FL MORRIS / FMORRIS@STARBULLETIN.COM Former Makiki Shell owner Warren Higa, forced out of business when the monthly rent on his gas station tripled in four years, yesterday hailed the U.S. Supreme Court decision for restoring gas dealers' rights. Higa, now a Chevron gas station manager, stands in front of his former business on Beretania Street.

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Chevron loses
in Supreme Court

Some isle station owners will
receive back rent refunds

Kahului Chevron gas station owner Lloyd Yamamoto figures yesterday's Supreme Court rent-cap ruling means he'll receive about $87,000 in back rent from the oil company.

Former Makiki Shell owner Warren Higa, forced out of business after his monthly rent tripled in four years, acknowledges he won't get his station back but takes satisfaction in knowing that dealers' rights have been restored.

Eight years after Hawaii passed a law to protect independent dealers and promote competition, the high court reversed decisions by the 9th Circuit Court of Appeals in 2004 and federal District Court in 2002 and upheld the Hawaii law that imposes caps on the rent paid by dealer-run stations and bars oil companies from taking over those stations.

"We were conservatively optimistic that the Supreme Court would rule on the side of the state," said former Chevron dealer Frank Young, who agreed to vacate his Kakaako station in January 2002 after Chevron sued to evict him for violating his lease agreement.

Young, an outspoken critic of the oil companies, had lobbied for the rent-cap law and called yesterday's ruling "a large step in preserving the competition in the retail gasoline market."

"The reason why the state passed the rent cap was because we had argued all along in the Legislature that the oil companies were using economic eviction," he said. "They would raise the rates so high that all the dealers would go out of business because the dealers could not afford to pay the rent and would have to leave. Then the companies would take control of the market through company-operated stations."

Chevron USA, which sued after the state law was passed, argued that the law was an unconstitutional "taking" of the company's profits because it failed to "substantially advance" the state's goal of lowering retail gas prices. The Fifth Amendment provides that private property should not be taken for public use without just compensation.

Hawaii's gas prices are typically among the highest in the nation.

Albert Chee, spokesman for Chevron in Hawaii, said the company has to reconcile figures in light of the Supreme Court decision and it hasn't been determined how much the company will have to pay back to the state's independent Chevron dealers.

"We're disappointed the Supreme Court invalidated the 'substantially advances' test, which previous court decisions had recognized as necessary to protect private property owners against unconstitutional takings," Chee said. "At trial, Chevron convincingly demonstrated Hawaii's attempt to cap lessee dealer rents would not substantially advance the state's interests and lower retail gas prices as the state Legislature intended."

State Attorney General Mark Bennett, who argued the case for Hawaii in the Supreme Court in February, said the principle of the case was of "paramount importance."

Bennett said Hawaii's gas-cap law, which is set to go into effect Sept. 1 and allows the state to set the wholesale prices that oil companies can charge, could have been in jeopardy if the Supreme Court had ruled in favor of Chevron.

"Had this decision gone the other way, it could have had devastating consequences for states and municipalities throughout the United States," he said.

A ruling for Chevron could have sparked lawsuits from businesses challenging numerous laws -- from residential rent control to environmental regulations and even minimum-wage requirements -- on grounds they were an unfair "taking" of profits.

Yamamoto, who has been at Kahului Chevron for 21 years, said the high rents took their toll.

"When they passed the law, it was because they were trying to help the dealers survive," Yamamoto said. "I think 15 percent of all the dealers in Hawaii went out of business because of the oil companies' high rate structure."

Yamamoto nearly went out of business as well. He said he survived because he was persistent and ended up buying the station from Chevron last December. He said he was paying between $13,000 and $14,000 a month in rent when the state passed the law in 1997. Chevron finally lowered his monthly rent to between $8,000 and $9,000 in 2000 or 2001 and gave him back about $60,000 dating to 1997, the year the rent-cap law was passed.

But when a lower court overturned the state law, Yamamoto said he was given about six months to repay the $60,000 and his monthly rate went back up to between $13,000 and $14,000. He said he'll be getting back the $60,000 in addition to about $27,000 he paid after the higher monthly rate was restored.

"It feels wonderful," Yamamoto said. "I'd rather just pay the bank because I had to borrow the money to buy the station."

Higa, now a manager for the Chevron dealer-operated Manoa Service Station, brought along several of his technicians and customers after he left Makiki Shell in 2003. He said he had no choice but to leave his former station after he was told that his rent, which was $7,000 a month in 2001 and $14,000 in 2003 would be going to $21,000 a month in 2005.

"What happened to me is that Shell decided to triple the lease rent and it was going to end up at $21,000 a month," he said. "That was just not do-able and to me they were just plain greedy and they tried to force that upon us."

Higa never received a reduction in rent because of an addendum in his lease that stated if he paid the lower rent and the law was overturned that Shell could come back and collect all the additional money it was owed.

"The ruling wasn't good for me because I lost my station, but I think the state will benefit with lower gas prices," he said.