Costco, Others Disputing ‘Hot Gas’ Deals at 3rd Cir.

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By Perry Cooper

Nov. 16 — The fairness of class settlements that result in no money reaching the hands of class members will be the subject of oral argument “hot gas” litigation at the Tenth Circuit Nov. 17 ( In re Motor Fuel Temperature Sales Practices Litig., 10th Cir., No. 15-3221, oral arguments 11/17/16 ).

The case involves 28 settlements totaling $24.5 million that resolve allegations of fuel purchasers that they were overcharged for gasoline when temperatures rise.

Gas expands in warmer temperatures, so a gallon of gas sold on a hot day could cool off to become less than a gallon. The plaintiffs allege the companies priced gas the same regardless of temperature.

Under the deals, some gas stations will install automatic-temperature correction pumps to correct for expansion. Other defendants will contribute to a fund to facilitate transition to ATC pumps by state regulators.

The U.S. District Court for the District of Kansas approved the settlements in August 2015. In August 2016, the court approved $18.9 million in attorneys’ fee awards for those settlements and an earlier deal with Costco Wholesale Corp., but not before the settlements were appealed to the U.S. Court of Appeals for the Tenth Circuit.

A group of 13 gas retailers, the Competitive Enterprise Institute Center for Class Action Fairness and Costco appealed.

No Benefit to Class

CCAF argues in its brief that the settlement enriches class counsel at the expense of class members who receive no compensation under the deal. The attorneys get millions and the class gets, at best, “informational benefits,” it says.

The settlements attempt to impose policies on state regulators to implement ATC, but this is properly done through legislation, CCAF says. “The judiciary should not legislate,” it says, citing separation of powers concerns.

The gas station objectors echo several of CCAF’s concerns in their brief. The brief is signed by retailers who were formerly defendants that prevailed in bellwether trials on the issue.

They say the deals don’t actually “settle” any plausible legal claims. Lobbying to change the law for the sale of retail fuel doesn’t provide redress for class members, they say.

The plaintiffs argue in response that settlements benefit consumers because ATC systems will allow consumers to get fuel at transparent prices.

In response to CCAF, they say this can’t be “regulation through litigation” because no regulation has occurred yet. They also brush off the separation of powers argument, saying the settlements just encourage—don’t require—states to implement ATC.

Costco’s Appeal

Costco was the first defendant to settle. It agreed to install ATC pumps at its gas stations. The settlement included a most favored nation clause, which allowed Costco to adopt the terms of later settlements with other defendants if it favored the terms of those deals over its own.

Costco tried to invoke the clause based on certain deals with their competitors that didn’t require installation of ATC pumps. But the district court said those “deals” were not settlements subject to the clause. Instead, Costco referred to the plaintiffs’ voluntary dismissal of claims against 16 non-settling defendants.

Costco argues in its brief to the Third Circuit that it should be able to invoke the most favored nation clause. The plaintiffs respond that the dismissals don’t trigger the clause.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bna.com

To contact the editors responsible for this story: Steven Patrick at spatrick@bna.com; Jeffrey D. Koelemay at jkoelemay@bna.com

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