Sacramento-based renewable fuel retailer Propel Fuels Inc. has filed suit against Phillips 66 Co., alleging that the Houston-based oil giant misappropriated Propel's trade secrets during due diligence for an acquisition that never occurred.
Meanwhile, Phillips 66 (NYSE: PSX) last week decided to move ahead with the conversion of its current petroleum refinery in Rodeo into the world’s largest renewable fuel refinery at a cost of $850 million and a completion date in the first quarter of 2024.
Propel’s suit, filed in Alameda County Superior Court, says Phillips began courting Propel in the fall of 2017 as an acquisition target. Up to that point, Phillips had not been in the renewable fuel business in California, Propel's suit says. Phillips brands include Union 76 gas stations (now called 76) in California.
Propel had been in the renewable business in California for over a decade, and it had relationships with state regulators and access to proprietary data about renewable fuel sales.
Propel currently has 24 employees, and 31 retail locations statewide, said Propel CEO Rob Elam, via email.
Propel’s suit says Phillips sought and got proprietary data in March 2018 from Propel about its customer identification, customer retention, regulatory, carbon credit, pricing and “other business strategies that were the heart of Propel’s business.”
At that point Phillips asked Propel to commit to an exclusivity agreement allowing Phillips to proceed as Propel’s sole potential acquirer. The lawsuit claims that Phillips executives told Propel’s management that Phillips would not enter the renewable business in California without Propel.
Propel signed the agreement, and then Propel executives introduced Phillips employees to state regulators, the suit says.
Then in August 2018, Phillips pulled out of the deal.
"Phillips 66 denies the allegations by Propel in its lawsuit," said Tristan Babin, spokesperson with Phillips, via email. "Phillips 66 has extensive experience to identify and provide products to consumers, including products that will contribute to a lower-carbon future. The company’s experience with renewable feedstocks for the production of fuels extends many years."
Propel started out in 2004 selling biodiesel. It later moved into selling high-performance renewable diesel as well as E85 Flex Fuel, which is 85% ethanol and 15% gasoline.
It moved its headquarters to Sacramento in 2010.
Over the years, Propel received grant funding from the California Energy Commission and it's worked with the California Air Resources Board, which makes the state’s low-carbon rules.
Propel said it learned of the misappropriated trade secrets in 2019 as Phillips began rolling out E85 and renewable diesel at stations in California. By August of that year Phillips said it would convert its Rodeo refinery to renewables.
This year, Phillips began selling E85 at 25 stations in California and renewable diesel at 450 stations. It also began barring stations in its network from renewing leases to Propel, the suit says.
"Phillips 66 supports competition in the renewable fuels market in California, as a robust market helps the state meet its environmental goals and provides customers with product choices," Babin said.
Propel is seeking compensation for damages, compensatory damages, exemplary damages attorney fees and injunctive relief to prevent Phillips from using Propel’s trade secrets.
Propel is represented in the suit by the San Francisco law offices of Kobre & Kim LLP, which filed the suit Feb. 16 in Alameda County Superior Court. The suit was unsealed by the court this week.
