The California gasoline conspiracy: the court’s reasoning
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|Case name and reference
Persian Gulf Inc v BP West Coast Products LLC, et al (3:2015cv01749)Richard Bartlett, et al v BP West Coast Products LLC, et al (3:2018cv01374)
|US District Court for the Southern District of California
Alon USA Energy
BP West Coast Products
Exxon Mobil Corporation and ExxonMobil Refining & Supply Co
Tesoro Refining & Marketing CompanyValero Marketing and Supply Company
|Cause of action
Section 1 of the Sherman Act
The Cartwright Act
Section 16700 of the California Business and Professions CodeSection 17200 of the California Business and Professions Code
Based on a thorough analysis of the evidence in the record, the court in Persian Gulf found that the evidence did “not support a reasonable inference of the eight-defendant conspiracy alleged by the plaintiffs”. Instead, the court found that this evidence suggested that the defendants largely responded to the market, acted independently or otherwise offered justifiable business explanations for their conduct (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 Judgement, 30 September 2022, at p 78 and 79).
As one specific example, the court found that the plaintiffs’ evidence of information exchanges was insufficient to permit a finding of conspiracy with respect to Chevron, Shell, Valero, Exxon, Tesoro and Alon. According to the court’s logic, these defendants' traders were low-level employees. Although they regularly exchanged information as part of their job duties, there was insufficient evidence that these traders reported information up the chain of command. The plaintiffs pointed to only one instance where information gained through trading was sent to higher-level employees and the court deemed that evidence to be “ambiguous at best”. Further, to refute the plaintiffs’ claims, the defendants produced plausible business explanations for traders sharing information with one another, which satisfied the court.
Concerning BP and Phillips 66, the court found that the plaintiffs' evidence regarding communications presented a different picture. The traders at those two companies appear to have repeatedly communicated potentially confidential information to each other and then passed that information to decision-makers to take advantage of predicted market shortages. As the court observed: “The nature of the communications between BP’s and Phillips 66’s traders […] is more consistent with conspiracy than with independent action—or, at least, that a reasonable juror could conclude so.” Thus, the court concluded that this evidence of information exchanges was sufficient to permit an inference of conspiracy between BP and Phillips 66, but that the evidence did not suggest the eight-defendant conspiracy that the plaintiffs had alleged.
Following its review, the court concluded that the evidence advanced by the plaintiffs supported an inference that the remaining six defendants engaged in conscious parallelism and behaved in a manner consistent with oligopoly, since each entity independently recognised low-supply conditions and sought the maximum price advantage. While such oligopolistic “manoeuvrings” may be undesirable for consumers, according to the court, they are not prohibited by antitrust law. Because none of the evidence excluded the possibility that each defendant took independent actions to maximise profits, the court ruled that the plaintiffs had not drawn a reasonable inference of the wide-ranging, eight-defendant conspiracy that they initially alleged.
With regard to the possibility of collusive conduct between BP and Phillips 66, the court noted that a demonstration of causality was also an essential element of the plaintiffs’ antitrust claim. That is, whether the alleged collusion between BP and Phillips 66 was a proximate cause of higher gasoline prices, as opposed to other market forces being responsible for those higher prices. Plaintiffs had submitted expert economic testimony on the issue of causation, purporting to show, using econometric analysis, that the “defendants’ alleged conduct caused actual wholesale prices to substantially exceed but-for wholesale prices”. However, the court granted the defendants’ motion to exclude this expert testimony under the Daubert standard since it “disregarded” certain “basic” econometric principles. In particular, the plaintiffs’ experts had used as part of their benchmark periods (times free from the effects of the alleged misconduct) stretches during which the alleged conspiracy was ongoing.
In Persian Gulf, the court undertook an extensive analysis of direct and inferential economic evidence to assess plaintiffs’ claim of an alleged antitrust conspiracy. The court determined that while the defendants acted in a manner consistent with oligopoly, there was insufficient economic evidence to suggest an eight-defendant conspiracy. The court also scrutinised the expert economic testimony advanced by the plaintiffs, taking its role as a “gatekeeper” seriously to ensure that only reliable evidence was admitted. This case thus provides a timely example of how courts evaluate claims of alleged conspiracy using various types of economic evidence.