Midwest Oil ordered to pay $140,000 in Minnesota gas price case

Leader Reporter/March 3, 2006
By Tim Ryan

Midwest Oil of Minnesota has been ordered by the Minnesota Department of Commerce to pay a $140,000 civil penalty for charging too little for gasoline at three stations in the state.

The subsidiary of the Samanta Roy Institute for Science and Technology (SIST) was accused of violating the Unlawful Gasoline Sales Act, enacted in 2001, which prohibits retailers in the state from offering gasoline for sale at a price below cost.

“The record indicates 293 instances of below cost pricing and at least two failures to respond to the Department’s requests for information,” stated a memorandum from Department of Commerce deputy commissioner Kevin Murphy.

“Respondent’s violations are willful, continuing, and egregious and warrant a substantial penalty,” Murphy wrote.

A state administrative law judge recommended on Oct. 26 that the Minnesota Commissioner of Commerce take disciplinary action against Midwest Oil. That was followed by a period mandated to be at least 90 days during which the commissioner reviews the record and hears from both parties in the case.

The order was issued on Feb. 23. Midwest Oil has 30 days to contest the fine by requesting a hearing.

According to the order, the company’s own documentation showed 293 instances of selling gasoline below cost at its Budget Mart in Albert Lea, the Anoka Exxon and at Oakdale Exxon.

In addition to assessing the $140,000 fine, the order denied a motion filed in November by Midwest Oil for a new hearing before an administrative law judge.

“It is clear that Respondent had numerous opportunities to be heard,” Murphy wrote, “but fired its attorney on the eve of the hearing, then abandoned the hearing and failed to participate.”

Murphy wrote that the record of the case included “repeated delaying tactics by Respondent, including unsuccessful motions in Ramsey County District Court for a stay and a temporary restraining order.”

Midwest offered new evidence and arguments in a Nov. 28 letter, according to the memo, but it was too late to be included in the record, which was closed out on Oct. 25.

“The record in this case also indicates that Respondent Midwest Oil failed to respond to the Commerce Department’s request for information in March 2005, and failed to respond to the department’s administrative subpoena in April 2005,” both violations of state statutes, the memo stated.

In its Nov. 28 letter, according to the memo, Midwest argued that selling gasoline below cost was not sufficient to prove a violation.

“Rather, to constitute a violation of that provision, it is necessary that a sale below cost be coupled with the purpose or effect of injuring competitors and destroying competition,” the memo quotes the letter as stating.

However, Murphy wrote, two cases cited by Midwest in making the argument took place some 40 years before the Minnesota law in question was enacted.

“(T)he record indicates that respondent’s below-cost gasoline sales have damaged competitors in Anoka and Oakdale, causing the loss of as much as one third of their monthly sales,” Murphy wrote. “The record further indicates that because Respondent’s prices were so much lower than other retailers could legally charge, some customers concluded incorrectly that other retailers had been overcharging for gasoline.”

Minnesota’s gas price law is intended to prevent large oil companies from selling cheap gas in an effort to drive smaller competitors out of business. The state uses a formula based on wholesale prices, fees and taxes to determine the minimum price.

Midwest Oil of Shawano, LLC, which is also a subsidiary of SIST, won a victory over its gas prices in Wisconsin last year.

The 3rd District Court of Appeals in December ruled that Midwest Oil’s Mobil gas station was wrongly ordered to pay $2,000 to each of six competitors, plus attorney fees, after being accused of violating the state’s so-called minimum markup law.

The ruling overturned a decision by Shawano County Circuit Court Judge Thomas Grover, who found that Midwest Oil violated the law by failing to conduct a price survey of its competition every 24 hours.

Messages left for Isaacson and SIST attorney Rebekah Brown were not returned Wednesday afternoon.