Unfair gas prices cited in lawsuit

By Nelson Sigelman - August 9, 2007

The cost of a gallon of gasoline on Martha's Vineyard, a topic that often surprises tourists and leads to resignation among Islanders, is the focus of a lawsuit filed in Dukes County Superior Court last week.

On Thursday, a pair of experienced trial lawyers, one of whom is a seasonal Edgartown resident, filed a class-action lawsuit in Dukes County Superior Court on behalf of eight plaintiffs against two gas wholesalers and three retailers.

In a 27-page complaint, Michael Roitman and Stephen Schultz, lawyers with the Boston firm of Engel & Schultz, said that the defendants unfairly fixed the price of gasoline, gouged consumers who purchased gasoline and engaged in unfair price gouging in 2005 after hurricanes Katrina and Rita.

The defendants in the case are R.M. Packer Company, Drake Petroleum Company, Depot Corner gas station and Francis J. Paciello, owner of Edgartown Mobil.

A copy of the complaint is available here.

Mr. Schultz said he became familiar with the dynamics of the sale of gasoline while helping to defend Tisbury Fuel Service. In 2002 the company unsuccessfully sought a permit from the Martha's Vineyard Commission to build a new gas station on State Road in Vineyard Haven.

In an interview last week, Mr. Schultz said that what he learned from that case and a subsequent economic analysis led him to the conclusion that there were enough facts to move forward with a class-action suit. Mr. Schultz said that had he looked at the information and found nothing "that would have been the end of it."

Mr. Roitman told The Times that the eight people named as plaintiffs are representative of the class but more people could be added as the case moves forward to include most anyone who purchased gasoline from one of the stations during the time period cited. The court still must certify the class.

The plaintiffs are William White of Oak Bluffs, a former business partner in Tisbury Fuel Services; R. Carleen Cordwell of Oak Bluffs; Ken Bailey of West Tisbury; Nadine Monaco of Oak Bluffs; Karen Lodge of Edgartown; Joan Kriegstein of Oak Bluffs; and Hilary S. Schultz of Edgartown, wife of Mr. Schultz.

Regarding his motivation, Mr. Schultz said that he gets upset every time he buys gas on the Island. But that is not the only reason.

Class-action lawsuits are expensive. But a successful suit can also make money for the lawyers as well as the plaintiffs. Mr. Schultz said that if they win the case it would be up to the court to decide how much the lawyers deserve.

Conspiracy charged

On behalf of the plaintiffs, the lawsuit claims that from Dec. 31, 1999 to last week the "defendants conspired to fix, raise, maintain and/or stabilize gas prices relating to the delivery of gasoline to the three stations. Because of defendants' unlawful conduct, plaintiffs paid artificially inflated prices for gasoline, and, as a result suffered monetary damages."

The lawsuit claims that Drake made it known that if Mr. Paciello did not keep the price of gasoline at the Edgartown Mobil stations identical or above the prices being charged at the Vineyard Haven stations, "but instead tried to sell gasoline at competitive market prices, that it would punish and retaliate against the Edgartown Mobil stations by deliberately missing gasoline deliveries in the summer."

Mr. Paciello could not be reached for comment and did not return a telephone message left Tuesday.

The lawsuit charges that normal competitive pressures are not allowed to come to bear on the sale of gasoline. It cites specific days on which the price of gasoline at various Cape stations and the down-Island stations differed by as much as 74 cents.

The lawsuit said that significant barriers at both the distributor and station level prevent competition. "Barriers to entry for new distributors include the small size of tanks at many stations, long-term leases with current distributors and size and weight limits for ferry transport. Barriers to entry for new stations include the need to obtain approval of the Martha's Vineyard Commission, which in recent years has repeatedly refused the request of a proposed 'discount' gas station to build a new competitive station in Vineyard Haven," said the lawsuit.

