COMMERCIAL LITIGATION AND PMPA UPDATE. Abby L. Risner 1 and Karen T. Staib 2

Transcription

1 American Bar Association Petroleum Marketing Attorneys Meeting April 14-15, 2016 Washington, DC COMMERCIAL LITIGATION AND PMPA UPDATE Abby L. Risner 1 and Karen T. Staib 2 Abstract This paper examines state court and federal court decisions applying the Petroleum Marketing Practices Act, 15 U.S.C et seq., and provides context on how those cases fit into the landscape of PMPA past precedent. 1 Abby L. Risner is an officer at Greensfelder, Hemker & Gale, P.C. in the St. Louis, Missouri office. She is a trial attorney practicing in the area of complex commercial litigation, focused primarily on franchise, petroleum marketing and class actions. She regularly advises on and litigates issues on behalf of franchisors related to termination, pricing, contractual disputes, other franchise issues and consumer claims. 2 Karen T. Staib is a partner at Shipman & Goodwin LLP in its Hartford, Connecticut office. She practices in the areas of complex business and commercial litigation, particularly in franchise and petroleum marketing matters, including representing major refiners and wholesalers in all aspects of petroleum marketing-related counseling and litigation, particularly dealer terminations under the PMPA and complex multi-dealer litigation involving claims related to pricing, rent, assignment and other franchise-related issues. 1

2 CASES SUMMARIZED A. Termination Notices and Adequacy of Grounds Supporting Termination 1. Scarsdale Cent. Serv. Inc. v. Cumberland Farms, Inc., 13-CV-8730 NSR, 2015 WL (S.D.N.Y. Feb. 13, 2015) 2. Amphora Oil & Gas Corp. v. Cumberland Farms, Inc., 15-CV-4638 ADS AYS, 2015 WL (E.D.N.Y. Oct. 19, 2015) 3. Getty Properties Corp. v. ATKR, LLC, 107 A.2D 931, 315 Conn. 387 (Conn. 2015) B. No Wrongful Termination When Franchisee Failed to Pay Rent and Failed to Operate Station 1. Hillmen, Inc. v. Lukoil N.A., LLC, CIV.A , 2015 WL (E.D. Pa. June 26, 2015) 2. Wynn v. Lukoil N.A., LLC, CIV.A , 2015 WL (E.D. Pa. Apr. 29, 2015) 3. Wynn v. Lukoil N.A., LLC, CV , 2015 WL (E.D. Pa. Aug. 28, 2015) C. No Wrongful Termination When Franchisee Failed to Timely Pay for Fuel Deliveries 1. MS & BP, LLC v. Big Apple Petroleum, LLC, 14-CV-5675 RRM RER, 2015 WL (E.D.N.Y. May 8, 2015) D. Reliance on PMPA for Interpretation of State Franchise Law 1. Fabbro v. DRX Urgent Care, LLC, 616 Fed. Appx. 485 (3d Cir. 2015) E. PMPA Preemption 1. Lukoil N.A. LLC v. Turnersville Petroleum Inc., CIV.A RMB, 2015 WL (D.N.J. Apr. 16, 2015) 2

3 A. Termination Notices and Adequacy of Grounds Supporting Termination In Scarsdale Cent. Serv. Inc. v. Cumberland Farms, Inc., 3 the United States District Court for the Southern District of New York granted defendants motion for summary judgment, finding defendants terminated plaintiff s franchise agreement in accordance with the PMPA. Plaintiff operated a Gulf Oil gas station. In October 2012, Cumberland (of which Gulf Oil was subsidiary) entered into negotiations with 880 CPA to purchase plaintiff s premises. 4 Plaintiff was notified of the negotiations and Cumberland informed plaintiff it had thirty days to submit an offer to purchase, and that plaintiff retained its right of first refusal ( ROFR ) under the PMPA. 5 When Cumberland received a higher bid from 880 CPA, it notified plaintiff of its right to exercise the ROFR. 6 Plaintiff then brought suit against Cumberland and its subsidiary Gulf Oil, seeking to enjoin defendants sale of the premises, to enjoin defendants from evicting plaintiff, to prevent defendants from terminating the franchise relationship, and to order defendants to honor plaintiff s right of first refusal, among other things. 7 Defendants counterclaimed, seeking a declaration that they satisfied the nonrenewal requirements of the PMPA, 15 U.S.C and 2804, a Lanham Act claim, breach of contract and unjust enrichment claims, and a claim for attorney fees. 8 Previously, the court had granted defendants motion for a preliminary injunction due to plaintiff s continued occupancy of the premises and wrongful act of selling gasoline under the Gulf Oil trademark. 9 Defendants moved for summary judgment, seeking an order granting their counterclaims and dismissing plaintiff s claims. 