Court allows class action to proceed against Chevron over allegations it overcharges for gasoline above 60 degrees F; Court says judicial abstention is not appropriate.

Klein v. Chevron USA, Inc. (2nd Dist.) B219113 (Jan. 25, 2012)

Class action plaintiffs sued Chevron, alleging that Chevron overcharged California customers for gasoline by failing to adjust the price when selling gas above 60 degrees F. It was uncontested that the wholesale price at which Chevron bought gas is rated at 60 degrees (industry custom) and that gas expands and has less energy when it is sold at a higher temperature, thus making it less valuable to a consumer. Thus, Chevron makes more money when it fails to disclose that less gas is sold above 60 degrees, and the consumer pays slightly more than the advertised price.

In Canada, where temperatures are often well below 60 degrees, the opposite holds true in both respects. There, the oil industry and Chevron have a policy of installing equipment that adjusts the price depending on the temperature so that they do not lose money when selling below 60 degrees. In California, the oil industry and Chevron have the opposite policy and do not install such equipment with the result that they make more money.

Of interest here, plaintiffs sued under the Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). After initially ruling in favor of some of plaintiffs’ claims over several demurrers, the trial court ultimately ruled in Chevron’s favor in a motion for judgment on the pleadings. The court concluded it should exercise judicial abstention because the California Energy Commission (CEC) had already been asked by the Legislature to look into the cost-benefits of requiring the equipment that adjusts the price depending on the temperature.

CEC concluded in 2009 that if the temperature adjusting equipment were installed at all retail outlets, then consumers would have purchased about 117 million less gallons of gas (because fuel was sold at average of 71.1 degrees F). Nonetheless, CEC believed the costs of installing the equipment would be added to the price of gas, resulting in a net cost for consumers. The court then dismissed the action.

The Court of Appeal reversed in all key respects. The Court started by reviewing several judicial abstention cases and derived the rule that abstention is appropriate where 1) plaintiff’s claims necessarily require the court to resolve complex policy issues and 2) there is an alternative mechanism to resolve plaintiff’s complaints. Such scenarios can occur when a regulatory body has addressed the subject matter of plaintiff’s complaint. Here, however, the Court found CEC had merely done a cost/benefit analysis and had not taken further action to address the issue temperature and price. The fact CEC could address the issue in the future is not a basis for abstention. Also, some of plaintiff’s complaints could not be addressed by CEC, including whether disclosures should be required.

As for specific claims, the Court went on to allow UCL claims for business practices that are “unfair,” “fraudulent,” and “unlawful” as well as the CLRA claim for fraud or deceit.

 

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