When a federal jury in Miami decided on February 20 that Exxon had defrauded its service station dealers out of $500 million, the company had its usual responses at the ready. We didn't do anything wrong, Exxon spokespeople told the media. We always behave ethically, they said. We'll win on appeal.
The verdict came almost ten years after the dealers filed suit, charging that Exxon had reneged on a promise to reduce the wholesale price of gas as part of its customer-friendly "Discount for Cash" program. According to the jury, "clear and convincing evidence" showed the company had failed to make the reductions beginning in 1983 and continuing throughout the life of the program. Though Exxon claimed it had cut the wholesale price, says plaintiffs' attorney Jay Solowsky, "The jury expressly found that they didn't."
Solowsky, who teamed with Florida attorney Gene Stearns on the case, doesn't think Exxon has much chance on appeal. But he's not surprised at the company's swaggering posture. The day before closing arguments, he says, Exxon lawyers told the judge that the case had essentially been won. "They said, 'You know, we just drove a stake through the heart of the plaintiffs' case,' " Solowsky says.
With interest, the award should total more than $1 billion, especially if the expected appeals delay the payoff. Solowsky is "ecstatic" about the result, with a caveat: Many of the dealers he represents lost their businesses and suffered numerous financial hardships as a result of Exxon's behavior. "Winning this case does not render perfect justice," he says. "It doesn't improve the lives of those families" who were hurt.
The Florida case focused rather narrowly on the alleged breach of the Discount for Cash agreement, but the implications are much broader. Testimony and documents produced at trial showed that Exxon's intent was to take dealer profits for itself -- or to get rid of its dealers entirely -- by various means. And Exxon is hardly alone in its strategies. Dealers of all major brands have been disappearing in droves for more than 20 years. "Our case is not an isolated example," says Stearns. "What became evident is that discriminatory pricing is a fact of life in this business."
Indeed, the trial is but the latest battle in the war between service station dealers and their parent oil companies (see "Paying the Price," by Bob Burtman, October 26, 2000). Exxon took its second hit in recent months, the first coming in December, when a Corpus Christi jury ruled that the company had deliberately tried to drive its dealers out of business. And the companies have had their share of success: The Corpus Christi verdict was still fresh when Harris County District Court Judge Scott Brister granted summary judgment to Shell in another dealer lawsuit, denying several hundred dealers their day in court.
The war is escalating, as attorneys around the country pool their resources and file a barrage of actions on behalf of dealers. Two of the lawyers in the Texas cases, Rob Steinberg and Paul Rosen, have filed major class-action lawsuits in Alabama and California with co-counsel from those states. And they've enlisted a formidable ally: Houston attorney John O'Quinn, who apparently is rejuvenated after several years of personal and legal troubles. "O'Quinn is back," says Steinberg. "He's gonna knock the shit out of them."
The Alabama case, filed against BP Amoco, ExxonMobil, Texaco and other oil giants, concerns the use of the credit card machines attached to gas pumps that motorists use to buy the majority of the gasoline sold in the United States. As with any such arrangement, the retailer is charged a small percentage of the sale by a bank or other lender. But the companies dictate what banks the dealers must use in order to obtain the machines, and those banks often charge a percentage point or more higher than the dealers would pay if they were free to get credit on the open market.
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In California, the lawsuit targets the joint marketing arm of Shell and Texaco. New leases presented to those dealers have provisions that either squeeze their profits to nothing or greatly reduce the value of their stations. In essence, the suit argues, they are being forced out of business, which violates federal dealer-protection law. Steinberg's co-counsel, Tom Bleau, already has won an injunction against the companies in a parallel case in Southern California.
A third suit, recently filed in St. Louis against Amoco, has implications beyond the dealer battlefront. In major metro areas throughout the country, the highest gas prices are often found in two parts of town: the richest and the poorest. The reasons are obscured by incomprehensible pricing policies the companies use to justify charging whatever they want. But in general, wealthy residents don't bother to shop for lower prices, and poor residents are less mobile and therefore can't take advantage of deals across town. The suit, which likely will expand to include the other major oil companies, charges Amoco with discrimination and includes consumers as well as dealers. "It's a 'black tax' case," says Steinberg. "They take advantage of economically depressed neighborhoods, wherever they may be, and charge them more."
Most of the pro-dealer verdicts have been small potatoes for the ExxonMobils of the world, which continue to announce record quarterly earnings in the billions. A case in Indiana recently settled for a reported $22 million; the Corpus Christi jury awarded $5.5 million plus costs. But the new wave of cases could put more of a dent in their bottom lines; at stake in Alabama, for example, is an estimated $12,500 per gas station per year, multiplied by at least 20,000 dealers. "We're talking about billions of dollars in transactions," Steinberg says.
Exxon's stock dipped with the Florida verdict, but attorney Solowsky notes that even if the company has to pay the full amount, it still got the better of the deal. Investing the money intended for the dealers has resulted in a windfall since the practice began, he says. "Exxon will probably end up netting $2 billion."