ALJDEC decisions subject to certification as final

14F-16424-DWM · Department of Weights and Measures · 2014-02-04

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 3, 2013, with the record held open until January 17, 2014 APPEARANCES: Attorney Daniel T. Garrett for Fuel Express and J Williams Chevron; Assistant Attorney General Michael Raine for the Department of Weights and Measures ADMINISTRATIVE LAW JUDGE: Thomas Shedden _____________________________________________________________________ FINDINGS OF FACT 1. Fuel Express is a gas station located at 1051 Navajo Boulevard in Holbrook, Arizona. J Williams Chevron is a gas station located at 1300 E. Navajo Boulevard in Holbrook, Arizona. Jay Williams is the owner of both stations. 2. On September 20, 2013, the Arizona Department of Weights and Measures (“Department”) issued a Notice of Violation to J Williams Chevron (Invoice # 228769) and a Notice of Violation to Fuel Express (Invoice # 228770). 3. Mr. Williams requested a hearing on the Notices of Violation. 4. On October 18, 2013, the Department issued a Notice of Hearing setting the matters for a consolidated hearing at 8:00 a.m. December 3, 2013, at the Office of Administrative Hearings in Phoenix, Arizona. 5. The Department presented the testimony of Michelle Wilson, the Director of its Transportation, Fuels, and Air Quality Programs. Mr. Williams presented his own testimony and that of Shawn Boyle, General Counsel for Brad Hall & Associates (“BHA”), the stations’ fuel provider. 6. In Arizona, fuel for retail sale must have a minimum octane rating of 87. A.A.C. R20-2-714(C). Other states permit the sale of fuel with less than 87 octane. 7. In this matter, the Department alleges that: (1) on March 5, 2013, the Fuel Express station was selling gasoline that was only 85 octane, which allegation is based on laboratory testing of the fuel; and (2) in 42 instances, the stations misrepresented the octane of fuel being sold, which allegation is based on a review of the stations’ Product Transfer Documents (“PTDs”).[1] 8. Octane is a measure of a fuel’s “anti-knock” capacity. Lower octane means less anti-knock protection resulting in increased engine wear and a reduction in mileage. Increasing the octane in a fuel increases the expense of that fuel. 9. The refinery certifies the minimum octane for the fuel it produces and although refineries often produce fuel at a higher octane than the minimum certified (e.g. 86.25 or 86.5 might be certified as a minimum of 86) the Department uses or accepts only the certified minimum octane without adjustment or rounding up. 10. Fuel with a lower octane can be blended with fuel of a higher octane to achieve a mid-grade. The resulting octane can be calculated using the “volumetric method.” 11. The volumetric method is: (1) multiply the first octane rating (e.g. 91) by the number of gallons at that octane rating; (2) multiply the second octane rating (e.g. 87) by the number of gallons at the second rating; (3) add the two numbers; and (4) divide that result by the total number of gallons. For example, gallon of 91 octane blended with 1 gallon of 87 octane, results in 2 gallons of 89 octane;[2] and 1 gallon of 91 octane blended with 4 gallons of 86 octane results in 5 gallons of 87 octane.[3] 12. A station owner is required to post at the fuel dispenser the minimum octane for each grade of fuel sold. For unblended fuels, this minimum octane can be determined by relying on the certification provided by the fuel’s supplier. For blended fuels, the station owner may use the lowest octane certified or may compute the octane using the volumetric method. In all cases, the station owner may also have the fuel tested by a laboratory, but this is not considered to be a practical alternative. 13. When a laboratory tests fuel using the approved method, the Department allows an adjustment of 0.6 octane, which is a “reproducibility” factor related to the margin of error in the approved test methods. Consequently, if a sample tested at 86.4 octane, the Department would accept that as meeting the 87 octane minimum. 14. The Department does not however allow this reproducibility adjustment when calculating octane using the volumetric method. According to Ms. Wilson, this is because the volumetric method is based on a purely mathematical calculation in which there is no variation in method. 15. As part of an investigation of gas stations in the Holbrook area, on March 5, 2013, the Department obtained samples of gasoline from Fuel Express. Laboratory testing demonstrated that gasoline being sold as 87 octane was actually only 85.0 octane. 16. The Department then requested: Fuel Express’s PTDs for deliveries between March 26, 2012 and January 28, 2013, and March 11 and March 25, 2013; and J Williams Chevron’s PTDs for deliveries between March 26, 2012 and January 5, 2013, and March and March 25, 2013. 17. Ms. Wilson reviewed the PTDs to determine whether either station had misrepresented the quality of fuel being sold, by, for example, placing 86 octane in the regular (87 octane) underground storage tank (“UST”) or 88 octane in the mid-grade (89 octane) UST. In cases where fuel was blended at the stations, Ms. Wilson used the volumetric method to determine the resulting octane of the blended fuel, and compared that result to the applicable octane rating at the dispenser.