Monday, November 26, 2007

Service Station Operators' Tying, Price Fixing Claims Fail

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

Tying and price fixing claims brought on behalf of a prospective class of approximately 5,000 Marathon and Speedway branded dealers throughout the United States can not proceed against Marathon Oil Corporation and its wholly-owned subsidiary Speedway SuperAmerica LLC, the federal district court in Indianapolis has ruled.

The operator of a Marathon-branded gas station failed to adequately allege the existence of an illegal tie. Moreover, claims that the defendants conspired with banks and financial institutions to fix the processing fee charged to the station operators were not sufficiently stated.

Marathon is the fourth-largest U.S.-based integrated oil and gasoline company and the fifth-largest petroleum refiner in the United States, according to the court. It markets gasoline under both Marathon and Speedway brand names to approximately 5,600 Marathon and Speedway branded, direct-served retail outlets in 17 states and sells petroleum products to independent entities supplying approximately 3,700 jobber-served retail outlets.

Lease and Dealer Supply Agreement Terms

The station operator's claims were based on an alleged requirement in its service station lease and dealer supply agreement with Marathon that it process all credit and debit card transactions through the oil company. The operator contended that, but for this requirement, Marathon and Speedway stations could purchase credit and debit card processing services through a number of other service providers on more favorable terms and conditions.

The lease itself made no mention of any particular credit and debit card processing services lessee-dealers were required to use; it only required that credit and debit card transactions be conducted in a way that conformed to the oil company's dealer handbook, the court held. According to the handbook, only transactions using the oil company's branded cards had to be processed through the oil company's credit and debit card processing services. Transactions not processed in such a manner would be assessed additional fees.

Thus, dealers could still choose to process those transactions elsewhere, albeit for an additional fee. Because the only tying theory alleged by the complaining operator was based on the lease terms, the tying claim had to be dismissed.

Two-Product Requirement

Even if the operator had sufficiently alleged the existence of an explicit tie, the operator-dealer failed to allege two separate and distinct products or services as required to state a tying claim, the court noted.

The operator claimed that it had alleged a tie between two distinct products or services—gasoline station franchises and credit and debit card processing services—because its franchise or distributorship was a tying product separate from the credit and debit card processing services. It was unlikely that a distributorship or distributorship rights could constitute a tying product, in the court's view. The credit and debit card processing services were simply a part of the standardized methods used to carry out the business of the distributorship.

Price Fixing

The operator failed to state sufficient facts to plausibly suggest the existence of a price fixing agreement between the oil company and unnamed banks and financial institutions to fix the price of the credit and debit card processing fees that the oil company charged its dealers, the court ruled. The operator asserted that Marathon received kickbacks under the agreement. However, the operator did not allege any additional facts to support its bare allegation, according to the court.

The operator failed to identify a single entity by name that was believed to have conspired with the defendants. The operator claimed only that the alleged agreement occurred at an unknown point in time within the four years prior to the filing of its complaint.

Simply because unnamed banks and financial institutions contracted with the defendants to provide processing services did not evidence an illegal agreement to fix processing fees. Such a substantial allegation required more than the mere recital of the name of the offense, the court explained.

The September 28 decision is Sheridan v. Marathon Petroleum Co., 2007-2 Trade Cases ¶75,938.

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