Koylum, Inc. v. Peksen Realty Corp.
| Decision Date | 30 September 2002 |
| Docket Number | No. CV 99-3793ADS.,CV 99-3793ADS. |
| Citation | 223 F.Supp.2d 405 |
| Parties | KOYLUM, INC., Plaintiff, v. PEKSEN REALTY CORP., f/k/a Route Calverton Realty Corp., Successor by merger to Ridge Petroleum Realty Corp. and 1677 Ridge Road Realty Corp., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Law Offices of Arnold P. Azarow, Syosset, NY (Arnold P. Azarow, Kenneth L. Robinson, Of Counsel), for Plaintiff.
Law Offices of Robert G. DelGadio, Uniondale, NY (Robert G. DelGadio, of Counsel), for Defendant 1677 Ridge Road Realty Corp.
Edward A. Christensen, Oyster Bay, NY, for Defendant Peksen Realty Corp.
The Petroleum Marketing Practices Act ("PMPA") is remedial legislation that "must be given a liberal construction consistent with its overriding purpose to protect franchisees." Brach v. Amoco Oil Co., 677 F.2d 1213, 1221 (7th Cir.1982). In enacting the PMPA, Congress intended to establish minimum federal standards for the termination and non-renewal of franchise agreements between small businesses and large oil companies. Riverdale Enterprises, Inc. v. Shell Oil Co., 41 F.Supp.2d 56, 61 (D.Mass.1999), see May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 921 (6th Cir.1989) (citing S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.Code Cong. & Admin.News 873, 877). A primary reason for its passage was to alleviate the potential use by large oil companies of threats and coercion to force adherence to their corporate marketing policies. Id. Congress therefore passed the PMPA to ensure that franchisees would not suffer arbitrary or discriminatory treatment at the hands of the more powerful franchisor. Id.
However, the PMPA's reach should be limited because its provisions may also cause a diminution of franchisor property rights. Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc., 940 F.2d 744, 750 (1st Cir.1991). Thus the PMPA should not be interpreted to reach beyond its original language and purpose. Id. One court has described the PMPA as a "product of compromise." Valentine v. Mobil Oil Corp., 789 F.2d 1388, 1390 (9th Cir.1986). See also Sawhney v. Mobil Oil Corp., 970 F.Supp. 366, 371 (D.N.J.1997) (); Russo v. Texaco, Inc., 630 F.Supp. 682, 687 (E.D.N.Y.) aff'd 808 F.2d 221 (2d Cir.1986) ().
This case involves a gas station located at 1677 Route 25A, Ridge, New York (the "Ridge Station") and a series of transactions with its landlords and gasoline supply company. Many of the facts set forth in the "Background" are taken from the detailed factual recitation in the Second Circuit opinion which affirmed the issuance of a preliminary injunction, Koylum Inc. v. Peksen Realty Corp., 272 F.3d 138 (2d Cir.2001) and will, in part, be repeated for the purpose of clarity.
The plaintiff Koylum, Inc. ("plaintiff" or "Koylum") has operated the Ridge Station since June 21, 1996 as a result of an assignment of a lease. The prior operator of the Ridge Station was RBP Enterprises ("RBP"). The Ridge Station, which was a Coastal Refining and Marketing, Inc. ("Coastal") branded station, was operated under two agreements: (1) the Lease Agreement dated January 1, 1994, (the "Lease Agreement") between Koylum's assignor and defendant Peksen Realty Corp. ("Peksen"); and (2) the Supply Agreement, also dated January 1, 1994, (the "Supply Agreement") between Koylum's assignor and its gasoline supplier, Ocean Petroleum Inc. ("Ocean"). Coastal is a gasoline refiner. Ocean is not a party to this lawsuit. 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, in that both are closely held corporations owned by Refik Peksen and Mine Peksen, who are husband and wife. Ocean was an authorized distributor for Coastal and sold that brand of product to Koylum for resale at the Ridge Station.
On December 1, 1995, in a Rider ("the Rider"), Ocean and Koylum's assignor agreed to a revision of the Supply Agreement. Among other things, the Rider required Ocean to advise Koylum's assignor by fax on or before 7:00 p.m. of every weekday of the next day's prices for the gasoline being sold by Ocean to RBP. The Rider further permitted Koylum's assignor to purchase gasoline from any other open market supplier if Ocean's quoted prices exceeded the prices specified by a stated formula. The Rider further provided (1) that Koylum's assignor document its calculations justifying its exercise of the option to purchase from another supplier, and (2) that the transport of fuel by any other supplier from terminals in the Long Island and Metropolitan area to the Ridge Station be made by a firm called National Petroleum Transporters, Inc. at a specified rate.
