Flying J Incorporated v. Wisconsin Petroleum Marketers

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-1883
F LYING J, INCORPORATED ,
Plaintiff-Appellee,
v.
J.B. V AN H OLLEN, Attorney General of Wisconsin,
R OB N ILSESTUEN, Secretary of the Wisconsin
Department of Agriculture, Trade and
Consumer Protection,
Defendants.
A PPEAL OF:
W ISCONSIN P ETROLEUM M ARKETERS &
C ONVENIENCE S TORE A SSOCIATION,
Intervenor-Appellant.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 2:08-cv-00110—Rudolph T. Randa, Judge.
A RGUED A PRIL 14, 2010—D ECIDED S EPTEMBER 3, 2010
Before P OSNER, R IPPLE, and K ANNE, Circuit Judges.
K ANNE, Circuit Judge. Flying J, Inc., brought a facial
challenge to Wisconsin’s gasoline pricing regulations. The
2 No. 09-1883
district court granted Flying J’s motion for summary
judgment and permanent injunction against enforcing
the provisions, finding that the provisions were pre-
empted by the Sherman Act and not saved by state
action immunity. We granted the Wisconsin Petroleum
Marketers & Convenience Store Association’s motion
to intervene after the original Defendants—the state
officials charged with enforcing the provisions— declined
to appeal the district court’s decision. Because we find
that the provisions are not preempted by the Sherman
Act, the district court’s grant of Flying J’s motion for
summary judgment is reversed, the permanent injunc-
tion is dissolved, and the case is remanded to the district
court with directions to enter judgment in favor of De-
fendants.
I. B ACKGROUND
A. Wisconsin Unfair Sales Act
Wisconsin passed the Unfair Sales Act (“Act”) in 1939.
In its original form, the Act mandated a 3 percent markup
at wholesale and a 6 percent markup at retail on all mer-
chandise sold in Wisconsin, including gasoline. The Act
remained more or less in its original form until 1986
when the Wisconsin Legislature removed the mini-
mum markup provisions for everything except tobacco,
alcoholic beverages, and—most relevant to the case
before us—motor vehicle fuel. See generally Orion Flight
Servs., Inc. v. Basler Flight Serv., 714 N.W.2d 130, 146-47
(Wis. 2006).
No. 09-1883 3
In general, the Act prohibits retailers of motor vehicle
fuel from selling the fuel below cost. Wis. Stat. § 100.30(3).
The statute carefully defines the “cost to retailer.” For a
retailer of motor vehicle fuel other than a wholesaler or
refiner, cost is the greater of (1) invoice or replacement
cost, less certain deductions, plus a 6% markup, or (2) “the
average posted terminal price at the terminal located
closest to the retailer plus a markup of 9.18%.” Id.(2)(1m)(c). The “average posted terminal price” is defined
as:
the average posted rack price, as published by a
petroleum price reporting service, at which
motor vehicle fuel is offered for sale at the close
of business on the determination date by all refin-
ers and wholesalers of motor vehicle fuel at a
terminal plus any excise, sales or use taxes im-
posed on the motor vehicle fuel or on its sale, any
cost incurred for transportation and any other
charges that are not otherwise included in the
average posted rack price. In this paragraph,
“average” means the arithmetic mean.
Id. (2)(a). A terminal is “a motor vehicle fuel storage
and distribution facility that is supplied by a pipeline or
marine vessel, from which facility motor vehicle fuel
may be removed at a rack and from which facility at
least 3 refiners or wholesalers of motor vehicle fuel
sell motor vehicle fuel.” Id. (2)(j).
The Act requires similar markups by wholesalers
and refiners who sell motor vehicle fuel at retail. Id.(2)(1m)(a) (defining a refiner’s cost as the greater of
4 No. 09-1883
invoice or replacement cost plus a 9.18% markup or the
average posted terminal price plus a 9.18% markup);
id. (2)(1m)(b) (same definition of cost for wholesalers).
