Flying J Incorporated v. Wisconsin Petroleum Marketers

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-1883

F LYING J, INCORPORATED ,

Plaintiff-Appellee,

v.

J.B. V AN H OLLEN, Attorney General of Wisconsin,

R OB N ILSESTUEN, Secretary of the Wisconsin

Department of Agriculture, Trade and

Consumer Protection,

Defendants.

A PPEAL OF:

W ISCONSIN P ETROLEUM M ARKETERS &

C ONVENIENCE S TORE A SSOCIATION,

Intervenor-Appellant.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 2:08-cv-00110—Rudolph T. Randa, Judge.

A RGUED A PRIL 14, 2010—D ECIDED S EPTEMBER 3, 2010

Before P OSNER, R IPPLE, and K ANNE, Circuit Judges.

K ANNE, Circuit Judge. Flying J, Inc., brought a facial

challenge to Wisconsin’s gasoline pricing regulations. The

2 No. 09-1883

district court granted Flying J’s motion for summary

judgment and permanent injunction against enforcing

the provisions, finding that the provisions were pre-

empted by the Sherman Act and not saved by state

action immunity. We granted the Wisconsin Petroleum

Marketers & Convenience Store Association’s motion

to intervene after the original Defendants—the state

officials charged with enforcing the provisions— declined

to appeal the district court’s decision. Because we find

that the provisions are not preempted by the Sherman

Act, the district court’s grant of Flying J’s motion for

summary judgment is reversed, the permanent injunc-

tion is dissolved, and the case is remanded to the district

court with directions to enter judgment in favor of De-

fendants.

I. B ACKGROUND

A. Wisconsin Unfair Sales Act

Wisconsin passed the Unfair Sales Act (“Act”) in 1939.

In its original form, the Act mandated a 3 percent markup

at wholesale and a 6 percent markup at retail on all mer-

chandise sold in Wisconsin, including gasoline. The Act

remained more or less in its original form until 1986

when the Wisconsin Legislature removed the mini-

mum markup provisions for everything except tobacco,

alcoholic beverages, and—most relevant to the case

before us—motor vehicle fuel. See generally Orion Flight

Servs., Inc. v. Basler Flight Serv., 714 N.W.2d 130, 146-47

(Wis. 2006).

No. 09-1883 3

In general, the Act prohibits retailers of motor vehicle

fuel from selling the fuel below cost. Wis. Stat. § 100.30(3).

The statute carefully defines the “cost to retailer.” For a

retailer of motor vehicle fuel other than a wholesaler or

refiner, cost is the greater of (1) invoice or replacement

cost, less certain deductions, plus a 6% markup, or (2) “the

average posted terminal price at the terminal located

closest to the retailer plus a markup of 9.18%.” Id.

(2)(1m)(c). The “average posted terminal price” is defined

as:

the average posted rack price, as published by a

petroleum price reporting service, at which

motor vehicle fuel is offered for sale at the close

of business on the determination date by all refin-

ers and wholesalers of motor vehicle fuel at a

terminal plus any excise, sales or use taxes im-

posed on the motor vehicle fuel or on its sale, any

cost incurred for transportation and any other

charges that are not otherwise included in the

average posted rack price. In this paragraph,

“average” means the arithmetic mean.

Id. (2)(a). A terminal is “a motor vehicle fuel storage

and distribution facility that is supplied by a pipeline or

marine vessel, from which facility motor vehicle fuel

may be removed at a rack and from which facility at

least 3 refiners or wholesalers of motor vehicle fuel

sell motor vehicle fuel.” Id. (2)(j).

The Act requires similar markups by wholesalers

and refiners who sell motor vehicle fuel at retail. Id.

(2)(1m)(a) (defining a refiner’s cost as the greater of

4 No. 09-1883

invoice or replacement cost plus a 9.18% markup or the

average posted terminal price plus a 9.18% markup);

id. (2)(1m)(b) (same definition of cost for wholesalers).

