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County governments in the Baltimore metropolitan area are embroiled in a multimillion dollar lawsuit alleging they defrauded and breached contract with an oil supply company after Hurricane Katrina.

In U.S. District Court Tuesday, Petroleum Traders Corporation of Fort Wayne, Ind., argued that Baltimore County and its Administrative Officer, Fred Homan, broke a contract in an attempt to save money on fuel costs – and then persuaded fellow jurisdictions Harford, Carroll and Anne Arundel counties to do the same.

But Baltimore County attorney Paul Mayhew told jurors during opening statements that it was the petroleum company that was to blame.

“We lived up to our deal,” Mayhew told the jury. “They did not live up to their part of the bargain. They treated us with contempt. … It will be easy for you to say, ‘Baltimore County did nothing wrong and you’re [Petroleum Traders Corp.] not getting one cent.’”

Petroleum Traders filed suit in 2006 to “recover damages” suffered at the hands of the local governments, the company said. In April 2004, the company signed a three-year contract to supply oil to members of the Baltimore Regional Cooperative Purchasing Committee, which includes the governments and public schools of Anne Arundel County, Baltimore City, Baltimore County, Carroll County, Harford County and Howard County.

In total, the BRCPC estimated its participating agencies would annually purchase 5 million gallons of gasoline and 3.3 million gallons of diesel fuel, the suit states.

Though they are members of the BRCPC, Baltimore City and Howard County are not named as defendants in the suit.

In September 2005, shortly after Hurricane Katrina, when oil prices spiked, the governments invoked a provision in their contracts that allowed them to elect a fixed pricing structure for the period from Dec.6, 2005 through April 2, 2006. They elected a fixed price to hedge against their concern that oil prices would continue to rise, according to the suit.

But in November 2005, after oil prices fell, the fixed price the governments had elected was no longer advantageous to them because the retail price of fuel had fallen to a point lower than the fixed price, the suit states. Even though the contracts did not provide a mechanism to “renegotiate” the already fixed price, the local governments, through lead jurisdiction Baltimore County, embarked on a campaign to force the oil company to provide a price reduction, according to the suit.

When the oil company refused to allow the governments to once again purchase at the fixed price, Homan said the company defaulted on the contract and terminated it, though the company claims it did not default on the contract.

Michael Himes, the CEO and President of Petroleum Traders Corp., testified Tuesday that it was a “surprise” when Baltimore County abruptly pulled out of the contact.

He said his relatively small oil company often deals with local governments who “like to establish a price they can count on.”

“We’re a small company. We don’t have in-house legal staff,” he said, adding that he reads the plain language of contracts. “It says if you sell us this product at this price, well pay for the product at this price.”

The trial is expected to last several days.


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