The Act also includes other minimum markups in
the definition of the “cost” of motor vehicle fuel sold at
wholesale, see id. (2)(c)(1g) & (1r), or other non-retail
sales, see id. (2)(d) & (e).
The Wisconsin Department of Agriculture, Trade, and
Consumer Protection (“DATCP”) or a district attorney
may sue violators of the Act on behalf of the state to
recover specified fines. Id. (4). DATCP may also issue
cease-and-desist orders for violations, and DATCP or a
district attorney may sue to recover fines for violating
those orders. Id. (5)(a). DATCP or a district attorney
may also sue to enjoin violations of the Act. Id. (5)(b). The
Act also gives a private cause of action to “[a]ny person
who is injured or threatened with injury as a result of a
sale or purchase of motor vehicle fuel.” Id. (5m). The
aggrieved party may sue for an injunction against the
violator or for treble damages, “together with costs,
including accounting fees and reasonable attorney fees.” Id.The private cause of action expires 180 days after the
violation occurs. Id.Finally, the Act allows a business selling motor vehicle
fuel to charge less than the minimum markup pro-
visions would otherwise require if “[t]he price of mer-
chandise is made in good faith to meet an existing price
of a competitor.” Id. (6)(7). To take advantage of this
exception, however, the seller must give notice to DATCP
“in the form and the manner required by” DATCP on the
No. 09-1883 5
same day that it matches its competitor’s price. Id. (7)(a). If
timely notice is not given, the seller cannot assert as a
defense the price-matching exception to the minimum
markup provisions. Id. (7)(b). The price-matching excep-
tion is available to retailers, wholesalers, and refiners. Id.(7)(a)-(c).
In another statute, Wisconsin requires anyone selling
motor vehicle fuel to post the “net selling price per gallon
of all grades of motor fuel and the amount of all taxes
per gallon thereon.” Wis. Stat. § 100.18(8). The posted
prices “shall remain in effect for at least 24 hours after
they are posted.” Id.From the end of April 2003 through 2008, DATCP
received 1541 complaints alleging violations of the mini-
mum markup provisions for motor vehicle fuel.
DATCP did not, however, prosecute a single action in-
volving violations of the Act from January 2003 through
April 2008. DATCP has promulgated administrative
regulations regarding the enforcement of § 100.30, in-
cluding regulations specifying the form and manner of
giving DATCP notice of matching a competitor’s price.
See generally Wis. Admin. Code ch. ATCP 105.
The record in this case includes two reports. The first,
conducted by the Federal Trade Commission in 2003,
concluded that the Act harmed competition at the
expense of Wisconsin consumers by “deter[ing] pro-
competitive price-cutting and caus[ing] some vendors
to raise their prices.” Federal Trade Commission, Re:
Wisconsin’s Unfair Sales Act (Oct. 15, 2003), available at
http://www.ftc.gov/be/v030015.shtm (last visited Aug. 16,
6 No. 09-1883
2010) (the “FTC Report”). The FTC Report also con-
cluded that the Wisconsin Act was unnecessary because
federal antitrust law was adequate to police the same
conduct targeted by the Wisconsin Act. Id.
The second report, conducted by the Wisconsin
Policy Research Institute in 1999, concluded that “the
evidence suggests that the primary result of [the mini-
mum markup provisions of the Act] has been to inflate
the price of gasoline for Wisconsin consumers and
facilitate tacit collusion in retail gasoline markets.” James
I. Brannon & Frank Kelly, Pumping Up Gas Prices in Wis-
consin: The Effects of the Unfair Sales Act on Retail Gasoline
Prices in Wisconsin, 12 Wis. Policy Research Inst. 7, at 1
(Oct. 1999) (the “WPRI Report”). Although the authors of
the WPRI Report argue that “[m]ost of the empirical
research done on retail gasoline markets suggests that
the primary problem in the market is not predatory
pricing, but rather a propensity towards price collusion,”
there is no evidence in the WPRI Report of any actual
collusion in the Wisconsin motor vehicle fuel market.
See id. 3-4.
