[*1]
| People v My Serv. Ctr., Inc. |
| 2007 NY Slip Op 50062(U) [14 Misc 3d 1217(A)] |
| Decided on January 17, 2007 |
| Supreme Court, Westchester County |
| Lippman, J. |
| Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
| This opinion is uncorrected and will not be published in the printed Official Reports. |
Supreme Court, Westchester County
THE PEOPLE OF THE STATE OF NEW YORK by ELIOT SPITZER, Attorney General of the State of New York, Petitioner,
against
My Service Center, Inc., Respondent.
|
06/21157
Eliot Spitzer, Attorney General of the State of New York, by
Winthrop H. Thurlow
Attorney for Petitioner
615 Erie Boulevard West
Syracuse, New York 13204
Adam Peska
Peska & Associates PC
Attorney for Respondent
175 Main Street, Suite 300
White Plains, New York 1060l
Jonathan Lippman, J.
Upon the foregoing papers, it is ordered and adjudged that the petition is granted to the extent that respondent is heretofore enjoined from capitalizing on market disruptions for its own advantage and is assessed a penalty of $2000.00, inclusive of costs, as set forth herein.
FACTUAL BACKGROUND
Petitioner commenced this proceeding pursuant to New York General Business Law ("GBL") § 396-r and Executive Law § 63(12) to enjoin respondent gas station from illegally inflating the retail price of its gasoline, to disgorge profits obtained through such illegal price inflation, and to impose civil penalties; and, for costs under CPLR § 8303(a)(6).
On August 29, 2005, Hurricane Katrina assaulted the Gulf Coast of the United States. As a nation, we are still grappling with the devastating physical, economic and human consequences left in Katrina's wake. This proceeding illustrates a ripple economic effect caused by Katrina's disruption of the Gulf Coast refineries' production and distribution of gasoline, which petitioner is empowered to investigate and seek redress in its capacity as a consumer watch-dog under GBL § 396-r(4) and Executive Law § (12). This action is one in a series commenced by petitioner in the summer of 2005 to combat price gouging at the pump in response to the "abnormal market disruption" wrought by Hurricane Katrina (GBL § 396-r[4]; see also People v Wever Petroleum, Inc. ,____ Misc 2d _____, 2006 NY Slip Op 26414 [Sup Ct, Albany County, Aug. 23, 2006]; Oneida Lake Petroleum Corp., Sup Ct, Oswego County, Dec. 18, 2006, Seiter, J., Index No. 2006-1710).
Following a series of consumer complaints of a "sharp and sudden increase in the price of [respondent's] gasoline," petitioner requested that respondent, then an Exxon [FN1] service station in New Rochelle, document the price it sold the lowest grade gasoline between August 1, 2005 and September 7, 2005; and, the price it paid its supplier for such gas purchased between July 1, 2005 and September 7, 2005, to determine if these complaints amounted to statutory violations actionable as price gouging under GBL § 396-r and/or as fraudulent or deceptive business practices under Executive Law § 63(12).
By letter, respondent categorically denied any price gouging, asserting its prices "are only relative to the prices it receives from the Exxon distributor, which on average are substantially higher than competing brands of lesser quality " (Peska Letter dated Sept. 7, 2005, Petition, Exhibit 5). Further, respondent explained that it "normally" profits 8-10 cents per gallon but "increased the profit margin based upon the anticipated [emphasis added] steady price increase from the supplier during the period leading up to and after Hurricane Katrina" (Peska Affirmation in Opposition, at 4-5).