[4] 18. For the Fuel Express station, Ms. Wilson’s review of the PTDs revealed 12 instances where the only fuel delivered to the station was less than 87 octane and 11 instances where fuel blended at the station did not meet the minimum of 87 octane. 19. Ms. Wilson summarized her findings for Fuel Express in a table that was admitted into evidence as Exhibit 5.[5] Exhibit 6 is the PTDs underlying her findings for Fuel Express. 20. For the J Williams Chevron station, Ms. Wilson’s review of the PTDs revealed 10 instances where the only fuel delivered to the station was less than the octane rating at the applicable dispenser and 9 instances where the octane of fuel blended at the station was less than the octane rating at the applicable dispenser. 21. Ms. Wilson summarized her findings for J Williams Chevron in a table that was admitted into evidence as Exhibit 10. Exhibit 11 is the PTDs underlying her findings for J Williams Chevron. 22. Ms. Williams provided credible testimony that in making her findings, she gave the benefit of any doubt to the stations. For example, when it was not clear whether a delivery of fuel with less than 87 octane was blended with fuel with greater than 87 octane, Ms. Wilson assumed that it was blended. 23. The Department is requesting a civil penalty of $23,000 for the alleged violations at Fuel Express and a civil penalty of $18,500 for the alleged violations at J Williams Chevron. The proposed penalties are calculated as: a. A $500 penalty for the laboratory tested fuel from Fuel Express that was rated at less than 87 octane; b. A $500 penalty for the first instance of mislabeling or misrepresenting the octane of fuel dispensed at Fuel Express and $1,000 each for the 22 other instances at Fuel Express; c. A $500 penalty for the first instance of mislabeling or misrepresenting the octane of fuel dispensed at J Williams Chevron and $1,000 each for the 18 other instances at J Williams Chevron. 24. Mr. Williams testified that he is 87 years old and he has been selling gasoline in Arizona for 60 years without any previous violations. 25. Mr. Williams’s stations sell 87 octane (regular), 89 octane (mid- grade), and 91 octane (premium). Mr. Williams ordered his fuel from BHA. When ordering his fuel from BHA, Mr. Williams would not specify the octane rating, but rather would specify the grade. Mr. Williams testified that he depended on BHA to provide fuel that meets Arizona’s octane requirements. 26. When BHA received an order from Mr. Williams, it would try to obtain the fuel from a source in Arizona, but if none was available, it would obtain the fuel from suppliers in other states. At times, BHA would order fuels of different octane to be blended and delivered to Mr. Williams’s stations. 27. Mr. Boyle testified that BHA was aware of the minimum octane requirements in Arizona and the octane associated with each grade of fuel. But Mr. Boyle acknowledged that he could not say that BHA informed out-of-state refiners of Arizona’s 87 octane minimum in every instance that BHA arranged for delivery of fuel to Arizona. 28. Mr. Boyle testified that BHA accepts responsibility for delivering any fuel that did not meet Arizona’s requirements. But Mr. Boyle also testified that he was not aware that Arizona did not apply the 0.6 octane reproducibility factor to calculations using the volumetric method and that some allowance should be made for the “buffer” that refineries use when certifying a fuel’s minimum octane. 29. The stations do not dispute Ms. Wilson’s calculations per se, but argue that the Notices of Violation should be dismissed because Mr. Williams was relying on a reputable supplier that has taken responsibility for the errors and because Mr. Boyle’s testimony shows that the Department has not actually proven that the fuel was mislabeled. 30. The stations also argue that the following are mitigating factors that support reducing the penalties: (1) Mr. Williams’s year history without a violation; (2) Mr. Williams never ordered fuel at less than the Arizona minimum of 87 octane; (3) Mr. Williams exercised prudence in purchasing fuel from what he believed to be a reputable fuel supplier; (4) Mr. Williams reasonably relied on his supplier to provide him the fuel he ordered; (5) Mr. Williams did not have control over where the fuel came from or whether it would be blended; (6) Mr. Williams did not direct the blending of the fuel if there was blending; (7) Mr. Williams did not know that there were violations; and (8) Mr. Williams’ fuel supplier, BHA, has taken full responsibility for the violations. 31. The Department argues that the violations have been proven; that Mr. Williams would have known that the violations were occurring had he reviewed the PTDs as fuel arrived; that the stations sold a large volume of fuel; and that the civil penalties are mandated by rule. CONCLUSIONS OF LAW 1. The Department bears the burden of persuasion. A.R.S. § 41- 1092.07(G)(3). 2. The standard of proof on all issues in this matter is that of a preponderance of the evidence. A.A.C. R2-19-119. 3. A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.” Black’s Law Dictionary at p. 1301 (9th ed. 2009). 4. Retail sellers of fuel are required to meet the standards set out in statute and rule. No person may misrepresent the nature, quality, or grade of fuel. A.R.S. § 41-2083(A) and (B). 5. Fuel sold as regular must have a minimum octane of 87; fuel sold as mid-grade must have a minimum octane of 88; and fuel sold as premium must have a minimum octane of 90. A.A.C. R 20-2-714 (C).