B. Procedural History
Plaintiff-Appellee Flying J, Inc., is a Utah corporation
with its principal place of business in Ogden, Utah. It is
a vertically integrated supplier of motor vehicle fuel and
maintains that it could sell motor vehicle fuel for sub-
stantially less than the statutory minimum and still
make a profit. Defendants are J.B. Van Hollen, Attorney
General of Wisconsin, and Rod Nilsestuen, Secretary of
No. 09-1883 7
DATCP. Flying J sued in federal district court to enjoin
Defendants from enforcing the minimum markup provi-
sions of the Act as they relate to motor vehicle fuel,
alleging that those provisions are preempted by the
Sherman Act. The district court agreed with Flying J,
finding that the statute was preempted by the Sherman
Act and that it was not saved by state actor immunity.
The district court issued a permanent injunction pro-
hibiting Defendants from enforcing the motor vehicle
fuel provisions of the Act. Flying J, Inc. v. J.B. Van
Hollen, 597 F. Supp. 2d 848 (E.D. Wis. 2009). Defendants
decided not to file a motion to reconsider or to stay the
injunction; they also decided not to appeal the district
court’s decision.
Intervenor-Appellant Wisconsin Petroleum Marketers
and Convenience Store Association (“WPMCA”), a trade
association of Wisconsin gasoline dealers, moved the
district court to allow WPMCA to intervene, to recon-
sider its decision, and to stay its injunction. The district
court denied WMPCA’s motion to intervene, and
WMPCA appealed. In our written opinion of August 20,
2009, we vacated the district court’s denial of WPMCA’s
motion to intervene and directed the parties (that is,
WMPCA standing in Defendants’ shoes on appeal, and
Flying J) to submit briefs on the merits.
II. A NALYSIS
We review the district court’s grant of summary judg-
ment de novo. Tindle v. Pulte Home Corp., 607 F.3d 494, 495
(7th Cir. 2010). Summary judgment is appropriate if “there
8 No. 09-1883
is no genuine issue as to any material fact and . . . the
movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c)(2); Carmichael v. Village of Palatine, Ill., 605
F.3d 451, 456 (7th Cir. 2010).
The first question we must address is whether the
minimum markup provisions under the Act are pre-
empted by the Sherman Act. To be preempted, the
state regulatory scheme must irreconcilably conflict
with the federal scheme. Rice v. Norman Williams Co., 458
U.S. 654, 659 (1982). A hypothetical or theoretical con-
flict is insufficient to warrant preemption. Id. Likewise,
“[a] state statute is not preempted by the federal antitrust
laws simply because the state scheme might have an
anticompetitive effect.” Id. Rather, a statute is preempted
“ ‘only if it mandates or authorizes conduct that neces-
sarily constitutes a violation of the antitrust laws in all
cases, or if it places irresistible pressure on a private
party to violate the antitrust laws in order to comply
with the statute.’ ” Fisher v. City of Berkeley, Calif., 475 U.S.
260, 265 (1986) (quoting Rice, 458 U.S. at 661).
Flying J argues that the motor vehicle fuel provisions
of the Act facilitate a “classic horizontal price fixing
scheme.” (Appellee Br. at 19.) It argues that by estab-
lishing a minimum price for gasoline among retailers,
allowing competitors to meet but not beat others’ prices,
and providing a private mechanism for enforcement,
Wisconsin has created a scheme that allows retail sellers
of gasoline to collude on prices to the detriment of con-
sumers. Of course, horizontal price fixing is per se illegal
under federal antitrust law, BCB Anesthesia Care, Ltd. v.
No. 09-1883 9
Passavant Mem’l Area Hosp. Ass’n, 36 F.3d 664, 666 (7th
Cir. 1994), and if the Act required the collusive conduct
that Flying J identifies, then we could quickly declare
the Act preempted and move on to the next question.
But it is only when a state law mandates or authorizes
collusive conduct that it is preempted by federal antitrust
law. See Fisher, 475 U.S. at 265. On its face, the Act does not
mandate or authorize Wisconsin gasoline dealers to
engage in conduct that is illegal under the Sherman Act.