By exchange of letters, petitioner repeatedly sought to obtain specific prices from [*2]respondent. Ultimately, by letter dated October 26, 2005, respondent submitted invoices dated August 19, 2005, August 31, 2005 and September 3, 2005, which it maintains "demonstrat[es] a dramatic increase in fuel charges [from its supplier] during the period in question" (Respondent's Letter dated Oct. 26, 2005, Petition, Exhibit 12 ). According to respondent, following Katrina "gasoline was increasing at a rate of 20 to 30 cents per shipment [so it] was not unreasonable for [it] to markup gasoline substantially [emphasis added] to cover the costs of [its] next delivery of gasoline" (Peska Affirmation in Opposition, at 4-5). Petitioner contends that respondent capitalized on consumers' fears by increasing prices irrespective of any increased costs to it which is "precisely the kind of opportunism the Legislature intended to proscribe" under GBL § 396-r (Thurlow Affirmation, attached to Petition, at 5) .
According to records maintained by the Westchester County Department of Weights-Measures, Consumer Protection, and invoices provided by respondent listing delivery prices from its supplier, it is evident respondent hiked its retail price to maintain its inflated profit margin, i.e. the difference in the price it paid its supplier and the pump price, subsequent to Hurricane Katrina. For example, immediately prior to Katrina, respondent's per gallon profit margin was 67 cents, an amount, the Court notes, is in excess of its asserted typical 8-10 cent margin, which margin then jumped to a high of 99 cents per gallon on September 1, 2005. What this translates to is a retail pump price of $3.45 per gallon for fuel respondent purchased only the day before from its supplier for $2.46 per gallon. On September 7, 2005, the retail price at respondent's station was $3.62, yielding respondent a per gallon profit of 88 cents based on its supplier's wholesale price of $2.74 on September 3, 2005.Petitioner declares that respondent's assertion that its supplier's price point justifies its elevated margin rings hollow in the face of these figures. Thus, petitioner categorically asserts that respondent's price increases in the post-Katrina days run afoul of the GBL's and Executive Law consumer protection prohibitions. This Court agrees.
LEGAL DISCUSSION
In the public's interest, GBL § 396-r (1) empowers petitioner to seek injunctive relief enjoining any party that distributes a consumer good, such as gasoline, from taking "unfair advantage of consumers by charging grossly excessive prices .... [d]uring any abnormal disruption of the market" (GBL § 396-r[2]). The statute defines "abnormal disruption of the market" to "mean any change in the market, whether actual or imminently threatened, resulting from stress of weather, convulsion of nature, failure or shortage of electrical power or other source of energy . . . ." (GBL § 396-r[2]). Without question, Hurricane Katrina created an abnormal disruption of the market as to trigger application of these protective provisions.
Respondent denies that its pricing falls within the purview of GBL § 396-r ([2] &[3]), pointing to GBL § 396-r(3)(b)(ii) to rebut petitioner's claims on the ground that such additional costs were "not within [its] control" as specified by the statutory language.
Respondent alleges it was forced to increase its costs as a matter of "legitimate business judgment" to ensure that it could meet the "insatiable" demand for gasoline from consumers during the busy summer travel season, peaking with the 2005 Labor Day holiday weekend that immediately followed on the heels of Katrina. Respondent posits that this demand, together with its need to remain competitive in a heated market, while locked into a non-negotiable purchase agreement with its supplier, created "unstable market conditions" (Peska Affirmation in [*3]Opposition, at 6). As such, respondent claims it was forced to anticipate increased delivery fees and raise its market prices, or risk a shortfall of funds, rendering it unable to purchase gasoline on the next shipment date. Given this confluence of factors, respondent contends that its price increases were not unconscionable within the meaning of the GBL.
Pursuant to GBL § 396-r(3), whether a price is "unconscionably excessive" is a question of law for the court. At bar, petitioner submits that the change in respondent's margin for retail gasoline prices between August 2005 through September 2005 mandates such a finding by this Court. This Court so finds.
GBL § 396-r (3)(a) specifies that the court's determination whether price gouging has occurred shall be based on any of the following factors:
"(i) that the amount of the excess in price is unconscionably extreme; or
(ii) that there was an exercise of unfair leverage or unconscionablemean; or
(iii) a combination of both factors in subparagraphs (i) and (ii)...."
