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NSY, INC. v. SUNOCO

August 13, 2002

NSY, INC., PLAINTIFF
V.
SUNOCO, INC., DEFENDANTS.



The opinion of the court was delivered by: Joyner, District Judge.

MEMORANDUM AND ORDER

Plaintiff, NSY, Incorporated ("NSY" or "Plaintiff") filed a Complaint and Motion for Temporary Restraining Order and Preliminary Injunction on April 26, 2002. alleging that Defendant, Sunoco, Inc. ("Sunoco" or "Defendant") was attempting to end the franchise agreement between the parties in violation of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801, et. seq. On May 1, 2002, this Court issued a Temporary Restraining Order, which was revised on May 8, 2002. The Court also set a hearing date of June 17, 2002. The hearing in this matter was held on June 17 and June 18, 2002.

As discussed below, the Court finds that Defendant had sufficient grounds for non-renewal of the franchise agreement and that Plaintiff, therefore, is not entitled to injunctive relief. We now make the following findings of fact and conclusions of law:

FINDINGS OF FACT

I. The Agreement

1. On July 25, 1990, Chhung H. Huynh entered into an APlus Agreement, an APlus Mini Market Premises Lease and a Motor Fuel Supply Agreement (collectively the "Agreement") with Sunoco's predecessor. In the Agreement, Mr. Huynh agreed to lease and operate a Sunoco gas station and an APlus business located at 2601 Penrose Avenue, Philadelphia, Pennsylvania. See Def.'s Ex. 1, 2, & 3.

2. Effective February 7, 1996, Plaintiff entered into an Assignment and Assumption of the Agreement from Mr. Huynh. See Def.'s Ex. 4.

3. Sunoco has extended the term of the Agreement on several occasions.

4. Among other things, the Agreement provides that Plaintiff must keep daily calculations and records of the physical inventory of the petroleum products and that Plaintiff will reconcile the physical inventory with the book inventory to figure any gains or losses. See Section 10 of Lease Agreement, Def.'s Ex. 1 and Section 2.21 of Motor Fuel Supply Agreement, Def.'s Ex. 2.

5. The Agreement further provides that Plaintiff will notify Defendant of any discrepancies, as defined by the Agreement, that appear as a result of the reconciliation process. Id.

6. The Agreement between the parties also provides that Plaintiff will pay specific royalty amounts and keep certain records to verify the royalty amounts due and owing. See Sections 8 and 16 of APlus Agreement. Def.'s Ex. 4 and Sections 17 and 19(a) of APlus premises lease. Def.'s Ex. 1. These provisions require that, in order to ascertain the amount due by the franchisee to the franchisor under the royalty Agreement, the franchisee "maintain true and accurate business records, reports, accounts, books and data pertaining to the operation of the Store, as more fully described in the Systems Manual." Def.'s Ex. 4 at section 16(A). The Systems Manual requires that the franchisee maintain and retain for three years, among other things, "Cash register `X' and `Z' tapes or Shift and Daily Sales Reports" and "Cash register detail journal tapes, including all tapes from additional or temporary registers and any record of a reset to a register by any cash register company service personnel." See APlus Franchise Systems Manual at Chapter 3, Section A(2), Def.'s Ex. 3.

II. The Fuel Leak

7. On November 13, 2001, one of Sunoco's environmental contractors discovered an increase in petroleum product in a monitoring well at Plaintiff's location. See N.T., 6/17/02 of T. Smith at pp. 204-05.

8. Sunoco initially determined that the leak must have been from the refinery across the street because Plaintiff's inventory control records did not indicate a loss at the site. Id. at pp. 205-07.

9. However, on November 29, 2001, the results of a laboratory analysis of the leaked product indicated that it was new 87 octane, which could not have come from the refinery. Id. at pp. 207-08.

10. Subsequently, Sunoco performed a more thorough review of NSY's inventory control records and discovered Plaintiff's failure to record the daily inventory reports as required and discovered errors and/or miscalculations that hid the leak and delayed Sunoco's response to cleaning up the leak. Id. at pp. 208-210.

11. The source of the leak was found to be in the flex line piping between the underground storage tanks and the dispensers. Id. at pp. 210-211.

12. The franchisee's inventory control records are one of the only ways such a leak could have been detected. Id. at pp. 199, 203, and 210.

13. To date, Sunoco has recovered approximately 6,000 gallons from the site. Id. at p. 211.

III. The Royalty Payments and Reports

14. In May, 2001, Plaintiff met with Sunoco representatives regarding operational and performance issues relating to his franchise location because Plaintiff had requested a contract ...


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