The Act also includes other minimum markups in

the definition of the “cost” of motor vehicle fuel sold at

wholesale, see id. (2)(c)(1g) & (1r), or other non-retail

sales, see id. (2)(d) & (e).

The Wisconsin Department of Agriculture, Trade, and

Consumer Protection (“DATCP”) or a district attorney

may sue violators of the Act on behalf of the state to

recover specified fines. Id. (4). DATCP may also issue

cease-and-desist orders for violations, and DATCP or a

district attorney may sue to recover fines for violating

those orders. Id. (5)(a). DATCP or a district attorney

may also sue to enjoin violations of the Act. Id. (5)(b). The

Act also gives a private cause of action to “[a]ny person

who is injured or threatened with injury as a result of a

sale or purchase of motor vehicle fuel.” Id. (5m). The

aggrieved party may sue for an injunction against the

violator or for treble damages, “together with costs,

including accounting fees and reasonable attorney fees.” Id.

The private cause of action expires 180 days after the

violation occurs. Id.

Finally, the Act allows a business selling motor vehicle

fuel to charge less than the minimum markup pro-

visions would otherwise require if “[t]he price of mer-

chandise is made in good faith to meet an existing price

of a competitor.” Id. (6)(7). To take advantage of this

exception, however, the seller must give notice to DATCP

“in the form and the manner required by” DATCP on the

No. 09-1883 5

same day that it matches its competitor’s price. Id. (7)(a). If

timely notice is not given, the seller cannot assert as a

defense the price-matching exception to the minimum

markup provisions. Id. (7)(b). The price-matching excep-

tion is available to retailers, wholesalers, and refiners. Id.

(7)(a)-(c).

In another statute, Wisconsin requires anyone selling

motor vehicle fuel to post the “net selling price per gallon

of all grades of motor fuel and the amount of all taxes

per gallon thereon.” Wis. Stat. § 100.18(8). The posted

prices “shall remain in effect for at least 24 hours after

they are posted.” Id.

From the end of April 2003 through 2008, DATCP

received 1541 complaints alleging violations of the mini-

mum markup provisions for motor vehicle fuel.

DATCP did not, however, prosecute a single action in-

volving violations of the Act from January 2003 through

April 2008. DATCP has promulgated administrative

regulations regarding the enforcement of § 100.30, in-

cluding regulations specifying the form and manner of

giving DATCP notice of matching a competitor’s price.

See generally Wis. Admin. Code ch. ATCP 105.

The record in this case includes two reports. The first,

conducted by the Federal Trade Commission in 2003,

concluded that the Act harmed competition at the

expense of Wisconsin consumers by “deter[ing] pro-

competitive price-cutting and caus[ing] some vendors

to raise their prices.” Federal Trade Commission, Re:

Wisconsin’s Unfair Sales Act (Oct. 15, 2003), available at

http://www.ftc.gov/be/v030015.shtm (last visited Aug. 16,

6 No. 09-1883

2010) (the “FTC Report”). The FTC Report also con-

cluded that the Wisconsin Act was unnecessary because

federal antitrust law was adequate to police the same

conduct targeted by the Wisconsin Act. Id.

The second report, conducted by the Wisconsin

Policy Research Institute in 1999, concluded that “the

evidence suggests that the primary result of [the mini-

mum markup provisions of the Act] has been to inflate

the price of gasoline for Wisconsin consumers and

facilitate tacit collusion in retail gasoline markets.” James

I. Brannon & Frank Kelly, Pumping Up Gas Prices in Wis-

consin: The Effects of the Unfair Sales Act on Retail Gasoline

Prices in Wisconsin, 12 Wis. Policy Research Inst. 7, at 1

(Oct. 1999) (the “WPRI Report”). Although the authors of

the WPRI Report argue that “[m]ost of the empirical

research done on retail gasoline markets suggests that

the primary problem in the market is not predatory

pricing, but rather a propensity towards price collusion,”

there is no evidence in the WPRI Report of any actual

collusion in the Wisconsin motor vehicle fuel market.

See id. 3-4.

