Road Ranger Files Claims Against CITGO

Road Ranger, the Rockford, Ill.-based operator of approximately 75 convenience stores and travel centers in five Midwestern states, filed claims against Venezuelan-owned CITGO Petroleum Corp. for breach of contract and violations of the Petroleum Marketing Practices Act caused by CITGO’s unnecessary failure to supply gasoline to Road Ranger gas stations, for damaging the CITGO brand and for dealing in bad faith.

"CITGO’s actions threatened the existence of the Midwestern chain and caused damages currently estimated by Road Ranger to be in excess of $30 million. Road Ranger will also be seeking punitive damages under the Petroleum Marketing Practices Act for CITGO’s dishonest conduct," the chain said in statement released to Convenience Store Decisions.

Road Ranger became a franchisee of CITGO in 1991 and, in the next 14 years, expanded from four CITGO-branded gas stations to 39, helping build the CITGO brand in America’s heartland of Illinois, Wisconsin, Indiana and Iowa.

In September and October 2005, Hurricanes Katrina and Rita struck the Gulf Coast. According to its Web site, CITGO’s Louisiana refinery was not seriously damaged by the storms, but CITGO nonetheless took the unprecedented, drastic step of declaring force majeure, effectively stating that an act of God made 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.

CITGO’s declaration of force majeure was unprecedented in the U.S. fuel industry–not only was CITGO the only major fuel company to declare force majeure for gas supply because of these hurricanes, but this action was contrary to all industry standards and practices. Without a reliable supply of gasoline, Road Ranger was two days away from being out of product, which would have caused Road Ranger 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.

At the same time that Road Ranger was scrambling to save itself, Venezuelan President Hugo Chavez further damaged the CITGO brand when he engaged in vitriolic personal attacks against the U.S and President George W. Bush. These unrelenting attacks provoked an organized consumer boycott against CITGO gas stations in the U.S., including boycotts of Road Ranger stores by its customers. (CITGO is owned by PDVSA, which is, in turn, controlled by Chavez.)

In a matter of months, the suit states, Road Ranger was hit on the supply and demand sides because of CITGO’s actions.

"Despite 14 years of promises and its contractual responsibility to supply Road Ranger with gasoline, when we needed them most, CITGO did not even try to help us. Instead, they reneged on us–and on the whole industry–by declaring force majeure," said Arnold. "All I asked for was their assurance that they would again be a reliable supplier at a fair price, and that they would repair the damage to the CITGO brand that Chavez inflicted. But CITGO had no intention of providing supply and brand image repairs because, unbeknownst to Road Ranger, they were already planning market withdrawals."

Instead of accepting accountability and providing assurances, 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. For example, Road Ranger’s 1991 franchise agreement 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 percent of its minimum purchase requirements, essentially handcuffing Arnold from responding to the fluctuating needs of his customers.

The Road Ranger suit states 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 Petroleum Marketing Practices Act. 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 CITGO admitted that it had become "uneconomical" to continue supplying Road Ranger, Arnold reluctantly faced the obvious conclusion 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 Nmber 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. 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. "Before Hugo Chavez, Road Ranger had a great partnership with CITGO. 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 Petroleum Marketing Practices Act."

Road Ranger’s legal counsel, Carmen Caruso of Schwartz Cooper Chartered, reports that the court has set a jury trial on Sept. 4, 2008 in Madison, Wis.

"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," said Arnold.

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