Hot gas (or hot air)?

November 27, 2007

images2.jpegLast August, reporters at the Kansas City Star broke the story about hot gas — the practice of selling gas to customers at temperatures higher than 60 degrees, which the paper said was costing consumers $2.3 billion annually. Over the next year, the story picked up some steam, gaining attention in other media outlets and even Congress which loves to rally around this sort of thing.

Early on, several lawsuits were filed by outraged consumers in California, New Jersey and in Missouri and Kansas. But it wasn’t until I read the 10-K that The Pantry (PTRY) filed late Friday that you saw just how many lawsuits had been filed over this: more than 45, according to the filing. The Pantry says that it has been named as a defendant in seven of these cases:

The plaintiffs in the lawsuits generally allege that they are retail purchasers who received less motor fuel than the defendants agreed to deliver because the defendants measured the amount of motor fuel they delivered in non-temperature adjusted gallons which, at higher temperatures, contain less energy. These cases seek, among other relief, an order requiring the defendants to install temperature adjusting equipment on their retail motor fuel dispensing devices. In certain of the cases, including some of the cases in which we are named, plaintiffs also have alleged that because defendants pay fuel taxes based on temperature adjusted 60 degree gallons, but allegedly collect taxes from consumers in non-temperature adjusted gallons, defendants receive a greater amount of tax from consumers than they paid on the same gallon of fuel. The plaintiffs in these cases seek, among other relief, recovery of excess taxes paid and punitive damages. Both types of cases seek compensatory damages, injunctive relief, attorneys’ fees and costs, and prejudgment interest.

As the filing notes, the lawsuits have been consolidated in U.S. District Court in Kansas. The Pantry goes on to say that “there are substantial factual and legal defenses to the theories alleged in these lawsuits” and that it’s too early to estimate the company’s exposure or liability.

All of this is pretty interesting, but what I found really interesting is that Murphy Oil (MUR), which is named as the lead defendant in three of the suits that Pantry mentions in its filing, never mentions the potential liability in its filings, including the 10-Q it filed earlier this month. Nor does Marathon Oil (MRO), which also filed a Q earlier this month. Granted, both Murphy and Marathon are much bigger than the Pantry, so the lawsuits probably didn’t meet the materiality test. But when you learn about potential liabilities at one company by reading another company’s filings, it’s never a good thing.

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