There’s a gas war being fought in Western Washington, and it seems certain to take casualties.
Already the ARCO branding has disappeared from 15 Western Washington ARCO stations, hidden behind black plastic sheets and duct tape. And the combatants have taken their disagreements to federal court, where a showdown is set possibly for next week over who gets to operate those stations and what kind of gasoline they can sell – if any.
The fight is not a conventional price competition that the term “gas war” suggests, but rather a high-stakes court and public-relations battle between oil giant BP (ARCO’s parent company) and a longtime Tacoma franchise owner.
If BP wins its arguments in court, that franchise owner, Hatem Shalabi, could be forced to shut down some of the highest-volume and lowest-price service stations in the Puget Sound area. If Shalabi wins what could be a long court fight, he could be freed from what he contends are onerous restrictions on what he can sell and what he can do with the stations he’s bought from BP over the past seven years.
“I consider what BP is doing is nothing short of slavery,” said Shalabi, an Egyptian-born Tacoman who has invested $37 million of his own and borrowed money in the chain of high-volume stations.
No BP executives or attorneys were available to comment Wednesday.
BP in court filings contends that the dispute is a matter of Shalabi living up to the agreements he voluntarily signed when he bought the stations. The company says the gas station owner owes BP more than $1.3 million in overdue gas bills and is harming the company’s reputation by selling unbranded gas at the stations it contends are still recognizable as ARCO stations to most of their patrons despite Shalabi’s attempts to cover the company’s logos and signs.
BP is alleging Shalabi violated its trademarks, is disregarding deed restrictions by selling non-ARCO gas and is failing to live up to promises he made to upgrade several ARCO stations. The oil company has asked a federal judge to order Shalabi’s stations shut down unless he pays his past due bill and agrees to pay cash on delivery for ARCO gas.
A federal judge has turned down BP’s initial request for a restraining order against Shalabi, but has asked the oil company and Shalabi to submit more written arguments by early next week. A hearing could be set then to decide the company’s request for a restraining order.
Shalabi’s attorney, David Schiller of Plano, Texas, said the franchise owner will argue BP doesn’t have any standing to seek the injunction because it no longer owns the stations or any property adjacent to them. Shalabi also will contend that BP helped create the financial predicament that brought on the crisis by pricing its gasoline to Shalabi at a level where making a profit was difficult and by imposing deed restrictions that were unreasonable.
Those restrictions prohibit Shalabi from selling any other brand of gas at the stations that he bought for 20 years after their purchase. They ban him from using the sites for any other purpose than a gas station and an associated ARCO AM/PM minimart.
Shalabi and Schiller contend they’ve taken their issues to the top echelons at ARCO and BP, meeting with top ARCO executives in California and emailing a lengthy entreaty to BP’s CEO in England.
“The answer we got was the lawsuit,” said Shalabi. That suit was filed last Friday in U.S. District Court.
Shalabi acknowledges that he owes BP more than $1.3 million, but in the high volume business that his stations do, that represents only about two-days’ supply of fuel at wholesale prices.
“That’s about one-third of one percent of the annual amount Mr. Shalabi pays to BP every year,” said Schiller.
Shalabi says his financial struggles originated with his purchase of 18 stations from BP in 2009.
Ordinarily, he said, a dealer can make five to seven cents a gallon on fuel, but BP priced the fuel from its Cherry Point refinery so that his margin was two cents or less.
He claims in another suit that BP was not forthcoming about the environmental conditions at the stations he bought. That deception, he alleges, cost him a sale of his flagship station at Puyallup and Portland avenues.
The Puyallup Tribe of Indians in 2008 approached him about buying 1.3 million-gallon-per-month station. He and the tribe had signed a tentative deal for $18 million. An investigation before the pending sale found the site was contaminated with a gasoline additive that had been used only through 2003, before he bought it from BP.
The tribe wanted the oil company to protect it from further cleanup costs on the site if it purchased the station. BP declined to agree to that indemnification, claimed Shalabi, even after Shalabi agreed to pay $3 million from the sale proceeds to do the cleanup. That refusal, he said, scotched the sale. Shalabi had bought the site for $6 million.
Tim Hamiilton, executive director of the Automotive Trades United Organization (AUTO), a Washington dealer group, said Shalabi’s story is not an unusual one.
“This guy’s between the devil and the deep blue sea,” he said. Many franchisees in similar spots end up financially wrecked, he said.
BP argues in court documents that Shalabi was a sophisticated buyer with experience in the industry when he signed the 2009 deal. By then he had operated and then owned the high-volume ARCO station at Puyallup and Portland avenues in Tacoma for a decade.
Anyone who buys the stations will likely be bound by the same agreement as Shalabi unless the court invalidates the deed restrictions.
Shalabi says in any case he intends to carry the battle onward, even if the early rulings goes against him.
“I will never sell another drop of ARCO gasoline,” he said.
John Gillie: 253-597-8663
john.gillie@thenewstribune.com
