Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: PMPA did not preempt terminated franchisee’s counterclaims, (Apr 17, 2015)

By Edward L. Puzzo, J.D.

The counterclaims of a terminated petroleum retailer against its franchisor were not preempted by the Petroleum Marketing Practices Act (PMPA) because the PMPA governs only the grounds for termination, not claims arising from events taking place pre-termination during the life of the franchise agreement, the federal district court in Camden, New Jersey has ruled in an unpublished decision (Lukoil North America LLC v. Turnersville Petroleum, Inc., April 16, 2015, Bumb, R.).

In 2005, Turnersville Petroleum entered into a franchise agreement with Lukoil North America for the sale of Lukoil’s petroleum products. The agreement was a Petroleum Marketing Practices Act Franchise Agreement. In 2013, citing default, Lukoil terminated the franchise agreement.

Lukoil brought a number of claims against Turnersville, including trademark violations and breach of contract on grounds such as failure to use best efforts to maximize the sale of products. In response, Turnersville made counterclaims—including breach of contract, UCC violations, breach of duty of good faith, and violations of the New Jersey Franchise Practices Act (NJFPA)—based on Lukoil’s allegedly arbitrary and unreasonable fuel prices that caused Turnerville’s retail prices to be higher than competitor’s prices, which in turn caused significant declines in sales.

Lukoil moved to dismiss Turnersville’s counterclaims on the grounds that they were all related to Lukoil’s termination of the franchise agreement and therefore were preempted by the Petroleum Marketing Practices Act (PMPA).

PMPA preemption. The congressional purpose in passing the PMPA, the court stated, was to provide a single, uniform set of rules governing the grounds for termination and non-renewal of motor fuel marketing franchises. Regarding preemption, the Third Circuit in Kehm Oil Co. v. Texaco, Inc., 537 F.3d 290 (3d Cir. 2008) explained that the PMPA only preempts state laws that limit the permissible substantive reasons that a petroleum franchisor can terminate a franchisee. According to Kehm, the purpose of the PMPA was to create a uniform system of franchise termination, not a uniform system of contract law. The Third Circuit also adopted the “intimately intertwined” test—that is, where claims are intimately intertwined with the termination or nonrenewal of franchise, they are preempted by the PMPA.

Here, the court found that Turnersville’s counterclaims were not preempted by the PMPA. The counterclaims all arose from events that took place during the life of the franchise agreement, prior to Lukoil’s termination of the franchise. The mere fact that Lukoil chose to terminate the franchise should not deprive Turnersville of the ability to bring claims for a breach of the franchise agreement, opined the court. The fact the Franchise Agreement was terminated did not necessarily render all potential counterclaims by Turnersville preempted by the PMPA.

Citing Seckler v. Star Enterprise, 124 F.3d 1399, (11th Cir. 1997) the court stated, “The PMPA was not written to allow petroleum franchisors to hide behind the preemption provision to avoid tort, contract or fraud suits brought by franchisees with regard to actions that do not constitute termination or non-renewal of a franchise or notification of such action.”

The case is Civil Action No. 14-3810 (RMB/AMD).

Attorneys: Brett Berman, Lauren Winchester, Barry Muller and Christopher Kinkade (Fox Rothschild LLP) for Lukoil North America LLC. Shalom Stone (Brown Moskowitz & Kallen, P.C.) for Turnersville Petroleum, Inc.

Companies: Lukoil North America LLC; Turnersville Petroleum, Inc.

Cases: FranchisingDistribution NewJerseyNews