Double Diamond Properties, L.L.C. v. Amoco Oil Co.
| Decision Date | 11 May 2007 |
| Docket Number | Civil Action No. 2:06cv226. |
| Citation | 487 F.Supp.2d 737 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | DOUBLE DIAMOND PROPERTIES, L.L.C., and Cypress Point Citgo, Inc., t/a Bayside BP, Plaintiffs, v. AMOCO OIL COMPANY and BP Products North America, Inc., Defendants. |
Peter G. Zemanian, Zemanian Law Group, Norfolk, VA, William Greer McCreedy, II, Kellam Pickrell Cox & Tayloe, Norfolk, VA, for Plaintiffs.
Adam Casagrande, William F. Devine, Esquire, Williams Mullen, Norfolk, VA, David M. Harris, Lizabeth M. Conran, Greensfelder Hemeker & Gale PC, St. Louis, MO, for Defendants.
Scott W. Kezman, Kaufman & Canoles PC, Norfolk, VA, for Movant.
Plaintiffs Double Diamond Properties, LLC ("Double Diamond") and Cypress Point Citgo, Inc. ("Cypress Point") own and operate, respectively, a gasoline station located at 4904 Haygood Road in Virginia Beach, Virginia (the "Haygood Station"). The Haygood Station is subject to a restrictive covenant that prohibits until September 2011 the sale of any petroleum products not originally supplied by defendant BP Products North America, Inc., formerly known as Amoco Oil Company ("BP"). BP currently supplies the Haygood Station indirectly through one of its jobbers1, Miller Oil Co. ("Miller Oil").
Plaintiffs seek to invalidate the Restrictive Covenant. Alternatively, they seek an injunction directing BP to allow one of its other jobbers, PAPCO, Inc., to supply BP-branded gasoline to the Haygood Station. Because the Restrictive Covenant is enforceable and does not restrict the manner in which BP interacts with the distributors of its branded products, the Court has previously entered an Order granting BP's Motion for Summary Judgment and denying plaintiffs' Cross — Motion for Partial Summary Judgment. This Opinion explains the Court's reasoning.
The Haygood Station was originally owned and operated by BP. In 2001, BP began to divest its real estate holdings in Southeastern Virginia as part of a long-term strategy to discontinue direct supply and operation of retail gasoline stations. In furtherance of this strategy, BP offered to sell the Haygood Station to Canal Enterprises, L.L.C. ("Canal"), a retail gasoline dealer. BP offered Canal the following purchase options: 1) a market price of $835,000 free from any restriction; or 2) a discounted price of $642,000 subject to both a ten year Restrictive Covenant and a Dealer Supply Agreement (the "Canal Supply Agreement"). Canal chose the second option and purchased the Haygood Station on September 11, 2001.
The Restrictive Covenant set forth in the Special Warranty Deed states, in pertinent part:
The Grantee[, Canal,] herein covenants and agrees, for itself, and its heirs, executors, grantees, successors and assigns, that no part of the real estate herein conveyed shall be used ... for the purpose of conducting or carrying on the business of selling, handling, or dealing in gasoline ... or any fuel used for internal combustion engines, or lubricants in any form; unless the items sold, handled or dealt in are supplied, either directly or indirectly, from the Grantor[, BP]. This restriction binds and restricts the property as a covenant running with the land and is deemed to benefit Grantor[, BP] as an owner or lessee of lands in the City of Portsmouth, Virginia metropolitan area or as the operator or supplier of retail operations in the City of Portsmouth, Virginia metropolitan area. Except as otherwise provided herein, this restrictive covenant will remain in full force and effect for a term of ten (10) years from the date of this conveyance, whereupon this restrictive covenant will automatically lapse and terminate and be of no further force or effect. If Grantor discontinues supplying gasoline to Grantee or an Affiliate (as herein defined) of Grantee, or their respective heirs, executors grantees, successors or assigns (unless such discontinuation is a result of the action of Grantee or an Affiliate of Grantee), on a direct or indirect basis for a period of thirty (30) or more consecutive days during such ten (10) year term then, within thirty (30) days after receipt of Grantee's written request thereof, Grantor, at Grantor's sole option, shall either recommence supplying gasoline or terminate the foregoing restrictive covenant.
(Docket No. 32, Exhibit 2 at 1-2) (emphasis added). The Canal Supply Agreement has a five year term and is renewable for an additional five years at BP's option. The Canal Supply Agreement does not prohibit BP from assigning its supply rights3, and grants to BP a right of first refusal in the event Canal attempts to sell the Haygood Station.
