LLB Convenience & Gas, Inc. v. Se. Petro Distribs., Inc.
LLB Convenience & Gas, Inc. v. Se. Petro Distribs., Inc.
Opinion of the Court
This cause is before the Court on Plaintiff's, LLB Convenience & Gas, Inc. (hereafter "LLB"), Motion for Emergency Injunction (Doc. 4), by which Plaintiff seeks the entry of a preliminary injunction pursuant to
I. BACKGROUND
On June 11, 2018, LLB commenced this action against Southeast Petro Distributors, Inc. (hereafter "Southeast"). (Doc. 1). In Count One of the Complaint LLB alleges that Southeast violated the Petroleum Marketing Practices Act ("PMPA"),
A. The Franchise and Wholesale Marketer Agreements
On June 20, 2018, LLB filed its Motion for Emergency Injunction.
Shell (Motiva) may exercise its sole discretion in approving any requests to brand a proposed retail outlet under the Identification. (Id. ). Southeast is responsible for ensuring that its franchisees follow "all rules, regulations, standards and guidelines Seller [Motiva/Shell] establishes from time to time relating to the use and display of the Identifications." (Id. ). In order to protect the Shell brand, Southeast must ensure its outlets "undertake no action of any kind that may harm or degrade the Identifications." (Id. ). This includes requiring the franchisee/outlets to conduct their business "in a professional, business-like, ethical and moral manner and the public must be provided with prompt, courteous, and efficient service." (Id. at ¶ 7(d) ). The WMA further provides that "[b]uyer shall promptly and courteously respond to any customer complaints (including written responses when appropriate) and take immediate action to resolve satisfactorily each customer complaint." (Id. at ¶ 7(e) ).
The DSA or franchise agreement entered into between LLB and Southeast provides that the brand of fuel supplied by Southeast may be subject to change:
5. Supply of Products
...Company shall have the right at any time to change, withdraw, substitute or add brands and grades of petroleum products, TBA, trademarks, identification signs or color schemes. Dealer understands that Company will not be responsible for run-outs caused by Oil Company allocations or acts of God, or any other circumstances out of its control.
6. Change of Brand
At the present time, Company is wholesaler for BPAmaco, Shell (Motiva), Citgo Oil, ExxonMobil and Sunoco and expects to continue such relationship indefinitely. In the event that relationship terminates, or should a brand become unavailable, Company will re-brand Dealer and supply with another brand that Company also wholesales.
If the location is de-branded because of Dealer not keeping up image, cleanliness or any other standards of Oil Company, Dealer shall be responsible for all of the expenses related to de-branding and any penalties from Oil Company as well as all new expenditures incurred for the change of brand.
(Plf. Ex. 1).
Exhibit 1 to the DSA provides that LLB (the Dealer) will be supplied with Shell Oil directly or through Southeast Petro, and LLB shall use "Shell's brands only in accordance with the standards established by Shell from time to time." (Plf. Ex. 1, p. 11).
B. Termination Notice
On February 14, 2018, Mr. Ryan Firth, the director of business development for Southeast, forwarded to LLB via Email a letter it received from Motiva, dated January 31, 2018, entitled "FAILURE TO MAINTAIN BRAND STANDARDS." (Plf. Ex. 2). Mr. Firth reports that "Shell has again issued notice for you to debrand your facility due to the marketing practices and growing number of complaints files [sic]. Unless otherwise withdrawn by Shell, site must debrand by May 10, 2018." (Id. at p. 1). The letter from Motiva (Shell) to Southeast concerns LLB's outlet and states that Buyer's outlet (LLB) has not upheld the Brand Standards of the Company consistent with section 7(a) of the WMA. (Id. at p. 3). Motiva contends Southeast's outlet has not promptly and courteously responded to customer complaints. (Id. ). Motiva further alleges that Southeast's outlet (LLB) failed to comply with sections 7(d) and 9(a) of the WMA, which require the Buyer's outlets to conduct operations a professional, business-like, ethical, and moral manner, and mandate that Buyer's outlets use reasonable efforts to develop and actively promote the sales of Shell products. (Id. ).
Motiva's allegations center on customer complaints that "overwhelmingly" allege price gouging and deceptive or unfair marketing practices. (Id. ). The complaints about price gouging are prompted by LLB charging $5.99 for regular gas. Accordingly, Motiva contends that Buyer has failed to uphold the Brand Standards of the Company in resolving satisfactorily each complaint. (Id. ). In short, Shell/Motiva summarizes LLB's violation of Shell's brand standards as follow:
The customer complaints have been posted publicly on third party sites, as well as with Company's Customer Service Center. Accordingly, Buyer has failed to uphold the Brand Standards of Company ... and in turn ... [s]uch failure and public customer complaints have negatively impacted the Identifications (trademark) when compared to the Orange County average of retail gasoline sales per site per month in that the monthly volume of Buyer's outlet has been well below the Orange County average. For those reasons, Company is revoking permission to use the Identifications at Buyer's outlet and must take all steps necessary to cease the marketing and selling of Products and otherwise using the Identifications at the Buyer's Outlet. Failure to comply with this notice would result in the rightful termination of the WMA under Section 25.
