Judge Decides Wis. Minimum Markup Law Unconstitutional
MADISON, Wis. -- Federal Magistrate Judge William Callahan ruled late last week that the state's minimum markup law for gasoline sales, designed to ensure fair competition among gas station operators, is unconstitutional, The Associated Press reported.
The minimum markup law requires retailers to sell gasoline above the cost they paid -- either 6 percent over their cost or 9.18 percent over the average local wholesale price -- whichever is higher, the report stated. Violators of the law face fines and possible lawsuits from competitors.
The law was passed in 1939 to ensure fair competition and prevent large companies from driving small ones out of business, and includes an exemption allowing retailers to match competitors' prices, the AP reported.
In his ruling, Callahan stated because the state does not actively supervise the law, it violates federal antitrust laws and the supremacy clause of the U.S. Constitution, according to the report. The ruling came with the dismissal of a lawsuit filed in U.S. District Court in Milwaukee by Kenosha, Wis.-based Lotus Business Group, operator of the Lotus Travel Center in DeForest, Wis., against Flying J Inc.
The lawsuit alleged gas stations operated by Flying J in Black River Falls and Oak Creek, Wis., were illegally selling fuel at a price lower than the law allowed, the AP reported.
Attorney for the plaintiff, Robert Hankel, told the AP he did not know whether the decision would be appealed to the 7th Circuit Appeals Court.
"The statute's been under attack all over the place for years from publicity to court cases," Hankel said. "Inevitably somebody's going to find a hole in it, I guess."
Callahan also noted that in 1998, the percentage of the wholesale markup was changed for the first time in 68 years -- from 6 percent to 9.18 percent -- since then, inflation has gone up 27 percent while gas prices have risen 200 percent, he stated.
Continuing the use of the 9.18 percent markup, in spite of the rise in retailers' fuel costs, "does raise concerns about a lack of active supervision by the state," the AP quoted Callahan stating in his ruling.
"Market conditions have no doubt changed drastically since 1998, but there have been no changes to the provisions of the minimum markup statute to reflect those changed conditions," he said.
In addition, it is troubling that the average gas price is used to determine retail prices, instead of the actual cost to an individual, he said.
While the state attorney general's office declined to participate in the lawsuit, it sent a letter to Callahan stating it may get involved if the issue of the law's constitutionality is raised on appeal, according to the report.
Wisconsin Attorney General spokesman Kevin St. John told the AP the ruling is being reviewed and a decision on an appeal it will be made later.
The plaintiff's attorney, Hankel, told the AP, "The decision is what it is. It's pretty much up to the state now what happens to the minimum markup law."
Meanwhile, Bob Bartlett of the Wisconsin Convenience Store Association (WCSA), told Wisconsin Radio Network that the ruling is confusing and that the state's agencies -- including the Department of Consumer Protection -- is very involved in supervising the law. He told the network the association gets complaints almost daily.
In addition, the statute passed at least two constitutional tests before, Bartlett stated, adding he doesn't foresee any attempt to change it at least until it this ruling makes its way through the appeal process.
The minimum markup law requires retailers to sell gasoline above the cost they paid -- either 6 percent over their cost or 9.18 percent over the average local wholesale price -- whichever is higher, the report stated. Violators of the law face fines and possible lawsuits from competitors.
The law was passed in 1939 to ensure fair competition and prevent large companies from driving small ones out of business, and includes an exemption allowing retailers to match competitors' prices, the AP reported.
In his ruling, Callahan stated because the state does not actively supervise the law, it violates federal antitrust laws and the supremacy clause of the U.S. Constitution, according to the report. The ruling came with the dismissal of a lawsuit filed in U.S. District Court in Milwaukee by Kenosha, Wis.-based Lotus Business Group, operator of the Lotus Travel Center in DeForest, Wis., against Flying J Inc.
The lawsuit alleged gas stations operated by Flying J in Black River Falls and Oak Creek, Wis., were illegally selling fuel at a price lower than the law allowed, the AP reported.
Attorney for the plaintiff, Robert Hankel, told the AP he did not know whether the decision would be appealed to the 7th Circuit Appeals Court.
"The statute's been under attack all over the place for years from publicity to court cases," Hankel said. "Inevitably somebody's going to find a hole in it, I guess."
Callahan also noted that in 1998, the percentage of the wholesale markup was changed for the first time in 68 years -- from 6 percent to 9.18 percent -- since then, inflation has gone up 27 percent while gas prices have risen 200 percent, he stated.
Continuing the use of the 9.18 percent markup, in spite of the rise in retailers' fuel costs, "does raise concerns about a lack of active supervision by the state," the AP quoted Callahan stating in his ruling.
"Market conditions have no doubt changed drastically since 1998, but there have been no changes to the provisions of the minimum markup statute to reflect those changed conditions," he said.
In addition, it is troubling that the average gas price is used to determine retail prices, instead of the actual cost to an individual, he said.
While the state attorney general's office declined to participate in the lawsuit, it sent a letter to Callahan stating it may get involved if the issue of the law's constitutionality is raised on appeal, according to the report.
Wisconsin Attorney General spokesman Kevin St. John told the AP the ruling is being reviewed and a decision on an appeal it will be made later.
The plaintiff's attorney, Hankel, told the AP, "The decision is what it is. It's pretty much up to the state now what happens to the minimum markup law."
Meanwhile, Bob Bartlett of the Wisconsin Convenience Store Association (WCSA), told Wisconsin Radio Network that the ruling is confusing and that the state's agencies -- including the Department of Consumer Protection -- is very involved in supervising the law. He told the network the association gets complaints almost daily.
In addition, the statute passed at least two constitutional tests before, Bartlett stated, adding he doesn't foresee any attempt to change it at least until it this ruling makes its way through the appeal process.