Fuel distributors settle suit

High gas prices after Katrina result in $25,000 fine

Staff WriterAugust 2, 2007 

— Oil companies accused of forcing retailers to fix gasoline prices in the month after Hurricane Katrina agreed this week to pay a fine and change the way they operate.

McLeod Oil Co. and Home Oil, Mebane-based fuel distributors, have been in a legal dispute with state Attorney General Roy Cooper's office since October 2005, when the agency sued and accused the companies of price fixing.

McLeod sold gas to A&P Mini Mart in Durham and fewer than two dozen other locations from Durham to Greensboro under a consignment sales model in which McLeod owned the gas and pumps and the gas station owners split the profits with the company, according to court documents.

But on Sept. 28, 2005, Steve Grover, the operator of the now-closed A&P Mini Mart off Interstate 85, said the gas pumps were padlocked by McLeod employees after he refused to raise his gas prices by 40 cents to $3.26.

The Attorney General's Office took up his cause and filed the lawsuit a few days later.

McLeod and Home Oil, in the consent agreement approved Monday by a Wake County Superior Court judge, agreed to stop trying to set prices at gas stations they supply and also consented to pay a $25,000 fine to the state Justice Department.

"We're not saying it's illegal to sell gas on consignment," said Noelle Talley, a spokeswoman for Cooper's office. "We are saying it's illegal for them to fix prices."

Although the consent agreement was hailed as a success by Cooper's office, an attorney for McLeod and Home Oil said the companies were being unfairly targeted by the state agency. The attorney, David Permar, predicted that mom and pop gas stations, which depend on gas suppliers to provide the fuel on consignment, will be hurt by the agreement.

"It's a dying way to do business," Permar said. "This lawsuit will hasten its demise."

Permar also criticized Cooper's office, saying it did not fully investigate Grover's claims and grandstanded by going after the fuel suppliers in a charged environment in the weeks after Hurricane Katrina.

The companies settled because the cost grew too high to continue fighting the accusations in court, Permar said. Representatives from McLeod declined to comment on the settlement.

Consignment gas sales often appeal to mom and pop outfits, which don't have the money to pay for expensive tanks of gasoline and the equipment upfront, Permar said.

McLeod is no longer selling gas under consignment agreements, he said.

Haddon Clark, who operates United Energy Inc., a Raleigh-based company that operates 75 Han-dee Hugo convenience stores and gas stations in the area, said few retailers are making money off gas sales. He is also the president of the N.C. Petroleum Marketers Association.

"We make a lot more money on inside sales than we do on gasoline," Clark said. "We're certainly not the ones who are reaping the benefits of high prices."

Fewer retailers buy gas on consignment than in the past, Clark said, adding that he does not.

Meanwhile, the minimart at the center of the controversy isn't offering any gas. It closed when the building was condemned to make way for a highway expansion project.

A small sign in a front window says, "Out of business." Attempts to reach Grover were unsuccessful.

(Staff writer Samiha Khanna and news researcher Brooke Cain contributed to this report.)

Staff writer Sarah Ovaska can be reached at 829-4622 or sarah.ovaska@newsobserver.com.

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