Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D.N.Y.: Gulf Oil franchisee breaches agreements, lawfully terminated, (Feb 19, 2015)

By Greg Hammond, J.D.

A Scarsdale, New York Gulf Oil franchisee that continued to operate a gas station after its franchise and lease agreements were terminated breached the agreements and infringed on the franchisor’s trademark. The federal district court in White Plains, New York granted the franchisor’s motion for summary judgment, finding that nonrenewal of the franchise was proper, and awarded damages and attorney fees for breach of contract and trademark infringement (Scarsdale Central Service Inc. v. Cumberland Farms, Inc., February 13, 2015, Román, N.).

Background. Gulf Oil Limited Partnership is a major American oil company and subsidiary of gas retailer, Cumberland Farms, Inc. Plaintiff Scarsdale Central Service Inc. was assigned a Gulf Oil franchise and lease agreements for a gas station in Scarsdale, New York in April 2012. Shortly thereafter, a third party made an unsolicited offer to Cumberland to purchase the gas station premises. Cumberland informed Scarsdale that it decided to divest the premises and that Scarsdale had 30 days to submit an offer to purchase the property to retain its right of first refusal under the Petroleum Marketing Practices Act (PMPA). Around the same time, Scarsdale received a letter from Gulf Oil that the franchise relationship would terminate, because Scarsdale failed to continuously operate the gas station at the premises by not dispensing fuel for at least seven consecutive days. Scarsdale offered Cumberland $800,000 to purchase the premises, but was informed that Cumberland already received a $1.3 million offer. Scarsdale later agreed to match the $1.3 million purchase price, but did not follow through with the purchase.

Instead, Scarsdale filed suit against Cumberland and Gulf Oil, alleging that they conspired with others to strip Scarsdale of its franchise, in violation of the PMPA. Scarsdale sought relief under the PMPA, by contract, for tortious interference with contract, in the form of declaratory relief, on grounds of fraud and unfair competition, and for breach of the implied warranty of good faith and fair dealing, arguing that Gulf Oil and Cumberland did not act in good faith when they decided to terminate the franchise agreement.

Cumberland and Gulf Oil filed counterclaims seeking a declaration that Scarsdale satisfied the nonrenewal requirements of the PMPA; a trademark infringement claim under the Lanham Act; breach of contract and unjust enrichment claims; and a claim for attorney fees. The case was before the court on Cumberland’s and Gulf Oil’s motion for summary judgment.

Nonrenewal. In its first counterclaim, Cumberland and Gulf Oil seek judgment declaring that nonrenewal of Scarsdale’s franchise was proper, based on evidence that: (1) they decided to sell the premises in good faith and in the normal course of business; (2) they offered Scarsdale a right of first refusal and bona fide offer and gave Scarsdale 45 days to exercise that right; and (3) they gave Scarsdale 109 days’ notice of nonrenewal in writing by certified mail and hand delivery, stating the reason for nonrenewal and providing an effective date.

The court agreed with Cumberland and Gulf Oil, first finding that the evidence demonstrated that the defendants received an offer to purchase the premises in the ordinary course of business, they engaged in gradual discussions, and ultimately decided, in good faith, to enter into a sale agreement. In addition, the court found that Cumberland and Gulf oil provided Scarsdale with a bona fide offer to sell the premises, followed other statutory prerequisites to franchise termination on grounds of divestiture, and consequently terminated the franchise in accordance with the PMPA.

Trademark infringement. The defendants also sought summary judgment on their trademark infringement claim, arguing that Scarsdale continued to use the Gulf Oil trademark after the franchise agreement was terminated. Scarsdale conceded that it continued to operate the gas station after being terminated in December 2013, that it purchased gasoline from a third-party supplier, and that it continued to sell gasoline. The court therefore concluded that Scarsdale admitted to operating a purported Gulf Oil franchise until at least March 2014, amounting to the unauthorized use of the registered Gulf Oil trademark and constituting infringement under the Lanham Act.

Breach of contract. Because it was undisputed that Scarsdale continued to occupy the premises, failed to pay rent or use and occupancy, and failed to demonstrate that it paid for the last two Gulf Oil deliveries, the court granted summary judgment on the breach of lease and supply contracts claims, and further entered summary judgment for defendants on an unjust enrichment theory.

Attorney fees. The court also awarded Gulf Oil and Cumberland summary judgment on their claim for attorney fees and costs, finding that the defendants successfully enforced cognizable rights and remedies under the lease and supply agreements. The agreements provided that Scarsdale shall reimburse Gulf Oil for all reasonable costs, including all attorney fees, that Gulf Oil incurs in enforcing its rights and remedies under the agreements.

Scarsdale’s claims. Lastly, summary judgment was granted in favor of Cumberland and Gulf Oil on Scarsdale’s claims. The court determined that the defendants properly exercised their rights under the operative contracts; the defendants lawfully terminated the franchise; and there was no evidence that the defendants acted in bad faith, made any knowingly false representation, or otherwise dealt with Scarsdale in a legally unfair manner.

The case number is 13-cv-8730 (NSR).

Attorneys: Eric Richardson Sharp (Galgano & Associates) for Scarsdale Central Service Inc. Timothy G. Griffin for Cumberland Farms, Inc. and Gulf Oil Limited Partnership.

Companies: Scarsdale Central Service Inc.; Cumberland Farms, Inc.; Gulf Oil Limited Partnership

Cases: FranchisingDistribution NewYorkNews