I am about to describe some very strange behavior on the part of one refiner, Texaco. And in fairness to their competitors, I would like to file a brief disclaimer. I do not want for a moment to give you the impression that I feel that all refiners are doing the sort of strange acts that Texaco has been guilty of, so that I would not want to leave that inference unnoted.

In a sense my being here is a mark of failure, Mr. Chairman. I cannot get anyone from Texaco to talk to me. They would not negotiate, as I will note hereafter. I was pleased to note that my friend Max Goldman from the Texaco embassy is present in the room and is, I suppose, taking note of these remarks.

We realize, of course, Mr. Chairman that this hearing is being held to consider testimony H.R. 1362. Our purpose in appearing is not primarily to pass judgment upon that proposal but rather to tell the subcommittee of the critically serious problems imposed upon those independent small businessmen acting as wholesale distributors of Texaco branded motor fuel.

We are here because of the harshness of the new supply contract Texaco has offered its distributors. It will become effective 1-month from today.

"Offered" is perhaps a badly misleading way to describe Texaco's action with respect to the contract.

Mr. Chairman, Texaco has not offered a contract, it has demanded, literally demanded, that its distributors sign the contract as written by Texaco without any possibility of negotiation or, in most cases, even discussion of any possibility of changes of even one of the myriad clauses of this long and complex instrument. Texaco's distributers were told, sign it—or else.

Failure to sign resulted in the receipt of a notice of nonrenewal under the provisions of the Petroleum Marketing Practices Act. This is unbelievable. In some instances, the notice of nonrenewal was received prior to the jobber receiving the contract. In other words, one was told that the contract was not being renewed on the grounds that there had been failure to agree to the changes in the new contract-and this before the contract was received.

Typically, however, the notice of nonrenewal was received a few days after the proposed new contract had been delivered.

Despite the obvious necessity on the part of each individual marketer to study, hopefully to comprehend and finally to decide what the impact would be upon his individual business of this many-paged, multiprovisioned, cumbersome, complex and hideously difficult to understand document-nonetheless, a notice of nonrenewal based on the distributor's failure to agree to the changes contained in the new contract-as compared to the former 1976 contract-was quickly served on the individual distributor. This was done even though there had been no refusal to sign and even though sufficient time clearly had not passed to provide a reasonable grounds for judgment and action by the distributor. It was strictly a take it or leave it--no changes allowed-sort of operation.

It constituted an unbridled act of arrogance unparalleled in the history of the petroleum industry. And I say that on the basis of having worked in small business matters for 20 years.

The very individuals who had worked so hard to build the volume, the prestige, and the profits of Texaco were treated with total indifference bordering upon contempt.

There were significant changes in terms of increased harshness contained in the 1981 proposed contract. As an example, the 1976 contract had provided for arbitration in the case of disagreement between refiner and distributor. This was deleted in the 1981 contract.

Texaco takes the position, through company spokesmen, that this deletion was based on the fact that the arbitration provision had not been utilized. This is true, it had not been. A moment's reflection, however, is sufficient to make the point that the reason it was not utilized was because of the pervasive and all encompassing nature of the price and allocation regs of the Department of Energy. There was really very little that one could do to change their impact.

In a sense, it is almost incorrect to refer to the document offered by Texaco to its distributors as a contract, Mr. Chairman. A contract is, of course, a bilateral instrument. A two-sided instrument. This so-called contract is a one-sided instrument. It provides Texaco with a vast number of vague, almost indefinable, grounds for canceling the contract to the extent that it becomes, in truth, no contract at all. It is, at most, a contract at sufferance.

As an example, Texaco may cancel at any time it believes, in its sole judgment, performance of the contract to be "impractical," whatever that may mean.

It allows Texaco to take away the traditional 1-percent discount for payment within 10 days. Technically, it appears to require payment upon delivery, at the rack.

Incidentally, the annual aggregate amount of that discount today frequently constitutes a number larger than an individual distributor's total annual net profit. To this it would add a credit card surcharge of undisclosed amount. By signing the contract you concede that there will be a surcharge but they do not tell you how much.

Probably, in light of pending legislation, this could not be passed on by the distributor, by the way. It also gives Texaco the right to treat credit card invoices sent in by the distributor not, as has been the practice, as a cash credit on any amount due but only as a basis for Texaco writing and mailing back a check. This latter would impose a severe and substantial negative float upon the distributor. As an example I have one client in Texas who does about 16 million gallons a year-his cost of money is running on towards $2,000 a day. This is the sort of burden that Texaco is imposing upon these distributors. They cannot survive it.

