Freedom Fuel Network Expands to Detroit Amid Fuel Supply Lawsuit

The Freedom Fuel Network, a chain of gas stations that launched in July with steeply discounted prices touted by President Donald Trump, has expanded with a new location in Detroit as a lawsuit over the chain's alleged supply heats up in Philadelphia federal court.

The Detroit location, where a gallon of regular unleaded was selling for $3.47, offers the cheapest gas in Michigan, where the average price is $4.09 per gallon, according to the price tracking site GasBuddy. The Harper Avenue station is the first Freedom Fuel station outside of New Jersey and Pennsylvania, where the network has a combined 29 locations.

Freedom Fuel stations are no longer the cheapest stations in those states, GasBuddy data shows.

In a court filing this week, a Georgia fuel supplier alleged that businessman Syed Kazmi and his company KRSM — which purportedly sold some of the fuel it bought from the supplier to Freedom Fuel stations — are violating a judge's Aug. 28 order by failing to maintain a balance of at least $2.75 million in an M&T Bank checking account as a suit over KRSM's purported failure to pay for the fuel plays out.

And in a new court filing Thursday, the supplier, Mansfield Oil Co. of Gainesville told a judge the account is underfunded by about $2.25 million.

That filing also says Mansfield Oil has learned from M&T that, contrary to KRSM's representations that it owns the account, the account "now belongs to some different Kazmi-related entity named 'Universal.'"

"The revelation that the account is now owned by 'Universal' also raises serious concerns that funds are being dissipated while KRSM fails to maintain the $2.75 million amount Ordered by the Court," Mansfield said in the filing.

Freedom Fuel is not a defendant in the lawsuit, whose allegations came after questions were raised about how Freedom Fuel could afford to offer steeply discounted prices amid supply constraints and higher fuel prices resulting from the Iran war.

Mansfield's suit, filed Aug. 19, alleges Kazmi and KRSM obtained more than 1.1 million gallons of Mansfield's fuel from a Pennsylvania supply terminal between May and July.

After Mansfield sent an invoice asking for payment for about $4 million for the fuel in July, the suit alleges, KRSM failed to pay it.

At least some of the fuel was sold to Freedom Fuel stations, which began operating in Pennsylvania and New Jersey in early July, the suit alleges. The civil complaint does not say how much of Mansfield's fuel ended up in those stations.

"KRSM was able to sell such fuel for such low prices and garner such publicity because it never paid Plaintiff for such fuel," the suit says.

Politico has reported that Kazmi's brother, Shamikh Kazmi, owns at least six Freedom Fuel locations in New Jersey.

CNBC has requested comment on the court filings from lawyers for KRSM, Syed Kazmi, Mansfield Oil and the Freedom Fuel Network.

A lawyer for KRSM, Mauro Tucci, told CNBC in an email on Aug. 30 that "KRSM disputes the allegations in this case, which is an accounting dispute over fuel invoices mis-priced by Mansfield Oil."

"We will not be commenting further on this pending litigation," Tucci said.