MS & BP, LLC v. Big Apple Petroleum, LLC

• Decision Date: 07 May 2015
• Docket Number: 14-CV-5675 (RRM) (RER)
• Court: U.S. District Court — Eastern District of New York
• Parties: MS & BP, LLC, Plaintiff, v. BIG APPLE PETROLEUM, LLC, Defendant.

MS & BP, LLC, Plaintiff,
v.
BIG APPLE PETROLEUM, LLC, Defendant.

14-CV-5675 (RRM) (RER)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

May 7, 2015

MEMORANDUM AND ORDER

ROSLYNN R. MAUSKOPF, United States District Judge.

Plaintiff, MS & BP, LLC ("MS & BP") brings this action, against defendant Big Apple Petroleum, LLC ("Big Apple"), seeking legal and equitable relief for alleged violations of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (the "PMPA"), breach of contract, and for other violations under New York state law.¹ MS & BP seeks, inter alia, a permanent and preliminary injunction: (i) enjoining Big Apple from terminating the fuel supply and station lease agreements between them; (ii) ordering Big Apple to engage in good faith negotiation for renewal of the agreements; and (iii) ordering Big Apple to renew the agreements, including a reduction in rent and fuel price. With the consent of Big Apple, a temporary restraining order has remained in place since the removal of this action from state court, temporarily enjoining Big Apple from terminating or failing to renew the Supply Agreement and Lease. For the reasons stated herein, MS & BP's request for a preliminary injunction is hereby DENIED.

Page 2

FACTUAL BACKGROUND²

I. The Supply Agreement and Lease

Big Apple is an Exxon/Mobil fuel distributor, and currently owns a service station located at 112-01 Beach Channel Drive, Rockaway Park, New York. (Decl. of Walton E. Bell, Oct. 16, 2014 ["Bell Decl."] (Doc. No. 8.) at ¶ 4.) In or around 2005, MS & BP, a gas station operator, executed both a supply and lease agreement with Exxon/Mobil, paying $750,000 for the exclusive rights to operate a gas station at that location. (Compl. (Doc. No. 7) at ¶ 7.) The supply and lease agreements were renewed in 2008, and in August and September of 2011, respectively. (Compl. at ¶ 8.) The 2011 renewals, titled Contract of Sale (Branded) ("Supply Agreement") and the Station Lease (Branded) ("Lease"), were signed by MS & BP and East River Petroleum Realty, LLC, which then assigned its rights as franchisor under the agreement to Big Apple. (Compl. at ¶ 9; Supply Agreement (Doc. No. 8-2); Lease (Doc. No. 8-3).) Both the operative Supply Agreement and Lease, by their terms, became effective on October 1, 2011 and were scheduled to expire on September 30, 2014. (Supply Agreement at ¶ 1(a); Lease at ¶ 2.) Both contain a cross-termination clause stating, in pertinent part, that the agreement will terminate or not be renewed if, for any lawful reason, the other agreement is terminated or not renewed. (Supply Agreement at ¶ 24; Lease at ¶ 17(b).)

II. Fuel Supply and Billing Practices

Big Apple's affiliated company and wholesaler, Capitol Petroleum Group ("CPG"), hauls fuel and bills MS & BP on behalf of Big Apple. (See Decl. of Brian Griffith, Dec. 8, 2014 ["Griffith Decl."] (Doc. No. 18-2) at ¶ 5.) According Victor Iroh, a Sales Manager for CPG, there are three ways in which a gas station receives and pays for gasoline from a supplier.

Page 3

(Supplemental Decl. of Victor Iroh, Dec. 8, 2014 ["Supplemental Iroh Decl."] (Doc. No. 18-1) at ¶ 3.)

The first method is called "automatic delivery." (Id.) With automatic delivery, the fuel hauler manages the dealer's inventory, typically via electronic tank monitoring systems, and delivers fuel before the dealer runs out of inventory. (Id.) For automatic deliveries, CPG requires dealers to make payments via Electronic Funds Transfer ("EFT"), an automated direct debit system through which the dealer has authorized CPG to initiate funds transfers. (Id. at ¶ 4.)

Both the Supply Agreement and Lease permit Big Apple to require EFT. (Supply Agreement at ¶ 4(a); Lease at ¶ 4(a).) The agreements both specify that where, as here, a seller or lessor requires payment via EFT, the purchaser or lessee must establish a dedicated commercial account with a financial institution that provides such services, authorize the seller or lessor to initiate transfers of funds from the account for all sums due under the contract for the duration of the entire term of the contract, and "maintain at all times funds in its account sufficient to make payments . . . at the time of the EFT transaction." (Supply Agreement at ¶ 4(b); Lease at ¶ 3(b).) According to Iroh, CPG's consistent business practice, and the one in place throughout its relationship with MS & BP, was to initiate EFTs on the third business day following a fuel delivery made via automatic delivery. (Supplemental Iroh Decl. at ¶ 5.)

The Supply Agreement and Lease also permit Big Apple to collect "a service charge for each occurrence of such rejection," by the financial institution, "whether or not payment is subsequently paid." (Supply Agreement at ¶ 4(b); Lease at ¶ 3(b).) When an EFT bounced for insufficient funds, CPG would charge MS & BP a $175 fee. (See Griffith Decl. at ¶¶ 7, 8, 9, 10, 11, 13.) CPG also requires all of its dealers to pay for rent under applicable station leases via EFT. (Griffith Decl. at ¶ 4.)