I shall not impose upon the subcommittee other specific aspects of the contract. A copy of it, together with our analysis and summary has been supplied to the staff of the subcommittee and is available, I am sure, to each of you.

Texaco has made much of the fact that a substantial majority of Texaco distributors have signed and returned the contract._This being the case, Texaco argues, what is the yelling all about? Texaco's point of view is that it is a fait accompli. It is over. Its distributors have acceded to its demands.

Let's examine that for a moment. I am about to offer for the record, Mr. Chairman, some exhibits with excerpts from letters. They are not attributed because of the fear of retaliation. I do not mean to be dramatic about it but quite simply that is why they have been expunged. Should the committee or its staff wish to see the original so that they can verify that the letters were indeed sent and by whom, we would, of course, after consultation with those individuals, be most happy to supply it on a confidential basis.

Mr. BEDELL. Without objection, the items you mentioned will be entered in the record.

Mr. POTVIN. Thank you, Mr. Chairman.

Attached as exhibit 1 are examples of covering letters sent to Texaco when the signed contract was returned by individual distributors.

You will note that in substance these letters state the following: I particularly object to provisions A, B, and C and so forth in the contract, but since I cannot find an adequate alternate source of supply I have no choice but to sign and have done so.

Exhibit 2 was received from a Texaco wholesaler who indicated his disagreement with certain provisions of the contract by deleting them and placing an addendum of his own language to the contract indicating that it was signed by him under protest.

As a result of this action the wholesaler was notified that his franchise was being terminated. Subsequently, Texaco reinstated his franchise, but only after he agreed to sign another copy of the contract exactly as it was prepared by Texaco-not a semicolon could be changed.

Exhibit 3 is a letter to an individual distributor from his attorney characterizing the contract as "so unfair to you as to be virtually a nullity." It also stated that "the contract is lousy but with this gun to your head you have no choice but to sign it." Mr. Chairman, this clearly constitutes duress of the most severe sort. It clearly is an order of magnitude less than what Congress had in mind when it wrote the Petroleum Marketing Practices Act and provided that the basis for a new contract was mutual agreement upon any changes contained in that contract.

We are not contending that there should be a specific list of changes made in the contract as a broad general proposition. What we are suggesting, Mr. Chairman, is that individual distributors should have been able to discuss and negotiate those specific changes most important to their individual business.

Exhibit 4 is an excerpt from Oil Express, an industry trade publication. Its contents are quite sad because down through the years Texaco jobbers have been proud of their company. Proud of their affiliation. They supported it. At the moment what Oil Express shows is that 77.4 percent of Texaco distributors would recommend against doing business with Texaco, if someone asked them. This is by far the most unfavorable rating in the industry not close.

A couple of weeks ago we wrote a letter to Mr. Card—

Mr. BEDELL. I do not want to interrupt but we are short on time so I would appreciate it if you would make it as short as you could.

Mr. POTVIN. It is exhibit 5 and is part of the record. I shall not bother you with it. It has been said, Mr. Chairman that the genius of our democratic, free enterprise society is that it is a Government of law, not of men. The same, properly, may be said of the contractual relationship between individuals within our society. Perhaps the central vice of the situation in which Texaco distributors find themselves is the lack of this. The Texaco contractor, as I have noted, is harsh, unilateral and inequitable. The contract, however, has been accompanied by rhetoric from Texaco officials saying, "Don't worry about it. Put it in your desk drawer. Henry, we wouldn't do that to you." Thus, the individual distributor has almost no rights as a matter of law but his survival is dependent upon the continued good will-conceivably, even the whim or caprice of Texaco officials. This is not only patently unfair, it is against the basic precepts of the American system of democratic free enterprise.

As you can see, Mr. Chairman, the problems encountered today by Texaco wholesalers, facing as they do an extremely uncertain future, simply are not covered by the provisions of H.R. 1362. Indeed we find ourselves somewhat baffled as to what would be the precise result of the interplay between the proposed legislation and the contract we are here discussing.

Thank you once again for this opportunity to present our view and should there be questions we will attempt to cope.

Mr. BEDELL. Thank you, Mt. Potvin.

[Mr. Potvin's prepared statement with attachments follow:]

Re Notice of nonrenewal.

EXHIBIT 1

FEBRUARY 18, 1981.

Texaco, Inc.