10 Here, the basis for termination provided in the notice of termination was the sale of the premises, but an earlier notice of termination had been issued for non-operation of the station. Ultimately, Cumberland pursued termination on the basis of sale of the premises. Accordingly, the PMPA required at least 90 days notice prior to the termination or nonrenewal. 11 The decision to sell the premises must be made in good faith and in the normal course of business in order to protect against discriminatory and arbitrary nonrenewal while avoiding judicial scrutiny of the business judgment itself. 12 Additionally, as here, because the premises were leased to the franchisee, the franchisor must offer a right of first refusal or make a bona fide offer to sell, transfer, or assign to the franchisee [the] franchisor s interest in such premises Scarsdale Cent. Serv. Inc. v. Cumberland Farms, Inc., 13-CV-8730 NSR, 2015 WL , at *8 (S.D.N.Y. Feb. 13, 2015). 4 Id. at *1. 5 Id. at *2. 6 Id. 7 Id. at *1, *3. 8 Id. at *1. 9 Scarsdale Cent. Serv. Inc. v. Cumberland Farms, Inc., 13-CV-8730 NSR, 2014 WL , at *9 (S.D.N.Y. Mar. 7, 2014) on reconsideration in part sub nom. Scarsdale Cent. Serv. Inc. v. Cumberland Farms, Inc., 13-CV-8730 NSR, 2014 WL (S.D.N.Y. June 24, 2014). 10 Scarsdale, 2015 WL , at * U.S.C. 2802(a), (b)(2). 12 Scarsdale, 2015 WL , at *5; 15 U.S.C. 2802(b)(3)(D)(i)(III). 13 Scarsdale, 2015 WL , at *5; 15 U.S.C. 2802(b)(3)(D)(i)(I). 3

4 Plaintiff accepted that the decision to sell the premises was made in the ordinary course of business, but challenged that it was made in good faith, and claimed that Cumberland did not make any bona fide offer. 14 Plaintiff claimed that defendants made oral representations that the franchise would be renewed, but that a different decision was being made. 15 The court rejected plaintiff s argument, finding that although representations to plaintiff may have been premature, defendants ceased any assurances and notified plaintiff s in writing of its negotiations with 880 CPA as soon as discussions advanced and terms crystalized. 16 Further, it was acceptable for defendants to notify of termination on two bases because defendants had every right to exercise their business judgment to terminate on whatever permissible grounds existed. 17 Plaintiff also argued that defendants did not satisfy the statutory requirement of either a right of first refusal or a bona fide offer to sell. 18 The agreement between defendants and 880 CPA was for land only providing that the defendants would dispose of all personal property, including equipment such as underground storage tanks, and that the defendants would absorb remediation costs. 19 According to plaintiff, this provision would gut its business, so any ROFR would not protect its interests, making the right inapplicable, and it was not a bona offer under the PMPA without the fuel equipment. 20 The court held that even if there was no right of first refusal, there was a bona fide offer to sell the premises. 21 Rejecting the Eighth Circuit s decision in Roberts v. Amoco Oil Co., 740 F.2d 602 (8 th Cir. 1984) and adopting the holding in Atlantic Avenue Oil & Gas Co., Ltd. V. Texaco Refining & Mktg., Inc., 699 F. Supp. 27 (E.D.N.Y. 1988) and Tobias v. Shell Oil Co., 782 F.2d 1172 (4 th Cir. 1986), the court agreed that the franchisor need not offer the franchisee those items of property on the premises that pose a threat of future pollution and liability. 22 Here, given the possible liability for environmental contamination, the provision was not a creature of bad faith to put plaintiff out of business. 23 Therefore, the Court granted summary judgment because termination complied with the PMPA. 24 The court also granted summary judgment for defendant (1) on the Lanham Act claim for plaintiff s continued use of the Gulf Oil trademark after termination while selling fuel from a third-party supplier; and (2) on their breach of contract and unjust enrichment claims for plaintiff s failure to pay holdover rent when plaintiff failed to vacate the premises after termination and for failing to pay for gas deliveries. Finally, the court awarded defendants their reasonable fees and costs under a provisions allowing for them in the contracts. In Amphora Oil & Gas Corp. v. Cumberland Farms, Inc., the United States District Court for the Eastern District of New York denied the plaintiff s motion for a preliminary injunction 14 Scarsdale, 2015 WL , at *5. 15 Id. 16 Id. at *6. 17 Id. 18 Id. 19 Id. 20 Id. 21 Id. at *7. 22 Id. (citing Roberts v. Amoco Oil Co., 740 F.2d 602, 607 (8th Cir. 1984) (finding that a bona fide offer to sell leased marketing premises under the PMPA must include gasoline tanks, storage tanks, and other equipment), Atlantic Avenue Oil and Gas Ltd. v. Texaco Refining and Mktg., Inc., 699 F. Supp. 27, 31 (E.D.N.Y. 1988), and Tobias v. Shell Oil Co., 782 F.2d 1172, 1174 (4th Cir. 1986)). 23 Id. at *7, *8. 24 Id. 4

