Koylum Inc. v. Peksen Realty Corp., PLAINTIFF-APPELLEE

• Decision Date: 01 August 2000
• Docket Number: DEFENDANT-APPELLANT,Docket Nos. 99-9039,PLAINTIFF-APPELLEE
• Parties: (2nd Cir. 2001) KOYLUM, INC.,, v. PEKSEN REALTY CORP., F/K/A ROUTE 25 CALVERTON REALTY CORP., SUCCESSOR BY MERGER TO RIDGE PETROLEUM REALTY CORP.,, 1677 RIDGE ROAD REALTY CORP., A NECESSARY PARTY, APPELLANT. (L), 99-9229 (CON)
• Court: U.S. Court of Appeals — Second Circuit

Page 138

272 F.3d 138 (2nd Cir. 2001)

KOYLUM, INC., PLAINTIFF-APPELLEE, v. PEKSEN REALTY CORP., F/K/A ROUTE 25 CALVERTON REALTY CORP., SUCCESSOR BY MERGER TO RIDGE PETROLEUM REALTY CORP., DEFENDANT-APPELLANT, 1677 RIDGE ROAD REALTY CORP., A NECESSARY PARTY, APPELLANT.

Docket Nos. 99-9039 (L), 99-9229 (CON)

August Term, 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: January 17, 2001

Decided: November 21, 2001

Defendant-lessors of a gas station appeal from grant of preliminary injunction under the Petroleum Marketing Practices Act by the United States District Court for the Eastern District of New York (Spatt, J.) enjoining them from pursuing proceedings to oust the plaintiff-tenant. The Court of Appeals (Leval, J.) affirms.

Robert G. Del Gadio, Law Office of Robert G. Del Gadio, Uniondale, Ny, for Defendant-Appellant 1677 Ridge Road Realty Corp.

Edward A. Christensen, Law Office of Edward A. Christensen, Oyster Bay, Ny, for Appellant Peksen Realty Corp.

Arnold P. Azarow, Law Office of Arnold P. Azarow, Garden City, Ny, for Plaintiff-Appellee Koylum, Inc.

Before: Van Graafeiland, Newman, and Leval, Circuit Judges.

Leval, Circuit Judge

Defendants, who are lessors of a gas station, appeal from an order of the United States District Court for the Eastern District of New York (Spatt, J.) preliminarily enjoining them from ousting their tenant, plaintiff Koylum, Inc., the operator of the station. The defendants contend that under the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801 et seq., the district court did not have subject matter jurisdiction over Koylum's suit, and, in the alternative, that the district court abused its discretion in granting a preliminary injunction.

Because we conclude that the PMPA provides jurisdiction over Koylum's suit and that the district court did not abuse its discretion in granting a preliminary injunction under the PMPA's lenient standard, we affirm.

BACKGROUND

I. Factual Background

Koylum has operated a gas station in Ridge, New York, since May 1996. The station was previously operated by Koylum's assignor, RBP Enterprises, under two agreements: the Lease Agreement, dated January 1, 1994, under which Koylum's assignor leased the premises from the predecessor in interest of defendant Peksen Realty Corp. (Peksen); and the Supply Agreement, also dated January 1, 1994, fixing the terms under which Koylum's assignor would purchase its gasoline supplies from Ocean Petroleum, Inc. (Ocean). Both agreements expire on December 31, 2011. The Supply Agreement permitted Ocean to designate a substitute supplier. It also authorized Koylum's assignor to use the brand names and trademarks designated by Ocean in connection with the sale of fuel. Peksen and Ocean are affiliated with one another; both are closely held corporations owned by Refik and Mine Peksen (who are husband and wife).

A. The December 1995 Rider to the Supply Agreement

On December 1, 1995, Ocean and Koylum's assignor agreed to an alteration of the Supply Agreement (the Rider). The Rider required Ocean to quote the next day's prices for gasoline and permitted Koylum's assignor to purchase gasoline from "any other open market supplier" of gasoline if Ocean's quoted prices were above the prices specified by a formula. The Rider required (i) that Koylum's assignor document its calculations justifying its exercise of the option to purchase from another supplier, and (ii) that the transport of fuel by "any supplier from all terminals in the Long Island and Metropolitan area" to the station be made by National Petroleum Transporters at a specified rate.

In May 1996, by assignment Koylum became the lessee under the Lease Agreement. In August 1996, in order to take advantage of the favorable price restriction formula and option to purchase gasoline from another supplier contained in the Rider, Koylum, with Ocean's consent, obtained the assignment of the Supply Agreement.

Ocean, which has since been liquidated in bankruptcy, was an authorized distributor for Coastal Refinement Corporation (Coastal) and sold Coastal brand products to Koylum for resale at the station. It is undisputed that Ocean was authorized by Coastal to use the Coastal mark, that Ocean permitted Koylum to use the Coastal mark in connection with its operation of the station, and that the station was operated as a Coastal gas station. No express mention was made of the Coastal mark in any of the written agreements between Koylum and Ocean or Peksen.

