Amoco Oil Co. v. DZ Enterprises Inc.

• Decision Date: 24 April 1985
• Docket Number: No. CV 84-3202.,CV 84-3202.
• Parties: AMOCO OIL COMPANY, Plaintiff, and Tartan Oil Corp., Plaintiff-Intervenor, v. D.Z. ENTERPRISES INC. and Dinc H. Karabag, Defendants.
• Court: U.S. District Court — Eastern District of New York

607 F. Supp. 595

AMOCO OIL COMPANY, Plaintiff, and Tartan Oil Corp., Plaintiff-Intervenor, v. D.Z. ENTERPRISES INC. and Dinc H. Karabag, Defendants.

No. CV 84-3202.

United States District Court, E.D. New York.

April 24, 1985.

COPYRIGHT MATERIAL OMITTED

Townley & Updike, New York City, for plaintiff.

Carl S. Levine, Garden City, N.Y., for plaintiff-intervenor Tartan Oil Corp.

Burns & Berger by Lawrence Berger, Garden City, N.Y., for defendants.

MEMORANDUM AND ORDER

WEXLER, District Judge.

Amoco Oil Company (Amoco) brings this action for trademark infringement under the Lanham Act, 15 U.S.C. §§ 1114, 1125, and New York General Business Law § 368 (McKinney 1984), and termination of its franchise dealership agreement with defendant D.Z. Enterprises, Inc. and its president Dinc H. Karabag (collectively Karabag) under the Petroleum Marketing Practices Act (PMPA or Act). 15 U.S.C. §§ 2801-2806. Tartan Oil Corporation (Tartan Oil), which has broker agreements with Amoco and Karabag and leases a service station to Karabag, was granted leave to intervene as plaintiff-intervenor. Tartan Oil seeks to end Karabag's leasehold.

When Amoco filed this action it also sought a preliminary injunction, which was withdrawn when plaintiff and defendant entered into a debranding agreement. Discovery has proceeded, and based on information from interrogatories and depositions Amoco now moves for partial summary judgment against Karabag, Rule 56(b), Fed.R.Civ.P. Plaintiff asks this Court to hold as a matter of law that Karabag has violated the Amoco trademark and that Amoco's termination of the franchise agreement is valid under the terms of the PMPA and the agreement itself. Tartan Oil also moves for partial summary judgment in its favor and asks this Court to hold Karabag in breach of the broker agreement and the service station lease agreement and order defendant to vacate the premises, and dismiss defendant's counterclaims. Karabag opposes both motions, maintaining that defendant has not violated the Amoco trademark, and that oral modifications of the agreements with Tartan Oil preclude any action for breach. Karabag has raised a number of affirmative defenses and counterclaims against both plaintiff and intervenor.

I.

Karabag operates an Amoco station at Route 112 and Sunrise Highway in Patchogue, New York. Defendant took over the lease to those premises by assignment in June of 1982 from Ilter Karakurt. Tartan Oil is the landlord of the service station but Amoco owns certain of the fixtures and equipment and its distinctive trademark designations displayed about the station. In addition to owning and leasing the gas station, Tartan Oil is a motor fuel broker. As such Tartan Oil does not distribute or take title to any of the motor fuels it brokers. There are four agreements linking the three parties together: a broker agreement between Amoco and Tartan Oil, a broker agreement between Tartan Oil and Karabag, a lease on the Sunrise Highway station between Tartan Oil and Karabag, and a supply contract between Amoco and Karabag. Breach of the last three agreements is at issue here.

II.

The Court first addresses Amoco's motion for summary judgment against Karabag for violation of §§ 32(1)(a) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a) and 1125(a), and for termination under the PMPA, 15 U.S.C. §§ 2801-2806.

Amoco is a refiner and distributor of petroleum products. The Amoco mark is registered as a trademark with the United States Patent and Trademark Office and so comes under the protection of the Lanham Act. It is undisputed that Karabag is dispensing through Amoco-branded pumps gasoline that was not sold to defendant by Amoco or designated by Amoco as Amoco-brand gasoline. In his deposition, answers to interrogatories, and affidavit Dinc Karabag declares that he bought gasoline from Petroleum Haulers, Inc., paying cash and retaining no receipts, and sold it to the public from Amoco pumps. Defendant contends that this is not a violation of Amoco's trademark because defendant is selling exactly the same gas that Amoco supplies. As an affirmative defense to the trademark violation Karabag argues that the practice of commingled storage, which is common in this area, vitiates Amoco's trademark. Defendant also claims that failure to add patented additives voids the trademark.

