Pumped Dry

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

If motions to dismiss fail, and the years haven't drained the dealers of their energy and finances, chances are the companies will offer to settle at the last minute rather than risk going to trial. The structure is always the same: The companies pay out big and admit nothing, occasionally stating for the record that the deal was made to avoid costly litigation. Though the terms are usually sealed forever with the documents, sometimes they leak: Exxon shelled out $5.2 million in Harris County to settle a Texas price-manipulation case in 1993. In a much-publicized collusion case filed by four western states that dragged on for 15 years, seven major oil companies agreed to pay $150 million.

Though some of the dealers -- especially those now suing Shell -- have amassed solid evidence and seem less willing to settle on the cheap, results of dealer lawsuits that make it to a jury have been decidedly mixed. Dealers in Michigan won a $2.4 million verdict against Sunoco in 1998, only to see a judge set aside the ruling on appeal. A jury deadlocked in a Florida class-action case against Exxon last year; retrial is set for 2001.

The decision against the dealers in the California Chevron case may have an especially chilling effect on future litigation. When Steinberg sat down with Exxon lawyers in a recent mediation session, the company position was uncompromising; one of them made reference to the $6.8 million in attorney fees. "He said the Chevron case applies to my guys, too, and maybe I should think about that," Steinberg says.

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."

History doesn't seem to deter Steinberg and other lawyers, who have been encouraged by recent rulings in cases. But dealers recognize the odds against them, and most say that all they really want is to be bought out or compensated at a fair price that will enable them to move forward with their lives. Unless companies are brought to their knees in court, however, the defendants aren't likely to give that up voluntarily. "Can you fight the oil companies?" asks South Florida Shell dealer Dimitris Karavokiris. On the verge of losing his business, Karavokiris hasn't sued yet but is weighing his options. "Do we have the money, the time? I don't know, to be honest with you."

Jack Greco knew better than to think the battle was won. A Chevron dealer and chairman of the Nevada Gasoline Retailers Association, Greco had helped convince the state legislature to pass a landmark dealer-protection statute in 1987. Known as divorcement, the law prohibited oil companies from owning and operating more than 15 gas stations in Nevada, and it froze the number of company-run locations at existing levels. ARCO, which had been ridding itself of lessee dealers and running the stations itself, was forced to turn half its network back to dealers.

Getting the law through wasn't easy -- ARCO led the opposition, and the company produced reams of paper showing that divorcement in other states led to higher gas prices. Dealer claims of being undercut and driven out of business by company-run operations were mostly anecdotal -- where was the proof?

But ARCO drew the ire of lawmakers by refusing to turn over documents, even in the face of the second legislative subpoena in Nevada history. Eventually the state assembly issued a contempt citation, after which ARCO produced the requested information -- but only after securing an agreement that no one but the three subcommittee members could view the documents, and that they couldn't reveal the details within.

The dealers had succeeded in obtaining one confidential report -- a 1982 outline of the company's plan to eliminate dealers as part of its makeover into a low-cost competitor -- which they passed out to legislators and the media. Coupled with the other documents (which, according to one committee member, showed that ARCO was pumping thousands of dollars a month into its company-ops to keep them in the black), the revelation helped propel the divorcement bill into law. "That thing passed like a ball of fire," Greco says.

The law solidified the position of the remaining dealers in Nevada, reversing a dramatic shift toward company-run stations the previous five years. And though the oil industry steadfastly claims that divorcement leads to higher gas prices, Nevada had a different experience -- at least according to a 1996 ARCO letter to the state attorney general. "During most of 1995 and year-to-date 1996," the letter stated, "Reno and Las Vegas prices, excluding taxes, have been among the lowest on the West Coast."

Periodic behind-the-scenes industry efforts to repeal divorcement in Nevada were thwarted over the years, but in 1997 a provision was slipped into an energy deregulation bill at the end of the legislative session. Strapped for time and cash, the dealers agreed to a compromise that essentially grandfathered in existing dealers while allowing companies to add to their retail holdings. "They wore us out," says dealer consultant Tim Hamilton, who helped craft the deal. "We didn't have the resources to fight."

Five states plus Washington, D.C., have active divorcement statutes, but the oil industry has been able to hold the line in recent years. The same holds true for other legislation aimed at protecting dealers and limiting the ability of companies to control the retail market. These include prohibitions against companies from selling gas below their cost, and "open supply" laws that would allow dealers to buy from any wholesaler of the same brand -- dealers who lease their stations are otherwise restricted to buying directly from the company at whatever price the company sets. The past two years saw rejection of both divorcement and open supply laws in California and Arizona, where high gas prices have kept the issue on the front burner.

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