5 that sought to prevent the defendants from terminating plaintiff s franchise. The court found that the termination complied with the PMPA. 25 Beginning September 2003, through a series of assignments, Cumberland Farms, Inc. and its subsidiary Gulf Oil L.P. (collectively, Cumberland Gulf ) leased from Joseph Zanghi the property at issue under a Master Lease, which was utilized as a gas station and convenience store. 26 In April 2004, plaintiff and Cumberland Gulf entered into a franchise agreement. 27 With the agreement was a Notice of Underlying Lease, which informed plaintiff that the agreement was subject to the Master Lease, and in the event the Master Lease expired, the Sublease and franchise agreement would also end. 28 On December 8, 2014, Cumberland Gulf sent a letter to Zanghi informing it that it did not intend to renew its Master Lease and therefore the Master Lease would expire on December 31, Two weeks later, Cumberland Gulf sent a letter to plaintiff ( Termination Notice ), advising that because the underlying lease was ending, plaintiff would be terminated on September 9, 2015, and offering to attempt to assign to plaintiff Cumberland Gulf s right to extend the underlying lease on the condition that it provided Cumberland Gulf with an unconditional release from liability by it and Zanghi. 30 Although plaintiff informed Cumberland Gulf of its intention to extend the underlying lease, the new landlord, Parkway Realty, refused to sign an unconditional release. 31 Specifically, Parkway Realty refused to substitute plaintiff for Cumberland Gulf because it was a small operator with few resources, so it would not be able to ensure the same level of protection. 32 Parkway Realty subsequently entered into a new lease for the gas station with a third-party. 33 Plaintiff then initiated the lawsuit against Cumberland Gulf claiming it would be wrongfully terminated. Specifically, plaintiff sought: (1) declaratory judgment against Parkway Realty that it wrongfully refused to recognize plaintiff s right to assume the lease under the PMPA, (2) declaratory judgment that Cumberland Gulf undermined Amphora s right to maintain its business in violation of the PMPA, (3) a permanent injunction preventing Cumberland Gulf from terminating the franchise agreement, (4) damages under the PMPA, and (5) injunction/declaratory relief that Parkway Realty must provide Cumberland Gulf notice and an opportunity to exercise a preferential right to the new lease, who then must assign it to plaintiff. 34 Before the court was plaintiff s request for a preliminary injunction preventing termination of the franchise agreements Amphora Oil & Gas Corp. v. Cumberland Farms, Inc., 15-CV-4638 ADS AYS, 2015 WL , at *15 (E.D.N.Y. Oct. 19, 2015). 26 Id. at *2. 27 Id. at *2, *3. 28 Id. at *3. According to the court, the agreement was due to expire on September 9, 2015, despite plaintiff s contention that it was automatically renewed. 29 Id. at *4. 30 Id. 31 Id. at *5, *6 (in late 2014 or early 2015, Zanghi sold the premises to the new landlord and defendant in this case, 750 Motor Parkway Realty LLC Parkway Realty ). 32 Id. at *6. 33 Id. at *7. 34 Id. at * Id. at *7. 5

6 The court began by recognizing that the enumerated grounds for termination under 15 U.S.C. 2804(c)(4) include the expiration of an underlying lease, if certain conditions are satisfied. 36 In the Second Circuit, once an event is established, the termination predicated on that event is reasonable as a matter of law. 37 In making its determination, the court found: (1) it was undisputed the franchise was terminated; 38 (2) on the merits of plaintiff s claim that it had a right to assume any options that Cumberland Gulf held under the Master Lease, plaintiff did not have an absolute right to assume an option contained in an underlying lease, but only the right to have the franchisor offer to assign the option, which Cumberland Gulf did in its December 2014 Termination letter. 