Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Termination of gas-and-convenience franchise was lawful and reasonable under PMPA, as agreed, without setoff, (Jan 20, 2026)

By Justin Marcus Smith, J.D.

Franchise terms did not allow for setoff with respect to $1 million in withheld credit card proceeds for both fuel and non-fuel items.

The termination of a gas-and-convenience-store retailer’s franchise was lawful under the Petroleum Marketing Practices Act (PMPA) because the retailer-franchisee failed to comply with a material and reasonable provision of the franchise agreements, subsumed lease sections that covered rent payment obligations, held the federal district court in Trenton, New Jersey, in an unpublished opinion. Franchise termination was also reasonable under the PMPA because the franchisor entered into the franchise contracts with the expectation the franchisee would provide adequate security and pay its rental obligations, without setoff. However, the court denied the assignee-franchisor’s counterclaim for fuel payments because the large sum of credit card proceeds withheld satisfied the franchisees’ outstanding fuel debt. The franchisee breached the leases, the guarantor was in breach of the guaranties, and there were at least some damages, but the court could not quantify damages on the franchisor-counterclaimant’s motion for summary judgment (Universal Property Services, Inc. v. Lehigh Gas Wholesale Services, Inc., No. 3:20-cv-03315-GC-TJB (D.N.J. Jan. 15, 2026)).

Background. Franchisee Universal Property Services (UPS) sued Circle K and its TMC Franchise Corp. (TMC) affiliate after UPS acquired gasoline stations and convenience stores based on allegedly fraudulent sales data. UPS also sued Lehigh Gas Wholesale Services, Inc. and affiliates who acquired assignments of the franchise agreements from Circle K. UPS asserted claims under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), the Petroleum Marketing Practices Act (PMPA), and the Florida Franchise Act (FFA).

The court previously dismissed in part the UPS first amended complaint (FAC), which had added Circle K and TMC, on jurisdictional grounds with leave to amend. UPS’s second amended complaint (SAC) cured the jurisdictional deficiency, and from there the court declined to dismiss for improper venue under the PMPA.

In July 2021, Lehigh filed an answer to the SAC and asserted three counterclaims for alleged UPS breach of the lease and fuel supply agreements and for breach of guaranty agreements.

In January 2022, on a Lehigh motion for judgment on the pleadings with respect to the UPS claims, the court granted Lehigh judgment with respect to the two breach of contract claims. It also granted in part the PMPA claim with respect to Lehigh’s withholding of UPS’s credit card proceeds, even if the proceeds did not pertain to fuel, because the fuel and lease agreements authorized withholding.

The court also dismissed the UPS claim that Lehigh breached the fuel supply agreements on finding the agreements permitted Lehigh to require UPS to pay all past due accounts and cash payment, including rent, as a condition of further fuel delivery. Moreover, the fuel supply contracts allowed Lehigh to require a security deposit or letter of credit. The contractual objective here was to secure UPS obligations, pertinent to all proceeds of UPS inventory, accounts receivable, and equipment, including credit card proceeds even if not fuel related, under the fuel agreement or any other contract or agreement between Lehigh and UPS. The court rejected the UPS argument that Lehigh prevented UPS from paying rent by withholding credit card proceeds. The court reasoned here that UPS did not have a right of rent setoff under the lease agreements.

The court also found Lehigh gas complied with procedural requirements for termination. The court explained PMPA prohibited termination except for an event relevant to the franchise relationship making termination or nonrenewal reasonable. However, the court denied judgment with respect to the reasonableness of 15 U.S.C. § 2802(c)(8) termination for three reasons. First, neither side showed whether a court or a jury should decide whether Lehigh had perfected a reasonable termination. Second, factual disputes still existed about whether Lehigh asked for a new letter of credit before termination. Third, factual disputes existed surrounding whether the Lehigh withholding of UPS’s credit card proceeds, while continuing to demand payment from UPS, even if contractually permitted, was a reasonable thing to do under the PMPA in connection with franchise termination.

After the parties pursued discovery, the Lehigh entities moved for summary judgment on their counterclaim that they lawfully terminated UPS as a franchisee consistent with the PMPA. Lehigh said it lawfully terminated the franchise because UPS failed to provide an acceptable letter of credit assurance of its payment obligations, as required under the supply agreements, and also failed to pay for rent and fuel under the 17 lease sub-agreements of the franchise agreements originally executed between assignor Circle K and UPS.

