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Hillmen, Inc. v. Lukoil N. Am., LLC

United States District Court, E.D. Pennsylvania

November 22, 2013

HILLMEN, INCORPORATED, Plaintiff
v.
LUKOIL NORTH AMERICA, LLC, Defendant

Page 658

For HILLMEN, INCORPORATED, Plaintiff: GLEN R. MORRIS, LEAD ATTORNEY, PHILADELPHIA, PA.

For LUKOIL NORTH AMERICA, LLC, Defendant: BRETT ADAM BERMAN, LEAD ATTORNEY, ROCHELLE LAWS, FOX ROTHSCHILD LLP, PHILADELPHIA, PA; ROBERT S. TINTNER, FOX ROTHSCHILD O'BRIEN & FRANKEL LLP, PHILADELPHIA, PA.

Page 659

MEMORANDUM OPINION and ORDER

Nitza I. QuiƱones Alejandro, United States District Judge.

INTRODUCTION

On July 23, 2013, Hillmen, Inc., (" Plaintiff" or " Hillmen" ) filed a complaint pursuant to the Petroleum Marketing Practices Act (the " PMPA" ),[1] against Lukoil North America, LLC, (" Defendant" or " Lukoil" ) claiming that its petroleum marketing franchise agreement was wrongfully terminated. At the same time, Plaintiff filed a motion for a preliminary injunction [ECF 2], to which Defendant responded on August 22, 2013. [ECF 9].[2]

Page 660

On October 17, 2013, an evidentiary hearing on the preliminary injunction motion was held.[3] Testimony and evidence was introduced through Zahid Khan, Plaintiff's principal, and through Jake Naggy, Defendant's Retail Operations and Regional Sales Manager. Following the hearing, the parties submitted supplemental briefs. [ECF 18 and 19].

For the reasons stated herein, Plaintiff's motion for a preliminary injunction is denied.

FACTS

Plaintiff is a Pennsylvania corporation owned and operated by its principal and president, Zahid Khan. Defendant is alleged to be a corporation with its principal place of business in New Jersey and engaged in the business of distributing LUKOIL brand motor fuel in Pennsylvania, New York and New Jersey.

Plaintiff operated a gas station and convenience store located at 9100 Frankford Avenue, Philadelphia, Pennsylvania, (the " Station" ) under the " Lukoil" trade name. Plaintiff purchased the Station from a former franchisee in December 2006 and then entered into a three-year franchise agreement (the " Franchise Agreement" ) with Defendant in February 2007. The Franchise Agreement was renewed on February 1, 2010 and, again, on February 1, 2013. Under the Franchise Agreement Plaintiff, inter alia, leased the premises from Defendant, paid rent, and agreed to purchase Defendant's motor fuel and resell it to consumers under the Lukoil trademark.

Evidence submitted with the parties' filings and offered during the preliminary injunction hearing established that beginning in March 2007, and continuing until April 3, 2013, there were numerous occasions when Defendant sent written notices to Plaintiff that it was in breach of the Franchise Agreement; to wit :

By letter dated March 30, 2007, Plaintiff was advised that it was in default of the Franchise Agreement for failing to pay timely for the delivered motor fuel. Though Plaintiff eventually paid the then outstanding invoices, Defendant advised Plaintiff that future defaults could result in the revocation of Plaintiff's credit and being placed on " PRE-PAID status." [4] Similar default notices for failure to timely pay for motor fuel were sent on September 14, 2007, August 5, 2008, August 20, 2008, and December 9, 2008.[5] By letter dated August 5, 2008, Defendant notified Plaintiff that the Station had been allowed to run out of its motor fuel inventory and issued a demand to Plaintiff to immediately purchase and market the Lukoil branded motor fuel. Defendant advised Plaintiff that its failure to comply with this directive would constitute a " substantial" violation of the Franchise Agreement. Defendant also reminded Plaintiff that the PMPA allowed Defendant to terminate the Franchise Agreement should Plaintiff fail to sell Lukoil motor fuel for seven consecutive days.[6] By letter dated

Page 661

September 9, 2008, Defendant advised Plaintiff that it was terminating the Franchise Agreement because of Plaintiff's continued failure to pay for the motor fuel.[7] Apparently, the franchise Agreement was not terminated. By letter dated October 26, 2012, Defendant advised Plaintiff that it would not renew the Franchise Agreement set to expire on January 31, 2013, because Plaintiff had refused to accept a number of changes to the agreement Defendant deemed necessary and reasonable for its operations. Notwithstanding the initial disagreement over the proposed modified terms, the parties eventually came to an understanding and executed a new franchise agreement with an effective date of February 1, 2013.

Critical to this motion for preliminary injunction are the events related to the delivery of motor fuel on Tuesday, February 19, 2013, around 11:50 P.M. Mr. Khan testified that he had expected that the delivery would be made on the morning of Wednesday, February 20, 2013, but admitted that it was, in fact, delivered and accepted late Tuesday evening. Mr. Khan further testified that he had inquired of Defendant when Plaintiff's account would be debited for this delivery and, allegedly, was told that the account would be debited the following Monday, February 25, 2013. Plaintiff's account, however, was debited on the morning of Friday, February 22, 2013, which caused the payment to " bounce" for lack of insufficient funds.

Mr. Khan acknowledged that under the scheduled credit payment plan with Defendant, Plaintiff was required to pay for delivered fuel by an electronic fund transaction (" EFT" ) three " business days" after a delivery was made. As to this particular delivery, Mr. Khan testified that he was under the impression that since the fuel was delivered during the late evening hours of Tuesday, February 19, 2013, the payment did not need to be made until the following Monday, February 25, 2013. On this issue, Defendant refuted Mr. Khan's testimony with Jake Naggy, its Manager of Retail Operations. He testified that he is the person responsible for implementing Defendant's EFT policy, which had been reiterated to all franchisees by notice dated October 16, 2012; to wit :

Please be reminded that LUKOIL North America's payment terms for dealers who have been extended credit are that the EFT will occur on the third business day following the date of Bill of Lading (BOL). The date of BOL is the date that the load was lifted at the terminal. Please refer to www.lnallc.com for all EFT draft dates, and see below example:

BOL Day

EFT Day

Monday

Thursday

Tuesday

Friday

Wednesday

Monday

Thursday

Tuesday

Friday

Wednesday

Saturday

Wednesday

Sunday

Wednesday

Note: Bank holidays will not be counted as business days.[8]

Mr. Naggy testified that in accordance with this schedule, for example, any fuel delivered on Tuesday must be paid for by EFT on Friday. He further testified that a business day under the policy is any 24-hour day, other than a weekend or holiday, not the " ...


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