B. Procedural History

Plaintiff-Appellee Flying J, Inc., is a Utah corporation

with its principal place of business in Ogden, Utah. It is

a vertically integrated supplier of motor vehicle fuel and

maintains that it could sell motor vehicle fuel for sub-

stantially less than the statutory minimum and still

make a profit. Defendants are J.B. Van Hollen, Attorney

General of Wisconsin, and Rod Nilsestuen, Secretary of

No. 09-1883 7

DATCP. Flying J sued in federal district court to enjoin

Defendants from enforcing the minimum markup provi-

sions of the Act as they relate to motor vehicle fuel,

alleging that those provisions are preempted by the

Sherman Act. The district court agreed with Flying J,

finding that the statute was preempted by the Sherman

Act and that it was not saved by state actor immunity.

The district court issued a permanent injunction pro-

hibiting Defendants from enforcing the motor vehicle

fuel provisions of the Act. Flying J, Inc. v. J.B. Van

Hollen, 597 F. Supp. 2d 848 (E.D. Wis. 2009). Defendants

decided not to file a motion to reconsider or to stay the

injunction; they also decided not to appeal the district

court’s decision.

Intervenor-Appellant Wisconsin Petroleum Marketers

and Convenience Store Association (“WPMCA”), a trade

association of Wisconsin gasoline dealers, moved the

district court to allow WPMCA to intervene, to recon-

sider its decision, and to stay its injunction. The district

court denied WMPCA’s motion to intervene, and

WMPCA appealed. In our written opinion of August 20,

2009, we vacated the district court’s denial of WPMCA’s

motion to intervene and directed the parties (that is,

WMPCA standing in Defendants’ shoes on appeal, and

Flying J) to submit briefs on the merits.

II. A NALYSIS

We review the district court’s grant of summary judg-

ment de novo. Tindle v. Pulte Home Corp., 607 F.3d 494, 495

(7th Cir. 2010). Summary judgment is appropriate if “there

8 No. 09-1883

is no genuine issue as to any material fact and . . . the

movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(c)(2); Carmichael v. Village of Palatine, Ill., 605

F.3d 451, 456 (7th Cir. 2010).

The first question we must address is whether the

minimum markup provisions under the Act are pre-

empted by the Sherman Act. To be preempted, the

state regulatory scheme must irreconcilably conflict

with the federal scheme. Rice v. Norman Williams Co., 458

U.S. 654, 659 (1982). A hypothetical or theoretical con-

flict is insufficient to warrant preemption. Id. Likewise,

“[a] state statute is not preempted by the federal antitrust

laws simply because the state scheme might have an

anticompetitive effect.” Id. Rather, a statute is preempted

“ ‘only if it mandates or authorizes conduct that neces-

sarily constitutes a violation of the antitrust laws in all

cases, or if it places irresistible pressure on a private

party to violate the antitrust laws in order to comply

with the statute.’ ” Fisher v. City of Berkeley, Calif., 475 U.S.

260, 265 (1986) (quoting Rice, 458 U.S. at 661).

Flying J argues that the motor vehicle fuel provisions

of the Act facilitate a “classic horizontal price fixing

scheme.” (Appellee Br. at 19.) It argues that by estab-

lishing a minimum price for gasoline among retailers,

allowing competitors to meet but not beat others’ prices,

and providing a private mechanism for enforcement,

Wisconsin has created a scheme that allows retail sellers

of gasoline to collude on prices to the detriment of con-

sumers. Of course, horizontal price fixing is per se illegal

under federal antitrust law, BCB Anesthesia Care, Ltd. v.

No. 09-1883 9

Passavant Mem’l Area Hosp. Ass’n, 36 F.3d 664, 666 (7th

Cir. 1994), and if the Act required the collusive conduct

that Flying J identifies, then we could quickly declare

the Act preempted and move on to the next question.

But it is only when a state law mandates or authorizes

collusive conduct that it is preempted by federal antitrust

law. See Fisher, 475 U.S. at 265. On its face, the Act does not

mandate or authorize Wisconsin gasoline dealers to

engage in conduct that is illegal under the Sherman Act.

