Lawsuit claims fossil fuel giant used deception during acquisition talks to implement environmental, social and governance strategy it could not develop on its own
SAN FRANCISCO, May 18, 2022 /PRNewswire/ — Propel Fuels, Inc. (“Propel”), a retailer of low-carbon fuels at branded stations across Californiafiled a lawsuit against Phillips 66 Company (“Phillips 66”), arguing that TexasA New York-based oil company misappropriated Propel’s trade secrets and engaged in illegal business practices in violation of California Uniform Trade Secrets Act and Unfair Competition Act.
Propulsion is represented by the San Francisco law firms of global litigation firm Kobre & Kim, which filed the lawsuit February 16, 2022, in Alameda County Superior Court. The complaint, unsealed by the court yesterday, alleges that Phillips 66 obtained Propel’s trade secrets during the due diligence process for a proposed acquisition solely to pull out of the deal and start its own renewable fuels business in California shortly before the acquisition was completed.
In total, Phillips 66 invests billions of dollars in the California renewable fuels market based on Propel’s trade secrets, the complaint states.
Prior to receiving the confidential information from Propel, Phillips 66 had not sold any branded renewable fuels to consumers in California, and he knew nothing about the company, the lawsuit claims. As one of California largest refiners and retailers of transportation fossil fuels in CaliforniaPhillips 66 is highly motivated to find a solution to its increasingly costly carbon emissions obligations.
Below California Low Carbon Fuel Standard (LCFS), Phillips 66 must reduce the carbon content of its fuels by approximately 20% by 2030. To meet this requirement, Phillips 66 is required to sell a certain volume of low carbon fuels. carbon – or to buy LCFS credits from companies like Propulse – if it cannot reduce the carbon content of its fuels itself.
According to the complaint, Phillips 66 had never sold a drop of low-carbon fuel to consumers in California at the time of the acquisition offer, meaning it was faced with escalating compliance costs by purchasing carbon credits, with no significant source of credit generation to offset them.
Enter Propel. Founded in Seattle, Washington.and recruited for California by state agencies seeking to expand the availability of low-carbon fuels, Propel has pioneered an “on-ramp” allowing consumers to access California low carbon economy. Propel did it by connecting people to affordable, low-carbon fuels at convenient places everywhere. California – in places like Oakland, Fresno, Riverside and nearby communities considered “disadvantaged communities” by the California Environmental Protection Agency.
Where nearly every other market entrant has failed, Propel has thrived with proprietary business strategies and data-driven analytics developed over years of experience. Based on the success of these strategies, Propel had been hailed as “cracking the code” of the renewable fuels retail market.
Propel has also received several awards, including the 2016 Clean Energy Award for Top Clean Energy Technology Innovator, and rankings on the Inc. 500 and Silicon Valley Business Journal lists of fastest growing companies.
Propel’s strength in the renewable energy market has made it – and its trade secrets – an attractive acquisition target for Phillips 66.
The complaint alleges that Propel’s trade secrets showed Phillips 66 that there was an opportunity not only to help Phillips 66 mitigate its LCFS compliance costs, but also to lay the foundation for a whole new business opportunity that could boost Phillips 66’s profitability while improving its environmental, social and governance (ESG) credibility – an important factor in driving low-carbon business investment for major fossil-based oil companies.
“Unsurprisingly,” Propel’s lawsuit states, “Phillips 66 expressed enthusiasm for moving the transaction forward.” On December 20, 2017she submitted an all-cash acquisition offer and began what she initially described as confirmatory due diligence.
“What started out as standard due diligence,” says Propel Fuels Founder and CEO
Rob Elam“turned into a year of extracting trade secrets”.
Phillips 66 demanded detailed information about all aspects of Propel’s business and strategic activities from Propel management, the lawsuit says. Propel also brought Phillips 66 its experience and reputation by meeting California regulators and guide Phillips 66 through the complex regulatory process necessary to obtain approval to sell E85 and renewable diesel on the Phillips 66 network.
For example, Phillips 66 asked Propel to use its proprietary location algorithms to choose the top 250 locations for new low-carbon Phillips 66/76 brand refueling sites across Californialater built by Phillips 66 without Propel, and designed to attract Propel customers, according to the complaint.
The lawsuit alleges that, in order to acquire this confidential information, Phillips 66 repeatedly assured Propel’s senior management of its intention to complete the deal and that it would not enter into the California renewable energy market without Propel.
When final documentation for Phillip 66’s acquisition of Propel was only hours away from final signings, Phillips terminated the transaction without explanation on a Friday morning.
The following Monday, Phillips 66 notifies California regulators that it intended to apply for permits to distribute and sell the same type of low-carbon fuels that Propel Fuels sold.
Walking away after Propel effectively designed an entire low-carbon business for it, the complaint claims that Phillips 66 is now building a copycat business using the highly proprietary financial models, customer research data and the trade secrets he learned during the confidential due diligence process.
Since pulling out of the deal, Phillips 66 has announced a $800 million project to his Rodeo, California.refinery to begin manufacturing renewable diesel fuel, and has launched sales of renewable diesel fuel and E85 (85% ethanol, 15% gasoline) in some 450 of its California detail 76 stations.
Propel Fuels had “no choice” but to seek legal redress for the alleged theft of its proprietary data and business methods by Phillips 66, Elam said.
Prior to Propel, Phillips 66 had no low carbon business in California – no customers, no financial data, no operational experience. But after extracting Propel’s trade secrets, Phillips 66 was confident enough to invest billions of dollars, ahead of their Big Oil peers, in a strategically critical new low-carbon business effort, the lawsuit says.
According to the complaint, Phillips could not and would not have made these investments without the business strategies, data and relationships with customers and regulators that Propel took more than a decade to develop. Propel was supported by California agencies (and taxpayers’ money), employed Californians in the new energy economy and engaged a wide range of stakeholders in these efforts.
“We think this was all just stolen by Phillips 66,” Elam says.
About Kobre & Kim
Kobre & Kim is an Am Law 200 global law firm that focuses on cross-border litigation and investigations, often involving fraud and misconduct. Our specialized and integrated product offerings enable the firm to address clients’ underlying issues, whether legal, financial or reputational. For example, the firm has extensive experience working on behalf of creditors and debtors in international litigation, which enhances our ability to intervene on both sides of such litigation. For ultra-high net worth individuals with global business interests, we deploy cross-border litigation and crisis management strategies to safeguard assets, liberty and reputation. We primarily act as special advocates in sensitive situations requiring independence and conflict-free advocacy.
For more information visit: www.kobrekim.com.
SOURCEKobré & Kim