September 23, 2009

Costco Fuel Temperature Class Action Lawsuit : What does it mean?

I just got an email from Costco about a class action lawsuit against them. The mail has the subject of "IMPORTANT INFORMATION ABOUT A CLASS ACTION SETTLEMENT"

One of my first thoughts seeing this email was "oh, so Costco has been ripping us off forever and now I'll get a 10% off coupon and the lawyers get $8M in fees?" But my cynical conclusion is not right in this situation. I decided to take a closer look at this settlement and see what its all about.

Note : I'm not a lawyer and what I'm saying below is my own personal opinion reflecting on the documentation I'm reading about the law suit. Nothing here is meant to constitute legal advice or legal opinion.

The email is addressed to residents of various states who are Costco customers. The body of the email starts with :
"The Court in In re Motor Fuel Temperature Sales Practices Litigation, Case No. 07-MD 1840 (U.S. Dist. Ct., KS) has preliminarily certified a class comprised of the persons identified above and preliminarily approved a proposed class action settlement. The complaint alleges that Costco (and others) misled consumers by marketing motor fuel at temperatures above 60 degrees Fahrenheit without adjusting for the fuel's temperature. Costco denies any wrongdoing."

So basically there is a lawsuit against Costco saying that they sold gasoline at a high temperatures without compensating for the temperature difference.

Why does the temperature of gasoline matter?

If you remember your high school science class you'll recall that things expand when they get hot. Gasoline will expand in volume when it has higher temperature. However the amount of energy in the gasoline is based on the weight not the volume. So when gasoline is warmer its volume expands and you're essentially paying for less energy. Think of it as kind of like paying for some hot air along with your gasoline. That analogy is not exactly accurate but gets the idea across.

How much does the temperature of gasoline it matter?

This report from a Oversight and Government Reform Committee in the House of Representatives on the topic says that the volume will change by 0.069% difference per degree Fahrenheit. So if you have a 30 degree difference then thats about 2% change. Therefore if gasoline costs $2.80 at the pump and you pump it at 60 degrees you'd get 1 gallon but if you pumped it at 90 degrees the volume would be 2% difference so you'd have to pay $2.856 to get the same amount of energy. This represents a worst case situation. So at the very worst you might be paying a few cents more a gallon. However this can add up over millions of consumers.

The impact depends on the climate. Here is a report that shows the average temperature per state over the year. Of course its colder in Alaska and hot in Arizona. But for most states the average temperature is in the 60-70 degree range. For states like Idaho or Indiana the average temperature is close to 60 degrees. While the temperatures are higher in the summer they also drop in the winter. So the average is what you're really paying over the year. Your gas may be 1-2% more in the winter and 1-2% less in the summer. For Southern states the temperatures are higher and average gas volume is 1-2% worse. Georgia has an average temperature of 72 and Florida's average is 82. So those states are paying 0.8% and 1.5% more than the 60 degree level. In Alaska the average temperature is only 46 degrees so they are coming out ahead in the deal.

Is Costco evil? No.

Costco is not being evil here at all. In fact it turns out that "everyone does it". According to the report cited by the Oversight and Government Reform Committee study they said "Though technology exists and has been accepted for near universal use in Canada, no U.S. retailer of gasoline compensates for temperature when selling to consumers." So this appears to be standard practice in the gasoline industry. Costco simply did what every gasoline vendor does.
I would not say that Costco is doing anything particularly misleading. In fact in the suit points out that in Dec. 2007 that Costco posted notices at their gas pumps saying: "This device dispenses gasoline solely by volume measured in standard gallons (231 cubic inches). It does not adjust for temperature or other factors which may affect the energy content of each gallon dispensed." So Costco even told us what they were doing explicitly if anyone had bothered to read the notices.

What will the class action lawsuit do? Will I get some money or at least a lame coupon?

The details of the class action are in a couple documents posted at the Costco website. The document
Fuel Settlement Detailed Notice explains the basics of the suit.

It has a section 4. "WHAT DOES THE PROPOSED SETTLEMENT PROVIDE?" that explains what the proposed settlement will require Costco to do. The meat of it is that "The proposed settlement provides that Costco will convert its motor fuel pumps in ... [list of states] ... to “automatic temperature correcting” pumps over the next five years ... " The document then goes on to say that : "No payments will be made to any class members, except as stated in 9 below." and section 9 covers the cost of legal fees and rewards of $2,500 for the people who filed the suit initially.

Bottom line is that Costco has agreed to convert their gas pumps to automatically correct for the temperature difference and they are not going to pay customers anything.


To sum up:

  • Costco has sold gasoline without accounting for temperature. This is apparently what every gas retailer does and Costco had a notice posted saying so. I don't see any wrong doing on Costco's part.
  • The impact of the temperature can be minimal in some states with cold and hot days averaging out over time. However warmer Southern regions can see up to 1-2% difference in the actual gasoline received.
  • Costco has admitted no wrong doing but they agreed to install temperature adjusting equipment at their gasoline pumps as the proposed settlement.