39 Further, 15 U.S.C. 2808(c)(4)(B)(i) allowed Cumberland to condition an assignment on receiving an unconditional release of future liability. 40 The fact that the PMPA allows for an unconditional release implicitly contemplated that Parkway Realty could decline the release. 41 The court went on to note that Plaintiff s failure to secure an unconditional release does not violate the PMPA or prevent franchisors from terminating a franchise relationship, and is not a statutory failure as defined in the PMPA. 42 Lastly, the court rejected plaintiff s contention that Parkway Realty wrongfully entered into the lease with the third-party. 43 Any preferential right would belong only to Cumberland Gulf, and the PMPA only requires an option to extend the underlying lease or purchase the premises; not any preferential right to a third-party lease. 44 Accordingly, the court denied issuance of a preliminary injunction. 45 In Getty Properties Corp. v. ATKR, LLC, the Supreme Court of Connecticut declined to address defendant s PMPA claims, concluding that they were inadequately briefed. 46 Plaintiffs Getty Properties Corporation and NECG Holdings Corporations were the owners of property of which defendants operated retail gasoline service stations. 47 Getty Properties entered into a master lease with Getty Marketing for the properties. Getty Marketing then entered into subleases with Green Valley, a gasoline distributor. The Green Valley sublease indicated they were subject to the master lease and stated that they would automatically terminate upon the termination of the master lease. 48 Green Valley then entered into subleases with the defendants. 49 Those subleases indicated that they were subject to any underlying lease, and if the underlying lease was terminated, the lease would automatically terminate. When Getty Marketing failed to pay rent to Getty Properties, Getty Properties sent a notice of termination. Getty Marketing then cured the default. After a series of litigation in New York state court pertaining to the notice of termination and monetary default, Getty Properties terminated the master lease. Getty Marketing then filed for bankruptcy and, following another 36 Id. at * Id. 38 Id. at * Id. at * Id. at *11 41 Id. at * Id. at * Id. at * Id. 45 Id. at * Getty Properties Corp. v. ATKR, LLC, 107 A.3d 387, 413 (Conn. 2015). 47 Id. at Id. at Id. at 391,

7 series of events, the court ultimately deemed the master lease between Getty Marketing and Getty Properties terminated. 50 Before the termination was effective, Green Valley sent notice to defendants that the subleases would terminate because the master lease was terminating. Getty Properties (the owner) then wrote the defendants offering revocable license agreements to allow them to continue operating their business on a month-to-month basis. The defendants rejected that offer. After the termination was effective, Getty Properties again wrote to defendants advising that they must enter the revocable license agreements or vacate the properties. When defendants refused to vacate the premises, the plaintiffs commenced summary process actions. 51 After a bench trial that rendered judgment of immediate possession for plaintiffs, the defendants appealed, claiming among other things, that the court failed to dismiss the action as premature pursuant to the PMPA. 52 The court affirmed the trial court s finding that the notices to quit the premises were valid. The court also affirmed the trial court s finding that the plaintiffs established a prima facie case for summary process. As to defendants claim that the PMPA and Connecticut Franchise Act rendered the action premature, the court found the claims inadequately briefed and refused to address them where there was no analysis or application of the law to the facts of the case in the briefing. 