Commingling is a practice whereby several refiners deposit and draw their product from a common storage facility. The commingled storage tanks in this case are in Setauket, and the gasoline drawn from these tanks by Amoco, therefore, is not necessarily refined by Amoco. Nevertheless, gasoline from commingled storage can be made unique by mixing in special additives when the tank truck draws the gas. Amoco has patented Amotone, an additive that cleans an automobile's carburetor, and claims that it is added to all the gasoline that Amoco distributes for sale through Amoco-branded stations. Karabag claims not only that Petroleum Haulers' gas is from the same storage tanks at Setauket as Amoco's, but that drivers delivering Amoco-branded product told him that Amotone was frequently not added to their tanker loads. This, Karabag argues, vitiates any basis for Amoco's claim that Karabag has violated its trademark.

Not surprisingly, defendant cites no law in support of his position. There is none. Nor need the Court labor long over the trademark issue. The law is clear and unequivocal. It is of no importance whether Amoco sells commingled gas, whether Petroleum Haulers draws from the same storage facility as Amoco, or whether Amotone is added. What is important is the undisputed fact that Karabag sells from Amoco pumps gasoline that Amoco had not designated as Amoco-brand gasoline.

It is settled that the trademark holder need not actually manufacture the branded product in order to receive trademark protection, but can merely select and designate the product bearing its mark. Menedez v. Holt, 128 U.S. 514, 9 S.Ct. 143, 32 L.Ed. 526 (1888). This principle has been applied explicitly to cases of gasoline branding like the one at hand. In Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 478 F.Supp. 243 (E.D.Pa.1979), aff'd, 637 F.2d 105 (3d Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981), the plaintiff contended that since Texaco purchased gasoline from other refiners and sold it to plaintiff as Texaco gasoline, Texaco could not claim plaintiff violated its trademark by doing the same thing. This is exactly Karabag's argument. The law, however, holds the contrary to be true. As the Sweeney Court held, what constitutes a particular brand of gasoline is for the trademark holder in its discretion to determine. Id. at 279. Moreover, commingling, the refinery of the gasoline, and the presence or absence of patented additives are not determinative of the trademark. Id. As the Sweeney Court held,

Clearly, Texaco had the right to put its trademark on whatever gasoline it deemed suitable. The crucial point ... is that just because Texaco, the owner of the trademark, could decide what gasoline to market under that trademark does not mean that Sweeney, who had only the right to sell gasoline so marked, had a like right to decide which gasoline to call Texaco.

Id. at 279-80. In short, the trademark need not designate a source to be valid, but can be a quality mark. Nor is the mark dependent on the presence of an additive. See, Power Test Petroleum Distributors, Inc. v. Calcu Gas, Inc., 754 F.2d 91 (2d Cir.1985).

Again, the underlying principle is that the owner of the trademark alone has the right to decide what gasoline meets its standards and qualifies to bear its trademark. Karabag would have the Court uphold the trademark only if it designates gasoline refined by Amoco or mixed with the patented Amotone additive. Clearly this runs contrary to the law. Moreover, it flies in the face of logic and reality. The Amoco brand attaches a distinctive label to a product, with it comes customer recognition and goodwill. Even more importantly, with the Amoco brand comes national advertising and the Amoco credit card system, already in place and yielding great benefit to the gas station operator yet well beyond his ability to afford on his own. Karabag appears to argue that the dealer can do what he likes with the Amoco trademark, benefit from the recognition and goodwill Amoco has built up, and pay Amoco nothing. Amoco receives no rent for the Karabag station, or its equipment, or the use of its logo, but takes payment for the use of its trademark from the sale of gasoline to the franchisee. For Karabag to use the Amoco trademark as defendant pleases while depriving Amoco of any revenue from its trademark is to attack the core purpose of trademark and franchise as it exists in this country.

Furthermore, there is evidence that Karabag is playing fast and loose with the Amoco trademark in a manner that substantially impairs its value and identity. While the Court does not take it as a proven fact, plaintiff has alleged and submitted an affidavit and documents in support showing that the gasoline Karabag has sold through Amoco pumps fails to meet its standards on lead content. Tests performed on June 14, 1984 showed that gasoline taken from the Karabag station's unleaded regular gasoline pump exceeded Amoco's lead limit of .05 by .011 grams per gallon, and gasoline from the unleaded premium pump exceeded the lead limit of .05 by .016 grams per gallon (Affidavit of John Roberts, ¶ 5).¹ If these allegations are true, this case presents more than a legal violation of the Amoco trademark and impairment of its value and identity, it presents a palming-off on the public of an inferior product under another's trademark with concomitant loss of reputation and customer goodwill for the real product. See, Spring Mills, Inc. v. Ultracashmere House, Ltd., 689 F.2d 1127 (2d Cir.1982).

Finally, Karabag's argument that the agreement with Amoco allowed...