Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Va.: Transfer of franchisees’ leased property did not violate VPPFA right of first refusal amendment, (Nov 24, 2015)

By Michael Menzhuber, J.D., LL.M.

The transfer of fuel stations and convenience stores, which had been leased to Sunoco franchisees, did not violate the “right of first refusal” (ROFR) amendment to the Virginia Petroleum Products Franchise Act (VPPFA) since the transfer occurred prior to the effective date of the amendment, according to the federal district court in Alexandria, Virginia (RWG Ventures, Inc. v. Sunoco, Inc. (R&M), November 20, 2015, Trenga, A.).

Background. RWG Ventures, Inc. operated Sunoco franchise fuel stations and convenience stores in Fairfax County and Alexandria City, Virginia. The plaintiffs also leased or subleased their fuel stations from Sunoco, Inc. (R&M).

The plaintiffs filed a complaint that alleged that R&M violated the VPPFA when it transferred these leased marketing premises to Sunoco, LLC without first complying with the ROFR amendment. The ROFR amendment, effective July 1, 2014, prohibits franchisors of certain gas stations from selling, transferring, or assigning their interest in the property unless the franchisors have made a bona fide offer to sell, transfer, or assign their interest in the property to the dealer; or offered the dealer the right of first refusal.

The court determined that the case revolved around three issues of statutory construction: (1) whether R&M was a “franchisor”, which depended upon whether Philadelphia Energy Solutions LLC (PES), an acknowledged “refiner” under the VPPFA, was considered an “affiliate” of R&M; (2) whether Sunoco, LLC was “another person” to which R&M transferred the leased property; and (3) whether the challenged transfers of property took place on the effective date of the contribution agreement between R&M and Sunoco, LLC, which pre-dated the effective date of the ROFR amendment.

“Franchisor” under the VPPFA. For purposes of the VPPFA, a “franchisor” must be a “refiner”. A “refiner” under the VPPFA, is any person engaged in refining crude oil to produce motor oil and includes any “affiliate” of such person. The court found that R&M was a “refiner” and, therefore, a “franchisor” because it was engaged in the refining of crude oil and that PES, the company that supplied it with the refined crude motor oil, was an “affiliate.” R&M was engaged in the refining of crude oil because: (1) PES was initially formed as a joint venture that involved R&M; (2) R&M owned one-third equity interest in PES; and (3) R&M controlled the selection of two PES board members. Additionally, PES was an “affiliate” of R&M because: (1) it had a close corporate association with the Sunoco organization; and (2) was an included entity in various consolidated regulatory and other public filing by the Sunoco organization.

Transfer to “another person.” The court determined that the transfer of R&M’s interest in the leased property to Sunoco, LLC was not a sale, transfer, or assignment to “another person”, for purposes of the VPPFA. Sunoco, LLC was formed by R&M in order to receive certain assets which generated qualifying income for R&M and one of its affiliates, R&M controlled Sunoco, LLC, and at the time of the transfers, R&M was the sole member of Sunoco, LLC.

Transfer of title. Finally, the contribution agreement between R&M and Sunoco, LLC pre-dated the July 1, 2014 effective date of the ROFR amendment, and effectively transferred title to the leased property. According to the court, (1) the applicable transfer language in the contribution agreement was unconditional, express, and absolute; (2) the contribution agreement was signed on May 30, 2014 and delivered to the defendants’ shared outside counsel that same day to begin the preparation of closing binders; and (3) neither recordation of the contribution agreement nor the execution and filing of a formal deed were required to pass title.

The case is No. 1:15-cv-00662.

Attorneys: Stuart Alan Schwager (Lerch Early & Brewer Chtd) for RWG Ventures, Inc., RWG Corp. and Kumar, Lata & Veena Inc. D. Margeaux Thomas (Williams Mullen) for Sunoco, Inc. [R&M] and Sunoco, LLC.

Companies: RWG Ventures, Inc.; RWG Corp.; Kumar, Lata & Veena Inc.; Sunoco, Inc.; Sunoco, LLC

Cases: FranchisingDistribution VirginiaNews