Opinion ID: 205124
Heading Depth: 1
Heading Rank: 3

Heading: Price-Gouging Claim

Text: Massachusetts regulatory law prohibits selling gasoline at unconscionably high prices during market emergencies. See Mass. Gen. Laws ch. 93A § 2(a), (c); 940 Mass.Code Regs. 3.18. The district court entered summary judgment against plaintiffs' state law claims that the defendants engaged in price-gouging in the aftermath of Hurricanes Katrina and Rita in 2005. The rule states, (1) It shall be an unfair or deceptive act or practice, during any market emergency, for any petroleum-related business to sell or offer to sell any petroleum product for an amount that represents an unconscionably high price. (2) A price is unconscionably high if: (a) the amount charged represents a gross disparity between the price of the petroleum product and 1. the price at which the same product was sold or offered for sale by the petroleum-related business in the usual course of business immediately prior to the onset of the market emergency, or 2. the price at which the same or similar petroleum product is readily obtainable by other buyers in the trade area; and (b) the disparity is not substantially attributable to increased prices charged by the petroleum-related business suppliers or increased costs due to an abnormal market disruption. Defendants have conceded for the purpose of their motions for summary judgment that a market emergency [10] began on August 29, 2005, the day Hurricane Katrina made landfall in the United States, continued through the period following Hurricane Rita, which made landfall on September 24, and ended on December 1, 2005. [11] The regulation defines neither gross disparity nor immediately prior. Significantly, there have been no Massachusetts state court decisions interpreting the rule. Like the district court we write on a clean slate. [12] Plaintiffs argue that the district court erred in rejecting their interpretation that a gross disparity can be proven from a change in profit as well as from a change in retail price. The district court used a plain language interpretation that because the regulation defines when [a] price is unconscionably high, 940 Mass. Code Regs. 3.18(2), the analysis turns on disparities among prices at differing times and places. Absent such a showing about prices, the district court held, high profit margins cannot prove unconscionability of prices. Plaintiffs argue that section 2 of the regulation provides only a nonexclusive method of proving that prices are unconscionably high, and that section 2(b) contemplates examination of gross margins (as a proxy for profit margins). They also argue that the regulation, whatever its language, must be interpreted to be consistent with the Federal Trade Commission's interpretations of different price-gouging definitions, because the Massachusetts state courts refer to certain FTC interpretations when interpreting Mass. Gen. Laws ch. 93A, the statute underlying the price-gouging regulation. [13] See Ciardi v. F. Hoffmann-La Roche, Ltd., 436 Mass. 53, 762 N.E.2d 303, 309 (2002). The facts about prices during this period are not disputed. Plaintiffs summarize their evidence as showing that from August 30, the day after Katrina made landfall, to the end of the emergency period, the absolute maximum increase in defendants' gross margin per gallon of regular gas ranged from 36 to 51 cents, representing 38% to 68% increases. Using less volatile monthly averages, plaintiffs' Exhibit 13 shows maximum increases in gross margins during the market emergency of 25 cents or 38% at R.M. Packer's Tisbury Shell, 35 cents or 69% at Drake's Xtra-Mart Citgo, 31 cents or 51% at Paciello's Edgartown Mobil, and 31 cents or 54% at Depot Corner. Tisbury Shell's maximum margin was in November; the other three stations' were in October. Focusing on absolute changes in price per gallon from the week before to the week following Hurricane Katrina's August 29 landfall, prices rose 20 cents at Tisbury Shell, 48 cents at XtraMart Citgo, 42 cents at Edgartown Mobil, and 42 cents at Depot Corner. Prices continued to rise, to a maximum increase in early September of 37 cents at Tisbury Shell [14] and 60 cents at XtraMart Citgo, [15] Edgartown Mobil, [16] and Depot Corner. [17] During the week beginning on September 27, just after Hurricane Rita made landfall on September 24, prices were still above their August 22-28 pre-Katrina levels by 32 cents at Tisbury Shell, 42 cents at XtraMart Citgo, and 35 cents at both Edgartown Mobil and Depot Corner. The language of the price-gouging regulation does not reach gross disparities in price alone. The regulation is concerned with increases in both price and cost, the two factors that determine gross margin. We need not address the separate issue of whether a gross disparity between pre-emergency and post-emergency gross margins might make out a claim of price-gouging where an increase in absolute price does not in itself appear unconscionable. See, e.g., People ex rel. Spitzer v. My Serv. Ctr., Inc., No. 06-21157, 2007 WL 102463, at  (N.Y.Sup.Ct. Jan. 17, 2007) (using increase in gross margin from 67 to 99 cents to illustrate that price increase of about 32 cents was price-gouging under New York law); People ex rel. Spitzer v. Wever Petroleum, Inc., 14 Misc.3d 491, 827 N.Y.S.2d 813, 816 (N.Y.Sup.Ct.2006) (finding increase of 60 cents in gross margin made increase of 87 cents in price unconscionably excessive under New York law). The rule encompasses price and margin increases in relation to one another. Dramatic changes in gross margin might illustrate that a price increase is a gross disparity in price because it reflects price increases unexplained by cost increases. But nothing in the regulation suggests that increases in gross margin alone, in the absence of any price increase