53 The court also on a similar basis declined to address a prior pending action doctrine argument made by defendants relating to an action filed by the defendants in the United States District Court of the District of Connecticut against Green Valley for alleged violations of PMPA. 54 B. No Wrongful Termination When Franchisee Failed to Pay Rent and Failed to Operate Station In Hillmen, Inc. v. Lukoil North America, LLC, the United States District Court for the Eastern District of Pennsylvania held that a franchisee s claim for wrongful termination under the PMPA failed because the franchisor rightfully terminated the franchise for failure to pay rent and failure to operate for seven consecutive days. 55 The franchisee s request for a preliminary injunction was previously denied in the case. Pursuant to the parties franchise agreement, defendant, Lukoil, delivered motor fuel to plaintiff s Philadelphia gas station on Tuesday, February 19, 2013 around 11:50 P.M, and debited plaintiff s account three days later. 56 When plaintiff s check bounced, it claimed that payment was not due until Monday, February 25, 2013 because plaintiff had inquired when it would be due and was told that date. 57 The parties had a scheduled credit payment plan that set payment for fuel by EFT three business days after the delivery was made. Because of the nonpayment, plaintiff was placed on prepay status for fuel. Plaintiff admitted he did not pay for the fuel when his account was 50 Id. at Id. at 397, Id. at 398, Id. at Id. at 413 (citing n.13). 55 Hillmen, Inc. v. Lukoil N.A., LLC, CIV.A , 2015 WL , at *7 (E.D. Pa. June 26, 2015). 56 Id. at *2. 57 Id. at *3. 7

8 debited, February 22, 2013, nor had it been paid for at the time of the court hearing (a subsequent fuel delivery also had not been paid for). 58 As a result of plaintiff s nonpayment and failure to sell gas at the station following nonpayment, Lukoil sent plaintiff a termination letter notifying him that the franchise would be terminated effective April 9, Lukoil had previously sent plaintiff notices of default for failure to timely pay and other defaulting acts under the franchise agreement. Plaintiff then filed a complaint against Lukoil alleging wrongful termination under the PMPA. 60 Lukoil moved for summary judgment. 61 Initially, the court noted that plaintiff had done little to refute the facts offered by Lukoil on summary judgment not citing evidence of record or showing that the facts were genuinely disputed, allowing the court to construe Lukoil s facts as admitted. The court found that Lukoil s basis for termination fell within the PMPA. Plaintiff admitted that it did not purchase or sell gasoline for seven consecutive days and that this failure was a PMPA violation; however, the plaintiff argued that its failure to pay for fuel and operate the premises was a result of Lukoil s wrongful conduct. 62 Specifically, Plaintiff alleged that by increasing Plaintiff s rent, the cost of petroleum, and making improper debits, Lukoil caused the plaintiff to violate the PMPA. 63 According to the plaintiff, these failures excused its nonperformance, under 15 U.S.C. 2801(13). 64 The court rejected plaintiff s arguments, reasoning that 15 U.S.C. 2801(13), which has been considered as merely a legislated excuse for nonperformance, did not include a franchisee s lack of funds to pay invoices because that is not beyond the franchisee s reasonable control. 65 Additionally, the court held that Lukoil s actions were within the scope of its allowable business discretion and expressly agreed to by the plaintiff in the renewed franchise agreement. 66 Lastly, the court determined the timing of Lukoil s debits were consistent with the terms of the credit policy and the parties past practices. 67 Because plaintiff s failures were not attributable to a cause beyond the control of the franchisee, the court granted summary judgment for Lukoil on plaintiff s PMPA claims. 68 Defendant went on to argue that plaintiff s remaining state law claims for breach of contract, violation of the UCC 2-305, and fraud were preempted by the PMPA. 69 In applying the intimately intertwined test from Kehn Oil Co. v. Texaco, Inc., 537 F.3d 290 (3d Cir. 2008), the court found that plaintiff s UCC claim was not preempted because it was premised upon Lukoil s improper setting of fuel prices, not termination of the franchise agreement. 70 But, the court granted summary judgment for Lukoil on the claim because plaintiff presented no 58 Id. at *4. 59 Id. at *4, *5. 60 Id. at *1. 61 Id. 62 Id. at *8. 63 Id. 64 Id. 65 Id. 66 Id. at *9. 67 Id.. 68 Id. 69 Id.; 15 U.S.C. 2806(a)(1). 70 Hillmen, 2015 WL , at *10. 8

