West Coast as well as a price spike in the Midwest this spring. FTC official Richard Parker recently wrote that the investigation has revealed "detailed information on practices in the industry that raise competitive concerns."

Whether the feds have the resources or political will to go after the oil companies remains to be seen. But the companies have survived other federal inquiries in the past and are confident that the latest round will yield nothing new. "It's important to note that these investigations time after time conclude that it's the marketplace at work setting gasoline prices," Chevron spokesman Gorell told the Los Angeles Times in December.

Several states have attempted over the years to pass legislation to protect the dealers. While a few have succeeded, most of those efforts have been beaten back by intense industry lobbying. In California, for example, the major oil companies and their trade groups have spent more than $4.7 million on lobbying alone since the beginning of 1999; during that period, several state and local pro-dealer laws ultimately were defeated or placed in limbo. Millions more in campaign contributions to key legislators ensure that other initiatives never get a hearing or die in committee.

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