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."
Carmen Caruso, the attorney for Road Ranger claimed CITGO’s actions threatened the existence of the Midwestern chain and caused damages currently estimated "to be in excess of $30 million," he said. "Road Ranger will also be seeking punitive damages under the Petroleum Marketing Practices Act for CITGO’s dishonest conduct."
CITGO denied Road Ranger’s claims, but declined to comment further on the suit. The companies are scheduled to face each other in a jury trial on Sept. 4 in Madison, Wis.
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. Its problems, according to company founder and president, Dan Arnold, began in September and October 2005, when Hurricanes Katrina and Rita struck the Gulf Coast.
Road Ranger claims CITGO’s Louisiana refinery was not seriously damaged by the storms, but the oil major still declared a force majeure—in effect, 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.
"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," Caruso said. "Without a reliable supply of gasoline, Road Ranger was two days away from closing its doors."
War of Words
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," Caruso said. "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 controlled by Chavez.
"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 the whole industry, by declaring force majeure," Arnold said. "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."
Arnold also claims that 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% 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.
"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," Arnold said. "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 undermined the CITGO brand and that it betrayed its responsibilities demanded by American franchise law, contract law and the Petroleum Marketing Practices Act."