In 2005, BP converted its wholesale gasoline distribution business in southeastern Virginia from a direct-serve market (selling gasoline directly to retail merchants) to an indirect-serve market. The latter method of distribution relies upon local jobbers to purchase BP-branded gasoline and transport it from the refinery pipeline to retail dealer locations. The jobbers who distribute BP-branded gasoline do so pursuant to jobber agreements with the company.
On October 14, 2005, Miller Oil agreed to become the exclusive distributor of BP-branded fuel to twenty-four (24) specific dealer locations. The Haygood Station was one of the twenty-four locations assigned to Miller Oil. In exchange for these exclusive supply rights, Miller Oil paid BP the sum of $1,411,000 (the allocated cost for the Haygood Station was $28,603) and agreed not to distribute BP-branded fuels to any locations other than those listed in the parties' agreement. BP sold distribution rights for other locations to PAPCO and additional local jobbers.
When Canal negotiated the purchase of the Haygood Station, it consulted with Mr. James W. Thomas ("Mr.Thomas"). Mr. Thomas is the owner of J.W. Thomas, Inc an accounting and bookkeeping firm in Norfolk, Virginia that specializes in the petroleum industry. At the time of the Canal purchase, Mr. Thomas represented approximately twenty (20) other dealers who also purchased BP retail stations. In addition to his accounting and bookkeeping business, Mr. Thomas indirectly owns three gasoline stations that PAPCO supplies with non-BP gasoline.
After the purchase from BP, Canal developed financial problems and ultimately closed the Haygood Station in 2004. Canal, which was indebted to Mr. Thomas for previous accounting services, requested that Mr. Thomas assist in selling the station. After a year of unsuccessful efforts, Mr. Thomas decided to purchase the station himself. He did so through plaintiff Double Diamond, which is a limited liability company that he controls.
On October 24, 2005, Mr. Thomas, on behalf of plaintiff Double Diamond, executed a Purchase Agreement to acquire the Haygood Station from Canal for $945,000, a purchase price below the Haygood Station's appraised value of $1,308,000. The Purchase Agreement contained two relevant contingencies inserted by Mr. Thomas:
1)"BUYER MUST BE APPROVED BY BP/AMOCO-MILLER OIL COMPNY;" and 2) "CONTRACT IS CONTINGENT UPON BUYER MEETING WITH MILLER OIL COMPANY AND OBTAINING SATISFACTORY SUPPLY AGREEMENT."
On November 4, 2005, Mr. Thomas faxed a copy of the Purchase Agreement to Miller Oil and requested that the jobber decline to exercise its option so that Double Diamond could proceed.4 By letter dated November 10, 2005, Miller Oil waived its right of first refusal contingent upon: "(i) approval by Miller of the Buyer and the Buyer's financial creditworthiness, and (ii) the agreement and execution by Miller and Buyer of a satisfactory Supply Agreement." (Pl.Ex.7).
Miller Oil approved Double Diamond's credit application, and the principals of the two companies met on November 18, 2005 to discuss pricing terms. At the meeting, Miller Oil offered Double Diamond the following pricing options: 1) assumption of the existing Canal Supply Agreement; or 2) a new supply agreement with the same cost-plus pricing option that Miller Oil offers to the other retail dealers it supplies. Mr. Thomas disliked both options and terminated the negotiations.
Although it had no supply agreement in place and no assurance of a future supply agreement, Double Diamond closed its purchase of the Haygood Station on January 25, 2006. Despite the documents discussed above, Mr. Thomas contends that he did not know at the time of purchase that Miller held the exclusive right to supply petroleum products to the Haygood Station. Six days after closing, Double Diamond asked PAPCO to supply the Haygood Station with BP-branded gasoline on the same terms and conditions that PAPCO offers to the three other stations that Mr. Thomas indirectly owns. PAPCO initially expressed interest in such an arrangement, but ultimately declined Double Diamond's request after discovering that Miller Oil had purchased exclusive rights to supply the Haygood Station.
Plaintiffs filed this action to preliminarily and permanently enjoin enforcement of the Restrictive Covenant or, in the alternative, to compel BP to allow PAPCO to supply the Haygood Station with BP-branded gasoline. The Court denied plaintiffs' Motion for a Preliminary Injunction. (Docket No. 18). Double Diamond's operating affiliate, plaintiff Cypress Point, thereafter assumed the Canal Supply Agreement and currently sells at the Haygood Station BP-branded fuel supplied by Miller Oil. Plaintiffs contend that they could purchase BP-branded petroleum products at a substantially cheaper price from PAPCO.
Summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,...
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