Citgo Petroleum Corp. v. RANGER ENTERPRISES, INC.

573 F. Supp. 2d 1114, 2008 U.S. Dist. LEXIS 66276, 2008 WL 3927470
CourtDistrict Court, W.D. Wisconsin
DecidedAugust 27, 2008
Docket07-cv-657-bbc
StatusPublished
Cited by3 cases

This text of 573 F. Supp. 2d 1114 (Citgo Petroleum Corp. v. RANGER ENTERPRISES, INC.) is published on Counsel Stack Legal Research, covering District Court, W.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Citgo Petroleum Corp. v. RANGER ENTERPRISES, INC., 573 F. Supp. 2d 1114, 2008 U.S. Dist. LEXIS 66276, 2008 WL 3927470 (W.D. Wis. 2008).

Opinion

OPINION AND ORDER

BARBARA B. CRABB, District Judge.

This case involves a dispute between a franchisor and its franchisee. Plaintiff CITGO Petroleum Corporation had a gasoline distributor franchise agreement with defendant Ranger Enterprises. Things went well for the first 15 years. Defendant expanded from four to 39 franchised locations and increased its purchases from plaintiff commensurately. In 2005, two things happened that affected the relationship. Venezuelan president Hugo Chavez became a more outspoken critic of the United States. Because Venezuela owned plaintiffs corporate parent, some customers boycotted defendant’s facilities to protest Chavez. Also, plaintiff reduced the supply of fuel it had agreed to provide defendant, citing force majeure as the reason and explaining that Hurricane Rita had affected operations at its Lake Charles, Louisiana, refinery. The parties were unable to reach agreement on a new franchise agreement. Plaintiff advised defendant that the agreement would not be renewed when it expired in July 2006; defendant responded by “de-branding.” It changed its stores from CITGO to “Road Ranger.” Eventually, plaintiff brought this breach of contract action, alleging that defendant’s de-branding and its failure to buy its minimum fuel requirements constituted a breach of the parties’ franchise agreement. Defendant responded with counterclaims and affirmative defenses, alleging prior material breaches of the agreement and violation of the Petroleum Marketing Practices Act, 15 U.S.C. § 2802.

The case is before the court on plaintiffs motions to dismiss defendant’s counterclaims and strike certain of defendant’s affirmative defenses. Subject matter jurisdiction exists: plaintiff is a Delaware corporation with its principal place of business in Texas; plaintiff is an Illinois corporation with its principal place of business in the same state and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332.

Defendant’s counterclaims fall into three categories: (1) wrongful nonrenewal of the franchise agreement; (2) brand damage; and (3) failure to supply fuel quantities in accordance with the agreement. Defendant also asserts eight related affirmative defenses. I conclude that defendant’s state law counterclaims for wrongful non-renewal are preempted by the Petroleum Marketing Practices Act, that plaintiffs claim for wrongful nonrenewal is barred by the one-year statute of limitations and that defendant’s counterclaims asserting brand damage based on the actions of Venezuelan President Hugo Chavez fail to state a claim for which relief may be granted. However, defendant’s breach of contract counterclaim alleging that plaintiff failed to meet its contractual fuel supply obligations is sufficient to survive a Rule 12(b)(6) challenge. The related affirmative defenses based on fuel undersupply raise factual disputes and cannot be stricken.

For the purpose of deciding plaintiffs motions to dismiss, I find that the following facts admitted by defendant in its answer and alleged by defendant in support of its amended counterclaims are material.

ALLEGATIONS OF FACT

On October 7, 1991, plaintiff and defendant entered into a franchise agreement under which plaintiff agreed to provide defendant a monthly allotment of motor *1118 fuel and the right to use plaintiffs brand name and trademarks and defendant agreed to use the CITGO trademarks and to purchase a minimum monthly allotment of fuel from plaintiff. In addition to the franchise agreement, the parties also entered into various station-specific “allowance agreements” whereby defendant agreed to operate each location for a period of either seven or ten years and plaintiff agreed to rebate a certain amount of the purchase price for each gallon of fuel purchased by defendant. The allowance agreements contained a liquidated damages provision obligating defendant to reimburse plaintiff for the rebates if defendant breached the agreement.

The 1991 franchise agreement was for an initial five-year term with automatic renewals for successive three-year periods unless the agreement was “validly terminated or nonrenewed as provided for in the Petroleum Marketing Practices Act.” The franchise agreement included the following general provisions:

The right of either party to require strict performance by the other party hereunder shall not be affected by any previous waiver forbearance of course of dealing.... This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may be altered only by writing signed by the parties hereto.... This agreement shall be governed by the laws of the state of Oklahoma.

The agreement continued in effect, with periodic amendments not affecting the quoted provisions, for some fifteen years during which defendant expanded from four to thirty-nine franchised locations.

In the late 1990’s, CITGO became a wholly owned subsidiary of Petróleos de Venezuela, S.A., a state-owned company of Venezuela. Beginning in October, 2005, Venezuela’s president, Hugo Chavez, began a campaign of ill will against the United States. These actions damaged the CITGO brand and led to boycotts that reduced defendant’s fuel sales.

On numerous occasions in 2005, plaintiff failed to deliver contractually required fuel purchases to defendant. On October 5, 2005, following hurricane Rita, plaintiff declared force majeure at its Lake Charles, Louisiana, refinery. Subsequently, plaintiff reduced the supply of fuel provided to defendant, forcing it to seek more expensive, alternative fuel supplies. In fact, damage at the Lake Charles refinery was minor and plaintiff could have obtained sufficient fuel to supply defendant. Instead, it used the asserted force majeure falsely to mask pre-existing supply problems and avoid its contractual obligations. Because of the delivery failures, defendant’s business nearly failed and it questioned whether it could viably remain a CITGO franchisee. It sought assurances from CITGO that it would meet its fuel supply commitments from that point forward.

On January 17, 2006, plaintiff delivered a proposed new franchise agreement to defendant to replace the existing agreement, which was to expire by its terms on July 31, 2006, unless renewed. The proposed terms of the new agreement were commercially unreasonable. Plaintiff knew they would be unacceptable to defendant. Plaintiff failed to negotiate for new terms in good faith. On April 28, 2006, plaintiff advised defendant that it would not renew the franchise agreement. After being advised of the intended nonrenewal defendant began re-branding its stores to “Road Ranger,” a process that took three months to complete and cost $1.5 million. At the same time, defendant failed to make its required minimum fuel purchases from plaintiff.

In May 2006, defendant’s president, Dan Arnold, called plaintiffs representative *1119 Brad Winczewski to discuss defendant’s re-branding. Winczewski told Arnold that if defendant would “leave quietly,” plaintiff would not seek to recover past rebates under the liquidated damage provisions of the allowance contracts.

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Cite This Page — Counsel Stack

Bluebook (online)
573 F. Supp. 2d 1114, 2008 U.S. Dist. LEXIS 66276, 2008 WL 3927470, Counsel Stack Legal Research, https://law.counselstack.com/opinion/citgo-petroleum-corp-v-ranger-enterprises-inc-wiwd-2008.