Thursday, January 17, 2002

State settles oil
suit for 1%

The $2 billion action over
inflated gas prices finally
sputters out for a penny
on the dollar

Case timeline

By Tim Ruel

The state has agreed to end its three-year price-fixing lawsuit against Hawaii's major oil companies in return for a $20 million settlement from the five firms still fighting the case, a payment that would be 1 percent of the roughly $2 billion the state had been seeking.

A deal in principle was reached between all sides yesterday after six months of mediation, said attorney Clyde Matsui, who served as mediator and discovery master in the suit. The companies and the state must still negotiate specific points of the settlement, he said. Matsui would not comment on the specific amount of the settlement.

The settlement is about $20 million, according to a person familiar with the deal who requested anonymity. The amount could change in the final agreement.

The money comes on top of $15 million the state won in a settlement in 2000 with two companies, BHP Hawaii Inc. and Tesoro Petroleum Corp., which opted out of the suit and denied wrongdoing. Still contesting the case were Hawaii's market leader, Chevron Corp., as well as Tosco Corp., Texaco Inc., Shell Oil Co. and Unocal Corp.

"If it's $20 million, we all lost," said Frank Young, a former Chevron dealer and frequent critic of the company. Chevron sued in 1999 to evict Young from the Kakaako station operated by his company since 1953, and under a confidential settlement, Young abandoned the station on Tuesday. "I'm all depressed now," Young said.

He added that he hoped the state Legislature would react to the deal by discussing regulations for Hawaii's gas prices, which have long been among the highest in the nation.

"It is a settlement that I am a little disappointed in," Gov. Ben Cayetano said yesterday morning to reporters. "But it depends on the perspective of the judges." Local oil prices have gone down since the state filed the suit, Cayetano noted.

The state sued the companies in October 1998, alleging the firms secretly formed a conspiracy to milk profits from Hawaii's drivers by keeping prices artificially high. The firms denied the charges and said that the lawsuit, filed shortly before the 1998 gubernatorial election, was political.

The settlement comes at a significant point in the case, as senior U.S. District Judge Samuel King considers motions for summary judgment argued by the oil companies in hearings in November. In summary judgment a defendant seeks to dismiss entire counts, or even a whole case, on the basis that there is not enough evidence to warrant a trial. In rebuttal the state said it had plenty of evidence, including documents that showed officials at competing companies were sharing their local wholesale prices.

The state also said it had proof that Chevron, operator of one of two oil refineries in Hawaii, would sell gasoline to the other companies with the understanding that the firms would not seek better prices elsewhere, such as by importing.

Shortly before the November hearings, King ordered that the oil companies come up with a plan to open the summary motion documents to the public. The documents, like the bulk of filings in the case, have been under seal. The oil companies have argued that the information should be secret because many of the documents contain competitive financial information. In his order, however, King noted that much of the case rests on the extent of the profits the companies have earned from the Hawaii market.

All the documents in the case would eventually become available to the public, but the oil companies would have the opportunity to blot out specific pieces of information. It is not clear how much the companies would be able to redact.

It will be interesting to see how much information about the profitability of the companies becomes public, because the data could enrage people or mean nothing at all, said Tim Hamilton, a mainland petroleum analyst who has studied Hawaii's market. The whole point of an antitrust lawsuit should be to uncover a trail of collusion, Hamilton said.

"If these documents go public, the Legislature will have a trail to follow. The public will be upset even more than it is now, and there's a chance the Legislature will take an action," Hamilton said.

In March 1998, months before the state filed suit, the Star-Bulletin published a story with an analysis by Hamilton that said Hawaii consumers were overcharged more than $81 million for gasoline in the previous 14 months because of artificially high wholesale prices. At the time, Chevron and other companies said the analysis was simplistic and flawed.

In recent court filings, the state said that any potential damages from the suit would likely go to the state highway fund, not directly to consumers. The fund generally pays for road maintenance, but some money has been transferred to the state's general fund, according to records kept by the state Transportation Department.

The latest negotiations between the state and the companies began on Monday, a convenient time, since lawyers from all sides were in town for hearings on separate matters that had been scheduled this week, Matsui said. "This is the most intense 36 hours I've ever been through," said Matsui, who has handled mediation in lawsuits involving the former Bishop Estate and the Board of Water Supply. "We started off Monday with everyone hollering 'no.'"

The court ordered the state and the companies not to talk about details of the settlement until an agreement has been finalized, and representatives of both sides declined comment today. The settlement should be filed with the court soon for public review, and a hearing would be scheduled for King to sign off.

Because the state sued on behalf of Hawaii's residents, people will have the right to say they want to be excluded from the terms of the settlement, Matsui said. He noted that members of the public have rarely exercised that right.


The gasoline antitrust lawsuit

Key developments in the state's antitrust lawsuit:

>> March 1998: Gov. Ben Cayetano directs the state attorney general to determine whether an investigation of Hawaii's highest-in-the-nation gas prices is warranted.

>> Oct. 2, 1998: State files $500 million suit against Hawaii's two refineries and major gasoline wholesalers for allegedly overcharging local consumers for years. Named in the lawsuit are 13 corporations, including Chevron Corp., BHP Hawaii Inc., Shell Oil Co., Texaco Inc., Tesoro Petroleum Corp., Tosco Corp. and Unocal Corp.

>> March 14, 1999: Judge Samuel P. King rejects oil company motions to dismiss the state's antitrust suit.

>> March 25, 1999: State ups the amount of the lawsuit to $1.8 billion, saying the companies profited far more than first anticipated.

>> January 2000: BHP Hawaii Inc. and Tesoro Petroleum Corp. settle the suit and deny wrongdoing. They pay the state $15 million.

>> July 2001: The five remaining defendants -- Chevron Corp., Tosco Corp., Texaco Inc., Shell Oil Co. and Unocal Corp. -- file motions under seal seeking a summary judgment to dismiss the case.

>> November 2001: Judge King orders some court filings opened to the public and hears arguments over the motions for summary judgment.

>> Jan. 16, 2002: The state and five defendants reach a tentative settlement for a reported payment of $20 million.

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