Motor Oil Misadventure

CITGO hauls jobber into court for misbranding motor oil, other products

Carole Donoghue, Petroleum Editor

HOUSTON -- CITGO Petroleum Corp. has sued one of its marketers for selling substandard motor oil and engine fluids under the CITGO brand. The refiner told a federal judge that its reputation would be damaged and customers would become confused if Mid-State Energy Inc. was not prevented from using the CITGO brand in such a way.

The actions of Mid-State Energy and its wholly owned subsidiary, Highlands Oil Co. Inc., amounted to false advertising, unfair competition, trademark counterfeiting, breach of contract and deceptive trade practices, CITGO told a Tampa court. Mid-State Energy, based in Lake Wales, Fla., engaged in "knowing, willful and intentional" acts, CITGO alleged.

Mid-State is a multi-branded retailer and wholesaler moving approximately 50 million gallons per year through 100 company and dealer-owned stores. The company markets under the CITGO, Sunoco, Marathon and Pure brands, distributes propane through a third firm, AmeriGas, and also operates a commercial office and warehouse business complex.

Mid-State did not oppose the preliminary injunction the court issued at CITGO's request.

"We've been a CITGO jobber for over 50 years, and we regret this situation," Kim Allen, one of the company's owners, told CSP Daily News. "It was a warehouse issue and once we identified it, we took immediate steps to correct the error. At no time was anything done intentionally, and we regret that our internal controls weren't able to catch this labeling error."

CITGO said in court papers that it was alerted to the misbranding activity in March when the Independent Lubricant Manufacturers' Association (ILMA) sent it a sample of hydraulic fluid that had been purchased from Mid-State that failed to meet CITGO's claimed performance and quality specifications.

ILMA is a trade association of lube oil manufacturers, of which CITGO is a member. The group operates its own testing lab in an effort to counter the low-quality, low-cost lube oils now readily available in the wholesale market.

The tests showed that the product not only failed to match the chemical fingerprint for a CITGO product, but did not even meet "the basic industry standard."

When CITGO checked its records, it found Mid-State Energy had not purchased any of the fluid since 2008, when it had bought 2,500 gallons in bulk; however, it had bought CITGO packaging labels from a CITGO vendor as recently as February 2012, acquiring enough to brand almost 10,935 gallons of product.

CITGO hired an independent testing firm that sent "secret shoppers" into a Mid-State Energy store to buy samples of all the CITGO-branded products Mid-State sold. CITGO also ran tests at its Cicero, Ill., lab. The tests showed that at least five of the 10 products purchased were not CITGO products at all.

Mid-State Energy signed lube distributor and packaging agreements with CITGO in 1994 and 1996 that allowed it to repackage CITGO bulk lubes and sell them at retail under the CITGO brand. Mid-State buys via tanker truck loads and repackages them in five-gallon buckets or 55-gallon drums that it sells to end users, typically trucking and construction firms, farmers and other industrial accounts throughout the state of Florida, according to court records.

Judge Virginia M. Hernandez Covington said issuing a preliminary injunction would "help ensure that consumers are not deceived by the improper branding of products." Under the court order, Mid-State is required to "quarantine" all counterfeit products, goods, labels and receptacles and must file a report with CITGO detailing how they have complied with the court order. Under federal law, CITGO can claim treble damages, repayment of wrongful profits and its attorneys' costs and fees. It can also seek actual and punitive damages under Florida's state deceptive practices statute.

CITGO said its company policy is not to comment on pending litigation.