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CHICAGO – A Cook County circuit judge ruled in favor of BP Products North America Inc on all counts brought by two franchisees claiming the oil giant defrauded them. But the judge’s ruling came in spite of finding BP intended to deceive the owners when they purchased their stations by concealing its fuel margins.
Judge Sanjay Tailor chided the franchisees for not satisfying all of the elements of their claims against BP, which they had filed in 2009. In his 45-page opinion, Judge Tailor wrote, “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.”
As an introduction to the case, the judge explained that BP Products began franchising in 2005, after years of losing money on its company-owned and operated fuel station and convenience stores. At that time, between 2006 and 2009, RWJ Management Company, Inc. and Joliet Petroleum, LLC purchased 17 gas stations and c-stores for $42,242,500. They entered into long-term fuel supply and franchise agreements with BP, with NRC Realty and Capital Advisors, LLC acting as BP’s brokers.
In the lawsuit, RWJ and Joliet allege that BP defrauded them by omitting material facts in relation to the volumes of fuel BP represented it sold at their stations. They also claim BP misrepresented the price that it would charge for fuel in the future. And that BP misrepresented that their BP Connect and Wild Bean Cafe’ convenience store brands were viable franchise concepts and iconic names in the convenience store industry.
After years of legal wrangling and the filing of their fifth amended complaint against BP defendants, franchisees RWJ and Joliet began their 24-day trial, resulting in Wednesday’s judgment.
Judge Tailor stated that the fraud claims brought by the franchisees were addressed in detail because they lie at the heart of the franchisees’ complaint. And because the gas station owners have invested enormous resources and time into the prosecution and defense of their claims.
His judgment explains the “common measure” of the retail fuel industry, saying the unit margin was the difference between the retail price of a gallon of gas and the retailer’s purchase price for that gallon, less transportation. It states that both parties agree that margin is useless without fuel volume, and fuel volume is useless without margin. “Here, BP only provided the plaintiffs with the volume of fuel it sold, withholding its fuel margins because. . . while BP’s fuel volumes were impressive, its fuel margins were not so,” the judge explained.
He further stated that if BP had any hope of attracting franchise bidders for the kind of money it wanted, it had to withhold its fuel margin because it would be revealed to potential franchisees that the stations were not as economically viable and as sound of investments as BP wanted them to believe.
“In the end,” the judge determined, “. . . the plaintiffs fail to satisfy the elements of their claims, entitling the [BP] defendants to judgment in their favor,” he wrote.
Judge Tailor gave a detail description of BP’s fraud in his ruling, and he explained what the franchisees must do to prove their claims against BP Products. He also acknowledged that both franchise owners were “not neophytes or newcomers; rather, both have substantial experience in the retail motor fuel and convenience store business . .” One had more than 20 years experience in retail gasoline, operating 50 Shell stations. Another employed 115 people. And both prepared a number of pro formas when applying for bank financing, using detailed analysis.
The franchisees’ ability to conduct due diligence when making their purchases was no doubt qualified by BP’s unwillingness to give them complete access to its financial records for the stores it was offering to sell, the judge stated. “Nevertheless, the plaintiffs did perform other due diligence, which, as reflected in their pro formas, show that neither . . . relied significantly . . . on industry average margins.” He added that under those circumstances, the franchisees failed to clearly establish that they relied on BP’s concealment that its historical margins were consistent with industry margins.
The judge also states that the franchisees actions after they purchased their first group of stores confirms that they did not rely on BP’s fraudulent concealment. He states, “This confirms that the plaintiffs were not lulled into believing that BP achieved its volumes at . . . industry average margins.”
Although BP scored a victory in this litigation, reports tell that the mammoth oil company is facing other lawsuits in California, Washington and Oregon. Luan Tran of Lee Tran & Liang told CSNews Online, a trade journal for the convenience store industry, that a class action was filed in federal court in San Francisco last June. Tran, who is co-lead counsel, described it as a “classic David v. Goliath case.”
The first out of three claims franchise owners are required to purchase and install a point-of-service, POS, and back-office systems that BP found to be flawed after it implemented them. Tran said the software shuts downs, causing station owners to be out of service for hours, resulting in loss of business.
Another claim is that BP is manipulating gas prices by scheduling deliveries at times when prices go up and down, which in effect ensures that franchisees are charged the highest price possible. Those deliveries are made whether or not the owners need gasoline. The third claim is that BP forces station owners to use certain vendors, the CSNews report states.
Considering all the lawsuits, Tran said, “It is the fight for the survival of these franchisees.”
BP issued a statement: “We are pleased with the court’s decision, which supports our view that this was nothing more than a commercial dispute between sophisticated businesspeople.
Panna Patel, Joliet Petroleum's attorney, expressed disappointment with the court's decision and said she is reviewing the opinion with her client.
Carmen Caruso, representing RWJ Management, said they also were very disappointed in the ruling. “We have a status hearing in 21 days, and we will use that time to decide our next step.” The Chicago Tribune reported that RWJ Management is operating under Chapter 11 bankruptcy protection.
|BP Products RWJ Joliet judgment.pdf||2.57 MB|