BP Prevails in One Franchisee Lawsuit, Still Faces Others
CHICAGO and SAN FRANCISCO -- BP North America Products Inc. this week emerged as the winner of a franchisee lawsuit filed in Cook County, Ill., but the company still faces legal action in several West Coast states.
Cook County Circuit Judge Sanjay Tailor ruled Wednesday that BP franchisees RWJ Management Co. and Joliet Petroleum LLC failed to prove all the elements of their fraud claims against the oil company. The two brought forth the claims in 2009 and they went to trial earlier this year, the Chicago Tribune reported.
In a statement to CSNews Online, a BP spokesman said the company is pleased with the Cook County ruling.
While finding in favor of BP, Tailor did rule that the company intended to deceive RWJ Management Co. and Joliet Petroleum when it concealed the profit margins on fuel at the suburban stations the company sold to the franchisees in 2006, according to the news report.
RWJ Management Co. and Joliet Petroleum became BP franchisees following the company's decision to sell its company-owned gas stations in late 2005. When potential buyers asked about the fuel margins, BP and its real estate broker told them to look at industry average margins, the report stated. But the company hid the fact that its margins at the gas stations for sale were significantly lower than the industry average, Tailor's ruling stated.
"BP's decision to sell stores where it employed a pricing tactic to dramatically increase its fuel volumes at the expense of margin is strong evidence of BP's fraudulent intent," the judge wrote.
However, Tailor said the plaintiffs didn't establish that they relied on BP's concealment when deciding to buy the total of seven stations in separate sales, the newspaper added. Tailor said both buyers have a lot of experience in the retail gas industry. Bob Juckniess of Oak Brook, Ill.-based RWJ Management used to be a Shell franchisee in Indiana and Ohio. Nrupesh Desai, Joliet Petroleum's principal, also operates a number of CITGO and Clark stations, according to court papers.
In addition, Juckniess and Desai purchased more stores from BP after 2006 in separate transactions, Tailor noted. RWJ Management and Joliet Petroleum each bought five more stations in 2007 and 2008, spending more than $42 million, according to court papers.
While BP came out the winner in Chicago, it is still facing legal action by franchisees in California, Washington State and Oregon. The company spokesman declined to comment on these other cases, stating that BP does not typically comment on details of pending litigation.
Luan Tran, partner at Lee Tran & Liang law firm, told CSNews Online that the class-action suit against BP in federal court in San Francisco is a "classic David v. Goliath case." Tran is co-lead counsel in the action, which was filed last June.
According to Tran, the class-action suit addresses three main claims. First, it alleges the franchisees were required to purchase and install a point-of-service and back-office system that BP initially tested before company-wide implementation and found to be flawed. Tran said the software keeps shutting down, forcing gas stations to be out of service for a couple of hours at a time, resulting in loss of business.
Secondly, the suit claims BP is manipulating gas prices based on time of delivery. According to Tran, BP knows when the prices go up and down, and schedules delivery around those prices, in effect ensuring that franchisees are charged the highest price possible regardless if they need gas at that time. As for the third claim, the suit alleges BP pushes franchisees to use certain vendors.
"This is not only a legal battle, but we are disappointed in the way BP has been treating the franchisees instead of trying to work with them and make the company better," Tran said.
A similar case has been filed in California State Court since the spring of 2011, according to Richard Kellner, a partner at Kabateck Brown Kellner LLP. He represents individual franchisees and their intent is to go to trial by the end of this year, he told CSNews Online.
"Through these actions, we get everybody together and we get some strength to fight back," Kellner said. "That is what this lawsuit is really about. It is the fight for the survival of these franchisees."
He believes his clients have "very strong support" that BP is breaching its agreements. They believe they are entitled to monetary damages, he said, and they also want "a restructuring down the road of the relationship so it will be fair."
Kellner said Tailor's ruling this week in Illinois will not affect the California legal action.
In addition to the California cases, approximately 100 franchisees in the Pacific Northwest have filed several different actions against BP, according to David Schiller of Schiller Exline PLLC. Those suits are targeting the validity of the franchise agreements with BP and trying to establish in the courts that franchisees have the right to terminate their gasoline dealer agreement or the ampm agreement based upon BP's failure to perform under those agreements.
Like the Chicago lawsuit brought by RWJ Management Co. and Joliet Petroleum, the franchisees in the Pacific Northwest allege fraud in BP's representation of profit margins at the stations it put up for sale. These suits claim BP failed to disclose contamination issues at several stations in Washington State and Oregon as well, according to Schiller.
He also claims that BP sets the retail prices through zone pricing plans. However, he pointed out that in Washington State and Oregon, it is unlawful for a refiner to set the retail price of gas on the street. "We found that BP has a pricing unit that establishes the zones and establishes what the street can bear in each zone. It then backs out 7 or 9 cents per gallon suggested profit margin and establishes the buy cost for the franchisee based upon the process," Schiller explained. "There are only two components to a gasoline price: it is your cost and [the] profit you are going to build into it, and BP is controlling both."
And in a final claim, Schiller said BP is unlawfully tying two products together in a franchise relationship by requiring franchisees who wanted to become an Arco gas dealer to also become an ampm franchisee. BP has since changed that strategy, he noted.