LINGLE V. CHEVRON U.S.A., INC. 544 U.S. 528 (2005) CASE BRIEF

LINGLE V. CHEVRON U.S.A., INC.

544 U.S. 528 (2005)

NATURE OF THE CASE: Chevron U. S. A. Inc., (P) sued Hawaii (D) seeking a declaration that a rent cap on its company owned service stations effected an unconstitutional taking of its property and an injunction against application of the cap to its stations. The District Court held that the rent cap effects an uncompensated taking in violation of the Fifth and Fourteenth Amendments because it does not substantially advance D's asserted interest in controlling retail gas prices. The Ninth Circuit affirmed. The Supreme Court granted certiorari.

FACTS: P is the largest refiner and marketer of gasoline in Hawaii. It controls 60 percent of the market for gasoline produced or refined in-state and 30 percent of the wholesale market on the State's most populous island, Oahu. Gasoline is sold from about 300 different service stations. Half of these stations are leased from oil companies by independent lessee-dealers. P sells most of its product through 64 independent lessee-dealer stations. P charges the lessee-dealer a monthly rent, defined as a percentage of the dealer's margin on retail sales of gasoline and other goods. P requires the lessee-dealer to enter into a supply contract, under which the dealer agrees to purchase from P whatever is necessary to satisfy demand at the station for P's product. P unilaterally sets the wholesale price of its product. D passed an act that prohibited oil companies from converting existing lessee-dealer stations to company-operated stations and from locating new company-operated stations in close proximity to existing dealer-operated stations. Act 257 also limited the amount of rent that an oil company may charge a lessee-dealer to 15 percent of the dealer's gross profits from gasoline sales plus 15 percent of gross sales of products other than gasoline. P sued D claiming that the statute's rent cap provision effected a taking of P's property in violation of the Fifth and Fourteenth Amendments. P moved for summary judgment on its takings claim, arguing that the rent cap does not substantially advance any legitimate government interest. The parties agreed that Act 257 reduces by about $207,000 per year the aggregate rent that P would otherwise charge on 11 of its 64 lessee-dealer stations. On the other hand, the statute allows Chevron to collect more rent than it would otherwise charge at its remaining 53 lessee-dealer stations, such that Chevron could increase its overall rental income from all 64 stations by nearly $1.1 million per year. They agreed that over the past 20 years, P has not fully recovered the costs of maintaining lessee-dealer stations in any State through rent alone. P recoups its expenses through a combination of rent and product sales. The District Court granted summary judgment to P in that the Act fails to substantially advance a legitimate state interest, and as such, effects an unconstitutional taking in violation of the Fifth and Fourteenth Amendments. The statute would not actually reduce lessee-dealers' costs or retail prices. It found that the rent cap would allow incumbent lessee-dealers, upon transferring occupancy rights to a new lessee, to charge the incoming lessee a premium reflecting the value of the rent reduction. The Ninth Circuit vacated the grant of summary judgment on the ground that a genuine issue of material fact remained as to whether the Act would benefit consumers. On remand, the District Court entered judgment for P. The Ninth Circuit affirmed, holding that its decision in the prior appeal barred D from challenging the application of the 'substantially advances' test to P's takings claim or from arguing for a more deferential standard of review. The Supreme Court granted certiorari.

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