Madigan warns 18 gas station operators: Donate $1,000 to the Red Cross or get sued by the state

Chicago Sun-Times
Dec. 24, 2005

There is a word for this... extortionRelated: Red Cross Distributes Less Than 30 Percent of 9/11 Donations
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SPRINGFIELD -- Donate $1,000 to the Red Cross or get sued by the state.

That's the stark choice Attorney General Lisa Madigan has given 18 gas station operators across Illinois to make amends for alleged price-gouging after Hurricane Katrina.

Her office spelled out that demand in letters that began arriving this week. They set off an outcry from the petroleum marketing industry and Madigan's Republican rival, who questioned why the state was choosing one charity over another.

Madigan's office began probing rapid run-ups in gasoline prices after Katrina hit gas refineries along the Gulf Coast last summer, driving up the cost of fuel in some parts of the state to as much as $3.63 a gallon virtually overnight.

"When we're in an emergency situation, such as we were, retailers have the obligation not to increase their prices to the general public over what wholesalers are charging them,'' said Deborah Hagan, chief of the attorney general's consumer protection division. "In an emergency situation, they shouldn't take advantage of that situation in order to increase their margins.''

Accused of consumer fraud

As part of her probe, Madigan's office sought pricing information from gas station operators across the state. Those contacted this week were accused of having violated the Illinois Consumer Fraud and Deceptive Business Practices Act by overcharging motorists.

They have until Jan. 5 to accept the offer to donate to the Red Cross, the letter said, or the attorney general's office will "consider other legal options, including the filing of a lawsuit."

Hagan said there is precedent for her office's approach, noting a 2001 state lawsuit against a Downstate service station chain that needlessly ran up prices to more than $5 a gallon after 9/11. A settlement in that price-gouging case resulted in the company paying the Red Cross $25,000.

State law allows the attorney general to negotiate before resorting to litigation in cases of consumer fraud, the letters say.

But William Fleischli, executive president of the Illinois Petroleum Marketers Association, said members of his organization have been unfairly targeted and that they have been victims, not profiteers, of hurricane-driven wholesale price increases passed along to motorists penny for penny.

'I did nothing wrong'

"It's the principle of this, that the accusations are made without any substantial inquiry and to an industry that has cooperated fully," Fleischli said. "We haven't had our day in court to talk about these things or to give our side of the story."

One Downstate station owner who received the letter said his price at the pump jumped 46 cents -- to $3.25 a gallon -- after Katrina hit. But that was because his wholesale costs increased by exactly that amount.

"I don't think the attorney general should be doing this. I did nothing wrong. I can sleep at night, let's put it that way," said Richard Schwarz, president of Trimble Oil Co., based in Roberts, about 75 miles southwest of Chicago.

Joining the chorus of critics, Madigan's GOP rival -- Tazewell County State's Attorney Stewart Umholtz -- questioned giving station operators a chance to sidestep prosecution by offering a donation to the Red Cross.

"There is no question the concern about price gouging is very serious and should be investigated and action should be taken if a business is guilty, in effect, of a deceptive business practice. It's also without question the Red Cross is a great charity. But that doesn't mean that a prosecuting agency ought to solicit a charitable contribution in lieu of taking action for a violation of the act," he said.

Why the Red Cross?

Umholtz also said choosing the Red Cross over other worthy charities appeared arbitrary. "I don't see any facts that would have a correlation between price gouging and the Red Cross. Certainly if the Red Cross was the victim of price gouging, it would make sense," he said.

Hagan, with the attorney general's office, said the Red Cross was chosen because it was the recipient of funds in the 2001 price-gouging case initiated by Republican Attorney General Jim Ryan.

"We understand in choosing one charity over another, there's always going to be the fact that we made a choice. The only reason I think that we did that here is because we had the precedent of doing it," she said, "and the Red Cross are first responders."

Sidestepping the controversy, a Red Cross spokesman said the charity was gratified that Madigan's office would attempt to direct proceeds its way.

"If the attorney general wishes to make those funds available to the Red Cross for disaster relief, we'll honor that intent, be good stewards of the dollars and make sure those funds are available to help those in need," Red Cross spokesman David Rudduck said. "We're very grateful."












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