Termination lawful. The court agreed with Lehigh that the termination of UPS franchise was lawful under the PMPA, 15 U.S.C. § 2802(b)(2)(A), because UPS failed to comply with a material and reasonable provision of the franchise, i.e., the section of the leases that covered rent payment obligations. The court said there was no dispute that UPS owed more than $700 thousand in rent as of February 2020, and again, the terms did not allow for setoff with respect to the $1 million in withheld credit card proceeds.

UPS failed to comply with a franchise provision. Termination would be proper if the provision was material and reasonable and UPS ability to comply was within UPS’s reasonable control. UPS did not brief the first two issues and only briefed the third in the context of 15 U.S.C. § 2802(c) reasonableness. There was no doubt the provision to pay rent was material, and the “without setoff” provision was a reasonable contract provision because Lehigh contracted for a tenant who could pay rent without relying on the revenue from the 17 gas stations. The parties had also agreed, at execution, that the provision was reasonable.

The only remaining issue was whether UPS’s inability to pay was outside of UPS reasonable control or was a “failure’ within the meaning of the PMPA. UPS willingly agreed to withholding of both non-fuel and fuel credit card proceeds, without setoff, so it could not rely on withheld funds as a valid justification. Lehigh lawfully terminated the franchise under the PMPA, 15 U.S.C. § 2802(b)(2).

Termination reasonable. The court also found termination reasonable under 15 U.S.C. § 2802(c)(8) and therefore permitted under 15 U.S.C. § 2802(b)(2)(C). At bottom, Circle K, and later Lehigh by assignment from Circle K, contracted with UPS with the expectation UPS would provide adequate security and pay its rental obligations without setoff. When Lehigh learned UPS would do neither, and without any sign of Lehigh bad faith or pretext, Lehigh made a reasonable decision to terminate the franchise as permitted under 15 U.S.C. § 2802(c)(8).

The court found courts in the circuit routinely find terminations reasonable on motions for summary judgment. Discovery showed Lehigh met with UPS several times to discuss the letter of credit and requested that UPS provide a new one. The record indicated Lehigh never received a new letter of credit. That meant Lehigh was reasonably wary of UPS’s ability to supply reliable credit.

Factual circumstances added critical context for the Lehigh decision to withhold nearly $1 million in credit card proceeds. The undisputed facts revealed that Lehigh started the withholding after UPS missed its first rent payments in 2019 and Lehigh became suspicious of certain letters of credit. The withholding was not only lawful, it was also reasonable given that Lehigh “rightfully believed” it needed a new valid letter of credit for nearly a half million dollars in security UPS had promised.

Lehigh withheld the proceeds as a form of security, and it did not withhold an unreasonable amount. The court continued that the record showed Lehigh never withheld enough credit card proceeds to cover both the UPS promised security amount and rental obligations. Lehigh effectively rebutted the presumption from the pleadings that the $1 million it withheld could have satisfied rent payments UPS missed.

Counterclaims. The court denied the Lehigh counterclaim for fuel payments under the fuel contracts because the withheld credit card proceeds satisfied the UPS outstanding fuel debt. Any damages from alleged UPS breach of the fuel supply contract were paid off. The fuel debt counterclaim was moot.

The leases were valid contracts, and UPS breached them by failing to pay rent. As for the guaranty agreements, UPS disputed their scope, but the court found they required the guarantor to pay unpaid rent because UPS owed rent. The guarantor was in breach of the guaranties, and there were at least some damages resulting from this and the underlying UPS breach.

However, factual disputes remained as to remaining damages. Lehigh did not provide an explanation of which spreadsheet entries pertained to calculating damages. The court was therefore unable to award damages for the UPS and guarantor breaches on the present Lehigh motion for summary judgment.

The Case is No. 3:20-cv-03315-GC-TJB.

Judge: Castner, G.

Attorneys: James Harry Oliverio (Anselmi & Carvelli, LLP) for Universal Property Services, Inc. Peter C. Buckley (Fox Rothschild LLP) for Lehigh Gas Wholesale Services, Inc.

Companies: Universal Property Services, Inc.; Lehigh Gas Wholesale Services, Inc.

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