11 comments:

  1. You forgot an important point. Gas is stored in underground tanks. Because of its thermal mass and less variability in the temperature of its surroundings, it is unlikely that gas will be dispensed at 90 degrees even in the summer. Much more likely is that the variation above and below 60 degrees will be smaller, leading to even less change in the energy content of a gallon of gas.

    Another important point is that the class, who are actually costco members, get nothing while the lawyers stand to be compensated for fees and expenses up to ten million dollars! And that Costco will pay for that and that the money for that will at some point come from....costco members! in the form of higher prices for goods and services.

    When this thermal expansion concept is extrapolated to the class as a whole, then it's possible to talk about an amount of money that gets attention. But when reality sets in and we see that gas isn't dispensed at 90 degrees year round, that Weights and Measures are controlled at the State level and that the pumps are in accordance with existing law, then we see that this is no more than extortion on the part of the lawyers.

    In the end, when the plantiffs win, the class loses! Why? Because the class are costco members and have to foot the bill for the conversion and lawyers fees!

    Wrongdoing should be punished and wrongs should be righted. In this case the lawyers are the wrongdoers and must be punished for using our courts for this frivolous class action lawsuit!

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  2. The report that I linked to had measurements of the temperature for the gasoline in the underground holding tanks. So the temperatures discussed are the temperatures of the gas as stored underground.


    I do have to agree that the result of this lawsuit serves little purpose and the only people who really came out ahead in the end are the lawyers.

    Jim

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  3. I am rather amazed at this suit. This is more inane than the "missing megabyte" lawsuits. The three original plaintiffs get $2500 each and the lawyers get what - $750,000? $1 million? $5 million? This looks like a broken system. I would love to see the judge give the lawyers about $5 each on this one.

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  4. Who is the law firm handling this? Why sue costco if consumers get nothing and costco doesn't even have to admit they did anything wrong?
    What ethical lawyer would agree to these terms? Isn't this some sort of fraud?
    What judge would accept this scheme to be conducted using his or her courtroom?
    I would definitely exclude myself so that these thieves can't make a dime off of my name and preserve my rights in case a real and competent law firm takes up the case.

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  5. The settlement documents do not say exactly how much the lawyers got. It just says that Costco will pay it and the court will decide the amount, but it will not exceed $10M. It does name the law firms in question : "Horn Aylward & Bandy, LLC, Girardi & Keese and Walters Bender Strohbehn & Vaughan, P.C."

    Keep in mind that the case was settled. So this is not a court decision but an agreement between the 2 parties. Costco agreed to these terms and so did the class bringing the suit.

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  6. This is the same thing that happens at ANY gas station anywhere, only the lawyers saw an opportunity to cash in on it because Costco keeps member records, not because Costco has been "screwing" you forever, generally quite the opposite, generally, they are the only station in town to take a loss on gas sales to get people into their stores. Nobody complains when the opposite happens in the winter and you make up for it. Why would you? Don't the same people drive during the winter? Costco is just an easy mark and the only ones who will get rich are the lawyers and the only ones who will suffer are the shareholders, employees, and members. It's truly sad and I would honestly COMPLAIN and object and opt-out of this lawsuit to make a point to the lawyers and courts!!!!

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  7. This is the same thing that happens at ANY gas station anywhere, only the lawyers saw an opportunity to cash in on it because Costco keeps member records, not because Costco has been "screwing" you forever, generally quite the opposite, generally, they are the only station in town to take a loss on gas sales to get people into their stores. Nobody complains when the opposite happens in the winter and you make up for it. Why would you? Don't the same people drive during the winter? Costco is just an easy mark and the only ones who will get rich are the lawyers and the only ones who will suffer are the shareholders, employees, and members. It's truly sad and I would honestly COMPLAIN and object and opt-out of this lawsuit to make a point to the lawyers and courts!!!!

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  8. Looks like the attorneys got $10 million and the class members got zero.

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    Replies
    1. tHAT'S WHY THE LAWYERS TAKE CASES LIKE THIS. AN BESIDES EVERYONE IS SUE HAPPY. IF YOU LOOK AT SOMEONE THEY WILL GET YOU INTO COURT ONE WAY OR ANOTHER AND YOU WILL END UP GIVING THEM MONEY!

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  9. I've purchased many thousands of dollars worth of fuel from them in Los Angeles, California. The winters there don't get cold enough to balance out the summer temperatures like a lot of people keep stating, so I've lost a lot of money. "Everybody does it" is no defense. The only reason that I feel like I was cheated is that, when Costco purchased the fuel wholesale, the price was temperature-adjusted, but when they sold it to me it was not.

    This is my first time hearing about the case (I just got an email from them about it). The settlement is a scam, and it should be illegal for people to be included in it due to inaction or inattention. The reverse would certainly be true is there were any sort of payment for damages to everyone in the "class".

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  10. Southern California has pretty mild temperatures and would not see much difference in the gasoline temperatures. Average gas temp in CA is 71 degrees. The state of California studied the issue and concluded that adding the special equipment to compensate for differences in gas temperatures would actually cost more than people would save in gasoline for the state.

    http://www.energy.ca.gov/2009publications/CEC-600-2009-002/CEC-600-2009-002-CMF.PDF




    Also keep in mind that gas stations would very likely raise prices in order to offset any lost revenues.

    Jim

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