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Big Oil fee restriction does not apply to middlemen: Md. appeals court

Decision marks loss for gas-station owners

A 1970s-era law to protect independent gas station owners financially against their big oil company suppliers provides no safeguard when the alleged price gouger is the middleman delivering the fuel, Maryland’s second highest court ruled Wednesday in calling the 40-year-old statute a likely “anachronism.”

The Court of Special Appeals’ reported 3-0 decision was a defeat for an independent owner who argued in vain that it would be unfair for Maryland law not to protect him from the middlemen, or “jobbers,” from whom he actually gets the gas.

The law at issue requires major oil companies to deduct 4 cents per gallon from the going retail rate for gas when they charge the independent owners. The “4-cent-rule” statute was the General Assembly’s effort in the 1970s to ensure equity between the independent gas stations and those owned and operated by the big companies that were paying at most a nominal fee for fuel.

That law, however, was essentially obviated by another Maryland statute – also from the 1970s — that prohibits big oil companies from operating their own gas stations, the Court of Special Appeals said in ruling against independent owner Khalid Azam.

Azam claimed the supplier of BP fuel to his Windsor Mill station must comply with the law and lower the fee charged by 4 cents per gallon relative to the retail rate. To excuse Carroll Independent Fuel LLC and other middlemen from the 4-cent rule would render the law a nullity, as independent owners deal directly with the jobbers and not the major companies, Azam argued through counsel.

But that argument failed in Howard County Circuit Court and was subsequently criticized by the Court of Special Appeals, which said the 4-cent rule has “effectively, if not entirely, disappeared” due to the law divesting big oil of its owned and operated stations.

“The appellant (Azam), however, now picks up this legislative relic and brandishes it as if of yore,” Judge Charles E. Moylan Jr. wrote for the appellate court. “The invocation of the 4-cent rule at this late moment of time at least smacks of anachronism. It may be that it is being called upon to solve a problem out of its time.”

But even if the 4-cent rule were still relevant in 2019, its application to big oil companies but not to jobbers would be a valid, constitutional exercise of the General Assembly’s authority to impose an economic regulation on industry because the statute is rationally related to the legislature’s legitimate goal of striking at a primary financial source.

“The marketing tactics of BP, Exxon, Texaco, etc., the major producers and refiners, can have a significant impact on the market as a whole,” wrote Moylan, a retired judge sitting by special assignment.

“The marketing tactics of lesser players, the middlemen and jobbers, by contrast may not,” Moylan added. “The quantitative nature of a problem may be an important legislative consideration. Disparate impacts do not demand a single and identical response. Society’s response, moreover, is a legislative choice, not a judicial choice.”

Alphonse M. Alfano, attorney for Carroll Independent Fuel, hailed the court’s decision as clarifying what has been “a big question mark” for middlemen, namely whether a 4-cents-per-gallon reduction is owed to gas station owners.

“We can remove this big cloud over the distributor community,” said Alfano, of Bassman, Mitchell & Alfano Chtd. in Washington.

Azam’s attorney, Nichole Galvin, said she and her client “strongly disagree with the decision” but have not decided whether to seek review by the Maryland Court of Appeals. Galvin is with Offit Kurman in Maple Lawn.

Judges Douglas R.M. Nazarian and Andrea M. Leahy joined Moylan’s opinion in Khalid Azam v. Carroll Independent Fuel LLC, No. 1793, September Term 2017.

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