There is a presumption that a merchant used the leverage provided by a market disruption to extract a higher price if there is a showing of a gross disparity in prices coupled with proof that the disparity is not attributable to supplier costs (see People of the State of New York v Two Wheel Corp., 71 NY2d 693, 698 [1988]; GBL § 396-r (3) (b)(i & ii )). "The use of such leverage is what defines price gouging, not some arbitrarily drawn line of excessiveness" (id.). In People v Two Wheel Corp., (71 NY2d, at 698), the Court of Appeals clearly articulates that the "gross disparity" language in GBL § 396-r(3)(b)(i) is "procedural rather than definitional; it simply establishes a means of providing presumptive evidence that the merchant has engaged in price gouging" (id. at 698).
Here, respondent offers nothing other than conclusory assertions that its price increases were warranted based on its current and prospective perceptions of market conditions. It presents no evidence to support the bald assertion that its supplier was "trying to recoup its costs by charging ... a premium on gasoline (hiding excess charges in freight fees, etc)," because said supplier "may have purchased the lease on its station above fair market value" (Peska Affirmation in Opposition, Exhibit B, at 3). In short, respondent fails to demonstrate that its business relationship with its supplier was anything other than one at arm's length.
A review of records from the Westchester County Department of Weights-Measures, Consumer Protection demonstrates that respondent's retail pump prices were consistently among the highest in its local zip code (see Petition, Exhibit 15; Thurlow Reply Affirmation, Exhibit A) and that for the period in question respondent uniformly hiked its retail price 7-10 times above its conceded "normal" 8-10 cent per gallon profit margin.
Based on the evidence presented, this Court finds that respondent's pricing patently violated GBL § 396-r 3(b)(i) and (ii) given such excessive increases and the fact that such increases did not bear any relation to the supplier's costs (see People v Two Wheel Corp., 71 NY2d at 698-699; People v Beach Boys Equipment Co., Inc, 273 AD2d 850, 851 [2000]; accord People v Wever Petroleum, Inc. ,____ Misc 2d _____, 2006 NY Slip Op 26414 [Sup Ct, Albany County, Aug. 23, 2006] [finding gross disparity in retail gas prices following Hurricane Katrina sufficient to warrant injunction under GBL § 396-r]; People v Oneida Lake Petroleum Corp., Sup Ct, Oswego County, Dec. 18, 2006, Seiter, J., Index No.2006-1710 [restrained from [*4]selling gasoline at unconscionably excessive prices during abnormal disruption in market, i.e. Hurricane Katrina]; People v Chazy Hardware, Inc., 176 Misc 2d 960, 963-964 [Clinton Co.1998] [enjoined from selling generators at unconscionably excessive prices subsequent to ice storm]. Regardless of respondent's desire to anticipate market fluctuations to remain competitive, hiking the pump price to its consumers, notwithstanding the price at which it purchased that supply, is precisely the manipulation and unfair advantage GBL § 396-r is designed to forestall.
Therefore, in accordance with GBL § 396-r(4), respondent is heretofore enjoined from capitalizing on market disruptions and is assessed a penalty, inclusive of costs, pursuant to Executive Law § 63(12) and CPLR § 8303(a)(6), of $2000 due to petitioner. The Court notes that GBL § 396-r(4) provides for restitution to aggrieved consumers "where appropriate." Given the transitory nature of gasoline purchases, it is unreasonable for this Court to direct reimbursement of overcharges to individual consumers, and, therefore, denies that portion of the petition that seeks restitution. Similarly, no evidence, e.g. invoices or receipts, has been tendered to calculate the amount of excess profits subject to disgorgement.
Accordingly, it is hereby
ORDERED that the Petition is granted to the extent set forth herein and otherwise denied.
The foregoing constitutes the Decision, Order and Judgment of the Court.
Dated: White Plains, New York
January 17, 2007HON. JONATHAN LIPPMAN, J.S.C.
Footnotes
Footnote 1: Since the inception of this proceeding, My Service Center, Inc. is operating as a Valero retail gasoline station at respondent's location.