Posted on: Wednesday, October 13, 2004

Court to review gas dealer law

Advertiser Staff and News Reports

The U.S. Supreme Court said yesterday that it will decide whether Hawai'i went too far to keep gasoline affordable for residents when it imposed rent caps on dealer-run stations.

Lower courts said the law, intended to protect independent dealers, promote competition and lower gasoline prices, was unconstitutional. However, the Supreme Court review could ultimately reinstate the law, which has remained unenforced since it was passed in 1997.

"It does create life for it," said Frank Young, president of the Hawaii Automotive Repair and Gasoline Dealers Association. "If properly re-argued, then they (the lower courts) would be overturned."

The Lingle administration opposes the rent cap as well as recently passed gasoline price controls, contending that repealing those laws would increase competition and drive down Hawai'i's gasoline prices.

However, there is a larger issue that the state needs resolved, Gov. Linda Lingle said. That is whether the courts should give more deference to the state Legislature on economic and social policy matters. Attorney General Mark Bennett petitioned the Supreme Court to review the case in July — a move supported by Lingle.

"Yes, I agree philosophically with the position of the attorney general's office, even though I disagreed with the law," she said yesterday. "I agreed with the economists who said it would not have that impact (lower gasoline prices); in fact, I believe it would be the opposite.

"But the Legislature has the right to be wrong; they have the right to do the wrong thing and that's the concept here."

Even if the Supreme Court rules in favor of rent caps, it will would come too late for former Shell dealer Warren Higa. One year ago, Higa closed Makiki Shell after Shell Oil Co. tripled the station's monthly rent to $19,000 over a three-year period.

Higa, who's now a manager at Manoa Chevron, said he might still be in business if the rent cap had been in place last year.

"I think here in Hawai'i what Shell did to me was not fair and it was not ethical," he said. "If that's the way oil companies are treating other dealers, then I think it should be looked at because, yeah, it does affect the price of gas."

The case to be argued early next year will set guidelines for other states. Nineteen states and many city and legislative leaders had urged the Supreme Court to hear Hawai'i's appeal, arguing that their own regulations of various types could be affected.

"The list could be virtually endless," justices were told by lawyers for the National Conference of State Legislatures, the National League of Cities and other groups.

Chevron USA filed a challenge to the law, which restricted lease prices that oil companies could charge their dealer-owned stations and barred the companies from taking over those stations.

The company prevailed, on grounds that the law was an unconstitutional taking of its property. ChevronTexaco felt the Supreme Court would uphold its position, said spokesman Albert Chee.

"We believe the Supreme Court will find that the 9th (U.S.) Circuit Court and the Hawai'i District Court ruled correctly," he said.

In the appeal, Hawai'i argues that such economic regulations are not property takings and that judges should consider states' authority to determine policy.

Hawai'i has been trying to control gas prices. The Legislature passed a law that imposed limits on gas prices, but the restrictions haven't started yet.

Hawai'i had the highest average gasoline prices in the nation — $2.377 for self-serve regular, according to a survey released yesterday by the AAA travel club. The average national price was $1.972.

Chevron attorney Craig Stewart, of San Francisco, told justices in a filing that Hawai'i imposed "fundamentally irrational restrictions" on lease arrangements between oil companies and gas station operators.

He said Chevron sells most of its gas in Hawai'i through 64 stations that the company leases to independent operators. The contested law required Chevron to charge less rent than needed to recover its expenses, Stewart said.

The 19 states that urged the Supreme Court to take the appeal are: California, Colorado, Connecticut, Delaware, Illinois, Iowa, Kentucky, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, New York, Oklahoma, Oregon, Utah, Vermont and Washington.

Advertiser staff writers Sean Hao and Gordon Pang contributed to this report.