Class Action Defense Cases-In re Motor Fuel: Kansas Federal Court Denies Defense Motion To Dismiss Class Action Challenging Practice Of Selling Gasoline Based On Volume Regardless Of Temperature

Feb 26, 2008 | By: Michael J. Hassen

Defense Motion to Dismiss Class Action Alleging Gasoline Retailers Overcharged Consumers by Failing to Account for Differences Based on Temperature of Gasoline Sold Denied because Class Action Allegations Adequately Pleaded Claims for Breach of Contract, Violation of Consumer Protection Statutes, and Various Other Claims Kansas Federal Court Holds

Several putative class action lawsuits were filed against various motor fuel retailers in 26 states, the District of Columbia and Guam (“the Region”); the class actions were consolidated in the District of Kansas for pretrial purposes by the Judicial Panel on Multidistrict Litigation (a summary of the Judicial Panel’s order may be found here). Though it alleged numerous causes of action, in essence the consolidated class action complaint alleged that defendants’ sale of gasoline “for a specified price per gallon without disclosing or adjusting for temperature expansion” subjects them to liability “under various state law theories including breach of contract, breach of warranty, fraud and consumer protection.” In re Motor Fuel Temperature Sales Prac. Litig., 534 F.Supp.2d 1214 (D. Kan. 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action on ten (10) different grounds, see id., at 13-14, but framed the arguments “in general terms” that did not “identify the elements of each cause of action or discuss whether the laws of each jurisdiction are the same,” id., at 14. The district court denied the motion.

In broad terms, the consolidated class action complaint alleged that gasoline expands when heated and so a given volume has less mass at warmer temperatures than the same fuel would have at cooler temperatures. In re Motor Fuel, at 3. Because of this, the industry has standardized the sale of gasoline based on temperature, defining a “gallon” as 231 cubic inches at 60 degrees Fahrenheit, and this standard – known as D-1250 – is used “at every state of the process except at retail.” Id. Retail gasoline is sold “based solely on volume (i.e. 231 cubic inches) without regard to temperature,” and is advertised without defining for the term “gallon” for the consumer, id. Further, the industry has fought selling gasoline at the D-1250 standard, so “Plaintiffs pay billions of extra dollars every year because retailers deliver fuel which is – on average – at least 10 degrees higher than the industry standard without making any correction in price and/or volume.” Id., at 4. This practice also “generate[s] hidden profits in the form of excess reimbursement for taxes paid on wholesale purchases,” because defendants pay federal and state taxes on the D-1250 standard, but collects reimbursement of those taxes from consumers on the additional gallons sold at higher temperatures, id. Finally, the class action alleges that equipment is available (and in use in Canada) to adjust the retail sale of gasoline to the D-1250 standard, but defendants have opposed putting the equipment into use by falsely claiming the average temperature of gasoline sold in the U.S. is 56 F, while the American Petroleum Institute now concedes that it is higher than 60 F, and that it would cost more than $6 billion to put the equipment to use, while the industry now estimates that cost to be $2.2 billion. Id., at 4-5. The nine (9) separate claims alleged in the class action complaint are discussed at pages 6 through 13 of the opinion.

As noted above, defense attorneys framed the motion to dismiss the class action complaint in general terms, and the district court “likewise address[ed] these arguments in general terms.” In re Motor Fuel, at 14. The court first addressed the defense argument that “state regulation requires [defendants] to sell motor fuel in uniform volumetric gallons of exactly 231 cubic inches, without regard to temperature, and that plaintiffs are not legally entitled to buy motor fuel in units which are adjusted for temperature.” Id. The federal court rejected this argument, explaining at pages 14 and 15:

As a preliminary matter, defendants do not explain how their argument – even if true – would dispose of all claims. For example, plaintiffs claim that defendants unjustly charged excess reimbursements for motor fuel taxes and fraudulently failed to disclose that they were selling warm fuel which contained less energy than cold fuel. Defendants do not explain how state law – even if it requires them to sell fuel in uniform volumetric gallons – would preclude these claims. Moreover, defendants do not address plaintiffs’ contention that they should adjust the price (not volume) of motor fuel to account for temperature. At oral argument, defense counsel conceded that it might be permissible under state law to adjust the retail price of motor fuel based on temperature. Thus, on its face, defendants’ argument does not reach – let alone dispose of – plaintiffs’ claims.

Defense attorneys also relied on the Specifications, Tolerances, And Other Technical Requirements For Weighing and Measuring Devices published by the National Institute of Standards and Technology in Handbook 44, which defendants contend has been adopted by each jurisdiction at issue in this case. In re Motor Fuel, at 15 n.6. But the district court concluded that they had failed to demonstrate that Handbook 44 prohibited them “from compensating for temperature in retail sales of motor fuel.” Id., at 18. At bottom, the federal court found that defendants had failed to establish that any of the various jurisdictions at issue prohibit the class action claims, id., at 19.

The federal court next addressed defendants’ argument that the breach of contract claims “fail as a matter of law because defendants accurately represent that they are selling a ‘gallon,’ i.e. 231 cubic inches, of motor fuel,” and that the “official weights-and-measures” of the 28 jurisdictions at issue define a gallon as 231 cubic inches. In re Motor Fuel, at 19-20. It rejected the relevance of this argument, concluding that it does not address the allegation that defendants “deliver[ed] less fuel than agreed when the temperature was greater than 60 degrees Fahrenheit,” id., at 20, and that defendants failed to show that as a matter of law the practices challenged by the class action “were not deceptive,” id., at 23.

We do not here discuss the balance of the court’s findings, as they are generally consistent with the arguments summarized above. The bottom line is that the district court denied the motion to dismiss, see id., at 42. Those interested in greater detail may download the entire opinion at the link below.

Download PDF file of In re Motor Fuel Temperature Sales

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