Unwarranted charges

Ralph Packer, owner of R.M. Packer Company, said the threat of a class-action suit is very serious. He questioned the end result. "It will be time-consuming and what will they accomplish. What will the Vineyard receive in the end?" he asked.

Mr. Packer acknowledged that prices are higher than on the mainland, but he said that is a function of market forces and a short season. He added that the question of why gas prices are higher on the Vineyard is not a new one.

Mr. Packer said that a group like the Martha's Vineyard Commission might be in a position to bring all of those involved in the transport and sale of gasoline together for an open forum. "Just get the questions fired at us and we will answer the best we can and maybe we will answer the questions of these eight people," he said.

Mr. Packer said the notion that he or his company pressured or intimidated any supplier is simply wrong. "People know our company," he said. "We don't intimidate people. We enjoy living on Martha's Vineyard and that claim is kind of far-fetched."

Mr. Packer said the lawsuit is new to him. On Tuesday he said that he had not received a copy of the complaint and so had not read it. "Whatever the court says, we will answer the questions to the best of our ability and I think when they are all on the table I think that people will be satisfied that the price of gasoline and other commodities on the Vineyard are in line with what they should be," he said.

According to a company web site, Drake Petroleum, a subsidiary of Warren Equities, Inc., is one of New England's largest independent petroleum distributors. Drake distributes refined petroleum products through a network of company-owned service stations and convenience stores.

Jeffrey Walker, general counsel for Drake Petroleum, said he had not seen the lawsuit and so could not comment on the details. But he said there is no basis for any action.

"I certainly think that whatever he [Mr. Schultz] is trying to put together doesn't fit together and won't fit together," said Mr. Walker. "I will say that we are offended that he is suggesting a long-running overt conspiracy involving Drake and Packer among others, which is totally wrong."

Commenting on the industry in general and the Vineyard's higher pricing when compared to the mainland, Mr. Walker said that there are many components involved in the final price of a gallon of gasoline, including supply, re-supply, exposure, and competition.

"I think it is sort of the general principles of economics and markets that are in play here," Mr. Walker said. "If you had another 15 stations on the Island or enormous quantity of storage on the Island you could take care of some of the pricing issues with volume economics and efficiencies in that regard, but you don't, so you are stuck with what you have."

MVC said no

There are currently nine gas stations on Martha's Vineyard. That number has more to do with the powerful permitting authority of the Martha's Vineyard Commission than any lack of would-be competitors.

In 2002 two companies appeared before the commission with plans to build new gas stations off State Road in Vineyard Haven in an area opposite Cronig's Market. The MVC rejected both.

Additional traffic congestion, the effects a new gas station would have on the economic well-being of the Vineyard's two up-Island gas stations, and a variety of personal philosophies that rested on less use of automobiles all played parts in the commissioners' decision making.

In September 2002 the commissioners voted 11-0 to deny a plan for a gas station on the site of the old Coca-Cola bottling plant, then owned by Thomas Gervais and Robert Goldsborough and now occupied by Island Home Furnishings.

In December 2002 the MVC voted 8-3 to reject Tisbury Fuel Service's proposed gas station that included a discount plan for Island residents. The station was to be located on High Point Lane across from the Tisbury Park and Ride lot.

The station backers filed suit in Dukes County Superior Court on Feb. 12, 2003. In its 26-page complaint, Tisbury Fuel Services claimed that the company was denied a fair hearing before an impartial body and that the MVC based its conclusions on "mere speculation," and failed to take into account the benefits for year-round Island residents during most of each year, as opposed to "any detriment caused by a slight increase" in traffic for six weeks during the summer season.

The MVC's enabling legislation provides a legal framework under which the commission is provided with broad discretion when weighing the benefits and detriments of a project. That legislation is a strong legal bulwark.

In March 2006 a Superior Court judge ruled that the MVC acted reasonably when it decided that an offer to sell gasoline at a discount to Islanders did not outweigh the probable detriments associated with a proposal to build a new gas station.