9 evidence that the price of fuel was increased in bad faith, and the rent and other changes were agreed to in the renewed contract. To the extent that other claims were not preempted, the court granted summary judgment in favor of Lukoil due to the plaintiff s failure to support them with evidence under the summary judgment Rule 56 standard. 71 Finally, the court entered summary judgment for Lukoil on its counterclaim for plaintiff s failure to pay for rent and fuel. Similarly, in Wynn v. Lukoil N.A., LLC, Plaintiff Darryl Wynn, a gas station franchisee, sought a preliminary injunction enjoining Defendant Lukoil, the franchisor, from terminating its franchise agreement in violation of the PMPA. 72 The United States District Court for the Eastern District of Pennsylvania denied plaintiff s motion for preliminary injunction. Plaintiff operated a gas station franchise for the defendant Lukoil for over 18 years. 73 However, beginning in 2012, plaintiff began missing regular payments for fuel delivered to the station. 74 The parties entered into multiple Repayment Agreements whereby plaintiff would pay an initial $20,000 of the money owed and further monthly installments until paid in full. At one point, Lukoil also forgave more than $40,000 of the indebtedness. Thereafter, plaintiff still failed to sell any gasoline or obtain fuel deliveries, and as a result, Lukoil sent a Notice of Termination on October 2, 2014, effective October 14, Plaintiff did not contest the amount that it owed ($85,000 by the time of the injunction hearing), but instead argued that the manner in which Lukoil negotiated payments created an impossible financial situation. 76 The court found that the shortened notice period twelve days was reasonable given that plaintiff had not sold gasoline at the station since August 2014, had insufficient funds for additional gasoline deliveries, and defendant had attempted to continue the franchise through two separate Repayment Agreements. 77 Similar to the circumstances in Hillmen, plaintiff failed to show a serious question going to the merits of the case. 78 In looking at the last factor for determining the propriety of a preliminary injunction under the PMPA whether plaintiff can show the balance of hardships weighs in his favor the court found that denial of the injunction would only continue the status quo wherein the dealer was making no payments to Lukoil at all, even if Lukoil could otherwise proceed with eviction proceedings in state court. 79 Further, although plaintiff suffered financial hardships, defendant continued to lose profits and rent with no assurance of payment. Therefore, plaintiff failed to show he would suffer a greater hardship, and the court denied his motion for preliminary injunction Id. 72 Wynn v. Lukoil N.A., LLC, CIV.A , 2015 WL , at *2 (E.D. Pa. Apr. 29, 2015). 73 Id. at *1. 74 Id. 75 Id. 76 Id. at *2. 77 Id. 78 Id. 79 Id. 80 Id. at *4. Although it ultimately decided the issue, the court noted that plaintiff s motion was untimely because it was filed more than thirty days after the termination took effect, as required by 15 U.S.C. 2805(b)(1). Wynn, 2015 WL , at *2. 9

10 Shortly after the court denied plaintiff s preliminary injunction, the court granted defendant motion for summary judgment and dismissed the complaint. 81 In readdressing the facts, the court found that Lukoil properly and appropriately terminated the franchise agreement under the PMPA. 82 Specifically, Lukoil terminated the agreement for proper grounds under 2802(c)(9)(A) as an event which is relevant to the franchise relationship and as a result of which termination of the franchise or nonrenewal of the franchise is reasonable, given that the dealer failed to sell fuel for seven consecutive days. 83 Further, the plaintiff failed to demonstrate that the defendant caused him to violate the agreement, 84 and any underlying reasons for plaintiff s debt were immaterial. 85 The court reiterated twelve day notice of termination was reasonable under the circumstances, particularly, given plaintiff s failure to pay his deliveries on time and keep and sell adequate fuel reserves. 86 In addition, the court dismissed plaintiff s related state law claims. First, the court declined to exercise supplemental jurisdiction over plaintiff s tortious interference claim because Wynn sued under the PMPA, invoking federal jurisdiction. 