HOUSTON-- Texas Attorney General Greg Abbott has charged Petroleum Wholesale LP, Sun Development LP and related defendants with unlawfully defrauding their customers by diluting medium and premium grade gasoline with regular unleaded fuel. Because the premium gasolines sold at 143 of the defendants' Texas-based locations were improperly diluted, the defendants are charged with falsifying octane levels, defrauding their customers and violating the Texas Deceptive Trade Practices Act.
The state uncovered the defendants' alleged fuel dilution scheme, known as cross-dumping, [image-nocss] during the course of a prior enforcement action that charged the defendants with calibrating their gasoline pumps to deliver less fuel than was actually disclosed to customers.
According to court documents filed by the State, staff at the AG's office discovered more than 1,000 instances in which the defendants illegally cross-dumped fuel at 143 locations across Texas. A majority of the documented cross-dumping incidents occurred at gas stations in and around Harris County.
The cross-dumping incidents cited by the State occurred between 2005 and 2008. As of the filing date of the state's enforcement action, the defendants have refused to provide the state with documents evidencing their conduct after 2008.
In addition to operating Sunmart Travel Centers & Convenience Stores, the defendants also operate approximately 80 stations that are licensed by the state of Texas to sell fuel under branding agreements with three major fuel companies. Because branded stations feature brand-name products with performance-enhancing additives--such as fuel injection and valve cleaning products--those gasolines are marketed for their superiority over other fuels. As a result, when customers pay for a brand-name gasoline but actually receive generic or additive-free gasoline, they are being deceived about the nature of the product they are purchasing.
According to the state's enforcement action, the defendants not only diluted premium grade gasoline, but also sold unbranded fuel at branded stations. Further, the defendants allegedly hid this conduct from their branded fuel providers.
The AG's staff also uncovered evidence indicating that the defendants improperly sold conventional fuel in locations that required reformulated fuel, it said. Reformulated fuel, which includes detergents and oxygen, has a chemical composition that is intended to reduce carbon-monoxide emissions. The federal Clean Air Act requires densely populated areas that exceed certain air quality levels, such as Houston, to sell reformulated fuel.
The state's enforcement action seeks a temporary and permanent injunction against the defendants as well as civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.
This cross-dumping case is the state's third enforcement action against Petroleum Wholesale. In November 2010, a Harris County jury rendered a verdict of at least $30 million against Petroleum Wholesale and PWI GP LLC for deliberately and illegally calibrating their gasoline pumps to deliver less than a full gallon of fuel. A Harris County district court is currently reviewing the state's motion to reinstate the jury verdict in that case. The first enforcement action was resolved in December 2009, when Petroleum Wholesale was ordered to pay $100,000 for failing to properly protect its customers' personally identifying information in violation of state identity theft prevention laws.
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