Page 4

Purchases made at the station by consumers and paid for other than in cash - called "cash-less" payments - are also used for payments through EFT.³ According to Brian Griffith, an Assistant Sales Manager for CPG, all cash-less purchases made at the station were processed by Exxon/Mobil and subsequently transmitted to CPG. (Griffith Decl. at ¶ 5; Decl. of Brian Griffith, Feb. 23, 2015 ["Supplemental Griffith Decl."] (Doc. No. 25) at ¶ 4.) Griffith represented that neither CPG, nor any of its affiliates, exercise any control over the processing of credit or debit card sales. (Supplemental Griffith Decl. at ¶ 4.) However, as soon as those sales are processed and remitted to CPG, they are reflected in the station's account balance. (Supplemental Griffith Decl. at ¶ 5.) Once the station's account balance reflected such cash-less payment receipts, CPG would then initiate an EFT for only the balance of funds due. (Griffith Decl. at ¶ 5.) CPG maintains an electronic portal where its retailers can view their account history and balance going back ninety days. (Id.)

The second method by which a gas station receives and pays for gasoline is called "manual delivery." (Supplemental Iroh Decl. at ¶ 3.) A dealer on manual delivery orders his own fuel on at least twenty-four hours advance notice to the hauler and pays at the time of delivery. (Id.) This allows the dealer to manage his own inventory and cash flow. The third method, called "prepay," requires the dealer to pay in advance for any delivery by the wholesaler. (Id.)

III. MS & BP's EFT Bounces and Security Deposit

In October 2012, the station was badly damaged by Hurricane Sandy. (Compl. at ¶ 12; Decl. of Victor Iroh, Oct. 17, 2014 ["Iroh Decl."] (Doc. No. 8-1) at ¶ 3.) The station subsequently remained closed for eight months during repairs, reopening in June 2013. (Iroh

Page 5

Decl. at ¶ 3.) Starting on September 6, 2013, CPG recorded repeated EFT bounces. (See Bell Decl. at ¶ 10; Bounce Invoices Chart (Doc. No. 8-5) (chart prepared by Big Apple listing bounced invoices).) In December 2013, CPG placed MS & BP on manual delivery. (Supplemental Iroh Decl. at ¶ 6.) After the holidays, CPG returned MS & BP to automatic delivery. (Id.)

On January 6, 2014, CPG recorded another EFT bounce.⁴ (Def's Supplementary Mem. of Law (Doc. No. 18-10) at 3 n.7; Bounce Invoices Chart.) On January 9, 2014, Big Apple sent MS & BP a letter with the subject line, "Warning - Failure to Comply with Significant Franchise Provisions." (Big Apple Jan. 9, 2014 Letter (Doc. No. 23-1).) The letter cited the January 6, 2014 bounce and another dishonored EFT draft occurring on December 18, 2013 as failures "to maintain sufficient funds in [MS & BP's] bank account to timely make payments" and warned that these constituted breaches of provisions of MS & BP's contract with Big Apple which could "result in adverse repercussion up to and including termination of the franchise." Id. CPG recorded additional bounces on January 9, 13,⁵ 17, 24, 30 and 31, and February 6, 2014.

Page 6

On January 22, 2014 Big Apple sent MS & BP a letter demanding a $30,000 security deposit. (Big Apple Jan. 22, 2014 Letter (Doc. No. 1-1 at 78).) The letter referenced the January 9, 2014 letter and cited MS & BP's repeated failure to maintain adequate funds in its bank account to make timely EFT payments for fuel and rent.⁶ (Id.) CPG satisfied this demand by applying a $28,409.84 payment for fuel delivery, which it had already satisfied using cash-less payment receipts, to the security deposit. (Griffith Decl. at ¶¶ 12-17.) No additional funds were ever applied towards the security deposit.⁷ (Id. at ¶ 16.) On February 6, 2014, CPG placed MS & BP on prepay. (Supplemental Iroh Decl. at ¶ 8.) MS & BP remained exclusively on prepay for fuel until the end of May 2014. (Id.) CPG continued to utilize EFT to collect MS & BP's station rent during this time.

On April 30, 2014, CPG received notice that an EFT withdrawal attempt made on April 28, 2014 for $4,370.50 in rent due bounced. (Def.'s Supplementary Mem. of Law, Ex. 1.) MS & BP paid this amount, plus $175, on May 5, 2014. (Id.) On May 23, 2014, CPG received notice that an EFT withdrawal attempt made on May 21, 2014 for $4,370.50 in rent due bounced. (Id. Ex. 2.) MS & BP paid this amount, plus $175, on June 2, 2014. (Id.) On June 10, 2014, with MS & BP having been restored to automatic delivery for fuel since the end of May, CPG received notice that an EFT withdrawal attempt made on June 6, 2014 for $17,087.13 for the

Page 7

balance owed on a fuel delivery bounced. (Id. Ex. 3; Griffith Decl. at ¶ 9.) MS & BP paid this amount, plus $175, on June 20, 2014.⁸

On June 17, 2014, following notification that the June 6, 2014 EFT attempt had bounced, Big Apple issued and served a notice of termination to MS & BP, indicating that it would terminate the franchise effective September 15, 2014. (Big Apple June 17, 2014 Letter (Doc. No. 1-1 at 80).)...