CEI Seeks Rehearing in ‘Hot Fuels’ Settlement That Awards Millions to Lawyers, Zero to Class

The Competitive Enterprise Institute today asked a federal appeals court for a rehearing in its appeal of several unfair class action settlements concerning a new regulatory system for selling gasoline. The CEI brief asks the full U.S. Court of Appeals for the Tenth Circuit to reconsider an August ruling by a panel of the court that affirmed a lower court approval of the settlements.

“This is worse than the Subway Footlong case,” said Ted Frank, director of CEI’s Center for Class Action Fairness. “The settlement agreements award tens of millions of dollars in attorneys’ fees but give nothing to class members other than a slush fund for the lawyers to lobby for a new regulatory regime that all fifty state regulators have rejected because it would make consumers worse off.” 

The hot fuels settlements are unlawfully based on a “potential” benefit that class members “might receive” if agreed-upon lobbying efforts succeed in getting state agencies to adopt a new gasoline regulatory system. But other courts of appeals have said that class members must receive actual demonstrable benefits, not merely potential benefits. Meanwhile, state regulators have already rejected the settlement’s envisioned gas regulatory system because implementation costs significantly outweigh the one-penny-per-year each class member is estimated to save.

The CEI brief also urges a rehearing of the case because court approval of the settlement plan is at odds with Supreme Court precedent on free speech. The settlement compels class members to subsidize lobbying efforts for the new regulatory system, which would violate their First Amendment rights.

The lawsuits began in 2007 when lawyers brought class actions against dozens of companies that operate retail gas stations, such as BP, Chevron, and Citgo, alleging consumer fraud over the way gasoline is measured. Gasoline, like most liquids, expands with rising temperatures, meaning there are fewer molecules in a gallon when the temperature is warmer (and more when temperature is colder). Those fewer molecules in warm weather cost drivers one cent per year on average, according to the California Energy Commission. But switching to an Automatic Temperature Compensation (ATC) system would prove not only costly but would offer no net benefit to the class as a whole. 



About CEI’s Center for Class Action Fairness

The Competitive Enterprise Institute’s Center for Class Action Fairness represents class members against unfair class action procedures and settlements. Originally founded by Ted Frank in 2009, the center has won millions of dollars for consumers and shareholders, and won landmark precedents that safeguard consumers, investors, courts, and the general public.

Unfair settlements generally serve self-interested lawyers and third parties at the expense of absent class members, the group of people whose rights are traded away to settle a class action. Lawyers have an interest in their fees, defendants have an interest in cheaply disposing of a lawsuit, and the class’s interests can take a back seat in the process. CEI seeks to solve these problems by representing such class members pro bono and presenting judges with the other side of the argument. When CEI prevails, lawyers get less, class members get more, and the rule of law is strengthened.