Private wholesale club's below-cost sale of gasoline to members violated state unfair sales statute

Law Reporter, Sep 2004

COMMERCIAL LITIGATION

Star Fuel Marts, LLC v. Sam's East, Inc., 362 F.3d 639 (10th Cir. 2004).

The Tenth Circuit Court of Appeals held that a private wholesale club's below-cost sale of gasoline to members violated the Oklahoma Unfair Sales Act (OUSA), Okla. Stat. tit. 15 § 598.3.

Here, a gas station operator in the Oklahoma City area sued a private wholesale club, alleging the club violated the OUSA by selling gasoline to members below cost as denned in the statute. A trial court granted a preliminary injunction, finding that defendant violated die OUSA by selling gasoline below cost with an intent to induce purchasers to buy other merchandise and to substantially lessen competition in the surrounding area.

Affirming, the Tenth Circuit noted that, under the OUSA, evidence of the below-cost sale of merchandise is prima facie evidence of an intent to injure competitors. The court held that defendant priced the gasoline below cost to induce the purchase of other merchandise. Defendant's internal management manual states that gasoline increases die total amount purchased and encourages new members to join the club and current members to renew. The court further noted that defendant intended to unfairly divert trade from competitors, based on evidence defendant's gasoline operations were operating at a loss for a significant period of time, and defendant could easily find out the cost of a competitor's gasoline.

The court also found that defendant's actions substantially lessened competition in the area. The significant increase in defendant's market share in the area and the corresponding decrease of plaintiff's market share, together with the fact that defendant's sales resulted from below-cost pricing, support the finding that defendant's gasoline sales resulted in a substantial lessening of competition, the court said.

The court rejected defendant's argument that plaintiff's claimed injuries resulted from an increase in competition. Defendant's pricing allowed it to sell gasoline below cost, and there was nothing competitors could do under the OUSA to compete. This gave defendant an unfair advantage, the court explained, which is what the OUSA was designed to prevent.

Plaintiff's Counsel

Gary S. Chilton, Oklahoma City, Okla.