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Bimal Enterprises, Inc. v. Lehigh Gas Corporation

September 28, 2012

BIMAL ENTERPRISES, INC.
v.
LEHIGH GAS CORPORATION



The opinion of the court was delivered by: Juan R. Sanchez, J.

MEMORANDUM

Plaintiff Bimal Enterprises, Inc. (BEI) asks this Court to declare that Defendant Lehigh Gas Corporation (Lehigh) violated the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801 et seq., by improperly terminating BEI's Exxon gas station franchise in Upper Darby, Pennsylvania in 2009. Lehigh asserts several counterclaims and third-party claims against BEI, BEI owner Bimal Patel, and BEI manager Manmeet Singh. Specifically, Lehigh asserts claims for fraudulent misrepresentation and conversion against BEI, Patel, and Singh; breach of contract and ejectment against BEI and Patel; and indemnification and contribution against Patel. This case proceeded to a three-day non-jury trial commencing on April 25, 2011. Pursuant to Federal Rule of Civil Procedure 52(a), this Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

BEI is a Pennsylvania corporation owned and operated by Bimal Patel. BEI operates a gas station and convenience store under the trade name "State Road Exxon" at 1892 South State Road in Upper Darby, Pennsylvania. BEI operates State Road Exxon pursuant to a PMPA franchise agreement with Lehigh (the Franchise Agreement). Lehigh is authorized by ExxonMobil Corporation to market motor fuel under the Exxon trademark, and Lehigh markets Exxon fuel through independent Exxon franchisees, such as BEI.

Under the Franchise Agreement, BEI purchases Exxon motor fuel from Lehigh and resells it to consumers under the Exxon trademark. The Franchise Agreement designates Patel as the "Key Individual," i.e., "the officer of the Franchise Dealer [here, BEI] with authority and responsibility for the operation and management of the Businesses [here, State Road Exxon]." Ex. 1 (Franchise Agreement), at 4.3(b).

Prior to the events in 2009 which prompted Lehigh to issue a notice terminating BEI's franchise, BEI had operated State Road Exxon without incident since it purchased the franchise in 2004. Lehigh's president, David Hrinak, admitted Lehigh had a good relationship with Patel and BEI prior to the spring of 2009. Trial Tr. vol. 3, 30, Apr. 27, 2011. State Road Exxon was one of Lehigh's highest volume dealers in its geographical area, and Lehigh officials viewed Patel as a good, competent dealer. As a result of State Road Exxon's success, Lehigh offered BEI the opportunity to convert its convenience store into a Lehigh convenience franchise, which BEI declined to do. Also, Lehigh solicited BEI, in 2008, to run a second gas station in Aston, Pennsylvania, as a Lehigh "commission marketer," with BEI selling Lehigh's fuel to consumers on a commission basis. BEI operated this station under the trade name "Aston Exxon."

Since mid-2008, Patel has employed Manmeet Singh as the manager of State Road Exxon and Aston Exxon. Patel relied on Singh for the day-to-day management of the stations. Patel has other businesses to which he dedicates his time, and, consequently, has spent approximately 14 hours per week at State Road Exxon while Singh has been its manager.

In September 2008, Lehigh commenced a joint marketing promotion program with ACME supermarkets (ACME program) whereby ACME customers could earn coupons based on supermarket purchases and redeem them at participating Exxon stations for discounted gasoline.

Specifically, a coupon (or two combined coupons) would reduce a gasoline purchase by 5 to 70 cents per gallon. The dealers would provide customers the discounted fuel, and Lehigh would reimburse the dealers for the amount of the discount. While the ACME program was voluntary for dealers, Lehigh strongly encouraged the program, and both State Road Exxon and Aston Exxon participated.

Lehigh implemented the ACME program quickly, and its execution and administration by Lehigh proved problematic. On September 15, 2008, Lehigh held an introductory meeting with representatives of participating dealers, including Patel. Lehigh gave a PowerPoint presentation and provided participants with a printout of the presentation to keep as a guide. Dealers began accepting ACME program coupons only four days later. Before the program commenced, however, Lehigh's territory managers, who generally act as liaisons between Lehigh and its dealers, needed to reprogram the computer systems controlling each dealer's cash registers and pumps. James Rullo, the territory manager assigned to the area in which BEI's stations are located, lacked the time (and perhaps the expertise) to complete these upgrades before the ACME Program was to begin, so Patel, who has computer science training, and a BEI employee assisted Lehigh by upgrading the systems at the surrounding dealers as a favor.

Despite the upgrades, and unlike similar supermarket-rewards programs at other gas stations, the ACME program was not automated, and dealers had to manually keep track of the purchases in which coupons were used. This responsibility included completing and submitting to Lehigh daily spreadsheets-termed "recap sheets"-cataloguing each purchase made with a coupon, the coupon serial number, the percentage discount, the number of gallons purchased, the number of gallons reimbursed, and the total amount for reimbursement. Lehigh based its reimbursement payments to the dealers on the figures in the recap sheets. For each transaction involving a coupon, the dealers were also required to maintain the redeemed coupon attached to the receipt for weekly collection by a Lehigh territory manager.

