Road Ranger Takes on CITGO

Published in CSP Daily News

Retailer alleges PMPA violations; oil co. says charges "inaccurate, out of context"

By  Steve Holtz, Online News Director & Beverage Editor

ROCKFORD, Ill. -- As reported yesterday in a CSP Daily News Flash, Midwestern retailer Road Ranger has filed claims against CITGO Petroleum Corp. for breach of contract and violations of the Petroleum Marketing Practices Act (PMPA) caused by CITGO's "unnecessary failure" to supply gasoline to Road Ranger stations, "for damaging the CITGO brand and for dealing in bad faith." CITGO's actions threatened the existence of the chain and caused damages currently estimated by Road Ranger to be in excess of $30 million, it said.

Road Ranger will also be seeking punitive damages under the PMPA for [image-nocss] what it called CITGO's "dishonest conduct."

Rockford, Ill.-based Road Ranger became a franchisee of CITGO in 1991 and, in the next 14 years, expanded from four CITGO-branded stations to 39, helping build the CITGO brand in the Midwest. It now has a total of 62 gasoline and travel centers in Illinois, Indiana, Wisconsin, Iowa and Missouri.

In September and October 2005, hurricanes Katrina and Rita struck the Gulf Coast. According to Road Ranger, CITGO's Louisiana refinery was not seriously damaged by the storms, but CITGO declared force majeure (an act of God), making it impossible for it to supply gasoline to Road Ranger. CITGO became an unreliable supplier of gasoline to Road Ranger, even though it had access to additional gasoline from Venezuela and the market, according to the suit.

Without a reliable supply of gasoline, Road Ranger said it was two days away from being out of product, which would have caused it to close its doors. The company's founder and president, Dan Arnold, had no choice but to obtain lines of credit to buy gasoline on the open market at much higher prices to keep the doors open and protect the jobs of Road Ranger's estimated 550 employees, he said.

The suit also cited Venezuelan President Hugo Chavez's verbal attacks on President Bush, which provoked consumer boycotts against U.S. CITGO stations, including Road Ranger.

"This will all have to be quantified in the litigation, but we are confident and comfortable in alleging that [Road Ranger] was losing sales at the pump" because of consumer boycotts, Road Ranger's legal counsel, Carmen Caruso of Schwartz Cooper Chartered, Chicago, told CSP Daily News. "It's hard to quantify exactly, but [the company] was getting hate mail and we can look at our sales, and we believe we were getting hit."

Also, CITGO proposed a new franchise agreement with Road Ranger in early 2006 that imposed substantially different terms than prior agreements—terms that Road Ranger determined were not commercially reasonable and were not made in good faith, according to the suit. Road Ranger cited its 1991 franchise agreement, which allowed the company to purchase 110% of its minimum requirement of gasoline. Road Ranger often used this amount in times of increased demand. Under the proposed contract, Road Ranger would have been limited to only 100% of its minimum purchase requirements, "essentially handcuffing" the retailer from responding to the fluctuating needs of his customers, it said.

The suit stated that CITGO's actions in the franchise renewal process were dishonest and a pretext to ending a franchise relationship that CITGO no longer wanted, but could not legally terminate under the PMPA, Road Ranger said. CITGO deliberately designed the new contract to be so untenable that Road Ranger would not renew, according to the suit.

After a meeting with a CITGO representative in April 2006, in which—according to Road Ranger—CITGO admitted that it had become "uneconomical" to continue supplying Road Ranger, Arnold said he concluded that CITGO had destroyed all the value Road Ranger had built in their relationship and there was no purpose in continuing. That month, Road Ranger began de-branding its stores from CITGO, a three-month process that cost the company nearly $1.5 million.

In November 2007, more than one and a half years after that April meeting and Road Ranger's subsequent de-branding, CITGO filed suit against Road Ranger, alleging breach of contract. Road Ranger has now filed counterclaims against CITGO.

"In view of CITGO's horrendous behavior, I am determined to hold CITGO accountable and seek the court's help in recovering the damages they brought my business," said Arnold. "We expect the spotlight of discovery, depositions and the legal process to prove to a jury that CITGO, under the control of Hugo Chavez, undermined the CITGO brand, and that CITGO betrayed its responsibilities demanded by American franchise law, contract law and the [PMPA]."

He added, "Even though we're recovering, the Road Ranger image has been damaged with our customers because of our association with CITGO. CITGO is responsible for considerable loss in the company's value. I expect our suit to reveal how profoundly CITGO's and Chavez's behavior have damaged franchise marketers like Road Ranger who helped build CITGO from the beginning."

In a statement provided to CSP Daily News by CITGO, the oil company said that "has learned…that a Midwestern gasoline marketer no longer associated with the CITGO brand, Road Ranger, has filed counterclaims in a lawsuit originally filed by CITGO against Road Ranger in November 2007…. It is CITGO's policy not to discuss ongoing litigation; however, the fact that Road Ranger issued a detailed press release on the case, showing inaccuracies and placing claims out of context, leaves us no choice but to provide some relevant information."

The company said in the statement:

CITGO has never in the company 's history invoked force majeure on any branded gasoline customers. During the term of its contract with Road Ranger, CITGO complied with all of its contractual obligations and all requirements under the Petroleum Marketing Practices Act. At the time of the negotiations between CITGO and Road Ranger, a process was underway to update existing standard contracts for all of the CITGO branded marketers. All marketers were requested to sign the new contracts.

Houston-based CITGO is owned by PDV America Inc., an indirect wholly owned subsidiary of Petróleos de Venezuela SA, the national oil company of the Bolivarian Republic of Venezuela.

Caruso said that the court has set a jury trial on Sept. 4, 2008, in Madison, Wis.

By Steve Holtz, Online News Director & Beverage Editor
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