Oil giants, Vegas gasoline stations mired in litigation over merger

Alana Roberts

Monday, July 19, 2004 | 11:07 a.m.

While Las Vegas Valley residents are suffering sticker shock at the high price of gasoline, some local gas station franchisees say they too are suffering at the hands of big oil giants.

"We're the little guys. We're individuals who have been trying to survive to make a living out of it," said Abraham Kechkarian, owner of the Boulder Highway Texaco at Boulder Highway and Desert Inn Road.

Kechkarian is one of several local gas station franchisees who are involved in litigation with Texaco Refining and Marketing Inc. and Equilon Enterprises LLC.

Kechkarian sued the companies in Clark County District Court in May 2003. The suit, later moved to U.S. District Court, accuses Texaco Refining and Marketing and Equilon of overcharging him for gas, lease rents and credit card usage fees. It also alleges violation of his franchise contract.

Equilon Enterprises is a holding company, formed in 1998, to hold the Western U.S. marketing and refining assets of Shell Oil Co. and of Texaco Inc. (Texaco merged with Chevron to become ChevronTexaco in 2001.) Shell owns a majority 56 percent of the shares in Equilon, while Texaco owns 44 percent.

As a part of the merger agreement, ChevronTexaco agreed to license the Texaco brand to Shell until July 1, 2004. The companies will now share the brand rights for a two-year transition period until ChevronTexaco regains exclusive rights to the Texaco brand in the United States in July 2006.

Other local lawsuits filed by franchisees against Texaco Refining and Marketing and Equilon include one lawsuit filed June 28 on behalf of five franchisees -- Flamingo-Pecos Texaco, D.I. and Eastern Texaco, Bunty Enterprises Inc., Russell Road Texaco and Russell Road Services. Another lawsuit was filed Aug. 29 on behalf of Mr. E's Inc. and a third on behalf of PK Texaco Inc. in November. Those lawsuits are being handled by Brian Padgett, James Leavitt and Kermitt Waters.

Aaron Lovaas, a local attorney for Texaco Refining and Marketing and Equilon in the lawsuits, could not be reached for comment. Cameron Smyth, a spokesman for Shell Oil Co., declined to comment directly on the lawsuits. However, he said that his company follows the Petroleum Marketing Practices Act, which regulates franchise agreements.

"We afford all of our dealers PMPA rights," Smyth said.

Kechkarian's lawsuit said that after Equilon was established, Texaco sold to Equilon each of its Nevada real estate interests, including the gas station franchises.

Kechkarian's gas station was sold to Equilon for $300,657 in June 1998. He alleges he didn't find out about the sale until March 2003, long after entering into a new franchise contract with Equilon in 2000.

His lawsuit claims, however, that the franchise agreement was supposed to allow him an opportunity to purchase the property in the event Texaco ever sold it.

In court filings, Texaco Refining and Marketing and Equilon said the properties were transferred -- not sold -- to Equilon, and that Kechkarian never had a right to purchase the property because the companies offered him another contract.

Padgett said many franchise owners didn't realize their contracts included the right to purchase the land and lost their property as a result.

"Texaco should have gone to them and given them a chance to purchase the land," Padgett said.

Kechkarian said after Texaco sold his station to Equilon, he entered into a contract with Equilon and was subjected to various changes in terms that were harder to comply with, including higher lease rents, higher credit card usage fees and higher gas prices.

Padgett said Texaco and Shell's actions are all a part of an effort within the gas industry to reduce the number of companies as a way to give the few remaining companies free reign to raise the price of gas.

Smyth, Shell's spokesman, said any assertions that Shell has tried to drive up gas prices or restrict supply in the fuel market are inaccurate.

"The ultimate determining factor of fuel prices is competition in the free market system," Smyth said.

Kechkarian struggled with the Equilon contract and was unable to meet certain performance terms. On April 30, 2003, the company sent him a notice of termination of the franchise agreement.

"Guys like Abe are completely at the mercy of Texaco. A lot of policies changed and hurt a lot of guys on the street. Without the right to purchase the property, they no longer had a right to choose the brand name they sold from," Padgett said.

On May 2, 2003, the same day Kechkarian's lawsuit was filed, representatives from Equilon Enterprises came to Kechkarian's station to confiscate Texaco's signs.

Instead of letting the company's representatives on the property, Kechkarian barricaded the store and told them to get off of the property. Later that month Equilon Enterprises filed its own lawsuit in U.S. District Court against Kechkarian claiming he breached the franchise agreement and was trespassing for remaining on the property.

Equilon's lawsuit claims Kechkarian breached the franchise agreement by failing to operate the station for more than seven consecutive days. The lawsuit said when Equilon's representatives came to remove the signs, Kechkarian refused to surrender the property and "made threats of bodily harm or worse if Equilon's crew continued."

Kechkarian's and the Equilon lawsuits have been consolidated. In August 2003 U.S. District Court Judge Kent Dawson denied the company's motions to dismiss Kechkarian's claims. In his decision, he noted that Kechkarian and his family depend on the property and that the public interest would not be served by having the store vacant.

As a result, Kechkarian has been allowed to remain on his property as the case continues. Much of Texaco's marketing program, however, has been dropped at the station.

Dawson said in his ruling that Kechkarian made a strong argument that the changes in the contract were enough to "effectively end his ability to operate as a franchisee."

The question of whether Kechkarian should remain on the property is a point of appeal filed by the companies in the 9th U.S. Circuit Court of Appeals. Padgett said a decision will be important to the success of other similar lawsuits.

In the meantime, Kechkarian said he hasn't sold gas since the lawsuits and is barely able to get by on the sales of convenience store items and auto repair service he offers. Kechkarian, originally of Armenia, said his wife, Karine, has had to take on two jobs to help support his two children, Ani, 9, and Garo, 5. He said a successful outcome in the litigation is important to his livelihood and hopes, if he can make it through the litigation, his prospects will improve.

"Hopefully justice will be on our side and help us get our lives back together against this corporation," Kechkarian said.