This administrative work, especially completing the recap sheets, which had to be submitted to Lehigh by 11:00 a.m. the day after the coupon was used in order for the dealers to be reimbursed, became highly burdensome for BEI. Initially, Patel completed the recap sheets, which, within a few weeks, were taking over two hours a day to complete. In October 2008, Patel delegated the ACME program duties, including completing and submitting the recap sheets for both stations, to Singh, who had demonstrated his competence as a station manager. Patel trained Singh on the ACME program responsibilities for two weeks, after which Patel was satisfied Singh was capable of completing the tasks without supervision. Although from October 2008 forward, Singh was the sole BEI employee completing and submitting recap sheets to Lehigh, he would submit them from BEI's email account which contained an automatic signature line that read, "Thank You, Bimal," followed by Patel's cell phone number. See Ex. 54. In July 2009, after receiving complaints from dealers about the time-consuming nature of the ACME program record-keeping requirements, Lehigh amended the procedures and permitted dealers to submit daily recap sheets with one line summarizing the daily totals, rather than listing each transaction.

The administration of the ACME program was also overly burdensome for Lehigh's territory managers. For Rullo, collecting the coupons and receipts for the ACME program from each of the 35 to 40 participating dealers in his territory, while still performing his other duties, was virtually impossible. The large volume of the paper receipts Rullo collected posed a problem as well, and after Lehigh refused to allow Rullo to leave them at Lehigh's offices, simply finding space to store the receipts proved difficult. Although the purpose of collecting the receipts was to verify the reimbursement amounts, Lehigh eventually gave Rullo permission to discard coupons he had collected even though the coupons had never been reviewed against the recap sheets. Rullo understood this to mean the receipts need not be kept by the dealers either, and instructed his dealers, including BEI, to discard the receipts.*fn1 On April 20, 2009, however, at the direction of his superiors, Rullo sent an email to his dealers informing them they were no longer permitted to discard the receipts, and that someone from Lehigh would be collecting them periodically.

In March 2009, representatives from ACME informed Lehigh's accounting department about an unusual increase in coupon redemptions at State Road Exxon and Aston Exxon. After reviewing the recap sheets and confirming the increase, on or about April 8, 2009, Peter Waldron, Lehigh's Vice President of Marketing, visited State Road Exxon and Aston Exxon and collected the ACME program receipts and coupons that had not yet been discarded. Lehigh then compared those receipts and receipts collected thereafter with the recap sheets submitted by BEI. Lehigh determined from March 1 to April 30, 2009, it had overcompensated BEI $9,455.19 in reimbursements for State Road Exxon ACME program sales based on recap sheets which overstated the amounts of gasoline actually sold. Lehigh also found from February 25 to April 30, 2009, the recap sheets for Aston Exxon similarly overstated the amounts of gasoline actually sold, resulting in $10,625.00 of overcompensation. Each of these recap sheets Lehigh reviewed listed the amount of gasoline sold for virtually all of the transactions as above 15 gallons, which was the maximum volume for which an ACME coupon could be redeemed. A similar pattern could be seen in the recap sheets for both stations submitted since mid-December 2008, but Lehigh could not determine if BEI had been over-reimbursed during this earlier period.

At no time did Lehigh ask Patel or any BEI employee about the inconsistencies between the receipts and the recap sheets, nor did anyone at Lehigh who testified at trial even contemplate raising the matter with Patel. Rather, Lehigh responded to these findings by ceasing to issue ACME program reimbursements to BEI as of April 17, 2009, and by bringing the matter to the Delaware County District Attorney's Criminal Investigative Division (CID).

Meanwhile, on Saturday, April 25, 2009, Patel discovered Lehigh was no longer receiving ACME program reimbursements. On April 28, after Patel had asked Singh if he knew why the reimbursements were not being issued, Singh informed Patel he had not been entering accurate gallon amounts into the recap sheets. Singh explained he believed this practice was appropriate because, for some time, he had been directed by Lehigh simply to discard the coupons and receipts. Patel had not known Singh was submitting inaccurate recap sheets, and upon so learning, he immediately reprimanded Singh and made clear Singh must only submit correct numbers going forward. This Court finds credible Patel's testimony he was unaware Singh was inaccurately completing the recap sheets until Singh informed him on April 28, 2009. This is corroborated by the credible testimony of Singh, who made such statements against his penal interests.

Later that same day, Detective Thomas Scarpato, Jr., of Delaware County CID arrived at State Road Exxon to execute a search warrant in the investigation regarding the inaccurate recap sheets. Patel voluntarily followed Detective Scarpato back to CID's offices and provided an interview, which was memorialized in a document containing Scarpato's questions and Patel's answers of "yes," "no," or a very brief statement. Ex. 28. According to the document and Detective Scarpato's testimony, Patel answered affirmatively when asked "did you" submit inaccurate recap sheets to Lehigh. Id. at 3. At trial, Patel credibly explained he did not intend to convey that he, personally,submitted incorrect recap sheets, but was explaining he was aware BEI had done so. Significantly, this Court notes English is not Patel's first language, and further notes he required the assistance of an interpreter at trial, but did not have such assistance during his interview with CID.

Detective Scarpato informed Lehigh that Patel had admitted to submitting the inaccurate recap sheets.*fn2 Thereafter, on May 15, 2009, Lehigh hand delivered to Patel a notice of termination of BEI's PMPA franchise at ...

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