Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Propane exchange tank distributors allegedly conspired to fix tank fill levels, (Jul 1, 2014)

By Linda O’Brien, J.D., LL.M.

Propane exchange tank distributors engaged in a conspiracy to fix the fill levels of propane exchange tanks without a corresponding reduction in wholesale prices that led to higher prices of propane sold in propane exchange tanks to retailers and other direct purchasers, according to a complaint filed in the federal district court of Jefferson City (Hartig Drug Company v. FerrellGas Partners, L.P., June 30, 2014).

FerrellGas Partners, d/b/a Blue Rhino, and UGI Corporation, parent of AmeriGas Partners d/b/a AmeriGas Cylinder Exchange, are the leading operators of national propane distribution businesses, which includes filling, refilling, refurbishing, selling, and distributing exchangeable propane tanks. Propane exchange tanks are used to fuel outdoor gas grills and patio heaters. The companies distribute their propane exchange tanks through retailers, including grocery stores, convenience stores, and gas stations. Three of the largest retailers that sell propane exchange tanks to consumers are Walmart, Lowe’s, and Home Depot. Hartig Drug Company is a retail pharmacy that purchased propane exchange tanks sold by Blue Rhino and/or AmeriGas.

The complaint alleges that in 2008, to respond to increased input costs, the defendants participated in a conspiracy to implement a price increase in exchangeable portable cylinder tanks containing propane gas by reducing the amount of propane in their exchange tanks from 17 pounds to 15 pounds, without a corresponding price reduction. The reduction in the fill level in the exchange tanks had the effect of raising the price per pound of propane to retailers.

The implementation of the fill reduction by Blue Rhino and AmeriGas was met with stiff resistance from Walmart, a joint customer, which refused to accept the fill reduction as effectively a price increase. Due to Walmart’s market power and ability to purchase from either Blue Rhino or AmeriGas, neither company could unilaterally implement the fill reduction without risk of losing Walmart’s business, the complaint charged.

According to the complaint, Blue Rhino and AmeriGas secretly and illegally colluded to maintain a united front to push Walmart to accept the fill reduction. For a period of several months, sales executives from the two propane companies communicated repeatedly by telephone and email to apprise each other of the status of their discussions with Walmart and to work together to take the steps necessary to push Walmart to promptly accept the fill reduction. Lowe’s, a Blue Rhino customer, accepted the fill reduction only if all of Blue Rhino’s customers, including Walmart, also accepted the fill reduction. After Home Depot and other retailers accepted the fill reduction, Walmart agreed to accept propane exchange tanks filled to 15 pounds from both Blue Rhino and AmeriGas.

The statute of limitations presents no bar to any claims, according to Hartig. The defendants conducted their conspiracy in confidential email messages and telephone calls and actively misled retailers in believing that they unilaterally had decided to decrease the fill level of their propane exchange tanks and cited technical complications with the fill level. Hartig could not have known through the exercise of due diligence of the anticompetitive conduct until the FTC issued an administrative complaint against the defendants and evidence of their unlawful acts became available to the public, the complaint alleged.

Unlike large retailers, small retailers such as Hartig did not possess market power to resist the defendants’ fill reduction plan and was forced to accept the reduction in exchange tanks from 17 to 15 pounds. As a result, retailers effectively paid more than they otherwise would have in a competitive market for propane contained in propane exchange tanks. The acts of the defendants had the purpose of restricting competition in the sale of Blue Rhino and AmeriGas propane exchange tanks and would not have been able to reduce the fill levels of their tanks to 15 pounds. The defendants continue to reduce the fill levels despite the fact that propane prices have decreased substantially since 2008.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

In a similar complaint in the federal district court in Kansas City (Glenville Shell, LLC v. FerrellGas, L.P., June 27, 2014), Glenville Shell, a gas station and convenience store that purchased filled propane exchange tanks for resale to consumers, filed suit against Blue Rhino and AmeriGas, alleging that the companies engaged in a conspiracy to restrain price competition which led to higher prices for the propane sold in propane exchange tanks to retailers and other purchasers.

The case is No. 2:14-cv-04164-NKL.

Attorneys: Thomas V. Bender (Walters Bender Strohbehn & Vaughn), Michael D. Hausfeld and Brent W. Landau (Hausfeld LLP), and Gregory A. Frank (Frank & Bianco LLP) for Hartig Drug Company. Isaac L. Diel (Sharp McQueen, P.A.), Richard A. Koffman (Cohen Milstein Sellers & Toll PLLC), Roberta D. Liebenberg (Fine, Kaplan and Black, R.P.C.), and Joseph Goldberg (Freedman Boyd Daniels Hollander & Goldberg, PA) for Glenville Shell, LLC.

Companies: FerrellGas Partners, L.P.; FerrellGas, L.P.; AmeriGas Partners, L.P.; UGI Corporation; Glenville Shell, LLC

News: Antitrust MissouriNews