The California gasoline conspiracy: plaintiffs’ evidence

One framework for evaluating possible coordinated conduct among firms comes from Richard Posner, former chief judge of the Seventh Circuit of Appeals. In his book Antitrust Law, Posner outlines several economic factors that can be used to both identify markets conducive to collusion and assess whether collusive conduct is present (Richard Posner, Antitrust Law, Second Edition, 2001, page 79). Posner urges that economists, enforcement agencies and judges consider various types of economic evidence consistent with these factors. In doing so, it may be possible to demonstrate the existence of collusive pricing even though no overt acts of collusion are detected.

In Persian Gulf, while not directly referencing Posner, much of the court’s economic investigation of a possible conspiracy adopted Posner’s approach. The court first considered whether the plaintiffs alleged a plausible theory of conspiracy that made practical, economic sense for the alleged conspirators.

It concluded that the defendants had a rational economic motive to enter into the type of conspiracy alleged by the plaintiffs (Persian Gulf, Inc v BP West Coast Products LLC, et al and Richard Bartlett, et al v BP West Coast Products LLC, et al, lead case No 18-cv-1374-JO-AGS (consolidated with No 18-cv-1377-JO-AGS), Order Granting Defendants’ Motions for Summary Judgment, 30 September 2022, page 25). Constraining supply and manipulating public information are “economically rational ways to increase demand and, thus, prices even more so”, because as the court explained:

Defendants themselves would remain protected by a high level of collaboration (exchange agreements, coordinated spot-market trading, and information sharing) that enabled them to anticipate market conditions, meet their own supply needs, and avoid purchases at the high prices they created.

Based on this rationale, while the court concluded that the plaintiffs' theory made economic sense, it further recognised that plausibility alone cannot establish an antitrust violation. Instead, it must be demonstrated that the defendants exerted concerted action pursuant to an illegal agreement, not independent profit-maximising actions based on market conditions. For the purposes of a Rule 56 motion, while both direct and inferential evidence can serve to create a triable issue on conspiracy, the court determined that the plaintiffs only submitted inferential evidence in their opposition. In the absence of direct evidence, the court assessed whether the inferential evidence submitted by the plaintiffs was sufficient to raise an inference of conspiracy.

With respect to pricing, the court noted that the plaintiffs’ evidence indicated follow-the-leader pricing – a common form of parallel conduct – with five of the eight defendants admitting that they regularly monitored the others’ prices and factored that information into their own. Other evidence also suggested that the defendants responded similarly to market events, including selling gas to Exxon following its 2015 explosion, limiting gas inventories at their respective refineries and increasing exportation of gasoline outside of California during the class period. In total, the court found that “the evidence sufficiently raises a genuine dispute of material fact that Defendants engaged in conscious parallelism”.

The court then turned to the plaintiffs’ evidence of supposed plus factors to determine if any evidence “tends to exclude the possibility of independent action” (referencing Matsushita Elec Indus Co v Zenith Radio Corp, 475 US 574, 588, 1986). In all, the plaintiffs argued that 10 categories of the defendants' behaviour evidenced their wide-ranging, price-fixing conspiracy. These categories included supposed refinery agreements and communication, restriction of gasoline supplies, manipulative trading activity and false public statements. The court examined each category under the Ninth Circuit’s two-step framework to assess whether the inferential evidence supported the inference of conspiracy.