Conservative think tank sues over state’s minimum markup law

A Michigan gas retailer is suing the state for a Great Depression-era law that bans retailers from selling products below their cost.

The lawsuit against the Unfair Sales Act, also called the minimum-markup law, is yet another challenge from conservatives against the roughly 75-year-old statute. The law’s supporters say it encourages competition by preventing large out-of-state retailers from driving smaller operations out of business, but opponents such as Walmart say it leads to inflated prices and harms the free market.

The Wisconsin Institute for Law & Liberty filed the lawsuit on behalf of the Michigan company, Krist Oil, and retired Green Bay resident Robert Lotto. The group’s president, Rick Esenberg, told reporters yesterday special interest groups prevented the law’s repeal from passing in the past legislative session.

“The Legislature ought to fix this thing, but the nature of rent-seeking and political favoritism makes that hard to do sometimes,” Esenberg said.

But one of the groups that supports current law, the Wisconsin Grocers Association, disputed that characterization.

“It’s hard to picture a mom-and-pop grocery store or hardware store … as a vast special interest conspiracy,” said the group’s president and CEO, Brandon Scholz. “These people create jobs, they pay their taxes, they’ve been running their businesses. They are not doing anything wrong.”

The law prohibits companies from selling merchandise, alcohol, tobacco products and gas below their cost. Gas stations, for example, need to “mark up” their prices by 9.18 percent over the average posted terminal price.

The lawsuit notes Krist Oil, which runs gas stations in Wisconsin, isn’t affiliated with major gas companies, so it buys gasoline at the cheapest price it can each day without “being locked into buying a single brand.” That, along with the company’s lower overhead costs, is its competitive advantage, the lawsuit says.

But the lawsuit argues the law prevents Krist Oil from “charging truly competitive prices” and “imposes undue and unnecessary” burdens on the company’s Wisconsin operations, as the company’s employees have to survey the price of gas in the region to ensure it’s not charging too little. The company’s competitors, the lawsuit says, can also file “baseless complaints” the company needs to defend itself against.

“Their purpose is obvious — to discourage the company from engaging in legitimate competition by charging the lowest possible prices,” the lawsuit reads. “Spurious lawsuits of this kind also drive up the costs of doing business in Wisconsin and thus harm retailers and Wisconsin consumers like Robert Lotto.”

Department of Justice spokesman Johnny Koremenos said the agency is reviewing the lawsuit and declined to comment on whether AG Brad Schimel will defend the law.

Several lawsuits against the law have failed in the past, though Esenberg said his group is taking a unique approach.

The lawsuit argues the statute denies Wisconsinites the “benefits of free and open competition [and] denies Wisconsin businesses the right to earn a living and engage in lawful commerce.” And, the lawsuit says, the law does not further any “any legitimate, substantial, or compelling governmental interest.”

“It is not the case that courts ought to allow politicians to pick favorites without some plausible justification. … We believe that the minimum markup law did not have a plausible justification,” Esenberg said.

Among the biggest backers of repealing the law is Walmart, and Esenberg said though his group received money from the Walton Family Foundation, that was for only WILL’s work on K-12 education.

“We have had no conversations with them about this at all,” Esenberg said.

Critics, though, pointed to past failed efforts to get rid of the law through the courts.

The Wisconsin Petroleum Marketers and Convenience Store Association, for example, said it’s “confident that the law will be upheld” as it faces its 12th constitutional challenge.

“This is just another attempt to create a solution for something that’s not a problem in Wisconsin,” said the group’s president and CEO, Matt Hauser. “It’s more than time to let the Unfair Sales Act do its job — and focus on real problems.”

And Scholz dismissed claims from conservative groups that the issue is about “free markets.” The lawsuit, he said, is simply about larger companies wanting to “get rid of their competition.”

“You can’t make it any more simpler than that,” he said. “I don’t care what they put in the briefs. This is simply wanting to crush your competition by selling below cost, forcing them to potentially shut down their business.”

See the lawsuit

— By Polo Rocha,