The case most analogous to the present one is Fisher. In

Fisher, the City of Berkeley established an ordinance

that froze rental rates at their 1980 levels and established

a Rent Stabilization Board to control future increases in

rental rates. Id. at 261-62. The Board decided how much

to allow all rents to increase each year and also had

discretion to decide whether to allow an individual

landlord to increase her rents if she petitioned to do so.

Id. The ordinance included a number of enforcement

mechanisms, including allowing tenants to sue if their

landlord charged more than was allowed under the

ordinance. Id. at 262-63. A group of landlords brought a

facial challenge to the ordinance, arguing that the ordi-

nance imposed rent ceilings that constituted price fixing

in violation of federal antitrust laws. Id. at 265.

The Court agreed that the landlords could not have

legally entered into a private agreement to stabilize

rental prices, even for benevolent reasons. Id. at 266. But

the Court found that the ordinance was not preempted

because the rent ceilings were “unilaterally imposed by

government upon landlords to the exclusion of private

10 No. 09-1883

control.” Id. at 266. The distinction between unilateral

government action on one hand and concerted action on

the other was dispositive of the question of preemp-

tion because “[a] restraint imposed unilaterally by gov-

ernment does not become concerted-action within the

meaning of the statute simply because it has a coercive

effect upon parties who must obey the law.” Id. at 267.

We can discern no meaningful difference between

the unilaterally imposed rent ceilings in Fisher and the

mandatory markup provisions in Wisconsin. On its face,

the Act requires retail sellers of motor vehicle fuel

to calculate the minimum price at which they can sell

motor vehicle fuel using relatively simple mathematical

formulas. The seller calculates its actual costs, subtracts

certain items, and adds 6 percent. The seller then goes

to the nearest terminal, averages the prices being offered

at the terminal, and adds 9.18 percent. The seller then

compares the actual cost plus the markup with the esti-

mated cost from the terminal plus the markup—generally,

the Act requires the seller to charge no less than the

higher of those two numbers. The one exception is that

the seller is allowed to charge less in order to match a

competitor’s advertised price. Sellers must maintain

their posted prices for at least 24 hours. The statute

neither requires nor authorizes gasoline dealers to get

together and agree on what price they will all charge

for gasoline. Nor does the statute require or authorize

wholesalers to get together to decide what prices they

will charge at the terminal. On the face of the statute,

there is simply nothing that compels collusive private

conduct that would violate the Sherman Act.

No. 09-1883 11

To be sure, if gasoline dealers met together and privately

agreed on a minimum price that they would all charge,

their conduct would be per se illegal under federal anti-

trust law. However, just as in Fisher, “[t]he distinction

between unilateral and concerted action is critical

here.” 475 U.S. at 266. The state of Wisconsin sets the

minimum price formula, and the Act, on its face,

does not require or authorize private participation in

setting the minimum price. Thus, we find that the mini-

mum markup provisions are unilaterally imposed by

the state and therefore not preempted by the Sherman Act.

The district court found that the Act was a per se

restraint on trade because “[t]he minimum markup

percentage creates a range in which competitors may

engage in collusive parallel pricing, which is exacer-

bated as the wholesale price of gasoline fluctuates.” Flying

J, 597 F. Supp. 2d at 856. First, as noted above, a statute

is only preempted if it requires or authorizes collusive

conduct. Where a statute does neither, the fact that the

parties or the court can envision scenarios under the

regulatory scheme in which private parties could more

easily collude is insufficient to invalidate the statute.

Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 131

(1978). And any party that engages in collusive conduct

under such a statute would not be able to raise its compli-

ance with the state statute as a defense.