87 Further, the court denied plaintiff s duress excuse because the defendant could have terminated the agreement earlier, but instead chose to give plaintiff an opportunity to salvage the relationship. 88 Thus, the Repayment Agreements were not wrongful threats. 89 Lastly, the Repayment Agreements were valid because they did not renew the relationship, and plaintiff was rightfully compensated. 90 C. No Wrongful Termination When Franchisee Failed to Timely Pay for Fuel Deliveries In MS & BP, LLC v. Big Apple Petroleum, LLC, the United States District Court for the Eastern District of New York denied plaintiff s motion for preliminary injunction where plaintiff clearly failed to pay for its fuel deliveries in violation of the franchise agreement. 91 Plaintiff MS & BP, LLC ( MS & BP ), a gas station operator, entered into both a supply and lease agreement with Defendant Big Apple Petroleum, LLC ( Big Apple ), an Exxon/Mobil fuel distributor. 92 Big Apple s affiliated company and wholesaler, Capitol Petroleum Group ( CPG ) delivered the fuel and billed plaintiff on behalf of Big Apple. 93 According to the terms of the agreements, the plaintiff was required maintain sufficient funds to make payments via electronic funds transfer ( EFT ). 94 Beginning around September 2013, plaintiff s EFT payments repeatedly bounced, and on January 22, 2014, defendant sent plaintiff a letter demanding $30,000 security deposit for its 81 Wynn v. Lukoil N.A., LLC, CV , 2015 WL , at *8 (E.D. Pa. Aug. 28, 2015). 82 Id. at *3. 83 Id. 84 Id. 85 Id. 86 Id. at *4, *5. 87 Id. at *6. 88 Id. at *7. 89 Id. 90 Id. 91 MS & BP, LLC v. Big Apple Petroleum, LLC, 14-CV-5675 RRM RER, 2015 WL , at *12 (E.D.N.Y. May 8, 2015). 92 Id. at *1. 93 Id. 94 Id. at *2. 10

11 failure to maintain adequate funds. 95 Plaintiff paid the amount, but payments continued to bounce, and on June 17, 2014, defendant issued and served Notice of Termination effective September 15, According to defendant s notice, it was terminating for failure to timely and repeatedly pay. 97 Plaintiff sought a preliminary injunction enjoining defendant from terminating the agreements and ordering defendant to engage in good faith negotiations and renew the agreements. 98 In challenging the termination, plaintiff argued: 1) defendant never clarified what constituted late payment; 2) there could be no late payments after the security deposit because the purpose was to offset any bounced payments; 3) defendant s acceptance of untimely payments constituted a waiver; 4) there were inconsistencies in the times of payment; and 5) defendant acted in bad faith, providing it opportunity to cancel under 15 U.S.C. 2802(c)(9). 99 As to the timing of the notice of termination, the court held defendant s notice met the requirement that the franchisor give notice ninety days before the effective termination, and had actual or constructive notice of the events giving rise to the termination within 120 days prior. 100 Following the Second Circuit s continuing violation theory, the court held it was irrelevant whether or not defendant had knowledge of an ongoing violation before the period began, so long as there were violations that occurred within the proper timeframes. 101 Weighing the preliminary injunction factors under the PMPA, the court concluded that plaintiff failed to demonstrate serious questions going to the merits as required by 15 U.S.C. 2805(b). 102 Rejecting plaintiff s first argument, the court held that the terms of the agreements clearly stated that payment was due at the time of delivery and rent was due on the fifteenth. 103 Further, the trade practices between the parties revealed that CPG typically initiated payment on the third business day. 104 Thus, payment obligations were clear. 105 Second, defendant was able to obtain a security deposit as a remedy for plaintiff s indebtedness, and there was nothing requiring defendant to use the payment to offset future untimely payments. 106 Third, in looking at the express terms of the agreement, continuing to accept late payments did not operate to waive defendant s rights to terminate. 107 Fourth, the court noted that neither CPG nor any of its affiliates exercised control over the processing of cash-less payment receipts that were credited to plaintiff s account, and therefore defendant did not create the conditions that led to the alleged breach. 108 Lastly, the court rejected plaintiff s collusion argument because defendant did not seek to terminate the franchise based on failure to order fuel for seven days, but instead for failure to timely pay for fuel deliveries Id. at *3. 96 Id. at *3, *4. 97 Id. at *4. 98 Id. at *7. 99 Id. at * Id. at *8; 15 U.S.C. 2805(a), 2802(b)(2)(A)(i), (C)(i). 101 MS & BP, 2015 WL , at * Id. at * Id. at * Id. 105 Id. 106 Id. at * Id. 108 Id. at * Id. at *12. 11

