A Texas-based oil company is suing Albuquerque for breach of contract, saying it was left “holding the bag” when the city aborted a fuel agreement in an effort to find a better deal.
Davidson Oil claims the city terminated its fuel contract earlier this year in search of more favorable prices, causing the company to lose money on the hedge contracts it had already bought to serve the city.
But the city says the move was in the public’s best interest and suggested the company – where former Albuquerque city councilor and one-time mayoral candidate Dan Lewis is the director of operations – is looking for an “easy payday” with the lawsuit it filed last month in federal court.
The suit hinges on a contract the parties entered into in January for unleaded gasoline and diesel fuel. Davidson was to begin providing the city with fuel on July 1 at a previously established fixed rate, according to the agreement the city provided in response to a Journal request. After signing the deal, the company in January bought 12 one-month hedge contracts to support the agreement, the suit says.
But when oil prices subsequently tanked in the early days of the COVID-19 pandemic, the city in March gave Davidson notice that it was exiting the arrangement under the “termination for convenience” clause, according to the suit, thus leaving Davidson with “no place to sell the fuel oil hedge it purchased to meet its obligations to (the) City without incurring substantial losses.”
“The city basically said they had financial reasons for terminating the contract, but they threw us under the bus in order to save money,” said Ross Crown, an attorney representing Davidson, adding that the company had already spent money to support the contract.
Already in July and August, the company has lost $400,000 on the hedge contracts, Crown said.
City officials cited the contract’s termination as a likely money-saver for the city during Mayor Tim Keller’s budget news conference earlier this month. Sanjay Bhakta, the city’s chief financial officer, did not name Davidson specifically but said that the city revisited its fuel arrangement after prices crashed.
“Now we are buying at the market price. That will save us some money,” Bhakta said at the news conference on Sept. 3.
Though the exact amount is unknown, Bhakta said the change could save the city’s general fund about $900,000 in fiscal year 2021. When counting other departments – such as transit and solid waste – there could be another $1 million saved, he said.
But Crown said the city was wrong to leave the company “holding the bag.”
“The way the city is interpreting (the contract) is kind of a ‘heads, I win; tails you lose’ situation,” Crown said. “They want to interpret the contract to mean if the price of oil goes up, they can insist on Davidson Oil providing oil at the fixed price, but if the price goes down, they claim they have the right to cancel the contract and go purchase the oil for a cheaper price elsewhere.”
The city said in a statement that it was obligated to find the best price for the public. It also raised questions about the company’s motives.
“It is our duty to get the best possible deal for taxpayers. It’s common practice to review and evaluate contracts to fulfill that duty, and of course we would hope that an out-of-state company affiliated with a former city councilor and candidate for mayor isn’t looking for an easy payday on the backs of Albuquerque residents,” city Economic Development Department spokeswoman Kinsey Cooper said in an emailed statement. “The economic side effects of COVID-19 made this evaluation process more important than ever.”
Crown said Lewis’ past public service is “irrelevant” to the lawsuit and noted that Davidson has eight Albuquerque employees despite being based in Texas.
“It’s simply a distraction the city is trying to raise (apart) from the true issue involving their breach of the contract,” Crown said.
The suit seeks unspecified damages and the cost incurred pursuing the suit.