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By Don Longo
HOUSTON -- Five Midwest petroleum wholesalers have filed a federal lawsuit against several vertically integrated, multinational oil conglomerates, charging violations of U.S. antitrust laws. In a class action complaint filed in the U.S. District Court for the Southern District of Texas in Houston, the five jobbers claim that these oil companies and their subsidiaries have "conspired to fix the prices at which they sell billions of dollars of refined petroleum products in the United States."
Targeted in the consolidated complaint, filed last month, are the national oil companies of Saudi Arabia (Saudi Aramco) and Venezuela (Petroleos de Venezuela), and the commercial Russian company, Lukoil. Included as defendants are U.S. subsidiaries of these companies, including Motiva Enterprises, Citgo Petroleum Corp. and Getty Petroleum Marketing.
The five plaintiffs are:
-- Fast Break Foods LLC, based in El Paso, Ill.
-- S-Mart Petroleum Inc., Fishers, Ind.
-- Green Oil Co., Lincoln, Ill.
-- Countywide Petroleum Co., North Royalton, Ohio
-- Central Ohio Energy, Mansfield, Ohio
The complaint asks for a jury trial on their request for "treble damages and injunctive relief under the antitrust laws of the United States."
"Damages could be in the hundreds of billions of dollars," said James Sloan, of Chicago-based Pedersen & Houpt, the attorney for Green Oil, one of the plaintiffs. But, it's not just money that the oil companies stand to lose.
"One of the things we are asking for is divestiture," added Sloan. "We want them to either drop out of OPEC (Organization of Petroleum Exporting Countries) or sell off their refining operations in the U.S."
Bob Bassman of Bassman, Mitchell & Alfano, legal counsel for the Petroleum Marketers Association of America, told CSNews Online that antitrust suits against foreign-owned oil conglomerates have been tried, and failed, in the past. "Technically, it's a perfect Sherman case," said Basman, referring to Section 1 of the Sherman Antitrust Act to limit cartels and monopolies. However, he noted that in the past, plaintiffs have two big burdens to overcome: the question of jurisdiction since they are foreign-owned companies and the issue of sovereign immunity because it is difficult to successfully sue foreign governments.
While somewhat skeptical that this complaint will overcome those hurdles, Bassman acknowledged that "the asset base of these companies in the U.S. is bigger now."
The plaintiffs' case revolves around the oil companies' ownership of production and refining companies, thus creating what the suit calls a vertically integrated commercial business selling refined petroleum products.
"Originally, the foreign production of crude oil from which refined petroleum products are produced was based on a model where foreign governments granted concessions and leases to production companies to extract crude oil from the ground and then transport and refine it into familiar consumer products at the production companies' own commercial risk," reads the complaint.
The complaint alleges that the model has now changed so that the national oil companies in the major oil-producing and exporting nations are sharing the commercial risk by partnering with and "acquiring" the production companies. By expanding their operations into full-fledged, vertically integrated commercial businesses that include all the infrastructure elements needed to transform crude oil into refined petroleum product, and to distribute and sell those products on the open market, these foreign oil companies now operate as multinational commercial enterprises.
The complaint goes on to charge that these conglomerates broke antitrust laws every time they met at industry meetings, "including but not limited to OPEC meetings," to discuss the management of price, supply and other aspects of the refined petroleum market. Such meetings, such as when OPEC collusively decides to reduce production of crude oil, result in higher prices for refined petroleum products, such as motor fuels, according to Sloan.
"A central component of the business plan by these refined petroleum conglomerates has been to secure channels to distribute their price-fixed refined petroleum products directly into the United States by acquiring, controlling and operating United States refineries, storage facilities and distribution points for their price fixed goods," reads the complaint.
Sloan pointed out that the suit is not aimed at the sovereign nations nor does it challenge these nations' ability to manage their natural resources. The action is aimed at "companies acting in private commerce that have injured United States purchasers by conspiring to raise the price of refined petroleum products sold in the United States," reads the complaint. "Enforcement of the antitrust laws against companies who join and facilitate this cartel is critical to protecting competition and United States consumers. The cartel at issue here will be strengthened, and its anticompetitive and illegal activities facilitated, if its members are allowed to directly participate in that cartel here in the United States with impunity."
The defendants have until sometime this month to file a reply or motion to dismiss. If certified as a class action, additional plaintiffs could conceivably join the suit.
A spokesman for Citgo said the company does not comment on ongoing litigation while a spokesman for Motiva Enterprises said the claims against Motiva are without merit and that the company will vigorously defend itself.