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home : news : county/state news June 27, 2017

Jamie Taylor/River News

The Krist Oil station on Lincoln Street in Rhinelander is one of over 70 the company owns in northern Wisconsin and the U.P. of Michigan..
Jamie Taylor/River News

The Krist Oil station on Lincoln Street in Rhinelander is one of over 70 the company owns in northern Wisconsin and the U.P. of Michigan..
8/25/2016 7:30:00 AM
Krist Oil files suit over markup law
Company says state law amounts to 'hidden tax on consumers'
Jamie Taylor
River News Reporter

A Michigan oil company has filed a lawsuit in Vilas County Circuit Court challenging the state's minimum markup law on gasoline.

In court documents filed Monday, Krist Oil Company, based in Iron River, requested a declaratory judgment that the law violates its due process rights under the state constitution and is "therefore void and unenforceable."

Krist Oil is the lead plaintiff in the suit. Robert Lotto of Green Bay is listed as a co-plaintiff. Listed as defendants in the case are the state of Wisconsin and Ben Brancel, secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP).

The plaintiffs are represented by attorneys with the Wisconsin Institute for Law and Liberty (WILL) in Milwaukee.

The markup law is part of Wis. Statute 100.30, the Wisconsin Unfair Sales Act. The measure was passed during the Great Depression to prevent large oil companies from undercutting smaller ones, and requires gasoline retailers to charge the higher of either 6 percent over cost or 9.18 percent over the average wholesale cost.

Under the statute, violations of the markup law may result in a special order by DATCP or a court-ordered civil forfeiture of between $50 and $500 for the first violation and between $200 and $2,500 for each subsequent violation.

Gasoline retailers may also file a private cause of action to seek damages if they are injured by a competitor's price.

According to the complaint filed Monday, the Krist lawsuit seeks to vindicate the right of Wisconsin businesses to charge a competitive price to their customers "free of anticompetitive, arbitrary and irrational government regulation." It also seeks to vindicate the right of Wisconsin consumers to "purchase products at the most competitive price, free of anticompetitive, arbitrary and irrational government regulation."

The complaint notes that Krist, which operates over 70 convenience stores and gas stations in northern Wisconsin and the Upper Peninsula of Michigan, is free to charge a competitive price at its Michigan locations because there is no markup law in that state.

"Krist Oil's right to serve its customers by engaging in a lawful business in the manner of its choosing is protected by the Wisconsin Constitution - in particular by its guarantees of equal protection and due process law," the complaint states. "The Minimum Markup Law is arbitrary, irrationally and unduly restricts the economic liberty guaranteed by the Wisconsin Constitution and thereby harms both Wisconsin businesses and Wisconsin consumers. It is therefore invalid and unenforceable."

The complaint identifies Lotto as a "Wisconsin citizen and resident of Green Bay" who regularly purchases gas in the Green Bay area.

"Mr. Lotto desires to purchase gasoline at the lowest possible price and searches for the lowest price gasoline he can purchase," the filing states. "Mr. Lotto is harmed by the Wisconsin law since it requires him to pay a price for gasoline that is higher than what a competitive price would be if Wisconsin's Minimum Markup Law were not in place."

The complaint also notes that Lotto also purchases other items covered by the law and has to pay an artificially high price for those items "than the prices that would prevail in a truly competitive market."

The statement of facts section of the complaint states that Krist is not affiliated with any major oil companies and because of this can purchase its supplies of gas on the open market instead of being locked into a single brand. This allows the company to purchase its supply of gas at the lowest possible price on a daily basis, which gives it a competitive advantage over its competitors who cannot, the complaint states. The complaint also alleges that the company has lower overhead costs because it does not have to pay franchise fees and owns its own fleet of tankers to transport gasoline to its locations.

"With these advantages, Krist Oil could and would profitably sell gasoline and other products in Wisconsin at prices lower than the prices required under Wisconsin Minimum Markup Law. Krist Oil and its customers would benefit if it were free to do so," the complaint states.

The complaint also alleges that there are often "entirely legitimate competitive circumstances" in which a business may wish to sell below its costs in certain circumstances. These instances are often just temporary where a firm may be seeking greater market share or to fend off a new initiative from a competitor, according to the filing.

"'Loss leaders,' for example, are a popular and ordinary form of promotion that involve advertised sales of a particular product at an unusually low price," the complaint states. "Retailers use loss leaders to attract new customers and accepted means of vigorous competition - much like other marketing ploys, e.g. free gifts, free samples, visiting celebrities, etc. - that may also make certain isolated transactions unprofitable."

The complaint also alleges the requirements of the law require Krist to "devote considerable employee time to surveying posted regional prices to determine whether the price it charges comply with the Minimal Markup Law" and prepare and file numerous documents with the DATCP stating it is meeting competitor's prices. In addition, the complaint states that Krist's competitors are allowed to file complaints against the firm about its prices "whenever they believe it is in their interest to discourage vigorous price competition," forcing Krist to spend time and money to justify its prices. The complaint alleges some of these firms are "inefficient competitors" who often file "spurious lawsuits" about Krist's prices that the company must then defend.

The complaint further states that the law is economically "irrational and arbitrary and has no real and substantial relationship to a legitimate state policy."

"It is irrational to impose restrictions on the right to earn a living and the liberty of the businesses and consumers that it not only very unlikely to achieve the benefits it seeks but is very likely to harm them," the complaint states. "As both the United States Supreme Court and the Wisconsin Supreme Court have recognized, lower prices do not harm consumers and do not undermine competition. It is irrational to force higher prices now to protect against future higher price that are highly unlikely to occur."

The complaint also alleges that the economic effect of the law is to create a price floor "that many, if not all, market participants will tend to find attractive."

"The statute thus discourages price competition and protects inefficient firms," the complaint states. "Interest groups representing all market participants tend to favor statutory schemes that protect such firms."

The complaint also states the law "may facilitate actual or tacit collusion to fix prices at an artificially high level."

To force Krist to charge a price for gasoline at an "arbitrary 9.18-percent above the average posted terminal price at the nearest terminal" is unfair to both the company and consumers because Krist is free to purchase gas at another terminal for a lower price, sell it at a lower price, still "make a profit on each sale, increase its overall revenue and expand its business and market share," the company contends.

Citing the Due Process Clause of the Wisconsin Constitution and Wisconsin Supreme Court rulings dating back to 1898 that "recognized the right to earn a living as a fundamental right," the company argues the law does not pass constitutional muster.

The firm is seeking a court order permanently enjoining enforcement of the provisions of the law as well as legal fees and costs.

The state has 45 days to file an initial response to the suit.

An Associated Press report on the filing said a federal judge halted enforcement of the law in 2009 as a result of a separate lawsuit, but that decision was overturned by a federal appeals court.

A spokesman for the attorney general said that office will defend the state in the lawsuit. A spokesman for DATCP said no one at the agency had seen the complaint.

Jamie Taylor may be reached at jtaylor@lakelandtimes.com.





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