12 D. Reliance on PMPA for Interpretation of State Franchise Law In Fabbro v. DRX Urgent Care, LLC, the United States Court of Appeals for the Third Circuit referenced the United States Supreme Court s PMPA analysis in Mac s Shell Service, Inc. v. Shell Oil Products Co. LLC, 559 U.S. 175 (2010) in evaluating New Jersey s Franchise Practices Act, and affirmed the district court s dismissal of the franchisees claims based on a constructive termination theory. 110 Here, two franchisees operating Doctors Express medical facilities brought claims alleging constructive termination of the franchises. 111 The court stated that Mac s Shell was not controlling on its interpretation of New Jersey s state franchise law, but noted that the distinction between the two statutory schemes is without a difference. 112 Even to the extent the New Jersey Supreme Court would follow Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc., 408 N.J. Super. 461, (2009), which contained a more expansive interpretation of constructive termination under the New Jersey s Franchise Practices Act, plaintiff s allegations were still insufficient. 113 Specifically, the court found among other insufficiencies that plaintiff failed to allege any manifest intent of the franchisor to cease doing business with the franchisee to the benefit of another dealer. 114 Thus, the court affirmed dismissal of the plaintiffs claims. 115 E. PMPA Preemption In Lukoil N.A. LLC v. Turnersville Petroleum Inc., the United States District Court of New Jersey held that defendant s counterclaims were not preempted by the PMPA. 116 Plaintiff Lukoil North America LLC terminated its franchise agreement with defendant Turnersville Petroleum Inc. for defendant s default, and brought suit against defendant for continuing market products through the unauthorized use of Lukoil marks. 117 Defendant counterclaimed asserting breach of contract, violation of the UCC, breach of the duty of good faith and fair dealing, and violations of the New Jersey Franchise Practices Act. 118 Plaintiff moved to dismiss defendant s counterclaims on the theory that they were preempted by the PMPA. 119 The court held that the PMPA did not preempt defendant s counterclaims. The court emphasized that within the Third Circuit, the PMPA only preempts state laws that limit the permissible substantive reasons that a petroleum franchisor can terminate a franchisee. 120 The Court applied the intimately intertwined test to preempt those state law claims that are intimately intertwined with the termination or nonrenewal of a franchise. 121 Lukoil asserted that defendant s counterclaims were intimately intertwined with the termination because the very genesis of Turnersville s counterclaims is that [Lukoil] allegedly set prices unreasonably, 110 Fabbro v. DRX Urgent Care, LLC, 616 Fed. Appx. 485, 490 (3d Cir. 2015) (unpublished). 111 Id. at 487, Id. at Id. at Id. 115 Id. 116 Lukoil N.A. LLC v. Turnersville Petroleum Inc., CIV.A RMB, 2015 WL , at *1 (D.N.J. Apr. 16, 2015). 117 Id. at * Id. at * Id. 120 Id. at *3 (citing Kehm Oil Co. v. Texaco, Inc., 537 F.3d 290, 298 (3d Cir. 2008). 121 Id. 12

13 such that Turnersville was unable to perform under the Franchise Agreement. 122 In rejecting this argument, the court found that defendant sought independent damages from events that happened prior to the termination of the franchise relationship. 123 As explained in O Shea v. Amoco Oil Co., 886 F.2d 584, (3d Cir. 1989), the PMPA does not reference any legislative intent to preempt the general common law of contract, even to the extent that it may become involved in a PMPA action. Therefore, simply because a franchise agreement was terminated did not mean that all counterclaims were automatically preempted by the PMPA [t]he mere fact that [Lukoil] chose to terminate the franchise should not deprive Defendant of the ability to bring claims for breach of the Franchise Agreement Id. at * Id. at * Id. 13