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Los Angeles Times: Gas station owners’ suit against Shell Oil is tossed

As the trial over ‘zone pricing’ nears a close, a judge strikes expert testimony, saying it is inadequate.

By Elizabeth Douglass, Times Staff Writer
June 27, 2007

A federal judge Tuesday dismissed a lawsuit that pitted Shell Oil Co. against California station operators who said the company overcharged them for gasoline to drive customers to nearby stations that were owned by Shell.

U.S. District Judge James V. Selna’s decision to throw out key expert testimony and end the case was unusual because it came as attorneys for both sides were poised to deliver closing arguments to a jury.

The case, which went to trial May 29 in Santa Ana, included 14 days of testimony from economic experts, Shell dealers and others.

The case was being closely watched because it was one of the few legal challenges to the industrywide practice known as “zone pricing” that went to trial.

Consumer groups have long criticized refiners for carving communities into geographic pricing “zones” and then giving dealers different wholesale fuel prices according to those territories. Those critics say the practice yields higher prices for drivers and gives oil companies the power to indirectly control retail prices by raising or lowering the dealer’s fuel bill.

Refiners defend the pricing practice as a reaction to competition in various areas.

On Tuesday, Selna and the jury heard several hours of testimony from Robert Michaels, an economics professor at Cal State Fullerton hired by the Shell dealers to quantify the damage caused by the oil company’s alleged discriminatory pricing policies. Selna struck Michaels’ testimony and dismissed the case while the jury was taking a break.

“I find that the methodology used by Dr. Michaels does not meet the standard,” Selna told the attorneys. Without Michaels’ evidence, Selna added, “the jury cannot compute a reasonable estimate of lost profit for these defendants.”

Anne Peebles, a spokeswoman for Houston-based Shell Oil, said the company was pleased by the judge’s decision. “The plaintiffs clearly failed to present evidence to support their allegations,” she said.

Mike Madani, one of the six current and former Shell dealers who brought the lawsuit, was dejected after the judge announced the dismissal.

“Consumers lost,” said Madani, whose Shell station is in Redondo Beach. “We were very, very hopeful that we could get a federal decision here that would help all of California.”

Madani testified that Shell sometimes charged him as much as 13 cents a gallon more for gasoline than it charged another Shell station about one mile away.

Madani said the higher wholesale price forced him to raise his retail price, which caused him to lose business to the company-owned Shell that paid less for its gasoline.

Shell doesn’t dispute that it charges different dealers different prices for fuel. But, Peebles said, the way Shell sets the prices “is fundamentally fair and consistent with industry practice.”

Thomas Bleau, an attorney for the Shell dealers, said he would appeal the ruling. He and the dealers are still seeking a permanent injunction that would bar Shell from charging those dealers different prices based on competition zones. Under California law, the dealers don’t need to prove actual damages to get an injunction, he said.

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