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LOS ANGELES -- It's been a long time since running a gas station has been reasonably lucrative for independent franchise dealers like Al Buczkowski, who runs a Shell convenience store in Oak View, Calif.
But a $71 million dollar jury award against Shell last week in Los Angeles Superior Court has given Buczkowski and other Southern California dealers hope they eventually will get a break, according to the Ventura County Star.
The 12 dealers in the Valu Gas vs. Equilon Enterprises lawsuit, which includes Buczkowski, two other Ventura County dealers and a former area station owner, will share $5.5 million in direct damages and $66 million in punitive damages. Shell said it plans to appeal the verdict.
A jury found that in the late 1990s Equilon Enterprises intentionally misled franchise dealers about their right to appeal high rent increases on their stations. "For a time, I had to buy gas at a higher price than my competitors were selling it to the public," said Buczkowski. "When our customers were commuting to L.A. and could get gas 20 cents cheaper there, they'd do it."
Franchise owners like Buczkowski contend Shell raised rents, charged the owners more for gas than company-owned stations, withheld credit-card payments and instituted other practices that made it difficult to eke out a profit.
"The only real competition in the gas business happens on the street corner, because dealers are entrepreneurs and they'll compete with each other on price if they can," said Dennis DeCota, executive director of the California Service Station and Automotive Repair Association. "But so often now they can't, and that means consumers pay more for gas."
Though drivers in Ventura County and the rest of the state pay some of the highest gas prices in the country, said he struggles to stay in the business. "I couldn't close because I'd have to file for bankruptcy with all the debt," said Buczkowski, who laid off much of his staff in 1999. "Shell has offered to turn this into a company station, but then I would have to become an employee. We would have no security."
Franchise dealers generally lease their stations from the affiliated oil company.
DeCota said the number of franchise stations in the state has declined from 800 to 600 in recent years.
In the June cover story of Convenience Store News, Russell Caplan, vice president of Shell Oil Products U.S., said the oil company doesn't want to phase out its dealer system.
"If we have a contract that is locking us into a position that we determine is not beneficial for us, we are still obligated to honor that contract. But if we can negotiate out, buy our way out or come to some economic conclusion that makes sense, then we'll do that."
While some marketers are squeezed out, Shell said it would make a firm commitment to the partners that remain. More than 50 percent of Shell's volume, including pro-rated and projected numbers from Texaco's operations, comes from this segment. Looking forward, much of Shell's business is going to continue to be done through wholesalers.
"We will offer cost incentives and financial packages to wholesalers to make the changes and continue doing business with us, for the rebranding and how much we are going to pay in the form of incentives for them to do business with us," Caplan said. "Although we talk about cutting our underperforming units, we are still committed to growing the business through our branded partners."
Buczkowski and fellow plaintiff Dick Terlsian, both of whom also are plaintiffs in at least three other suits against Shell, say things changed in 1998 when Shell entered into the Equilon Enterprises joint venture with Texaco Inc. to manage its stations. When Texaco's merger with Chevron was approved earlier this year, Shell bought out Texaco's interest and renamed Equilon to be Shell Oil Products U.S.
Shell used to reward dealers with rent rebates for selling a lot of gasoline. Buczkowski's station used to pump 180,000 gallons a month and the rebates lowered his monthly rent to about $550. Equilon ended the variable rent program and instituted what it called market-rate leases. Buczkowski's monthly rent rose to $8,700, the report said.
Equilon instituted a new lease structure in 2001 that lowered rents for most dealers, Buczkowski said.