BP Wins Fraud Lawsuit Brought By Two Franchisees

Judge reprimands the oil giant for concealing profit margins from buyers.

A Cook County judge has ruled in favor of BP Products North America Inc. in a lawsuit brought by two of its Chicago-area franchisees that accused the oil giant of fraud, the Chicago Tribune reported.

Cook County Circuit Judge Sanjay Tailor ruled Wednesday that the franchisees, RWJ Management Co. and Joliet Petroleum LLC, failed to prove all elements of their fraud claims, which were brought in 2009. Tailor’s decision came after a 24-day trial this year.

“We are pleased with the court’s decision, which supports our view that this was nothing more than a commercial dispute between sophisticated businesspeople,” BP said in a statement.

But Tailor did not let BP off the hook completely. In a 46-page opinion, the judge found that the company intended to deceive the plaintiffs when it concealed the profit margins on fuel at the suburban stations it sold to the franchisees in 2006.

According to court papers, BP was losing money on its company-owned stations and began selling them in late 2005. When potential buyers asked about the fuel margins, BP and its real estate broker told them to look at industry average margins, while hiding the fact that margins at the gas stations for sale were significantly lower than the industry average, the Chicago Tribune reported.

“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,” Tailor wrote.

However, Tailor noted the plaintiffs didn’t establish that they relied on BP’s concealment in deciding to buy a total of seven stations in separate sales, noting both buyers have ample experience in the retail gas industry. Bob Juckniess of Oak Brook, Ill.-based RWJ Management used to be a Shell franchisee in Indiana and Ohio. Nrupesh Desai, Joliet Petroleum’s principal, also operates a number of other Citgo and Clark stations, according to court papers.

Tailor further noted that Juckniess and Desai purchased more stores from BP after 2006 in separate transactions. Court papers show RWJ Management and Joliet Petroleum each bought five more stations in 2007 and 2008, spending more than $42 million.

“We’re very disappointed with the decision,” Carmen Caruso, RWJ Management’s attorney told the Chicago Tribune. “We have to read the opinion and decide our next step.” RWJ Management is operating under Chapter 11 bankruptcy protection.

Panna Patel, Joliet Petroleum’s attorney, also expressed disappointment with the court’s ruling and told the Chicago Tribune she is reviewing the opinion with her client.

BP is still facing other lawsuits brought by franchisees in California. In March a lawsuit was filed on behalf of 40 Thrifty Oil Co. franchise owners in Southern California who claim BP failed to give proper notice of its plan to not renew its master lease with Thrifty Oil. In addition, more than 1,4000 BP/Arco franchisees in Northern California filed a mass action lawsuit earlier this year alleging  improper gas pricing, failure to address a faulty POS system and questionable pricing on products negotiated by vendors. For more on those allegations: http://www.cstoredecisions.com/convenience-store-decisions-digital-issue/

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