Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Franchisees charge BP with price discrimination, unfair business practices, (Jan 9, 2015)

By Linda O’Brien, J.D., LL.M.

BP West Coast Products, the domestic subsidiary of global energy company BP plc that operates BP brand gas stations and convenience stores, engaged in price discrimination and unfair business practices by charging lower fuel prices to non-BP brand gas stations and entering into exclusive agreements with third-party vendors who charge BP franchisees higher prices in the absence of competing alternative vendors, according to a complaint filed in the superior court in Los Angeles (Crossroad Petroleum v. BP West Coast Products LLC, January 8, 2015).

BP West Coast Products LLC owns and operates gas stations and convenience stores in California, Oregon, Washington, Nevada, and Arizona under the BP and ARCO brands. In addition, BP offers franchise opportunities.

The complaint states that, over a period of several years, Crossroads Petroleum and 12 other gas station and convenience store operators, entered into gas and convenience store agreements with BP. Under the agreements, BP has the exclusive right to select the initial list of third-party vendors for a range of products and services, without limitation. Franchisees can propose additional vendors to be approved by BP. Many franchisees have requested that BP consider alternative vendors; however, BP routinely rejects such vendors, notwithstanding that those vendors could show they are responsible and comply with pertinent product specifications. Some of BP’s existing vendors pay a fee for the right to be the exclusive vendor to BP franchisees. BP allegedly refused to allow additional vendors to provide services to franchisees at a lower price because the alternative vendors would not give BP comparable kickbacks or other financial consideration. As a result, BP franchisees have been charged higher prices by BP-approved vendors that they would have paid to alternative vendors, the complaint alleges.

According to the complaint, BP is a refiner, distributor, and manufacturer of petroleum products and sells its products to BP franchisees and non-BP brand customers. BP has charged lower prices to various non-BP brand customers with the same geographic areas as the BP franchisees for the same motor vehicle fuels. There was no reasonable justification for the price discrimination and the lower prices charged to non-BP brand customers were not made in good faith. The non-BP brand gas stations could therefore sell fuel at lower prices and retained higher profit margins. As a result, BP franchisees were forced to decrease their profit margins in order to remain competitive or suffered a decrease in business. BP’s practice of selling fuel to BP franchisee competitors at prices lower than those charged to BP franchisees lessened competition.

Under the gas agreements, BP is entitled to set the price of wholesale gasoline, although the right to set retail prices is reserved for franchisees. BP has allegedly engaged in price discrimination by setting its wholesale price to particular franchisees in retaliation for those franchisees attempting to earn margins higher than BP’s assumed margin or refusing to participate in certain promotions. BP’s price discrimination has resulted in damages and loss of good will to the franchisees and impaired their ability to compete with each other and with non-BP brand dealers, the complaint charges.

The plaintiffs assert claims for breach of contract, negligence, breach of the covenant of good faith and fair dealing, price discrimination, and violations of California’s Unfair Competition Law. The action seeks injunctive relief, compensatory and treble damages, restitution, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-00140.

Attorneys: Brian S. Kabateck (Kabateck Brown Kellner LLP), Mark J. Geragos (Geragos & Geragos, APC), Robert J. Gilliland (Guralnick & Gilliland), Paul M. Stoddard (Law Offices of Paul M. Stoddard), and Mark S. Sabbah and Matthew MacKoul (Sabbah & Mackoul, APC) for Crossroad Petroleum, Inc., Murphy Petroleum, Inc., Balboa Petroleum, Inc., Tamarack Petroleum, Inc., SB Petroleum, Inc., UM Petroleum, Inc., Barton Petroleum, Inc., Citrus Petroleum, Inc., HK Petroleum, Inc., National City Complex, Inc., A&A Holdings, Inc., and Merced Market, Inc.

Companies: Crossroad Petroleum, Inc.; Murphy Petroleum, Inc.; Balboa Petroleum, Inc.; Tamarack Petroleum, Inc.; SB Petroleum, Inc.; UM Petroleum, Inc.; Barton Petroleum, Inc.; Citrus Petroleum, Inc.; HK Petroleum, Inc.; National City Complex, Inc.; A&A Holdings, Inc.; Merced Market, Inc.; BP West Coast Products LLC; Retalix Ltd.

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