Second, there is simply no evidence in the record that

gasoline dealers—wholesalers, retailers, or otherwise—are

colluding to fix or raise the price of gasoline in Wiscon-

sin. Although it has avoided calling it so, Flying J’s chal-

12 No. 09-1883

lenge to the Act is a facial challenge. It is not arguing that

the statute is preempted because gasoline dealers

in Wisconsin are colluding to raise or fix the price of

gasoline. Rather, its challenge is premised on its argu-

ment that the statute requires private parties to horizon-

tally fix prices. As discussed above, Flying J is wrong

that the statute on its face creates a classic horizontal

price-fixing scheme. And the only evidence that it cites

in support of its argument that private parties are col-

luding are the two reports discussed above. Although

both concluded that the minimum markup provisions

are unnecessary and may in fact be hurting Wisconsin

consumers, only the WPRI Report raised the specter of

collusion among gasoline dealers, and it did so only in

the theoretical sense. See WPRI Report, at 3-4. This is

simply not enough to support a facial challenge to this

statute.

Flying J argues that the Act is a “hybrid” statute that

is preempted by federal antitrust law. A hybrid statute

is one that gives private parties discretion to set prices

that the government then enforces. See Fisher, 475 U.S.

at 267-68. Hybrid statutes are preempted. See, e.g.,

Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384,

389 (1951).

In California Retail Liquor Dealers Ass’n v. Midcal Alumi-

num, Inc., the Supreme Court found that California’s

wine pricing system was preempted. 445 U.S. 97, 103

(1980). A statute required all producers and wholesalers

to submit either fair trade contracts or price schedules

to the state. Wine dealers were not allowed to sell wine

No. 09-1883 13

at any price other than that set by the fair trade contracts

or price schedules. The state played no role in deter-

mining the prices of wine. Id. at 99-100. The Court found

that the California statute “plainly constitute[d] resale

price maintenance in violation of the Sherman Act.” Id. at

103. The Court found decisive the fact that the wine

producers could eliminate competition in the wine in-

dustry by setting the prices that wholesalers could

charge. Id.

Similarly, in 324 Liquor Corp. v. Duffy, the Court found

that New York’s minimum markup law on liquor was

preempted. 479 U.S. 335, 342 (1987). In a statute somewhat

similar to Wisconsin’s motor vehicle fuel minimum

markups, New York prohibited liquor retailers from

selling liquor below “cost,” which the statute defined as

the “posted bottle price” plus a 12% markup. Id. at 338-39.

In addition to posting the bottle price, wholesalers

also posted the case price. Wholesalers had complete

discretion to set both the bottle price and the case price.

Retailers made their purchases from the wholesalers

based on the case price, but had to sell the liquor based

on the bottle price. Because the two prices did not have

to relate to each other, the wholesalers could lower the

case price while maintaining the bottle price, thus

allowing the retailers to sell the liquor for more than the

required 12% markup over wholesale cost. Id. at 349-40.

The net effect of the law was “to permit wholesalers to

maintain retail prices at artificially high levels.” Id. at

340. The Court concluded that the law created “a

regime of resale price maintenance on all New York

liquor retailers” and was thus preempted. Id. at 341.

14 No. 09-1883

The Court found that New York’s regulatory scheme

was for all intents and purposes the same as California’s

regime found to be preempted in Midcal. Id. at 342.

The problem again was that the statute displaced com-

petition but gave private actors discretion to set prices.

Id. at 345.

Wisconsin’s motor vehicle fuel pricing scheme is not a

hybrid statute. The California and New York pricing

systems in Midcal and 324 Liquor gave complete discre-

tion to private entities to set the prices that the statutes

then enforced. The state was not involved in any way

in setting or determining the final, enforceable prices.

Although New York’s scheme involved a minimum

markup just like Wisconsin requires for motor

vehicle fuel, the unique nature of New York’s scheme

authorized wholesalers to manipulate the prices to

which the markup was applied. 324 Liquor, 479 U.S.

at 348-50. Here, Wisconsin requires a minimum markup

to be included in a retailer’s “cost,” but the statute

does not authorize wholesalers to collude or manipulate

the terminal prices to which the markup is applied or

set the retail prices to be charged.