The case most analogous to the present one is Fisher. In
Fisher, the City of Berkeley established an ordinance
that froze rental rates at their 1980 levels and established
a Rent Stabilization Board to control future increases in
rental rates. Id. at 261-62. The Board decided how much
to allow all rents to increase each year and also had
discretion to decide whether to allow an individual
landlord to increase her rents if she petitioned to do so.
Id. The ordinance included a number of enforcement
mechanisms, including allowing tenants to sue if their
landlord charged more than was allowed under the
ordinance. Id. at 262-63. A group of landlords brought a
facial challenge to the ordinance, arguing that the ordi-
nance imposed rent ceilings that constituted price fixing
in violation of federal antitrust laws. Id. at 265.
The Court agreed that the landlords could not have
legally entered into a private agreement to stabilize
rental prices, even for benevolent reasons. Id. at 266. But
the Court found that the ordinance was not preempted
because the rent ceilings were “unilaterally imposed by
government upon landlords to the exclusion of private
10 No. 09-1883
control.” Id. at 266. The distinction between unilateral
government action on one hand and concerted action on
the other was dispositive of the question of preemp-
tion because “[a] restraint imposed unilaterally by gov-
ernment does not become concerted-action within the
meaning of the statute simply because it has a coercive
effect upon parties who must obey the law.” Id. at 267.
We can discern no meaningful difference between
the unilaterally imposed rent ceilings in Fisher and the
mandatory markup provisions in Wisconsin. On its face,
the Act requires retail sellers of motor vehicle fuel
to calculate the minimum price at which they can sell
motor vehicle fuel using relatively simple mathematical
formulas. The seller calculates its actual costs, subtracts
certain items, and adds 6 percent. The seller then goes
to the nearest terminal, averages the prices being offered
at the terminal, and adds 9.18 percent. The seller then
compares the actual cost plus the markup with the esti-
mated cost from the terminal plus the markup—generally,
the Act requires the seller to charge no less than the
higher of those two numbers. The one exception is that
the seller is allowed to charge less in order to match a
competitor’s advertised price. Sellers must maintain
their posted prices for at least 24 hours. The statute
neither requires nor authorizes gasoline dealers to get
together and agree on what price they will all charge
for gasoline. Nor does the statute require or authorize
wholesalers to get together to decide what prices they
will charge at the terminal. On the face of the statute,
there is simply nothing that compels collusive private
conduct that would violate the Sherman Act.
No. 09-1883 11
To be sure, if gasoline dealers met together and privately
agreed on a minimum price that they would all charge,
their conduct would be per se illegal under federal anti-
trust law. However, just as in Fisher, “[t]he distinction
between unilateral and concerted action is critical
here.” 475 U.S. at 266. The state of Wisconsin sets the
minimum price formula, and the Act, on its face,
does not require or authorize private participation in
setting the minimum price. Thus, we find that the mini-
mum markup provisions are unilaterally imposed by
the state and therefore not preempted by the Sherman Act.
The district court found that the Act was a per se
restraint on trade because “[t]he minimum markup
percentage creates a range in which competitors may
engage in collusive parallel pricing, which is exacer-
bated as the wholesale price of gasoline fluctuates.” Flying
J, 597 F. Supp. 2d at 856. First, as noted above, a statute
is only preempted if it requires or authorizes collusive
conduct. Where a statute does neither, the fact that the
parties or the court can envision scenarios under the
regulatory scheme in which private parties could more
easily collude is insufficient to invalidate the statute.
Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 131
(1978). And any party that engages in collusive conduct
under such a statute would not be able to raise its compli-
ance with the state statute as a defense.