B. The October 1998 Notice of Termination

The relationship between Koylum and Ocean/Peksen deteriorated. Koylum asserts that Ocean frequently failed to supply it with a price list for petroleum products as required by the Rider; Koylum turned to other suppliers for fuel, including non-Coastal brand suppliers. In August 1997, Koylum sent a letter "to remind" Ocean that it was required under the Rider to send the next day's gasoline prices. Ocean responded by letter in September 1997 advising Koylum that the Rider required documentation supporting a claim for excessive pricing that would permit Koylum to purchase gasoline from other suppliers. Ocean also reminded Koylum that all products delivered to the station were to be transported by National Petroleum Transporters at the rate indicated in the Rider. Ocean's letter warned Koylum that "you have failed to adhere to these requirements and continuance of these actions will cause a default of your supply agreement as well as your Lease agreement."

In July 1998, Ocean apparently encountered difficulty in obtaining supplies of gasoline from the Coastal refinery and instead supplied Koylum with fuel from other sources, including non-Coastal brand suppliers. Koylum asserts that it purchased non-Coastal gasoline in September 1998 because Ocean failed to send price lists on a daily basis or because the prices quoted by Ocean were higher than the price restriction formula contained in the Rider. Koylum's purchases resulted in Ocean/Peksen's attempt to terminate the agreements between the parties.

By letter dated October 2, 1998, Peksen informed Koylum that it would terminate the Lease Agreement as of midnight October 6, 1998. By a substantially similar letter also dated October 2, 1998, Ocean notified Koylum that it would terminate the Supply Agreement at the same time. The letters asserted that Koylum violated the Supply Agreement and the Lease Agreement by, among other things,

- purchasing unbranded gasoline from unauthorized suppliers and selling it under the Coastal trademark and brand name;

- causing gasoline from an unauthorized source to be mixed in the station's underground tanks with gasoline supplied by Ocean; and

- using and occupying the station for the sale of gasoline not approved by Ocean and Peksen.

The notices also asserted that Koylum's purchases of unbranded gasoline for sale under the Coastal brand name constituted trademark infringement, unfair competition under the Lanham Act, and false advertising and trademark dilution under New York law.

On October 7, 1998, Peksen filed a petition in Suffolk County District Court to oust Koylum from the premises as a holdover tenant--one that remains on the premises after the expiration of the lease without any vested right to remain. See Bay West Realty Co. v Christy, 310 N.Y.S.2d 348, 351 (Civ. Ct. 1970); 90 N.Y. Jur. 2d Real Property-Possessory and Related Actions § 398, at 298 (1991). Koylum counterclaimed for a declaratory judgment allowing it to continue to occupy the premises. Koylum secured a stay of the holdover action, which remained in place by stipulation of the parties.

C. Ocean's Bankruptcy

On October 29, 1998, Coastal canceled Ocean's right to use its trademarks and terminated its agreement to sell petroleum products to Ocean, effective February 3,1999. Ocean did not advise Koylum of the cancellation. On November 20, 1998, Ocean filed a Chapter 11 bankruptcy petition.

In January 1999, Ocean elected before the bankruptcy court to reject its executory Supply Agreement with Koylum. On February 25, 1999, Koylum filed a claim against Ocean in bankruptcy court for rejection damages based on the rejection of the Supply Agreement.

At some time in January 1999, Koylum removed all Coastal logos and marks at its station. Koylum asserts that it did this on the advice of counsel in order to avoid further charges that it was violating Coastal's trademark.

Ocean voluntarily converted its bankruptcy case to a chapter 7 liquidation proceeding and ceased operating on June 18, 1999.

D. The January 1999 Notice of Termination and the Sale of the Premises to 1677 Ridge Realty Corp.

By letter dated January 29, 1999, Peksen again notified Koylum that its lease was terminated on the ground that Koylum sold non-Coastal gasoline purchased from another supplier. Peksen then filed a new holdover petition, which was dismissed in March 1999 because of the stay entered in October 1998.

On May 6, 1999, without giving Koylum prior notice, Peksen sold the station to 1677 Ridge Realty Corp. (1677 Ridge). 1677 Ridge promptly filed another petition to oust Koylum as a holdover tenant, followed by a claim for unpaid rent reasserting the grounds advanced by Peksen in its two previous holdover petitions against Koylum. 1677 Ridge's holdover petition was dismissed in July 1999, apparently on the theory that the subsequent nonpayment petition served to reinstate the lease.

II. Koylum's Initiation of This Action and Its Motion for Preliminary Injunction

In July 1999, Koylum filed this suit pursuant to the PMPA, which generally forbids a franchisor from terminating a franchise prior to its expiration date without justification. See 15 U.S.C. §§ 2802, 2805.¹ Koylum contended that Peksen had no cause to terminate the franchise, because the portions of the franchise agreement that Peksen claimed Koylum had violated (concerning the purchase of gasoline from suppliers other than Ocean) had been...