California Joins Whistle-Blower Gas-Price Suit Against BP

California joined a whistle-blower lawsuit against BP Plc alleging that the company overcharged the state by as much as $300 million for natural gas over almost a decade, lawyers for the plaintiff said in a case unsealed in San Francisco state court.

The state and two of its university systems are pursuing the case along with a whistle-blower, former BP employee Christopher Schroen, according to a copy of the complaint forwarded by his attorneys. The lawsuit, which the lawyers said was unsealed today, couldn’t immediately be confirmed in court records.

BP overcharged a California program to provide natural gas to state and local government facilities, including those of Los Angeles County as well as university campuses and medical centers, according to the lawsuit.

London-based BP and North American units “fraudulently concealed markups and overcharges” through a process of “margin stacking,” according to the lawsuit. Management allegedly “manipulated its profit margin to exceed any reasonable amount of profit and greatly exceeded” contractual caps.

BP sold about $1.5 billion to $2 billion of natural gas to the program from about 2004 to 2012, when Schroen was fired, according to the suit. The overcharges during that period were at least $150 million to $300 million, the plaintiffs alleged.

‘Meritless Claims’

“BP will defend itself vigorously against these meritless claims, which were brought by a former employee who was terminated,” Jason Ryan, a BP spokesman in Houston, said in an e-mail. “We will respond to the claims in detail through legal filings to be made at the appropriate time.”

According to the complaint, Europe’s third-largest oil producer took advantage of its role as an exclusive supplier of natural gas to the program and passed along increased prices from the point of purchase to the sale to retail customers.

As provided for under BP’s contracts with the state program, many of the natural gas users opted to lock in special prices to avoid volatility of market rates, according to the complaint. The model was intended to include caps that limited BP’s profit, while in practice the caps were often exceeded, the plaintiffs alleged.

‘Extravagant Bonuses’

BP paid its employees “extravagant bonuses based on these out-of-control margins,” according to the complaint.

Schroen worked on the state program’s account from about 2004 until he was fired in 2012, which occurred after he learned of the excessive charging and refused to cooperate, according to the complaint.

The former BP employee said managers made him a scapegoat for “overcharging California” and spread false rumors that he committed criminal acts or had managed his accounts in a dishonest manner.

The lawsuit, brought under California’s False Claims Act, seeks triple damages and asserts claims including retaliation, defamation of character and wrongful termination on behalf of Schroen.

The case is State of California v. BP America Production Co., CGC-12-522063, California Superior Court (San Francisco).

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