Second, there is simply no evidence in the record that
gasoline dealers—wholesalers, retailers, or otherwise—are
colluding to fix or raise the price of gasoline in Wiscon-
sin. Although it has avoided calling it so, Flying J’s chal-
12 No. 09-1883
lenge to the Act is a facial challenge. It is not arguing that
the statute is preempted because gasoline dealers
in Wisconsin are colluding to raise or fix the price of
gasoline. Rather, its challenge is premised on its argu-
ment that the statute requires private parties to horizon-
tally fix prices. As discussed above, Flying J is wrong
that the statute on its face creates a classic horizontal
price-fixing scheme. And the only evidence that it cites
in support of its argument that private parties are col-
luding are the two reports discussed above. Although
both concluded that the minimum markup provisions
are unnecessary and may in fact be hurting Wisconsin
consumers, only the WPRI Report raised the specter of
collusion among gasoline dealers, and it did so only in
the theoretical sense. See WPRI Report, at 3-4. This is
simply not enough to support a facial challenge to this
statute.
Flying J argues that the Act is a “hybrid” statute that
is preempted by federal antitrust law. A hybrid statute
is one that gives private parties discretion to set prices
that the government then enforces. See Fisher, 475 U.S.
at 267-68. Hybrid statutes are preempted. See, e.g.,
Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384,
389 (1951).
In California Retail Liquor Dealers Ass’n v. Midcal Alumi-
num, Inc., the Supreme Court found that California’s
wine pricing system was preempted. 445 U.S. 97, 103
(1980). A statute required all producers and wholesalers
to submit either fair trade contracts or price schedules
to the state. Wine dealers were not allowed to sell wine
No. 09-1883 13
at any price other than that set by the fair trade contracts
or price schedules. The state played no role in deter-
mining the prices of wine. Id. at 99-100. The Court found
that the California statute “plainly constitute[d] resale
price maintenance in violation of the Sherman Act.” Id. at
103. The Court found decisive the fact that the wine
producers could eliminate competition in the wine in-
dustry by setting the prices that wholesalers could
charge. Id.Similarly, in 324 Liquor Corp. v. Duffy, the Court found
that New York’s minimum markup law on liquor was
preempted. 479 U.S. 335, 342 (1987). In a statute somewhat
similar to Wisconsin’s motor vehicle fuel minimum
markups, New York prohibited liquor retailers from
selling liquor below “cost,” which the statute defined as
the “posted bottle price” plus a 12% markup. Id. at 338-39.
In addition to posting the bottle price, wholesalers
also posted the case price. Wholesalers had complete
discretion to set both the bottle price and the case price.
Retailers made their purchases from the wholesalers
based on the case price, but had to sell the liquor based
on the bottle price. Because the two prices did not have
to relate to each other, the wholesalers could lower the
case price while maintaining the bottle price, thus
allowing the retailers to sell the liquor for more than the
required 12% markup over wholesale cost. Id. at 349-40.
The net effect of the law was “to permit wholesalers to
maintain retail prices at artificially high levels.” Id. at
340. The Court concluded that the law created “a
regime of resale price maintenance on all New York
liquor retailers” and was thus preempted. Id. at 341.
14 No. 09-1883
The Court found that New York’s regulatory scheme
was for all intents and purposes the same as California’s
regime found to be preempted in Midcal. Id. at 342.
The problem again was that the statute displaced com-
petition but gave private actors discretion to set prices.
Id. at 345.
Wisconsin’s motor vehicle fuel pricing scheme is not a
hybrid statute. The California and New York pricing
systems in Midcal and 324 Liquor gave complete discre-
tion to private entities to set the prices that the statutes
then enforced. The state was not involved in any way
in setting or determining the final, enforceable prices.
Although New York’s scheme involved a minimum
markup just like Wisconsin requires for motor
vehicle fuel, the unique nature of New York’s scheme
authorized wholesalers to manipulate the prices to
which the markup was applied. 324 Liquor, 479 U.S.
at 348-50. Here, Wisconsin requires a minimum markup
to be included in a retailer’s “cost,” but the statute
does not authorize wholesalers to collude or manipulate
the terminal prices to which the markup is applied or
set the retail prices to be charged.