On June 21, 1996, by assignment, Koylum became the lessee of the Ridge Station under the Lease Agreement. Also, in August 1996, with Ocean's consent, the Supply Agreement was assigned to Koylum. At that time, Erol Bayraktar and Adnan Kiriscioglu, purchased the stock of Koylum. After the assignment of the Lease and the Supply Agreement, Ocean permitted Koylum to use the Coastal brand name, and the gas station continued to operate as a Coastal gas station.
In 1997 the relationship between Koylum and Ocean/Peksen developed problems ultimately resulting in letters of termination by Peksen and Ocean, both dated October 2, 1998. The termination letters stated that both the Lease Agreement and Supply Agreement would end on October 6, 1998. The termination letters accused Koylum of 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 termination letters also stated that Koylum's purchases of unbranded gasoline for sale under the Coastal brand name constituted trademark infringement, unfair competition under the Federal Lanham Act, and false advertising and trademark dilution under New York law.
Following these termination letters flowed a series of eviction petitions brought by Peksen and 1677 Ridge Road Realty Corp., ("1677 Ridge"), its successor in the ownership of the Ridge Station. On October 7, 1998, Peksen commenced a proceeding in the District Court of Suffolk County to evict Koylum, as a holdover tenant. This eviction proceeding was stayed, and remains so stayed by stipulation of the parties, pending the disposition of this lawsuit.
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 this cancellation by its petroleum producer. On November 20, 1998, Ocean filed a Chapter 11 bankruptcy petition. In January 1999, in the Bankruptcy Court, Ocean rejected the executory Supply Agreement with Koylum. On February 25, 1999, Koylum filed a claim against Ocean in Bankruptcy Court for damages based on the rejection of the Supply Agreement. On June 18, 1999, Ocean converted its bankruptcy petition to a Chapter 7 liquidation proceeding and ceased operating.
On January 29, 1999, Peksen sent a second lease termination letter to Koylum, also based on the ground that Koylum sold non-Coastal gasoline purchased from another supplier. Peksen followed this second termination letter with another holdover proceeding in the Suffolk County District Court. This petition was dismissed in March 1999, due to the stay of the first petition.
On May 6, 1999, Peksen sold the Ridge Station to 1677 Ridge. The new owner of the station then filed another holdover eviction proceeding in District Court, followed by a non-payment eviction petition. This holdover proceeding was dismissed in July 1999.
On July 7, 1999, Koylum commenced this federal lawsuit under PMPA, 15 U.S.C. § 2801 et. seq. The complaint seeks declaratory relief that Peksen improperly terminated Koylum's franchise because the terms of the Rider to the Supply Agreement allowed Koylum to purchase gasoline from suppliers other than Ocean. Koylum also seeks to compel Peksen to rescind the sale of the Ridge Station to 1677 Ridge and to permit Koylum to exercise the right of first refusal with regard to the purchase of the property. According to Koylum, Peksen's sale of the Ridge Station violated the PMPA in that Peksen was required to give Koylum prior notice of the sale and the right of first refusal to purchase the premises, as stated in 15 U.S.C. § 2802(b)(3)(D)(iii). To stabilize its position, Koylum moved for a preliminary injunction, pursuant to 15 U.S.C. § 7805(b)(2), to enjoin 1677 Ridge/Peksen from continuing their eviction proceeding in the Suffolk County District Court.
After a hearing, United States Magistrate Judge Viktor V. Pohorelsky found that (1) the relationship between Koylum, Peksen and Ocean constituted a franchise relationship, within the provisions of the PMPA; (2) it was undisputed that Ocean orally authorized Koylum to use the Coastal brand name in connection with sale of gasoline products at the Ridge Station; and (3) the parties expressly agreed in the Supply Agreement that theirs was a franchise relationship within the provisions of the PMPA.
Judge Pohorelsky recommended that a preliminary injunction be issued. He found that there were serious questions as to the propriety of the termination of Koylum with regard to both the Lease Agreement...
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