Supreme Court to
decide rent quarrel

Several states and cities
urged the high court to take the
case, saying it could impact
many government regulations

In a case that is being closely watched across the country, the U.S. Supreme Court said yesterday it would decide whether Hawaii went too far to keep gasoline affordable when it imposed limits on the amount of rent that oil companies could charge independent dealers who lease service stations.

The court said it would look at the Lingle administration's appeal of a federal court ruling that the 1997 law was an unconstitutional "taking" of property. Lawyers said the case could have a big impact on states' abilities to regulate private businesses to help consumers.

State Attorney General Mark Bennett lauded the court's decision to accept the case.

"This case raises questions of profound importance concerning the proper relationship between the courts and institutions of democratic governance," Bennett said. The federal court should not "freely second-guess the wisdom of state economic legislation," he said.

The state maintains that the 9th U.S. Circuit Court of Appeals, which upheld the lower court ruling, had established an "intrusive" legal test that invited judges to substitute their own views of the "efficacy or wisdom of the government action" for the views of elected officials. Courts should limit themselves to deciding whether a government economic regulation has a rational basis, a much more deferential standard, the state's brief maintains.

The case to be argued early next year will set guidelines for other states. Nineteen states and many city and legislative leaders had urged the Supreme Court to hear Hawaii's appeal, arguing that their own regulations of various types could be affected.

"The list could be virtually endless," justices were told by lawyers for the National Conference of State Legislatures, National League of Cities and other groups.

The state Legislature passed the rent law in 1997 in response to what it saw as a lack of competition in the retail gasoline market in the state, which is served by only two refiners, Chevron and Tesoro. The Legislature wanted to protect independent gasoline dealers, who lease their stations from the oil companies and had to pass rent increases on to consumers.

Andy Pung, who ran Andy's Arco in Kapahulu until May, said mounting lease costs drove him out of business.

"It was just getting crazy in terms of what they expected me to pay. It was horrendous," said Pung, who recently opened a car-repair business in Kalihi.

"People like me are a dying breed in Hawaii," he said.

The law would have capped the independent dealers' rent at 15 percent of their profits and barred oil companies from taking over stations if the dealers couldn't pay.

Chevron brought a lawsuit arguing that the law violated due process, equal protection and amounted to an unconstitutional taking of property. The oil company won the case.

In the appeal, Hawaii argues that such economic regulations are not property takings and that judges should consider states' authority to determine policy.

Last month, Honolulu had the highest gas prices in the nation at $2.26 for self-serve regular. The average national price was $1.91, according to the Lundberg Survey.

Chevron attorney Craig Stewart of San Francisco told justices in a filing that Hawaii imposed "fundamentally irrational restrictions" on lease arrangements between oil companies and gas station operators.

He said Chevron sells most of its gas in Hawaii through 64 stations which the company leases to independent operators. The contested law required Chevron to charge less rent than needed to recover its expenses, Stewart said.