The fact that Wisconsin has created a private cause

of action to enforce its minimum markup provisions

does not make the statute a hybrid statute. Because the

state itself is mandating the minimum price, the mere

fact that interested private parties may enforce the

minimum-pricing scheme does not make the Act a hybrid

statute. See Fisher, 475 U.S. at 269 (finding that a private

cause of action in tenants—“certainly a group of inter-

No. 09-1883 15

ested private parties”—did not change the unilateral

nature of the city ordinance stabilizing rent prices be-

cause the city retained complete control over the rent

ceiling). The exception to the Wisconsin minimum

markup provisions allowing retailers to match its com-

petitor’s price is also insufficient alone to make the

statute a preempted hybrid statute. The Act authorizes

parallel behavior, but it does not authorize retailers to

get together and agree on a posted price. “Without

more, parallel conduct does not suggest conspiracy . . . .”

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556-57 (2007).

Flying J also argues that the 324 Liquor Court rejected

New York’s scheme—that mandated that the minimum

markup be applied to the bottle price—because the

bottle price “may greatly exceed what the retailer

actually paid for the liquor.” 324 Liquor, 479 U.S. at 345

n.6. The Court’s comment was made in a footnote

during its discussion of whether the New York pricing

scheme qualified for state actor immunity. The Court

suggested that a “simple minimum markup provision”

could satisfy the “active supervision” requirement of

state actor immunity, see Midcal, 445 U.S. at 105, but

found that the New York markup was not a simple

markup scheme. 324 Liquor, 479 U.S. at 345 n.6. The

great vice of the New York scheme was not that the

markup was applied to a price that did not represent

the actual cost to the retailer, but that the wholesalers

could sell to the retailers at one price and force the

retailers to apply the minimum markup to another. Id.

Wisconsin’s minimum markup provisions at issue here

do not suffer from the same vice. Although the 9.18%

16 No. 09-1883

markup is applied to an estimate of the retailer’s cost

based on average terminal prices rather than its actual

costs, the scheme does not authorize wholesalers to

manipulate wholesale prices of gasoline to guarantee a

bigger return to retailers.

We also note that the allegations of price fixing by

wholesalers of liquor in 324 Liquor was more than hypo-

thetical or theoretical. There was evidence in the record

of wholesalers advertising that their lowered case

prices could guarantee retailers a higher profit than the

statutory 12 percent. 324 Liquor, 479 U.S. at 340. There

was also evidence of wholesalers encouraging retailers

to buy in bulk when case prices were low. Id. There is

simply not sufficient evidence in this case’s record to

support a finding that gasoline dealers are colluding or

manipulating gasoline prices in Wisconsin.

The lack of evidence in the record supporting Flying J’s

allegations of collusive conduct by gasoline dealers is

fatal to its claim that the motor vehicle fuel provisions

of the Act are preempted by the Sherman Act. We

cannot find on the face of the statute any compelled or

authorized conduct that constitutes a violation of federal

antitrust law. Because we conclude that the Act is not

preempted, we need not consider whether the provision

would qualify for state action immunity under Parker

v. Brown, 317 U.S. 341 (1943).

It may well be that gasoline retailers are getting

together with each other and agreeing on how to

estimate their costs or what final price to charge, or that

retailers and wholesalers are colluding to manipulate

No. 09-1883 17

the average posted terminal price. “However, we have

been given no indication that such corruption has

tainted” the gasoline pricing scheme in Wisconsin, and

based on our reading of the challenged provisions, we

think the Act “can hardly be viewed as a cloak for any

conspiracy” among refiners, wholesalers, or retailers. See

Fisher, 475 U.S. at 269. Our disposition of this facial chal-

lenge does not preclude a future plaintiff, properly

armed with evidence of actual collusion among Wis-

consin gasoline dealers, from bringing an as-applied

challenge to the Act or an enforcement action against

those dealers under antitrust laws at a later time.

III. C ONCLUSION

The district court’s judgment is R EVERSED and the

permanent injunction barring Wisconsin from enforcing

the Act is D ISSOLVED . The case is R EMANDED to the

district court with instructions to enter judgment for

Defendants.

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