Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash: Gasoline franchisor prevails on breach of contract, guarantee claims against franchisee, (Sep 18, 2013)

By John W. Arden, J.D., LLM.

Gasoline franchisor BP West Coast Products prevailed on its breach of franchise agreement, breach of guarantees, and declaratory judgment action against franchisee SKR, Inc., the federal district court in Seattle has ruled (BP West Coast Products LLC v. SKR Inc., September 17, 2013, Pechman, M.). The franchisor was granted summary judgment on those claims, while its Washington unfair trade practices and federal trademark infringement and unfair competition claims remained active.

Background. BP West Coast Products markets and distributes ARCO-braded gasoline, which is sold to the public thought a network of independent franchises licensed to use the ARCO marks and trade dress pursuant to franchise agreements. BP West Coast is also the franchisor of convenience stores under the am/pm service mark.

Through their wholly owned corporation (SKR Inc.), Sherif and Nagwa Riad purchased two gasoline and am/pm franchises from BP West Coast—the first in Beaverton, Oregon and the second in Vancouver. BP West Coast brought suit against SKR and the Riads for breaches of the franchise agreements for the Beaverton and Vancouver outlets, alleging that the defendants failed to pay royalties and gasoline charges and violated franchise agreement and deed restrictions.

The 2008 agreements executed by the parties included both the sublease for the station and a motor fuel supply agreement. They had a three-year term, with optional rights for renewal. Defendants entered into an am/pm Mini Market franchise agreement with a 20 year term, entered into an ARCO gasoline dealer agreement granting BP West Coast the exclusive right to supply gasoline to the station for 20 years, and took title to the property by way of a special warranty deed imposing deed restrictions.

In late 2009, defendants began experiencing financial problems. Its credit purchases of gasoline from BP West Coast began bouncing. When SKR fell too far behind in its payments, BP West Coast exercised its discretion to revoke SKR’s credit privileges, requiring cash on delivery. Around October 2011, SKR stopped ordering gasoline from BP West Coast and began selling unbranded gasoline in violation of the gasoline dealer agreements and the deed restrictions.

BP West Coast filed suit alleging (1) breach of the franchise agreements, (2) breach of the guaranties, (3) declaratory judgment that the deed restrictions were enforceable for the Vancouver station, (4) a declaration of rights related to the use of land and ejectment for the Beaverton station, (5) federal trademark infringement and unfair competition in violation of the Lanham Act, and (6) state unfair competition. Partial summary judgment was granted in favor of BP West Coast on the ejectment claim for the Beaverton Station on October 17, 2012.

In the motion at issue, BP West Coast sought summary judgment on its claim for breach of contract related to the franchise agreement, breach of the guarantees, and declaratory judgment on the deed restrictions related to the Vancouver station.

Breach of franchise agreements. BP West Coast alleged damages in the amount of $597,173 for breach of contract of the franchise agreements, which constituted unpaid gasoline charges. The defendants maintained that one of the invoices for gasoline delivered in the amount of $40,145 was paid. However, a document produced by the defendants—purporting to show the amount due, invoice number, and due date—did not indicate that the defendants made any payment. Thus, summary judgment in favor of BP West Coast was granted for breach of the franchise agreements in the amount of $597,173.

Breach of guaranties. Defendants conceded that BP West Coast was entitled to summary judgment on its claim for breach of the guarantees. Thus, summary judgment was granted.

Enforceability of deed restrictions. The court first found that a declaratory judgment was appropriate under these circumstances. All seven factors set out in Brillahart v. Excess Ins. Co, 316 U.S. 491 (1942), weighed in favor of issuing a declaratory judgment. In addition, the court held that the restrictive covenant requiring the defendants to purchase gasoline exclusively from BP West Coast was enforceable. The defendants did not argue that the deed restrictions were illegal, unconstitutional, or a violation of public policy. Nor did they deny that they violated the restrictions. They only argued that the restrictions were not enforceable because BP West Coast did not keep their covenant to sell gas at a competitive price.

This allegation was conclusory and not supported by any evidence in the record, the court found. “Further, whether a restriction is ‘reasonable’ is a question of law that turns on whether enforcement protects the rights bargained for by the grantee.” Defendants did not dispute that BP West Coast specifically bargained for the deed restriction as part of the deal for the purchase of the Vancouver station. Defendants offered no support for any argument that the deed restrictions were not reasonable or enforceable. Thus, summary judgment was granted on the claim and a declaratory judgment was issued that the deed restrictions were valid and enforceable.

The case is No. C11-6074 MJP.

Attorneys: Daniel J. Oates (Graham & Dunn) for BP West Coast Products LLC. Adam T. Birnbaum (The Birnbaum Law Offices) for SKR Inc.

Companies: BP West Coast Products LLC; SKR, Inc.

Cases: FranchisingDistribution WashingtonNews