Wisconsin's Minimum Markup on Gas Deemed 'Unconstitutional'

A federal judge has declared Wisconsin's 70-year-old minimum markup on gas unconstitutional, saying it illegally restricts trade.

Rudolph T. Randa, chief judge of the Eastern District of Wisconsin, made the decision Wednesday in a lawsuit filed in 2008 by Flying J, a Utah company that runs pit stops in Black River Falls and Oak Creek.

A state law passed in 1939 prohibited retailers from selling products for less than they paid. Part of that law required gas stations to mark up gas either 6 percent over what they paid or 9 percent over the average wholesale price, whichever is higher.

The measure was meant to keep larger companies from selling gas for less than smaller competitors' prices and driving them out of business. Violators faced stiff fines and lawsuits from competitors.

At least 10 states have laws that prevent gas stations from selling below cost, according to the National Conference of State Legislatures. At least two states, Wisconsin and Minnesota, require a certain percentage increase.

Lotus Business Group, based in Kenosha, sued Flying J in 2007, saying the company did not mark up gas as required. A federal magistrate judge ruled the markup unconstitutional in October 2007, but state regulators continued to enforce it.

Flying J then filed a lawsuit against the state Justice and Agriculture, Trade and Consumer Protection departments in January 2008 to stop enforcement.

Randa on Wednesday found the Wisconsin law violated the Sherman Act, a federal statute that limits cartels and monopolies. The restrictions on monopolies wouldn't apply to the state if it had a clear policy and a program to monitor gas prices, but it doesn't, the judge said.

Spokesmen for the state departments said their attorneys were reviewing the decision.

State Justice Department spokesman Bill Cosh said the agency wouldn't bring any enforcement actions while Randa's order stands.

Matt Hauser, president of the Wisconsin Petroleum Marketers and Convenience Store Association, said he was disappointed with the ruling because it threatened more than 1,400 gas stations with independent owners in the state.

If those businesses go under, competition will be reduced and prices could climb, he said.

"We're hoping for an immediate appeal ... to make sure consumers are protected from a less competitive marketplace," Hauser said.

But Flying J company attorney Jonathan Dibble said the ruling should increase competition and drive down gas prices.

"The citizens of Wisconsin have paid hundreds of millions of dollars more than they should have over the years," he said. Randa had estimated the state's markup law cost drivers about 30 cents on every gallon during the past two years, when gas prices rose to nearly $4 per gallon.

Gov. Jim Doyle also said the ruling would benefit customers.

Linda Casey, a spokeswoman for Speedway SuperAmerica that has 75 stores in Wisconsin, said other factors affect gas prices and that Randa's decision wouldn't necessarily mean lower prices at the pump.

But she said the ruling "encourages competition."

"That's a good thing," she said.