Judge Dismisses Pantry Suit against Citgo

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Judge Dismisses Pantry Suit against Citgo

HOUSTON -- Judge Albert Diaz of the North Carolina Business Court ruled in favor of CITGO Petroleum Corp. and dismissed a complaint filed by The Pantry Inc. lsat week regarding the pricing of E10. The suit was dismissed with prejudice, which means that The Pantry cannot bring another lawsuit against CITGO on similar claims, according to a release from CITGO.

"We are pleased with Judge Diaz’ decision to dismiss the claims. It recognizes the fact that E10 and clear gasoline are two different products and thus may be priced differently," said Alan Flagg, general manager, light oils manager for CITGO, adding "the ruling in this case confirms that our pricing approach for E10 and clear gasoline is fair to our marketers and to their customers."

The switch last year by CITGO to an all-ethanol product slate at its Southeast terminals is part of the company’s ongoing efforts to comply with the federal government’s renewable fuels obligation.

According to the North Carolina Business Litigation Report, The Pantry’s contract with CITGO said the retailer’s price for gasoline would be based on the average of the two lowest prices for "the applicable grade of motor fuel" as determined by an industry source. The dispute arose when CITGO started selling more expensive E10 gasoline to The Pantry.

The contract didn't contemplate the sale of E10 so CITGO said the contract price should be determined by the two lowest prices for E10, but The Pantry said it should be based on the two lowest prices for clear gasoline. Citgo’s interpretation resulted in The Pantry paying a higher price.

The Pantry filed the lawsuit last June against CITGO in Lee County Superior Court, according to The Triangle Business Journal. The suit was moved to North Carolina Business Court in July. The Pantry was seeking an undetermined amount of damages.

The Business Journal also reported The Pantry's supply contract with CITGO was signed in 2003 and runs through 2010. In the suit, The Pantry said in the second half of 2007, its competitors began selling gasoline containing 10 percent ethanol, or E10, giving them an advantage.

The Pantry said it managed to sell E10 by making its own blend. CITGO allowed this, according to the suit, because The Pantry agreed to buy CITGO's E10 when it became available, which it did in April. But The Pantry said CITGO offered no other gasoline for the three octane grades, yet charged more for the E10 it did offer, from "four to six cents over its posted price for clear gasoline of the same grade."

The North Carolina Business Litigation Report summarized The Pantry's argument was that CITGO had unilaterally determined to substitute E10 for clear gasoline, and that this meant that E10 was "interchangeable with and a substitute for clear gasoline." It also relied on the language of the contract referring to the "grade" of the fuel being purchased, arguing that "grade" referred to grades of clear gasoline. The convenience store operator also stressed the purpose of the agreement was to obtain pricing that would allow it to sell gasoline "at prices competitive with other retailers in its markets," and that CITGO's interpretation impaired that objective.
Judge Diaz didn't agree.

CITGO, based in Houston, is a refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. The company is owned by PDV America Inc., an indirect wholly owned subsidiary of Petróleos de Venezuela S.A., the national oil company of the Bolivarian Republic of Venezuela.