Warnings Regarding Ethanol-Blended Gasoline - Who's Responsible?

Class Action Litigation, North America

Mandated production of ethanol 10% (E10) gasoline precipitated a class action lawsuit against suppliers on behalf of watercraft in a certain market region alleging damages to engines and fuel systems. This article summarizes the development of our opinion based on regulations, detrimental effects of ethanol, E10 formulation, and marketing. Our expert report provided in-depth analysis of the supply chain.

In order to comply with the U.S. government's Renewable Fuel Standard, virtually all of the United States' domestic gasoline supply currently contains 10% ethanol by volume ("E10" gasoline). Modern automotive engines are specifically designed and manufactured to operate on ethanol-blended gasoline at this level. However, special precautions must be taken throughout the gasoline supply chain to avoid contact with free water that might result in "phase separation"-a phenomenon in which E10 gasoline separates into a hydrocarbon phase and a potentially corrosive water/ethanol phase. Although good "housekeeping" procedures at gasoline storage and distribution facilities can effectively eliminate any fuel-water contact, water contact is sometimes unavoidable with fuel used in marine engines, lawn mowers, chain saws, and various recreational vehicles. Also, many of these engines are of the "two-stroke" design, which are more susceptible to a variety of ethanol-related operating problems.

A class action lawsuit was filed against various suppliers of E10 gasoline-on behalf of the owners of boats and other watercraft in a certain market region-alleging that such ethanol-blended gasolines had caused damage to engines and fuel systems, and that the suppliers had failed in their "duty to warn" the owners regarding the potential problems with E10 use in such engines. The plaintiff sought class certification, arguing that it was impossible to identify the specific party, or parties, responsible because suppliers frequently commingle gasoline derived from different fuel sources.

Baker & O'Brien was asked to provide information and opinions regarding: (1) key industry and regulatory events that led to expanded E10 usage in the U.S. and the specific market region; (2) ethanol blending considerations, including phase separation and other potentially harmful effects of ethanol in various engines; (3) how E10 is typically formulated, blended, and marketed in the region of interest; and (4) various aspects of claims by the plaintiff relating to market share liability and component liability. We prepared a report documenting our findings, including how federal and state regulations had been the primary impetus for the expanded E10 usage in the market region since 2007. Following site visits to key gasoline terminals supplying the region, we provided an in-depth analysis of the gasoline supply chain, and how, for a specific point-of-sale, it may often be possible to identify the location of E10 production. Class certification was not granted.

Probir M. Shah

Senior Consultant

Petroleum Refining / Transportation and Storage / Renewable Fuels
Commercial Contracts / Renewables and Regulatory / Litigation / Product Quality
North America