and simultaneous with declining retail prices, can support a price-gouging claim. While there is no specific history available as to the Massachusetts price-gouging rule, such rules are generally designed to protect consumers from acute and unconscionable increases in the prices they must pay for basic consumer goods during times of market emergency, not to mandate that retailers decrease their prices as quickly as their costs decline after the most acute crisis in supply of the good has passed. See, e.g., Ark.Code Ann. § 4-88-301 (declaring legislative purpose to prevent excessive and unjustified increases in prices); Cal.Penal Code § 396 (It is the intent of the Legislature ... to protect citizens from excessive and unjustified increases in the prices charged. ...). These are not regulations meant to give the government control over the setting of petroleum product prices. The facts show that while defendants' average weekly prices were increasing, during the time periods of August 30-September 5 and September 6-12, their gross margins were generally rising only very moderately, since their costs were climbing as well. [18] Average margins rose at Tisbury Shell from 74 cents during the August 22-28 period to 78 cents from August 30-September 5, before dropping back down to 61 cents the following week. During the same time periods, margins at XtraMart rose from 53 cents to 87 cents before falling back to 68 cents, margins at Edgartown Mobil rose from 66 cents to 68 cents and then to 76 cents, and margins at Depot Corner rose from 62 cents to 64 cents and then to 72 cents. There is marked volatility in the margins, best shown by the swing in average gross margin at XtraMart Citgo from 53 cents during the week before Katrina to 87 cents during the first week after, but dropping back to 68 cents one week later as its costs continued to rise. This volatility resulted from mismatches between when the stations raised their prices and when they had to pay higher costs at wholesale. [19] At XtraMart, for example, prices rose from $3.50 on September 1 to $3.70 a gallon on September 2, when costs were $2.47 a gallon, but there was no further increase in price at XtraMart after costs rose to $3.15 a gallon on September 5. And the initial twenty-cent price increase to $3.70 a gallon itself came two days after a short-lived but sharp increase in XtraMart's costs from $2.56 to $2.93 per gallon, before costs dropped to $2.47 on September 2. Unless the resulting prices are unconscionably high, the price-gouging rule does not prohibit retailers from raising their prices in reasonable anticipation of future increases in costs, or after the fact in response to actual recent increases even if costs have dropped back down again. Defendants' margins hit their highest levels after their retail prices began to decline. It appears that the stations' costs dropped precipitously beginning in mid-September, but that they dropped their prices at a much slower rate. The stations' average weekly gross margins thus began a general rise from the week of September 13 well into October and November. But no station raised its price after September 7, and all four had dropped from their highest price by September 20 at the very latest. Neither the absolute increases in price nor the increases in gross margins show any gross disparity in price. As we have mentioned, no Massachusetts law defines gross disparity for the purposes of the price-gouging regulation. By analogy, however, in the context of unconscionable contracts, a Massachusetts case does refer to a gross disparity as requiring gross inadequacy of consideration. Waters v. Min Ltd., 412 Mass. 64, 587 N.E.2d 231, 234 (1992) (quoting 1 A. Corbin, Contracts § 128, at 551 (1963 & Supp. 1991)). That court said the disparity must lead[] inevitably to the felt conclusion that knowing advantage was taken of consumers. Id. at 233 (quoting Jones v. Star Credit Corp., 59 Misc.2d 189, 298 N.Y.S.2d 264 (N.Y.Sup.Ct.1969)). Those standards have not been met here. The Federal Trade Commission report on which plaintiffs rely would not lead us to a different result, and so we do not decide what, if any, deference the Massachusetts Supreme Judicial Court would give it. See Federal Trade Commission, Investigation of Gasoline Price Manipulation and Post-Katrina Gasoline Price Increases (2006). Plaintiffs cite the FTC's statement that an increase in average margin of more than five cents is a price increase that was not substantially explained by increased costs. Id. at 151. But they incorrectly state that the FTC equated this five-cent margin increase with price-gouging. In fact, the FTC Report required an additional conclusionthat a retailer's absolute price increase exceeded the national average increase of thirty-five cents, as well as the average increase in the station's local area, by at least five centsbefore it was considered to have engaged in price-gouging. Id. at 152. Under plaintiffs' expert's definition of Cape Cod as the relevant trade area under the Massachusetts price-gouging rule, none of defendants' gas stations were price-gouging under the FTC's methodology: average gas prices on the Cape increased by 53 cents from August to September, while defendants' average gas prices increased between 42 and 54 cents. [20] Plaintiffs have not shown a gross disparity in prices under the state price-gouging rule, even taking into account defendants' gross margins during the period of price increases. The only question before us is whether the supracompetitive prices charged by defendants on Martha's Vineyard are a result of illegal actions in violation of federal antitrust laws or state anti-price-gouging rules. Plaintiffs have failed to meet the legal standards for proof of those violations. The judgment of the district court is affirmed.