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State wins ruling
over gas station
rent caps

An appeals court says it was
premature for a judge to declare
a state law unconstitutional

---

By Rob Perez
Star-Bulletin

The 9th Circuit Court of Appeals has overturned a federal judge's ruling that a state law imposing rent caps on dealer-run gas stations is unconstitutional.

The San Francisco appeals court ruled yesterday that U.S. District Judge Alan Kay's November 1998 order of summary judgment was premature because a factual dispute on whether the law would result in lower gasoline prices for consumers remains and must be addressed at trial.

Yesterday's ruling means the case now goes back to federal court for trial.

Kay had issued his ruling after Chevron Corp. sued the state, claiming the 1997 law was unconstitutional because it unfairly infringed on the company's ability to use its property.

The law was passed amid concerns that Hawaii consumers were paying excessive prices for gasoline. It restricts the amount oil companies can charge independent dealers for use of service stations and prohibits the companies from taking over operations of those stations. It also bans the companies from opening new stations within certain distances of dealer-run stations.

Proponents say the law prevents oil companies from increasing their dominance of the local gas market and helps dealers stay in business, resulting in greater competition that ultimately benefits consumers.

While Kay said he was mindful of the Legislature's concern that consumers were paying too much for gasoline, the law failed to "substantially further this legitimate state interest," he ruled.

Kay said oil companies could offset rent reductions by increasing wholesale gas prices to dealers, unilaterally negating any benefit to dealers and consumers.

He also ruled that because limiting future rent increases boosts the value of dealers' leasehold interests in the stations, the dealers can charge premiums when they sell those interests, leaving the new dealers no savings to pass to consumers.

But the 9th Circuit noted that two expert witnesses for the state and Chevron gave conflicting testimony on whether the law would result in lower gas prices.

Issuing a ruling before trial - what a summary judgment does - was wrong when such material factual disputes remain, the appeals court said.

The law's proponents hailed yesterday's ruling as a major victory for dealers -- one that could lead to rent refunds from the oil companies of tens of thousands of dollars.

Since Kay's ruling, the companies have implemented new lease programs that establish rents beyond the caps set in the 1997 law.

Rents are so high now that a few dealers have walked away from their stations, unable to turn a profit, some say.

"This (ruling) might be an end to some of this economic eviction that's been going on in this industry," said Chevron dealer Frank Young, who was instrumental in lobbying for the 1997 law.

It was unclear, however, whether the oil companies would be forced to reduce rents because of yesterday's ruling.

Deputy Attorney General Jack Rosenzweig said he couldn't say yet how the ruling would affect current rent programs.

His office still was analyzing the decision.

"We're now back to square one at the lower court," said Chevron spokesman Albert Chee Jr.

Chee was unable to say what Chevron would do in the interim about the new lease program.

Young said some dealers would be entitled to huge refunds, including one on Maui due about $120,000.

Chevron is the state's market leader in gasoline sales. The vast majority of its 60-plus dealers statewide are on the new rent program.