State's gas price-fixing case weak from start
By Frank Cho
Advertiser Staff Writer
Lawyers working for the state on its four-year antitrust case against Hawai'i's oil companies knew almost from the beginning that they did not have direct testimony to prove the industry conspired to fix gasoline prices artificially high, according to court documents unsealed this week.
The state's chief antitrust lawyer at the time also was concerned, before the state filed its suit in 1998, about the lack of direct evidence linking Hawai'i's oil industry to any possible conspiracy, the documents show.
The revelations come as state and oil industry attorneys unsealed hundreds of documents Tuesday related to the state's legal battle with the industry over charges of price fixing. The documents show state lawyers working to paint a picture of oil companies run amok in Hawai'i and reaping huge profits, and oil company lawyers fighting to keep key records out of the state's hands.
The state filed its price-fixing suit against divisions of Chevron, Shell, Texaco, Unocal and Tosco Corp. in October 1998, accusing the companies of fixing gas prices and allocating market share among themselves, in violation of antitrust laws, from 1991 to 1998.
Lawyers working for the state said at the time that a key element of the state's case against the oil companies would be the testimony of former Chevron Hawaii executive Dave Young. The state said Young would provide first-hand evidence of meetings in which Chevron discussed Hawai'i gasoline prices with competitors.
"Mr. Young has obviously, by his own account, been party to price fixing," Spencer Hosie, a San Francisco antitrust attorney hired by the state in the case, wrote in a memo two weeks before filing the state's antitrust suit.
Hosie again touted the testimony Young would provide about price fixing in December 1998 and again in March 1999, according to court documents.
But court records show that, in response to questions from oil company attorneys, Hosie said he knew by November 1998 — one month after the state filed its suit — that Young had no direct evidence in the case and had never attended meetings at which price-fixing was discussed.
The court records also show that the first time the oil companies got a chance to question Young was October 2000, two years after the first allegations were made.
Hosie, who is in Texas on another case, could not be reached for comment yesterday.
Young said yesterday that he never told Hosie or any other state lawyer that he participated in meetings where price fixing was discussed.
"I testified honestly and to the best of my ability," Young said.
Ted Clause, who investigated the industry for nearly 10 years as head of the state attorney general's antitrust division, said yesterday that the only direct evidence of price-fixing that the state had when it filed its suit were statements by Young.
Clause said yesterday that he supported the state's decision to sue the oil companies but was concerned about being able to prove conspiracy.
"I think every lawyer is concerned about finding proof. It would have been wonderful if we had direct evidence," Clause said.
The documents also show that before the state filed its antitrust suit in 1998, it hired University of Hawai'i economist Sumner La Croix to study Hawai'i's gasoline market. La Croix was contracted through the state Department of Business, Economic Development and Tourism.
La Croix's early reports to the department indicated high gas prices in the state could be the result of an oligopoly and lack of competition rather than price fixing, according to court documents.
The documents show that DBEDT Director Seiji Naya told La Croix to stop work on the report. According to statements by Naya in the court record, Naya said Margery Bronster, state attorney general at the time, told him to have La Croix stop his research.
In response to a question about why he thought the state had asked him to stop his research, La Croix said in a deposition in September 2000: "I think the state is worried about having two independent reports with the possibility of conflicting results."
Despite instructions to stop his work, La Croix finished a draft report and gave it to Naya, the documents show.
Bronster, according to court records, said Naya never told her La Croix had finished the report.
"The first time that I have ever been aware, either in words or substance, that Mr. La Croix had either believed or written that it was much more likely that the two refiners are operating as a noncollusive oligopoly is today as we sit here now," Bronster said in her deposition in December 2000.
Bronster could not be reached for comment yesterday.
The court records also show the state first considered suing the oil companies in 1991 when Clause suspected that the companies' so-called "exchange agreements" — under which one oil company agrees to provide gasoline to another at a certain price in a different market — amounted to a conspiracy to fix prices.
Clause unsuccessfully presented his theory to the Federal Trade Commission's Bureau of Competition in 1991, according to the documents.
After another investigation, the state considered suing the oil companies in 1994 but had no strong evidence of a conspiracy and the probability of winning in court was considered "very low," according to a Dec. 4, 2000, deposition by Clause.
Despite the previous FTC's opinion on "exchange agreements," the state's suit in 1998 also relied on the agreements as part of its case against the oil companies.
But in 1998, Clause said, there was enough circumstantial evidence to file the suit. The timing of the suit was criticized by some as an election-year move by Gov. Ben Cayetano. But Clause said yesterday it was also the first time the state was able to use a new law to hire an outside lawyer on a contingency basis to defray the costs of a major case.
Throughout the case, the oil companies have consistently denied any wrongdoing. BHP and Tesoro also were named in the original suit but dismissed from the case as part of a $15 million settlement in 1999.
Last month, the state and the remaining defendants agreed to settle the suit. Details of the settlement are still being worked out and will be made public once the settlement is approved by a federal judge.
Clause, who retired three months before the state filed its suit and became a consultant on the case for the state, yesterday said he was disappointed about the state's pending settlement.
"I believed there is something wrong with the gasoline market in Hawai'i," Clause said. "I think either a price cap or a profit cap would be appropriate to look at."
