Calif. court revives ‘warm gas’ suit against Chevron
Liquid expands as the temperature increases. That simple law of physics is at the heart of a consumer class action that alleges Chevron is cheating California consumers by selling motor fuel at an average temperature of 70 degrees.
Yesterday, a state appeals court revived much of the lawsuit after Chevron had succeeded in having it dismissed.
The plaintiffs in Klein v. Chevron U.S.A. claim that they’re getting short-changed in their gas purchases. Chevron’s alleged scam goes like this. Chevron and other oil companies purchase motor fuel at the wholesale level using an industry standard that adjusts for differences in the temperature of motor fuel. The standard defines a “U.S. Petroleum Gallon” as 231 cubic inches of petroleum at 60 degrees Fahrenheit.
While Chevron makes sure that’s its fuel purchases are adjusted for temperature, the company is not so careful when selling gas at the retail level. According to the plaintiffs’ complaint, gas sold to California consumers is, on average, in excess of 70 degrees Fahrenheit, meaning that consumers receive less fuel (measured in terms of mass and energy) than they would receive if the fuel was delivered at the temperature-adjusted standard of 231 cubic inches at 60 degrees Fahrenheit.
Apart from consumers receiving less fuel for their money, this sleight of hand allegedly results in a windfall for Chevron. According to the plaintiffs, Chevron is able to collect and retain more motor fuel taxes from consumers than it is required to pay to the government.
Asserting that billions of dollars are at stake, the plaintiffs filed their class action in March 2007 in the Los Angeles County Superior Court. The complaint asserts claims for violations of California’s unfair competition and consumer protection laws, breach of contract and unjust enrichment.
Chevron moved to dismiss, arguing that it could not be sued for failing to adjust the temperature of retail motor fuel because California law permitted the practice.
The trial court agreed in part, dismissing the plaintiffs’ claims for breach of contract, unjust enrichment and “unlawful” business practices. However, the trial court rebuffed Chevron’s attempt to dismiss the plaintiffs’ consumer protection claim, as well as their claims for “unfair” and “fraudulent” business practices.
Chevron was provided the key to having the remaining claims dismissed when, in March 2009, the California Energy Commission released the results of its investigation into whether implementing “Automatic Temperature Compensation” (ATC) fuel pump technology that would compensate for temperature increases in retail motor fuel.
The commission’s report concluded that consumers would not realize any economic benefit from requiring retailers to implement the use of ATC fuel pumps because the oil companies would simply increase their prices to account for any loss in revenue.
The California legislature had mandated the energy commission’s investigation, so Chevron argued that the plaintiffs’ remaining claims were barred by the judicial abstention doctrine since state lawmakers had clearly expressed their intent to address the issues in the plaintiffs’ complaint.
The trial court was convinced and the rest of the plaintiffs’ claims were dismissed.
The California Court of Appeal weighed in yesterday and concluded that the trial court had wrongly applied the judicial abstention doctrine. The court explained:
Contrary to Chevron’s assertion, it is not clear at this stage of the proceedings that plaintiffs’ claims will necessarily require the court to enter into complex areas of economic policy. Moreover, the Legislature has not provided any alternative means of addressing the issues raised in plaintiffs’ claims, nor has it provided any certainty that it will address those issues in the future. Abstention would therefore leave the plaintiffs without a remedy.
With the door reopened, the court went on to address whether the plaintiffs’ complaint stated viable claims. The court concluded that the plaintiffs’ didn’t have a case with respect to their breach of contract and unjust enrichment claims, but said that they could go forward with their allegations that Chevron violated California’s unfair competition and consumer protection laws.
With respect to whether Chevron violated state unfair competition law, the court said that the plaintiffs stated a viable claim that the company acted “unfairly” by alleging that, “by failing to compensate for temperature variations in retail motor fuel, Chevron is engaging in a practice that misleads consumers as to the actual amount of motor fuel they are purchasing and the actual price that they are paying for that fuel.”
Likewise, the court decided that the plaintiffs sufficiently alleged that Chevron engaged in fraudulent conduct:
At the pleadings stage, we cannot say, as a matter of law, that consumers are not likely to be deceived in the manner alleged by plaintiffs. As the trial court observed, plaintiffs have alleged “facts which, if true, may reveal that members of the public . . . [assumed] that . . . they were receiving standardized units of motor fuel when, in fact, the energy content of each gallon depended on the temperature of the motor fuel at the time of purchase.” Plaintiffs have also alleged facts that, if true, may reveal that consumers were deceived as to the true price of motor fuel, which may vary depending on the temperature at which it is sold.
And regarding the plaintiffs’ claims under California’s consumer protection statute, the court said:
[The plaintiffs] allegations are sufficient to state a … claim predicated on a material omission, which “consist[s] of the suppression of a fact by one who . . . gives information of other facts which are likely to mislead for want of communication of that fact.” Plaintiffs allege that Chevron’s failure to disclose the effect of temperature on motor fuel is deceptive because it advertises the price of its product in what consumers understand to be standardized units (gallons). Stated differently, plaintiffs allege that Chevron provided information to the consumer (a stated price in “gallon” units) that was deceptive in light of its omission of other relevant information (the amount of energy output in a gallon of motor fuel depends on the temperature at which it is sold).
– Pat Murphy
