Posted on: Friday, April 2, 2004

Ruling on gas station rent cap upheld

By Bruce Dunford
Associated Press

A federal appeals court yesterday upheld a lower court ruling that Hawai'i's 1997 law to place rent caps on dealer-run gasoline stations is unconstitutional.

State Senate Minority Leader Fred Hemmings said the legal theory in the 9th U.S. Circuit Court of Appeals' ruling raises serious constitutional questions about a state law that will impose caps on gas prices in Hawai'i effective July 1. Advocates for the law, which also contains rent caps, disagreed.

The Legislature is considering delaying the price caps for one year to consider changes, including imposing them only at the wholesale level and pegging the caps on national instead of West Coast fluctuations.

U.S. District Judge Susan Mollway two years ago invalidated the 1997 rent caps law in a lawsuit filed by Chevron Corp., ruling it unfairly infringed on the company's ability to use its property. The appeals court agreed.

"Mollway's findings in the (rent cap) case, first and foremost, put out the biggest message regarding the foolhardiness of gas caps," Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), said. "In her findings, she found very clearly that gas is no more egregiously priced than most other consumer products."

Hemmings said the latest proposal to cap wholesale prices of gasoline can't guarantee lower retail prices, and doesn't meet the public interest requirement to override the constitutional prohibition against taking someone's property without just compensation.

Frank Young, a member of consumer advocacy group Citizens Against Gasoline Price Gouging, disagreed on that point.

Young said the current gas price cap law has a better chance to pass court challenges because it caps both pump prices and rent, which will result in lower prices and meet the constitutional requirement that there was compensation for taking someone's property.

U.S. District Judge Alan Kay in 1998 held in a Chevron challenge that the rent cap law was unconstitutional, but the appeals court overturned his ruling in 2000, deciding it was premature since the factual dispute over whether the law would lower gas prices — the legislative intent — hadn't been argued in court.

Mollway in 2002 ruled the rent cap law, which was never enforced because of the legal challenge, would have had the opposite effect, because oil companies would have raised wholesale gasoline prices to make up for reduced rental income.

Lawmakers passed the 1997 rent cap law after concerns were raised that Hawai'i motorists were paying too much for gas. The law restricted what lease rents oil companies could charge for their dealer-owned stations and prohibited the companies from taking over those stations.

In its ruling yesterday, the appeals court rejected the state's arguments that Chevron's claim was an issue of due process and not one of wrongful taking of property, that the state law advanced a legitimate state interest and that Mollway erred in finding the law wouldn't reduce retail gasoline prices.

Advertiser staff writer Sean Hao contributed to this report.