Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—3rdCir: Refusal to Pay Branding Incentives Did Not Excuse Gasoline Dealers’ Nonpayment for Gasoline, Rebranding Expenditures, (Jan 24, 2013)

By John W. Arden, J.D., LLM.

A gasoline franchisor’s refusal to pay branding incentives and rebranding costs to owners of two retail gasoline dealerships did not excuse the owners’ nonpayment for gasoline purchases and branding expenditures to a distributor, the U.S. Court of Appeals in Philadelphia has ruled in a not-precedential opinion (GLeS, Inc. v. MK Real Estate Developer & Trade Co., January 23, 2013, per curiam). A judgment awarding $244,210 to the distributor and rejecting the rebranding incentive counterclaim was upheld.

In December 2005, gasoline distributor GLeS, Inc. entered into a sales agreement with Maninder and Harmeet Kohli, a husband and wife who operate retail gasoline dealerships. The agreement required the Kohlis to purchase a minimum quantity of gasoline over a 10-year period. The agreement included an addendum, requiring that the Kohlis convert two gasoline stations to the BP brand. As part of the agreement, the Kohlis would receive from BP a “branding incentive” of $30,000 per location, plus two cents per gallon of gasoline purchased during the first 36 months of the agreement.

The Kohlis were required to pay for all materials used in the rebranding, but the distributor was responsible for ordering the branding materials and paying for the installation costs.

In March 2008, the distributor filed a complaint, alleging that the Kohlis failed to pay several invoices for gasoline purchases and branding costs. The Kohlis filed a counterclaim, asserting that the distributor failed to properly credit them with the branding incentives and failed to reimburse them for labor expenses associated with installation of the rebranding materials. The distributor denied that the branding incentive existed between it and the Kohlis and claimed that BP had notified them that they were ineligible for the incentives because they failed to fully brand their gasoline stations.

Following a bench trial, a magistrate judge in the federal district court in Camden, New Jersey, entered judgment for the distributor in the amount of $244,210, which represented the outstanding invoices plus interest. The magistrate judge further ruled against the Kohlis on their counterclaim for breach of the rebranding addendum.

On appeal, the Kohlis asserted that, under the addendum, they were entitled to “an up-front, lump sum $60,000 branding incentive and a 3-year, 2 cent per gallon credit,” promised by the distributor in its sales agreement. However, the addendum provided that the Kholis would rebrand two locations to BP by January 1, 2006 and would pay for all materials to be used in re-branding. Prior to trial, the Kohlis stipulated to their understanding that (1) they would receive the incentives if they met the image requirements established by BP and (2) the only evidence that they were entitled to the branding incentives—other than the provision of the addendum—was “based on past relations.”

Noting that BP was not a party to the sales agreement and there was no evidence indicating that BP had an agency agreement with the distributor, the Third Circuit held that BP could not be held liable under the agreement. It further held that the magistrate judge properly concluded that the Kohlis were not entitled to the incentives because their locations were never fully branded as BP stations. In particular, the magistrate judge found that the distributor’s employees had repeatedly informed the Kohlis about their failure to comply with BP identifiers, such as the sign logo, point of sale materials, curb color, canopy lighting, valances for the gas pumps, and uniforms.

The case is No. 11-2438.

Attorneys: Stephen J. Labroli (Leonard, Sciolla, Hutchinson, Leonard & Tinari) for GLeS, Inc.

Companies: GLeS, Inc.; MK Real Estate Developer & Trade Co.

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