(Id. ).
Motiva concludes its letter to Southeast with this admonition: "In accordance with § 2802 and § 2804 of the ... [PMPA], Company gives Buyer 100 days from the date of this letter, May 10, 2018 , to completely debrand Buyer's Outlet in accordance with the specifications listed in Exhibit A." (Id. ).
II. THE ISSUE
Setting aside for the moment whether Southeast's termination notice complies with
III. DISCUSSION
1. The PMPA
Congress enacted the PMPA in 1978 to protect motor fuel franchisees from arbitrary or discriminatory termination or nonrenewal of their franchise agreements. Shukla v. BP Expl. & Oil, Inc. ,
(A) A failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship, if the franchisor first acquired actual or constructive knowledge of such failure-
(i) Not more than 120 days prior to the date on which notification of termination or nonrenewal is given, if notification is given pursuant section 2804(a) of this title; or
(ii) Not more than 60 days prior to the date on which notification of termination or nonrenewal is given, if less than 90 days notification is given pursuant to section 2804(b)(1) of this title.
15 U.S.C § 2802(b)(2)(A).
The terms "reasonable" and "material" as used in § 2802(b)(2)(A) are not defined in the Act. However, in Doebereiner v. Sohio Oil Co. ,
Reasonable is defined as that which is fair, proper, just or moderate. Black's *1289Law Dictionary 1138 (5th ed. 1979). Material means 'being of real importance or great consequence.' Webster's Third New International Dictionary 1392 (1981). Incorporating these definitions into section 2802(b)(2)(A), we conclude that Congress intended to permit termination or nonrenewal only when the franchisee's failure to comply involves a franchise provision that is both reasonable-that is, fair, proper, just or moderate-and of real importance or great consequence to the franchise relationship.7
A franchise relationship consists of three elements: "a contract to use the refiner's trademark, a contract for the supply of motor fuel to be sold under the trademark, and a lease of the premises at which motor fuel is sold." Shukla ,
The PMPA provides that a franchisee may bring an action to prevent termination of the franchise agreement if the franchisor has failed to comply with the requirements of § 2802(b)(2)(A). Doebereiner ,
2. Termination of the Franchise Agreement
Motiva's letter of January 31, 2018, to Southeast specifically references § 2802 and § 2804 of the PMPA, which provide for the termination or nonrenewal of a franchise agreement. Motiva asserts that Southeast failed to uphold Shell's Brand Standards as evidenced by LLB's failure to promptly and courteously respond to customer complaints and by LLB failing to conduct its business in a professional, business-like, ethical, and moral manner. (Plf. Ex. 2). Motiva's refusal to allow LLB to sell fuel under its brand is motivated by the price per gallon set by LLB. (Id. ). Motive describes this action as "the early termination of Buyer's Outlet." (Id. ).
*1290Southeast argues that the termination of the Motiva brand is not synonymous with the termination of the Franchise Agreement, because paragraph 6 of the DSA envisions rebranding and supplying LLB with another brand of fuel when Motiva's brand becomes unavailable.
LLB correctly contends that debranding by Southeast coupled with the lack of a replacement brand results in the termination of the Franchise Agreement in that LLB is derived of the "use [of] the refiner's trademark, [and is deprived of] a contract for the supply of motor fuel to be sold under the trademark." Shukla ,
Southeast counters that the high volume of customer complaints driven by the excessive price per gallon charged at this outlet justifies termination of the Franchise Agreement.
Southeast avers that these provisions of the DSA and WMA are reasonable and of material importance to the franchise relationship; that is, they are of real importance or great consequence to the franchise relationship such that the failure to comply with these terms supports termination of the Franchise Agreement. Doebereiner ,
In order to terminate a franchise agreement due to the franchisee's non-compliance with a term that is of real importance to the agreement, the franchisor must act with diligence. The franchisor must provide notice of such termination "not more than 120 days prior to the date on which notification of termination ... is given ..." pursuant to § 2804(a).
IV. CONCLUSION
The letter sent by Mr. Firth, director of business development for Southeast, to LLB on May 8, 2018,
*1292Southeast's contention that LLB's business practices violate provisions of the franchise agreement that are both reasonable and of material significance to the franchise agreement does not preclude the entry of a preliminary injunction in this case. The provisions of the DSA and WMA relied upon by Southeast provide two general duties: first, prompt and courteous responses to consumer complaints; and, secondly, conducting one's business in a professional, ethical, and moral manner. The defense failed to introduce evidence that LLB failed to respond to consumers promptly and courteously. To the contrary, LLB offered evidence and testimony of a procedure put in place three years ago designed to refund money to dissatisfied consumers. Both Southeast and Motiva had access to the consumer complaint data and neither produced evidence of having objected to the procedure employed by LLB.
