Baker & O'Brien, Inc.

Case Studies

Case Studies details

Case Studies details

Hurricanes Unravel Distribution and Branding Agreements

Litigation, North America

October 1, 2016

A major refiner/marketer (the “Refiner”) with assets concentrated in the Gulf Coast and the Midwest entered into several long-term distribution franchise and branding agreements (the “Agreements”) under which it agreed to supply gasoline and diesel fuel to a Midwest-based retailer (the “Retailer”), as well as to allow the Retailer to display its brand.  The Agreements defined elements such as volumes, pricing, brand incentives and penalties for non-performance.  Although successful initially, following various supply disruptions the relationship between the parties eventually deteriorated and the Agreements were terminated. 

The Refiner filed a lawsuit against the Retailer seeking millions of dollars in damages and claiming that the Retailer had violated the Agreements by consistently “under-lifting” the contractual volumes and by “de-branding” many retail outlets well before the agreed dates for de-branding.  In response, the Retailer filed a countersuit alleging that the volume shortfalls were caused by the Refiner not providing product when requested, and that the de-branding was the result of the Refiner’s own actions.

During many of the shortfall periods in question, the Gulf Coast had been struck by two major hurricanes and two Midwest refineries were experiencing unscheduled downtime.  Thus, the Refiner claimed that any supply shortfalls were force majeure events under the Agreements and that essentially all of their customers had experienced similar volume cutbacks.  Much of the Refiner’s Midwest supply was sourced from its hurricane-ravaged Gulf Coast plants.

Baker & O’Brien was engaged to conduct an in-depth analysis of whether the subject volume shortfalls experienced by the Retailer were unavoidable and how they compared to shortfalls experienced by the Refiner’s other customers.  Our consultants analyzed key public data as well as client-provided proprietary data.  We reviewed regional refinery runs, hurricane-related shutdown periods, Gulf Coast-to-Midwest pipeline flows, and terminal shortfalls recorded by both the Retailer and the Refiner’s other customers.  We issued a report outlining our conclusions and supporting analysis.  One of our consultants was deposed regarding our work, but the parties settled the case prior to trial.