The fact that Wisconsin has created a private cause
of action to enforce its minimum markup provisions
does not make the statute a hybrid statute. Because the
state itself is mandating the minimum price, the mere
fact that interested private parties may enforce the
minimum-pricing scheme does not make the Act a hybrid
statute. See Fisher, 475 U.S. at 269 (finding that a private
cause of action in tenants—“certainly a group of inter-
No. 09-1883 15
ested private parties”—did not change the unilateral
nature of the city ordinance stabilizing rent prices be-
cause the city retained complete control over the rent
ceiling). The exception to the Wisconsin minimum
markup provisions allowing retailers to match its com-
petitor’s price is also insufficient alone to make the
statute a preempted hybrid statute. The Act authorizes
parallel behavior, but it does not authorize retailers to
get together and agree on a posted price. “Without
more, parallel conduct does not suggest conspiracy . . . .”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556-57 (2007).
Flying J also argues that the 324 Liquor Court rejected
New York’s scheme—that mandated that the minimum
markup be applied to the bottle price—because the
bottle price “may greatly exceed what the retailer
actually paid for the liquor.” 324 Liquor, 479 U.S. at 345
n.6. The Court’s comment was made in a footnote
during its discussion of whether the New York pricing
scheme qualified for state actor immunity. The Court
suggested that a “simple minimum markup provision”
could satisfy the “active supervision” requirement of
state actor immunity, see Midcal, 445 U.S. at 105, but
found that the New York markup was not a simple
markup scheme. 324 Liquor, 479 U.S. at 345 n.6. The
great vice of the New York scheme was not that the
markup was applied to a price that did not represent
the actual cost to the retailer, but that the wholesalers
could sell to the retailers at one price and force the
retailers to apply the minimum markup to another. Id.Wisconsin’s minimum markup provisions at issue here
do not suffer from the same vice. Although the 9.18%
16 No. 09-1883
markup is applied to an estimate of the retailer’s cost
based on average terminal prices rather than its actual
costs, the scheme does not authorize wholesalers to
manipulate wholesale prices of gasoline to guarantee a
bigger return to retailers.
We also note that the allegations of price fixing by
wholesalers of liquor in 324 Liquor was more than hypo-
thetical or theoretical. There was evidence in the record
of wholesalers advertising that their lowered case
prices could guarantee retailers a higher profit than the
statutory 12 percent. 324 Liquor, 479 U.S. at 340. There
was also evidence of wholesalers encouraging retailers
to buy in bulk when case prices were low. Id. There is
simply not sufficient evidence in this case’s record to
support a finding that gasoline dealers are colluding or
manipulating gasoline prices in Wisconsin.
The lack of evidence in the record supporting Flying J’s
allegations of collusive conduct by gasoline dealers is
fatal to its claim that the motor vehicle fuel provisions
of the Act are preempted by the Sherman Act. We
cannot find on the face of the statute any compelled or
authorized conduct that constitutes a violation of federal
antitrust law. Because we conclude that the Act is not
preempted, we need not consider whether the provision
would qualify for state action immunity under Parker
v. Brown, 317 U.S. 341 (1943).
It may well be that gasoline retailers are getting
together with each other and agreeing on how to
estimate their costs or what final price to charge, or that
retailers and wholesalers are colluding to manipulate
No. 09-1883 17
the average posted terminal price. “However, we have
been given no indication that such corruption has
tainted” the gasoline pricing scheme in Wisconsin, and
based on our reading of the challenged provisions, we
think the Act “can hardly be viewed as a cloak for any
conspiracy” among refiners, wholesalers, or retailers. See
Fisher, 475 U.S. at 269. Our disposition of this facial chal-
lenge does not preclude a future plaintiff, properly
armed with evidence of actual collusion among Wis-
consin gasoline dealers, from bringing an as-applied
challenge to the Act or an enforcement action against
those dealers under antitrust laws at a later time.
III. C ONCLUSION
The district court’s judgment is R EVERSED and the
permanent injunction barring Wisconsin from enforcing
the Act is D ISSOLVED . The case is R EMANDED to the
district court with instructions to enter judgment for
Defendants.
9-3-10