Mass. franchisees hit Shell in lawsuit

"…argued that Shell's goal was to drive independent operators out of business as part of a corporate strategy by the world's third-largest oil company to boost profits by increasing the number of company-owned and operated gas stations. "Shell makes significantly greater profits when it sells gasoline to the motoring pubic through a company-owned store," he said.

The Boston Globe
November 16, 2004

Mass. franchisees hit Shell in lawsuit
They say company tried to drive them out of business
Kimberly Blanton

Four years after filing suit against the Royal Dutch/Shell Group of Cos., Shell service station owners in Massachusetts went before a US District Court judge in Boston yesterday, charging that Shell took several measures in the late 1990s to drive them out of business.

Operators of Shell franchises charge that Shell raised wholesale gasoline prices and rents franchisees were required to pay the company. Gary Greenberg, representing the station owners, said the pricing policies unfairly hurt gas-station dealers and decreased the number of Shell franchises in Massachusetts to 96 in January 2003, from 177 five years earlier.

The case, brought by eight Massachusetts franchisees, could affect agreements with thousands of Shell franchise owners across the country.

In the opening statement on Shell's behalf, attorney Paul Sanson, defended the company's actions as "a reality of business" and said its policies were not designed to drive dealers out of business. He said that although raising oil prices and rents may have hurt some dealers, that does not make the actions illegal.

"You don't want that to happen to anybody, but is that the defendant's fault?" Sanson said. "Every time a landlord raises rent or prices go up, it's going to affect people."

Greenberg, of the Boston law firm Greenberg Traurig, argued that Shell's goal was to drive independent operators out of business as part of a corporate strategy by the world's third-largest oil company to boost profits by increasing the number of company-owned and operated gas stations.

"Shell makes significantly greater profits when it sells gasoline to the motoring pubic through a company-owned store," he said.

By raising the wholesale price at which it sold gasoline to dealers, he said, the oil company forced the dealers to either raise their street prices to customers to "uncompetitive" levels and lose volume or maintain competitive gas prices but take smaller profits that were inadequate to cover employee salaries and other expenses. Under Shell's franchise system, dealers set the gasoline prices they charge at the pump.

"Shell adopted a plan to take over the local neighborhood stations, without having to pay fair value" to the franchisees, he said.

Sanson, who is with the Hartford law firm Shipman & Goodwin, said the oil company set new franchise rules and "both sides have to live by them." He disputed a claim that the wholesale prices Shell charged independent dealers for gasoline were unreasonably high. They were "in the range" charged to dealers throughout the oil industry, he said.

He said dealers were told 16 months in advance to "get ready" for a new formula used to calculate the rents the company charges for the gas-station properties and equipment. Then, in 2000, Shell phased in a system in which rents were based on the value of the gas station's assets, which ended rent subsidies that had been in place for years to encourage establishment of franchises and increase total sales of their gasoline.

He said new rents were, indeed, higher than the subsidized rents. But, "just because something goes up doesn't mean the new one is unfair," Sanson said. He used an example of one Massachusetts franchisee who challenged the calculation for his rent and asked Shell for a second appraisal. He succeeded in having his rent lowered by the company. The appeal process on rents, he said, is "beneficial to dealers, and is not designed it to drive them out of business."

Matt Gaeta, who runs a Shell station on Route 1 in Peabody and was among several dealers observing the trial, said his franchise has been squeezed by higher operating costs and is less profitable. Gaeta, who has been in the business for years and is not a party to the suit, said, "We don't want everything handed to us, but we want a fair shot."

Kimberly Blanton can be reached at moc.ebolg|notnalb#moc.ebolg|notnalb.

© Copyright 2004 Globe Newspaper Company.


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