We have received notice of nonrenewal dated 1981, advising that our Distributor Agreement with Texaco dated 1980 will not be renewed at its expiration date of April 30, 1981 and that Texaco, Inc. will terminate its franchise relationship with that date. The reason alleged by Texaco for its arbitrary decision to not renew the distributor agreement is the failure of --and Texaco to agree to changes and additions in the provisions of the subject franchise agreement. As you know, these decisions have been unilaterally made by Texaco and the position and opinion of the distributor were not solicited or considered in any way. We object to the nonrenewal of the Distributor Agreement and strenuously object to the Agreement proffered by Texaco in its stead. The Marketer Agreement Form S-175A 12-80, consisting of eight type written pages with accompanying exhibits is not a contract reached by arms length bargaining, but one favoring Texaco and presented to this long time distributor on a take it or leave it basis.

The Marketer Agreement lacks mutuality and is the most one sided agreement I have ever read. There is no arbitration clause. Texaco arbitrarily determines the minimum and maximum petroleum volumes without regard as to what the distributor can handle based on his business experience and area potential. The Agreement is arbitrary in that Texaco can unilaterally cancel the Agreement if the minimus are not met.

We are greatly concerned that Texaco has refused to negotiate the terms of this Agreement but has crassly presented it to the distributor on a sign it or else basis. An instance of the one-sideness of the Agreement is founded in subparagraph (f) of the unleaded gas indemnification section of the contract. Texaco selects the transporter of unleaded gas and causes the unleaded gas to be transported from its processing plant to Inc. Yet, it requires indemnify it for any contamination which may be caused by the transporter and/or the processing plant. This is unconscionable. Where Texaco selects the carrier, and controls the product from

processing plant until the time it is presented to the purchaser it is unconscionable to thrust liability by indemnification upon the purchaser of Texaco's product.

Further, the allocation to the purchaser should be negotiated with consideration given to the anticipated needs of the purchaser who has the greatest knowledge about what he can reasonably expect to sell to his customers within the market

area.

It is with great regret that we observe over the past few years that Texaco has assumed a very haughty, high handed, and arbitrary posture in dealing with the people who have sold its products for 30 years or more. Why is it necessary?

In re New Texaco Contract.

Texaco, Inc.

I am writing in regard to the new contract submitted by Texaco to my company as a distributor. After reviewing this contract in some detail it is very obvious to me that this agreement is one that is weighed very heavily in favor of Texaco. The contract leaves a number of decisions totally within the discretion of Texaco without any definable criteria to be followed in making determinations.

Texaco surely must understand that this contract leaves me and, I am sure, many other distributors between the proverbial “rock and hard place”. In order to insure the operation of my business I must sign the contract that leaves many unanswered questions and allows Texaco almost unlimited rights and discretion in many key areas. Not to sign the contract is certainly more drastic to my company at the present time.

The intention of this letter is to put Texaco on notice of my deep concern for many of the terms stated in this agreement. Some of the most objectionable of these clauses to me are as follows:

1. Products and quantities.-This paragraph obviously weighs in Texaco's favor and a termination based on yearly or monthly minimum quantities of any product is most unfair. The unfairness appears in that overdraws are excluded as a basis for enlarging quantities.

2. Delivery. This paragraph gives Texaco sole discretion in changing the shipping point at its option. Further, the jobber has to bear the risk of loss in transit. Further, Texaco can change the shipping point on ten days notice. Here again, Texaco can change the method of transporting, making the jobber, regardless of the change, responsible for any loss.

Further, orders must be placed for full loads with Texaco reserving the right to ship smaller quantities. Texaco has total discretion in approving the jobber's transportation and its capacity with the jobber having nothing to say in regard to Texaco's delivery, etc. Further, the jobber must warrant his carrier to Texaco and be responsible for any failure to observe Texaco's rules.

3. Terms.-This section is objectionable due to the demand for payment upon delivery. The further question for payment within ten days is unclear. It is certainly dangerous to have this uncertain clause when a failure to make payment could result in termination of the contract. I would certainly desire a written agreement interpreting this paragraph with Texaco.

4. Practicality. This paragraph again allows Texaco sole discretion of terminating shipment or supplies for any reason whatsoever.

5. Product grades. Here again, Texaco, in its sole discretion, can make available a product grade or grades different from those provided. The jobber has little, if any, protection in this situation.

6. Unleaded gasolines and unleaded gasohols.-This paragraph again puts total responsibility on the purchaser for testing and these requirements seem overly burdensome. Further, the buyer has a responsibility to indemnify the seller. Also, there appears to be some conflict with subparagraphs h and g.

7. Termination by seller.-In this topic the distributor is asked to agree that all of these many reasons for termination are reasonable and of material significance when many of the grounds lack any definable criteria. It almost makes the supplier terminable at the whim of the seller.

8. Independent status.-This paragraph, although expressing independence of the purchaser, is surely lost due to the contents of the previous paragraphs.

9. Minimum standards.-This paragraph could certainly present real problems with respect to painting over sellers colors if the owner refused.