2008 NC ethanol blending statute upheld by appeals court

By Susanne Retka Schill | September 17, 2014

A final point in a challenge to the North Carolina ethanol blending statute was upheld by U.S. District Court. The plaintiffs, the American Petroleum Institute and Association of Fuel and Petroleum Manufacturers, have 30 days from when the court documents were signed to decide whether to appeal the decision, which will be in late September.

The case has been ongoing since 2008, when API and AFPM sought to block the N.C. ethanol blending statute that gave retailers and distributors the right to use splash blending in an attempt to increase ethanol use and give them an opportunity to garner renewable identification numbers.

 “We’re delighted with the outcome of the court case,” said Gary Harris, executive director of the North Carolina Petroleum & Convenience Marketers. “Whenever major oil takes you to court and you win, you feel pretty good about it.”  Since 2008, however, the interest in splash blending has declined significantly, he reports, partly because of inline blending at terminals and economics. “I don’t hear of a lot of splash blending going on at all, but from the association standpoint, we’re interested in having that tool in our box in the event the economics were advantageous,” he said.

While essentially a moot point, the case did test several arguments put forth by API and AFPM. In their lawsuit, the associations argued the N.C. state statute was preempted by federal acts, including trademark protection laws in the Lanham Act, provisions of the Petroleum Marketing Practices Act and the federal renewable fuel program. In 2010, the federal district court ruled against most of their arguments, which they appealed. The 2013 decision from the U.S. Court of Appeal for the Fourth circuit upheld several decisions of the district court and sent one back for further fact finding. The 2013 opinion gives a good history of the case and the major arguments.

The 2013 appeals court decision upheld the district court finding that the state blending statute was not preempted by the renewable fuel standard: “On the federal renewable fuel program preemption issue, the court concluded that suppliers were essentially seeking the ability to exclude retailers from the selling or trading of RINs, and held that the federal renewable fuel program did not contemplate such a monopoly.” 

The 2013 decision also denied API and AFPM’s argument that the blending statue conflicts with provision in the PMPA (petroleum marketing practices act) that allow a franchisor to terminate a franchise agreement for “willful adulteration.”

The 2013 opinion summarized the NC 2008 blending statue as providing that suppliers must offer gasoline that is not already blended with ethanol and is suitable for blending to N.C. distributors and retailers. The statute said there is no reason to restrict or prevent blending by suppliers, distributors or retailors. “Therefore, any provision of any contract that would restrict or prevent a distributor or retailer from blending gasoline with fuel alcohol or from qualifying for any federal or state tax credit due to blenders is contrary to public policy and is void.” 

The trademark issue was the final one to be decided upon last month. API and AFPM contended that splash blending is more subject to error and inhibits their ability to preserve and verify the quality of their trademarked goods. The August 2014 opinion reviewed the basics of the case and got into the details of evidence surrounding the API and AFPM argument. 

Among the evidence cited in the opinion, was that both inline and splash blending are imperfect and splash blending was not shown to be significantly more error prone than in-line blending. Some suppliers still rely on splash blending, the court noted, particularly in rural locations and locations where the economics do not support adding in-line blending and prior to the ethanol blending statute, some major brands were splash blending. The court also found that suppliers had a number of existing and reasonable quality control measures “they could impose and enforce, but they have not done so.” The court’s final conclusion was that the federal Lanham Act regarding trademark rights does not preempt North Carolina’s ethanol blending statue.