Gas retailers sue Suncor over Petro-Can merger

Sunoco gas station owners in Ontario have sued Suncor Energy Inc. for terminating their franchise agreements as a result of the company's merger with Petro-Canada last summer.

Sunoco franchise owners launch class action suit over cancellation of agreements

Sunoco gas station owners in Ontario have sued Suncor Energy Inc. for terminating their franchise agreements as a result of the company's merger with Petro-Canada last summer.

Suncor Energy CEO Rick George, left, shakes hands with Petro-Canada president and CEO Ron Brenneman after announcing a merger in March 2009 to create Canada's largest oil company. ((CBC))

On Tuesday, 300 Sunoco gas station operators filed suit in the Ontario Superior Court of Justice seeking damages of up to $200 million against energy titan Suncor.

Last week, Suncor announced plans to terminate the retailer franchise agreements of all 300 independent Sunoco retailers in Ontario.

The two energy titans unveiled plans to merge in a $43 billion all-stock deal last March. At the time, Suncor CEO Rick George said costs would be cut through job losses and streamlining of the merged company's retail distribution networks.

In approving the deal, the Competition Bureau required Suncor to sell 104 retail outlets, mostly in southern Ontario, where the two companies had overlapping businesses.

The remaining Sunoco-branded stations will switch to the Petro-Canada banner.

"These independent operators have — for, in some cases decades — worked very, very hard, put a lot of effort into building up the Sunoco brand and really contributed to the success of Suncor and to this merged company," said David Sterns, a lawyer for Sotos LLP, the Toronto law firm handling the case.

"And what's happened since the merger is they've really been given the short end of the stick."

Three-month stock chart for Suncor Inc. on the TSX.

Suncor received the statement of claim late Monday afternoon, said company spokeswoman Sneh Seetal. Richmond Hill, Ont., retailer TA&K Enterprises Inc. was named as the lead plaintiff.

"We are currently reviewing these documents. As the matter is now before the courts, we cannot comment further," Seetal said.

Under Ontario law, franchisors are required to give documents to franchisees that outline potential risks and other key information about the business.

The franchisor is supposed to give the franchisee those documents at least two weeks before an agreement is signed — something the lawsuit says Suncor failed to do.

If the disclosures are not received before an agreement is signed, the franchisee has two years to rescind the agreement and receive compensation.

"If we're successful in the lawsuit, they will be entitled to recover substantial amounts that they've paid to their franchisor since they signed their last franchise agreement," said Sterns.

Franchise agreements terminated

Last Tuesday, 200 of the 300 retailers received a letter from Suncor saying their franchise agreements were being terminated and that they would be entitled to "transition payments" if they complied with certain conditions.

Then on Friday, Suncor met with the retailers whose sites were being sold to tell them they would not get transition payments or other compensation and that their agreements would be terminated as well.

Another Calgary energy company, Husky Energy Inc., has agreed to buy 98 of Suncor's retail outlets, but they are under no obligation to keep the current operators.

In October, the retailers received an email from Suncor saying they were converting to Petro-Canada's distribution model, under which one franchisee operates between 10 and 12 sites.

That model would essentially reduce the number of franchisees needed by 90 per cent and make running a block of outlets financially untenable for most of the existing operators.

"They've really been in some ways treated as though they're chattels to be bought and sold as opposed to franchise partners who helped build up the brand," said Sterns.

Suncor laid off 1,000 workers, mostly at its head office, following the Petro-Canada merger. It said last week that another 1,000 jobs are being cut as Suncor sells off its non-core natural gas assets.

Suncor stock was down 46 cents at $36.54 in afternoon trading Tuesday on the Toronto Stock Exchange that saw almost 2.2 million shares change hands.

With files from The Canadian Press