SAN FRANCISCO (CN) — Three energy companies must face claims that they conspired for years to jack up prices of key gasoline components in California, causing consumers to pay artificially inflated prices at the pump, a federal judge ruled Monday.
U.S. Magistrate Judge Jacqueline Scott Corley refused to dismiss the bulk of a consumer class action against SK Trading International Co. Ltd., SK Energy Americas Inc. and Vitol Inc.
The companies allegedly started scheming to raise the prices of alkylates, primary ingredients for mixing gasoline, in 2015 after an explosion at an ExxonMobil refinery in Torrance, California. The accident impaired the refinery’s ability to refine alkylates from February 2015 through June 2016, causing supply disruptions and higher prices. It also gave the energy firms an opportunity to jack up alkylates prices even higher while masking the cause as a mere supply disruption, according to the lawsuit.
Emails from Vitol executives, which were cited in the lawsuit, show they planned to keep their cooperation with the SK firms confidential. In seeking to dismiss the suit, the energy companies argued there is nothing illegal about forming a joint venture and deciding not to publicize it.
Judge Corley conceded that point but found claims that the joint venture was actually a “sham” were credible.
“The [consolidated class action complaint] plausibly alleges that the so-called joint venture was a subterfuge for an illegal price-fixing conspiracy,” Corley wrote in her 22-page ruling.
Vitol and SK’s supply contracts with ExxonMobil tied the price of alkylates to prices publicized in a daily market report published by the Oil Price Information Service (OPIS), a private subscription service.
According to the lawsuit, SK and Vitol agreed to manipulate trades they reported to OPIS to jack up prices for alkylates. This required the companies to take a loss on trades reported to OPIS, but they more than made up for it through alkylate sales to ExxonMobil, the lawsuit contends.
The complaint further accuses the companies of engaging in secret second trades that were not reported to OPIS.
“These hidden trades ensured there was little market risk for either party,” the consumers complained in their lawsuit.
Vitol and SK asked the judge to stay the case because a separate lawsuit brought by the California Attorney General’s office over the same conduct is now pending in San Francisco County Superior Court. The energy companies cited a legal doctrine known as the Colorado River abstention, based on a 1976 Supreme Court case, which says federal courts should stay cases when an earlier filed parallel action is pending in state court.
Corley found it would be inappropriate to apply that doctrine in this case because non-California residents and business would not be eligible for compensation through the state litigation.
“The AG Action does not and cannot seek redress for the claims of businesses or non-California plaintiffs, both of which are included as named plaintiffs and in the putative class here,” Corley wrote.
The judge also rejected arguments that the antitrust claims were time-barred under a four-year statute of limitations. The plaintiffs argued the four-year limit did not apply in this case because the California AG’s Office had a tolling agreement with the energy companies. The plaintiffs also said it should not apply because they didn't learn of the concealed price-fixing scheme until May 4, 2020, when the AG sued the energy companies in state court. The first of many soon-to-be consolidated lawsuits against SK and Vitol were filed two days later in federal court on May 6, 2020.
The judge dismissed the statute-of-limitations defense without prejudice, saying the energy companies could argue it at a later stage of litigation when more evidence is presented on the issue.
Corley also refused to accept arguments that the plaintiffs failed to show the alleged price-fixing scheme caused consumers to pay higher prices at the pump. SK and Vitol said other factors, such as the refinery explosion, could have caused the elevated gas prices. Corley found that dispute must also be resolved at a later stage of litigation.
The judge dismissed claims for injunctive relief based on alleged violations of the Sherman Antitrust Act. Corley found the lawsuit failed to show the price-fixing scheme was ongoing and that consumers will keep being overcharged without court intervention. The plaintiffs will get another chance to advance that claim in an amended complaint.
The judge also dismissed with leave to amend a claim under California’s Unfair Competition Law. To advance that claim, the judge said consumers must show the three-fold damages they seek for antitrust violations do not provide an adequate remedy for the alleged misconduct.
Attorneys for the plaintiff class and energy companies did not immediately respond to requests for comment Monday evening.
Christopher Lebsock of Hausfeld LLP represents the plaintiffs.
Alexander Kaplan of Susman Godfrey represents Vitol, and Jeffrey Davidson of Covington & Burling represents the SK companies.
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