Publication

February 27, 2009Client Alert

Court Strikes Down Minimum Markup Law for Motor Vehicle Fuel Sales

A federal court ruled on February 11, 2009, that the application of Wisconsin's minimum markup law to the sale of motor vehicle fuel is unconstitutional because it violates the Sherman Act's prohibition against restraints of trade. In its ruling, the U.S. District Court for the Eastern District of Wisconsin also enjoined Wisconsin's Attorney General and its Secretary of the Department of Agriculture, Trade and Consumer Protection ("DATCP") from enforcing the minimum markup law known as the Unfair Sales Act (Wisconsin Statutes Section 100.30) to motor vehicle fuel sales.

 

Enacted in 1939, the Unfair Sales Act (the "Act") was intended to protect smaller sellers of motor vehicle fuel and certain other products from the unfair trade practice of their larger competitors selling at a price below cost, forcing the smaller sellers out of business. The Act does this by requiring a markup in the price charged for motor vehicle fuel of the greater of 6% above certain actual costs or 9.18% above a wholesale price referred to in the Act as "average posted terminal price."

 

Flying J, Inc. ("Flying J"), a Utah corporation that operates travel plazas in Black River Falls and Oak Creek, Wisconsin, previously won a challenge to the Act, but the question of whether the Wisconsin Attorney General and DATCP could continue to enforce the Act against Flying J remained unsettled. Therefore, Flying J brought a new action to enjoin them from enforcing the Act.

 

In its ruling last week, the court found that the Act is preempted by the federal Sherman Act under the Supremacy Clause of Article VI of the U.S. Constitution and that the Act violates the prohibition on restraints of trade under Article I of the Sherman Act because the minimum markup percentage creates a range in which competitors may engage in collusive parallel pricing instead of retail price competition. The court also determined that the Act did not fall under an exemption from the Sherman Act carved out by the U.S. Supreme Court for anticompetitive state laws because the Act does not require active supervision by the state of the "average posted terminal price," just the markup above that price.

 

It has been reported that the Wisconsin Attorney General has until March 12, 2009, to appeal the court's decision, which applies to the Act's provisions regarding the sale of motor vehicle fuel. We note that Representatives Bill Kramer and Leah Vukmir have introduced a bill in the Wisconsin Assembly that would repeal the entire Act, but it is unclear whether the bill will gain sufficient support to be passed.

 

If you have any questions or would like additional information, please contact Porter J. Martin at 608.283.0116, or pjmartin@michaelbest.com; James R, Troupis at 608.283.2250, or jrtroupis@michaelbest.com; or David A. Crass at 608.283.2267, or dacrass@michaelbest.com.

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