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Atlantis Petroleum, LLC v. Getty Petroleum Marketing

April 19, 2011

ATLANTIS PETROLEUM, LLC
v.
GETTY PETROLEUM MARKETING, INC., LUKOIL AMERICAS CORPORATION, AND SEMYON LOGOVINSKY



The opinion of the court was delivered by: R. Barclay Surrick, Judge

SURRICK, J.

MEMORANDUM

Presently before the Court is the Motion of Plaintiff Atlantis Petroleum, LLC, for Temporary Restraining Order and Preliminary Injunction. (ECF No. 4.) For the following reasons, the Motion will be granted.

I. BACKGROUND

Plaintiff Atlantis Petroleum leases 71 service stations from Defendant Getty Petroleum Marketing. The franchise agreement between Plaintiff and Defendant was entered into subject to the Petroleum Marketing Protection Act, 15 U.S.C. §§ 2801 et seq. ("PMPA"), which limits the circumstances under which a petroleum franchisor such as Defendant can terminate the franchise relationship with a franchisee such as Plaintiff. Under the franchise agreement, Plaintiff subleases the service stations and purchases fuel from Defendant. Plaintiff purchased fuel on credit, with the outstanding balance usually being in the range of $6 million, by either tacit or explicit agreement of the parties.

In 2008, Plaintiff made a large purchase of diesel fuel from Defendant. Gas prices dropped precipitously soon after, forcing Plaintiff to sell the fuel at a considerable loss. As a result, Plaintiff's credit balance with Defendant ballooned to over $10 million, some of which was past due. Plaintiff entered into three agreements with Defendant in January 2009: a security agreement that granted Defendant a security interest in Plaintiff's assets; a cash-management agreement that permitted Defendant to control all cash inflows and business expenses from Plaintiff's business; and a forbearance agreement in which Defendant agreed to forbear from taking action to collect Plaintiff's debt.

Plaintiff made little progress in paying off the debt over the following year. In early 2010, Plaintiff and Defendant met with Plaintiff's banker to discuss a bank loan that would assist Plaintiff with paying down its debt to Defendant. Plaintiff contends that the parties conceived of a plan under which the bank would lend Plaintiff $20 million and extend a $1 million letter of credit to Plaintiff, who would use the credit to pay down its debt to Defendant to the $6 million level to which the parties had grown accustomed. Defendant would sublease 58 additional service stations to Plaintiff, who would use the revenue from these additional stations to pay down the line of credit it had received from its bank. The bank extended the loan, and Plaintiff paid approximately $4.5 million to Defendant, who terminated the security interest and forbearance agreement as a result. Defendant never provided Plaintiff with the additional 58 service stations that Plaintiff believed it was entitled to under the terms of the deal. While Defendant agrees that the 58 additional service stations were mentioned during the discussions with Plaintiff and the bank, it contends that there was never an actual agreement to sublet those stations to Plaintiff.

In or around February 2011, Defendant informed Plaintiff that it would no longer supply Plaintiff's service stations with fuel. Plaintiff arranged for an alternative fuel supplier and continued operations. On March 25, 2011, Defendant sent Plaintiff a letter terminating Plaintiff's sublease of its service stations effective April 25, 2011. Defendant informed Plaintiff via letter at approximately 11:35 am on April 11, 2011, that it was terminating Plaintiff's sublease as of noon that same day. The letter requested that Plaintiff surrender the service stations no later than April 13, 2011.

What occurred thereafter was the classic race to the courthouse. Defendant filed suit against Plaintiff in the Southern District of New York on April 12, 2011, alleging breach of contract and seeking an order requiring Plaintiff to surrender the service stations it currently leases from Defendant. See Complaint, Getty Petroleum Marketing, Inc., v. Atlantis Petroleum, Inc., No. 11-2471 (S.D.N.Y. Apr. 12, 2011) (the "New York Litigation"). Plaintiff filed the instant action later the same day and immediately filed a motion in the New York Litigation to transfer the case to the Eastern District of Pennsylvania. Plaintiff argued that under § 2805(a) of the PMPA, the only appropriate fora for this litigation are the Eastern District of Pennsylvania and the Eastern District of New York. The New York court denied Plaintiff's motion, concluding that § 2805(a) permits a franchisee to file suit in those districts but does not require it, and that in any event, Defendant is a franchisor, not a franchisee. See Opinion, Getty Petroleum Marketing, Inc., v. Atlantis Petroleum, Inc., No. 11-2471 (S.D.N.Y. Apr. 15, 2011). The New York court scheduled a preliminary injunction hearing for April 19, 2011, at 11 am.*fn1

Plaintiff requests pursuant to § 2805(b)(2) of the PMPA that we issue a temporary restraining order ("TRO") preventing Defendant from terminating its agreements with Plaintiff.

II. DISCUSSION

Atlantis seeks a temporary restraining order which (1) bars Getty "from terminating the Sublease and Distributor Agreement;" (2) prohibits Getty "from interfering with Atlantis's quiet enjoyment of the premises subject to the sublease and use of the trademarks and other intellectual property licensed to it pursuant to the Distributor Agreement;" and (3) requires Getty "to supply fuel to Atlantis in accordance with the Distributorship Agreement."

"The PMPA was enacted in 1978 in recognition of 'the disparity of bargaining power which exists between the franchisor and the franchisee' in the gasoline industry." Sun Refining and Marketing Co. v. Rago , 741 F.2d 670, 672 (3d Cir. 1984) ( quoting S. Rep. No. 731, 95th Cong., 2d Sess. 17, U.S.Code Cong. & Admin.News 1978, pp. 873, 877). The PMPA provides that a franchisor may terminate a franchise only for certain "statutorily prescribed reasons." Id. If termination is otherwise appropriate, the franchisor must also provide the franchisee with adequate notice of the proposed termination. Id. The franchisor who wishes to terminate the franchise bears the burden of demonstrating compliance with the statutory provisions. Id. "The effect of the PMPA thus is to create a presumption that any termination of a franchise is unlawful." Id.

"[The] PMPA was designed to benefit the small retailer and its standard for preliminary injunctions was intentionally drawn to facilitate the grant of injunctive relief." Barnes v. Gulf Oil Corp. , 824 F.2d 300, 306 (4th Cir. 1987). In "marked contrast" to the ordinary standard, which requires "the moving party [to] demonstrate a likelihood of success on the merits and irreparable harm to its interests," Hilo v. Exxon Corp. , 9 ...


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