May 22, 2024 – A Costco in the Green Bay area did not violate the Wisconsin Unfair Sales Act (WUSA) by lowering its gas prices to the non-posted prices offered by stations under a customer rewards program, the U.S. Court of Appeals for the Seventh Circuit has ruled in Pit Row, Inc. v. Costco Wholesale Corporation, No. 23-1800 (April 30, 2024).

In March 2020, the owners of 12 gas stations (the Stations) in the Green Bay area sued Costco Wholesale Corporation (Costco) in Brown County Circuit Court.

The Stations alleged that on 256 days between Oct. 1, 2019 and Dec. 31, 2020, Costco violated WUSA, Wis. Stat. section 100.30 by selling gasoline below the statutorily defined cost, in an effort to draw customers away from them.

The Stations alleged that Costco had in some cases sold gas at less than the sticker price offered by some stations, by lowering its gas prices to match a five-cents-per-gallon discount Marathon stations offered to members of a customer rewards program.

The Stations claimed that by undercutting them on price, Costco both threatened and actually injured them with fewer profits and fewer customers.

The Stations also petitioned the circuit court to certify a class, made up of all retailers of unleaded gas motor vehicle fuel who: 1) were competitors with the Costco store located in Bellevue; and 2) sold fuel at an equal or greater price to Costco’s price during the 458-day period listed in the amended complaint.

Removal to Federal Court

Costco removed the case to the U.S. District Court for the Eastern District of Wisconsin, based on diversity jurisdiction under 28 U.S.C. section 1332(d).

After several rounds of discovery, the district court denied the Station’s motion to certify a class.

The district court then granted summary judgment for Costo on the grounds that for each of the 256 days, the Stations had failed to show they were injured or threatened with injury under the terms of the WUSA.

The district court also concluded that Costo’s pricing practices met an exception to the WUSA – one that allows a retailer to lower its prices to match “the existing price of a competitor.”

The Stations appealed.

Stations Had Standing

Judge Diane Wood began her opinion for a three-judge panel by concluding that the plaintiffs had standing under Article III of the U.S Constitution because they’d shown that they’d suffered an injury-in-fact that: 1) was fairly traceable to the challenged conduct; and 2) was likely to be redressed with a favorable judicial decision.

The plaintiffs had shown that they’d suffered a judicially cognizable injury, Wood wrote, because “[t]hey claim that they suffered lost profits and a decline in customer volume, and that they have a legally protected interest in maintaining both their profits and their customers.”

Wood concluded that the injury was traceable to Costco’s alleged conduct because testimony from both lay and expert witnesses showed that Costco’s pricing, at the least, threatened the Stations with the financial injuries they’d alleged.

Market is More Than Geography

The Stations argued that Costo wasn’t allowed under WUSA to match the gas prices offered by the Kaukauna BP station because that station was located farther away and in a different area than the other stations Costco had identified as director competitors.

The Stations pointed to the fact that Kaukauna was less developed than the area around the Bellevue Costco, and that it was located 24 miles from the Bellevue Costco.

But, looking to guidelines for corporate mergers published by the U.S. Department of Justice, Judge Wood concluded that the Stations’ argument over-emphasized geography in defining the relevant market.

“Gasoline is a product for which consumers can (and will) travel some distance,” Wood wrote. “More broadly, the point is that we must attend not only to geography, but also to the specific characteristics of the product being offered and the customers to whom it is being offered, among other practical considerations.”

Judge Wood concluded that the Kaukauna BP and the Bellevue Costco shared a market, because Costco showed that 236 people with Kaukauna addresses had bought gas at the Bellevue Costco during the 458-day period at issue.

“In sum, we conclude that, owing to its membership structure, Costco’s direct competitors should be determined not simply based on the location of the stations, but also on the addresses of record of its members,” Wood wrote.

Relevant Prices Include Discounts

The Stations also argued that the WUSA exception didn’t apply to several Marathon stations that maintained a customer rewards program that allowed customers to buy gas for five cents less per gallon than the posted price.

The Stations pointed to section 100.30(2)(cj), which defines the “[e]xisting price of a competitor” as a “price being simultaneously offered to a buyer,” and argued that it was only the posted price – not the discounted price for rewards program members – that the Stations had offered to buyers.

But Judge Wood pointed out that WUSA didn’t mandate that a retailer match only a competitor’s posted price.

“The terms are broad enough to allow for the matching of any price offered by a buyer, whether that price is advertised or not,” Wood wrote.

“Costco was therefore entitled to match the prices offered through [the rewards program], notwithstanding the fact that the Marathon Stations did not advertise them,” Wood wrote.

Notification Errors Not Fatal

The Stations also argued that Costo had failed to submit to the state Department of Agriculture, Trade, and Consumer Protection notifications that it was lowering its prices below the minimum markup price – a requirement of the relevant WUSA exception.

But Judge Wood concluded that the district court had not erred by concluding that, while the notifications submitted by Costco had listed the wrong competitor for 50 of the days during the 458-day period, it had overcome the presumption that it had lowered its prices for an impermissible purpose by introducing records that confirmed it had complied with exception’s requirements.