Whether the price-per-gallon for regular fuel set by LLB constitutes unethical or immoral conduct is hotly disputed. Mr. Ansari claims he charges what the market will allow, similar to gas stations located in proximity to airports. The DSA and the WMA are silent on how one is to define ethical or immoral conduct, save prohibitions against selling drug paraphernalia and pornography. (Def. Ex. 2, ¶ f(j) ). Accordingly, LLB has carried their burden of showing there exists sufficiently serious questions going to the merits of the litigation. The Court further finds that the hardship of being denied Shell brand fuel outweighs the hardship place upon Motiva in supplying fuel to LLB's outlet.
Finally, the PMPA requires a franchisor who desires to terminate a franchise agreement to act without undue delay. If the facts or conduct giving rise to termination were known to the franchisor more than 120 days prior to initiating the termination notification and the franchisor does not act, he waives his right to commence the termination proceeding. The consumer complaints regarding the price of fuel at LLB's outlet were well known back in 2015. In fact, Southeast states in their Email to LLB on February 14, 2018, "Shell has again issued noticed [sic] for you to debrand your facility due to the marketing practices and growing number of complaint files." (Plf. Ex. 2). As a procedural point, Southeast waited too long to seek termination of the franchise agreement.
For the foregoing reasons, LLB's Motion for Emergency (Preliminary) Injunction (Doc. 4) is GRANTED . Therefore, it is ORDERED AND ADJUDGED that pending the trial of this cause, or until such time as the Court orders otherwise:
1. Defendant, and any other person or entity acting in concert of participation with the Defendant, is hereby enjoined from terminating the franchise between Plaintiff and Defendant, pursuant to which Defendant supplies Plaintiff with Shell-branded motor fuel and licenses the *1293use of the Shell trademark at the Vineland Station.
2. Defendant and any other person or entity acting in concert of participation with the Defendant, shall immediately comply with the terms and conditions of this Order, by refraining from debranding or forcing Plaintiff to debrand the Vineland Station.
3. Pursuant to15 U.S.C. § 2805 , this Court finds that no bond is required to be posted because Plaintiff will continue to pay Defendant for the motor fuel it delivers to the Vineland Station and because Defendant will benefit from the sale of goods and services at the Vineland Station.
DONE AND ORDERED in Orlando, Florida, on July 10, 2018.
This action was initially filed in state court, and the circuit judge held a non-evidentiary hearing to address whether injunctive relief should be allowed. (Doc. 4, p. 4). Southeast did not argue during the four-hour evidentiary hearing held before this Court on June 29, 2018, that claim preclusion or collateral estoppel prevents this Court from ruling upon Plaintiff's Motion. This Court agrees with Plaintiff's arguments that LLB's request for injunctive relief is not barred by res judicata or collateral estoppel. (Id. at pp. 20-24).
The WMA lists twelve minimum standards that Southeast's outlets must meet. (Def. Ex. 2, pp. 5-7).
Exhibits were offered and admitted by the respective parties during the evidentiary hearing on June 29, 2018.
Exhibit A contains a list of seven items necessary to accomplish debranding.
Mr. Firth testified that Citgo was interested in allowing LLB to sell its brand of fuel until it learned the price per gallon charged by LLB. Mr. Firth further testified that all of their branded flags have a clause in their agreements requiring the outlet to maintain competitive pricing under the branded programs. Accordingly, all of the brands serviced by Southeast had elected not to work with LLB under their current pricing method.
Whether the franchisee has violated a provision of the franchise agreement that is both reasonable and of material significance to the franchise agreement is judged from the standpoint of a neutral observer. Shell Oil Co. v. A.Z. Servs., Inc. ,
The DSA does not define or establish criteria for determining when a brand has become unavailable.
Southeast further argued that LLB was uncooperative when Citgo was considering rebranding the station. However, Citgo ultimately declined to rebrand LLB's station because the price per gallon would damage their brand, and every other brand carried by Southeast similarly declined to accept LLB unless it changed its price point for fuel.
While Southeast contends Motiva reported hundreds of customer complaints in the months preceding the withdrawal of its brand from use by LLB, the defense failed to produce evidence to support this contention.
Plf. Ex. 4.
The Court does not reach the issue of whether Motiva's fuel was "unavailable" or whether the timing or content of the termination notice was adequate.
The evidence presented at the hearing showed that are replacement brand had not been coordinated by Southeast as of February 14, 2018, and certainly not as of May 10, 2018.
The PMPA sets a standard for preliminary injunctive relief that is more liberal than that which is generally applied outside the PMPA. Doebereiner ,
Reference
- Full Case Name
- LLB CONVENIENCE & GAS, INC. v. SOUTHEAST PETRO DISTRIBUTORS, INC.
- Status
- Published