6. A retailer must post the octane of fuel being sold using either the minimum octane certified at delivery, using the volumetric method to determine the octane, or using laboratory test results. 16 C.F.R. 306.10; A.A.C. R20-2-702. 7. The preponderance of the evidence shows that on March 5, 2013, Fuel Express was selling fuel at 85 octane. This is a violation of A.R.S. § 41-2083(A) and (B). 8. The preponderance of the evidence shows that on 23 occasions, Fuel Express misrepresented the grade or quality of the fuel at its dispensers. These are violations of A.R.S. § 41-2083(B). 9. The preponderance of the evidence shows that on 19 occasions, J Williams Chevron misrepresented the grade or quality of the fuel at its dispensers. These are violations of A.R.S. § 41-2083(B). 10. Each proven violation is subject to a $500 civil penalty. A.A.C. R20-2-104(K)(3)(the Department “shall…impose a $500” civil penalty). 11. Relying on A.R.S. § 41-2115(A) and (B), the Department requests that the civil penalty for all violations except the first one at each station be doubled to $1,000. 12. A.R.S. § 41-2115(A) is a general provision that limits civil penalties to $1,000 “for each infraction.” But in light of A.A.C. R20-2-104(K)(3)’s express language setting a mandatory civil penalty of $500, A.R.S. § 41-2115(A) is not controlling. 13. The Department argues that the civil penalties should be doubled because the stations have committed “repeat violations.” A.R.S. § 41-2115(A) also allows any civil penalty to be doubled for the reasons set out in A.R.S. § 41-2115(B). 14. A.R.S. § 41-2115(B) does include “repeat violations” by a retailer and that statute does not provide a basis on which to double the applicable civil penalty. 15. Fuel Express has committed 24 total violations (the March 5, 2013 violation) and the 23 instances in which it misrepresented the quality of the fuel being sold). At $500 per infraction, this yields a civil penalty of $12,000, which is assessed to Fuel Express. 16. J Williams Chevron is assessed a civil penalty of $9,500 ($500 each for the 19 proven instances in which it misrepresented the quality of the fuel being sold). ORDER IT IS ORDERED that Fuel Express shall pay to the Department a civil penalty in the amount of $12,000 within thirty days of the effective date of the Order entered in this matter; IT IS FURTHER ORDERED that J Williams Chevron shall pay to the Department a civil penalty in the amount of $9,500 within thirty days of the effective date of the Order entered in this matter.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is five days after the date of that certification.

Done this day, February 4, 2014.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Kevin Tyne, Director Arizona Department of Weights and Measures ----------------------- [1] “’Product transfer document’ means any bill of lading, loading ticket, manifest, delivery receipt, invoice or other documentation used on any occasion when a person transfers custody or title of motor fuel other than when motor fuel is sold or dispensed at a service station or fleet vehicle fueling facility.” A.R.S. § 41-2121(10). [2] Calculated as ((91 octane times 1 gallon of 91 octane fuel) plus (87 octane times 1 gallon of 87 octane fuel)) divided by (2 gallons total). [3] Calculated as ((91 octane times 1 gallon of 91 octane fuel) plus (86 octane times 4 gallons of 86 octane fuel)) divided by (5 gallons total). [4] For example, on February 21, 2012, Fuel Express received 6,292 gallons of fuel, of which 699 was 91 octane and 5,593 was 86 octane. Ms. Wilson’s review of the delivery receipt shows that all 6,292 gallons went into the regular tank. Ms. Wilson’s volumetric analysis shows that this mix results in an octane of 86.55. [5] Ms. Wilson included in her tables information for only those deliveries in which the Department alleges a violation.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826