Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Gas station operator’s preliminary injunction claims run out of fuel, (May 11, 2015)

By Greg Hammond, J.D.

A New York gas station operator was not entitled to a preliminary injunction barring termination of a supply agreement and lease with a gasoline distributor. The federal district court in Brooklyn determined that the gas station operator’s failures to pay the distributor in a timely manner provided ample, reasonable ground for termination under the Petroleum Marketing Practices Act (PMPA) (MS & BP, LLC v. Big Apple Petroleum, LLC, May 7, 2015, Mauskopf, R.).

MS & BP, LLC executed a supply and lease agreement with Big Apple Petroleum, LLC—an Exxon/Mobil fuel distributor—paying $750,000 for exclusive rights to operate a gas station in Rockaway Park, New York. Once the station re-opened after Hurricane Sandy, Big Apple’s wholesaler that hauls fuel and bills MS & BP recorded repeated electronic funds transfer bounces. After various payments bounced, Big Apple sent MS & BP a warning letter for failing to comply with the timely payment provisions of the supply agreement. MS & BP’s payments allegedly continued to bounce, even after Big Apple demanded a $30,000 security deposit. Big Apple subsequently sent MS & BP notice of termination for failure to pay in a timely manner.

MS & BP filed suit against Big Apple, seeking legal and equitable relief for alleged violations of the PMPA, breach of contract, and other violations under New York law. The gas station operator sought permanent and preliminary injunction: (1) enjoining Big Apple from terminating the fuel supply and station lease agreements; (2) ordering Big Apple to engage in good faith negotiation for renewal of the agreements; and (3) requiring Big Apple to renew the agreements, including a reduction in rent and fuel price.

The court denied MS & BP’s request for preliminary injunction, finding first that MS & BP repeatedly failed to pay Big Apple in a timely manner, and that such failures are clearly relevant to the franchise relationship and provide ample, reasonable grounds for termination under the PMPA. Second, the termination notice was deemed timely because it was furnished 90 days prior to the date in which termination was to take effect.

Although the record did not define “timely” payment, the court found that the payment obligations were clearly set forth in the supply agreement, and that Big Apple produced affidavits demonstrating its wholesaler’s uniform practice to initiate electronic funds transfers on either the third business day following a fuel delivery made via automatic delivery or for the balance of money owed within three days of when Exxon/Mobil processed and transmitted MS & BP’s cash-less payment receipts.

In addition, whether or not Big Apple could have used the security deposit to offset bounced payments, it was undisputed that MS & BP did not maintain sufficient funds at all times to make the payments then due. The terms of the settlement agreement also defeated any argument that Big Apple waived its right to cancel the agreements by continuing to accept late payments.

MS & BP’s argument that there were inconsistencies concerning the amount of time between when cash-less payment receipts were generated and when they were subsequently credited to the gas station operator’s account missed the point, according to the court. The supply agreement explicitly placed the responsibility upon MS & BP to maintain sufficient funds in its commercial electronic funds transfer account to make payments at the time of such transactions.

The case number is 14-CV-5675 (RRM) (RER).

Attorneys: Bradley David Schnur (Law Office of Bradley D. Schnur Esq PC) and James B. Bouklas (Bouklas Gaylord LLP) for MS & BP, LLC. Jonathan D. Kraut (Harfenist Kraut & Perlstein, LLP) for Big Apple Petroleum, LLC.

Companies: MS & BP, LLC; Big Apple Petroleum, LLC

Cases: FranchisingDistribution NewYorkNews