Gas Station Owners Must Decide on Post-Katrina Gouging Charges

ByABC News
January 4, 2006, 3:19 PM

Jan. 4, 2005 — -- The owners of 18 Illinois gas stations face a decision on Thursday: Admit to illegally raising prices at the pump after Hurricane Katrina and make a $1,000 donation to charity, or declare their innocence and face the possibility of even bigger expenses in the form of a state lawsuit.

Illinois Attorney General Lisa Madigan last month sent letters to 18 gas stations informing them that they could avoid being sued for alleged violation of consumer protection laws by donating $1,000 to the American Red Cross and signing an assurance of voluntary compliance -- essentially an admission of price gouging.

"They're saying we will not violate consumer protection laws again," said Melissa Merz, a spokeswoman for the attorney general's office. "If they believe they didn't do it, then they can have their day in court, which they are entitled to."

If the station owners choose not to make the donations or sign compliance documents, the state will sue. The deadline for compliance is Thursday.

Merz said the attorney general's office received more than 2,000 complaints in a three-day span following Hurricane Katrina, when oil refineries in the Gulf of Mexico were damaged and many pipelines were temporarily off-line, causing a nationwide disruption in the distribution of gas. Wholesale and retail gas prices climbed sharply, and suspicions of price gouging popped up across the country.

Illinois officials investigated gas stations in 72 different cities, comparing the retailers' own documentation on the fluctuation of wholesale and retail prices in the days after Katrina.

"All we did was look at the pricing," Merz said. "We looked at hundreds of documents and came up with 18 that got letters, which is a fairly small number."

The state has not released the names of the stations that received letters, and Merz would not comment on whether any of the businesses had accepted the state's offer before Thursday's deadline.

Madigan's offer has met with criticism from the Illinois Petroleum Marketers Association, a trade group that represents at least seven of the retailers singled out by the attorney general. A spokesman for the group said the destruction of refineries and pipelines made it difficult for retailers to determine a sale price because wholesale prices were often fluctuating hourly.

"When supply goes down and the wholesale price goes up and demand goes up at the same time, there's nothing you can do -- and that's exactly what happened. I can't see how that's fraud," said Bill Fleischli, the executive vice president of the IPMA.

"We do not think that increasing gas prices after a market disruption is unfair. It's as simple as that."

Nationally, gas prices rocketed to the highest level ever in the weeks after Katrina, with the average price of a gallon of gas climbing above $3 in mid-September. In Illinois retail gas prices reportedly topped $3.50 a gallon in some areas.

Other states have used consumer protection laws, which vary from state to state, to file lawsuits against gas stations accused of price gouging. In New Jersey, for example, whose consumer laws are some of the toughest in the country, state law stipulates that gas stations cannot raise prices more than once every 24 hours. The state of New Jersey has filed suit against three oil companies and several gas stations. In Missouri, Attorney General Jay Nixon sued one gas station, and nine other Missouri stations agreed to pay $6,750 in fines.

Fleischli said the IPMA is offering legal advice to the member businesses involved, but the decision on whether to accept the state's offer will be left to each individual owner. He said that he did not know of any of the 18 gas stations that planned to accept the state's offer.

The sticking point in the agreement appeared to be the voluntary compliance documents. A $1,000 donation to the Red Cross is likely to be less than the cost of court fees and possible legal settlements if the state does file suit, Fleischli said. But many owners were wary of signing anything that might be construed as admitting to price gouging.

"If there's an admission of any type of guilt, then it does become about the issue of stigma. That's something that no business owner wants to admit," said Fleischli.

Merz noted that Illinois' offer of charity donations in lieu of legal prosecution is not without precedent. In 2001, former Illinois Attorney General Jim Ryan reached a similar settlement with Casey's General Store Inc. The gas station chain was accused of price gouging in the hours after the Sept. 11 terrorist attacks and agreed to pay $25,000 to the Red Cross to settle a lawsuit filed by the state.

"We feel like it's a way to make sure the money doesn't go into state coffers, and instead goes directly to the hurricane survivors -- the people who really need it," Merz said.