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The Honolulu Advertiser

Posted on: Wednesday, February 23, 2005

Justices hear Isle rent-cap dispute

By Dennis Camire
Advertiser Washington Bureau

WASHINGTON — The legality of a Hawai'i law capping the rent that oil companies can charge their dealer-run stations came under fire yesterday in arguments before the U.S. Supreme Court.

Attorneys for Hawai'i, the U.S. Justice Department and Chevron USA were peppered with questions about the finer points of the U.S. Constitution and its private-property protections for about an hour. A decision in the case is expected around the end of June.

Craig E. Stewart, a San Francisco-based attorney representing Chevron, which challenged the 1997 law, said after the hearing that the state infringed too far on private property rights in imposing the rent caps. He said the state should have provided fair compensation for the lost rents.

"The state said it was concerned that our rents might drive the ... dealers out of business and that might somehow have the effect of causing gasoline prices to go up," Stewart said. "Our position is that our rents just don't do that. They are low rents and, therefore, why should the state be prohibiting us from collecting the rents we would otherwise get?"

'Social choices' cited

Hawai'i Attorney General Mark Bennett argued that legislatures make economic decisions for their constituents, and the courts shouldn't second-guess them, even if they believe the legislators have not made the best choice.

"At its base, this case is about our democratic institutions that make social choices for our state, that make economic decisions for our states," Bennett said. "These are choices that ought to be left to the elected representatives of the people."

The rent cap law, which is still not enforced, was intended to protect independent dealers, promote competition and lower gasoline prices in Hawai'i, which are frequently the highest in the nation.

Lawmakers hoped lower gas prices would result if stations were provided rent relief. Hawai'i has about 300 gas stations, with about half run by dealers who lease the property from the oil companies.

Chevron USA has 76 stations in the state, directly operates six, and sells gas to 64 dealer-run stations and six owned by dealers.

Property dispute

In what is known as the takings clause, the U.S. Constitution allows governments to "take" someone's property if there is a compelling public benefit in doing so.

But the 9th U.S. Circuit Court of Appeals ruled the Hawai'i law unconstitutional because it would take away property, in the form of higher rents, without a compelling public benefit. The appellate court questioned whether capping stations' rents would lead to lower gasoline prices, the stated public purpose for the law.

Because the ruling appeared to open the door to challenging almost any law that poses an economic threat to a private citizen or business, Hawai'i was joined by 27 states, Puerto Rico, Guam and several cities and other groups in pushing to reverse the lower court decision.

Bennett said even if the Supreme Court decided for Hawai'i, he wasn't sure the price of gasoline would be affected right away.

"But the Legislature believed that having independent dealers and improving their viability would be good not only for gas prices but good for consumers," he said. "Hopefully, if this law is upheld, that will be what will happen."

Stewart, Chevron's attorney, said he didn't believe the outcome of the case would have any effect on the price of gas.

"The very point we were arguing to the court is that the rents just aren't the cause of any high gasoline prices in Hawai'i."