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Akshayraj, Inc. v. Getty Petroleum Marketing

March 6, 2007

AKSHAYRAJ, INC., PLAINTIFFS,
v.
GETTY PETROLEUM MARKETING, INC. AND LUKOIL AMERICAS CORPORATION, ET AL., DEFENDANTS.



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

OPINION

This matter has come before the Court on Defendants' motion to dismiss Plaintiffs' Complaint. For the reasons expressed below, Defendants' motion will be granted in part, denied in part, and adjourned in part.

I. BACKGROUND

Plaintiffs, franchisee operators of gasoline service stations that have been or will be converted from Mobil stations to Lukoil stations, filed a seven count Complaint against Defendants Getty Petroleum Marketing ("Getty") and Lukoil Americas Corporation ("Lukoil"), claiming that the conversion of their stations from Mobil to Lukoil is a constructive termination of their franchise agreements violative of the Petroleum Marketing Practices Act ("PMPA"), New Jersey Franchise Practices Act ("NJFPA") and Pennsylvania's franchise laws. Plaintiffs have also asserted claims for breach of contract under New Jersey and Pennsylvania state law, and are also seeking injunctive relief.

On August 11, 2006, this Court heard oral argument on Plaintiffs' motion for preliminary injunction under the Petroleum Marketing Practices Act because two of the Plaintiffs' services stations were scheduled for conversion a few days later. In an Order issued on the same date, this Court denied Plaintiffs' motion. Defendants are now moving to dismiss all claims in Plaintiffs' Complaint. Defendants also move to dismiss all claims against Lukoil for lack of personal jurisdiction.

II. DISCUSSION

Plaintiffs' Complaint tells the story of the creation of the Mobil brand in 1920, the cultivation of its place in the market, the development of its product, services and loyalty of its customers over the years, and then its merger with Exxon, the divestment of its service stations in certain areas, and through various corporate acquisitions, its eventual purchase by Defendant Getty, to which Plaintiffs' franchise agreements were assigned.

Plaintiffs complain that even though Getty retained the right to use the Mobil name through 2010, in May 2005 Getty instituted a "Lukoil renaming program," the effect of which "was to take the Plaintiffs' stations from recognized, identifiable and sought out branded stations to generic stations." Plaintiffs further complain that when Getty began the Lukoil renaming program "suddenly Plaintiffs were being charged the same higher price to obtain gasoline wholesale, but were now generic stations with no customer base and no brand loyalty." As a result, Plaintiffs contend that they had "no choice but to price on the street as if they were still Mobil stations in an attempt to sell gasoline at a loss," but it "resulted in ever shrinking volumes of gasoline sold and added to the alienation of their loyal Mobil brand customers." Based on all of this, Plaintiffs claim that the conversion from Mobil to Lukoil effectively terminated their franchise agreements.

The primary issue that affects the viability of most of Plaintiffs' claims is whether the Lukoil renaming program amounted to a constructive termination of their franchise agreements. This Court has already addressed the issue in the context of Plaintiffs' motion for preliminary injunction. In the August 11, 2006 hearing and the accompanying Order, the Court held, in relevant part, as follows:

7. The Third Circuit has not yet articulated whether a constructive termination claim is a viable claim under the PMPA.

8. The Seventh Circuit has held that because PMPA contemplates remedies for an actual ending to a franchise relationship, a claim for constructive termination is untenable. See Jet, Inc. v. Shell Oil Co., No. 02-2289, 2002 WL 31641627 (N.D. Ill. Nov. 22, 2002), aff'd, 381 F.3d 627 (7th Cir. 2004).

9. Courts in the Fifth and Second Circuits have held that a claim for constructive termination (or non-renewal) may be viable if the plaintiffs allege a breach of the franchise, which consists of three components: 1) a contract to use the refiner's trademark, 2) a contract for the supply of motor fuel to be sold under the trademark, and 3) a lease of the premises at which the motor fuel is sold. See Abrams Shell v. Shell Oil Co., 343 F.3d 482 (5th Cir. 2003); Yonaty v. Amerada Hess Corporation, No. 304-CV- 605FJSDEP, 2005 WL 1460411 (N.D.N.Y. June 20, 2005).

10. If the Court were to adopt the Seventh Circuit standard, Plaintiffs would not meet the first two elements of the injunction standard for this simple reason. The Defendant has not actually terminated the franchise relationship. On the contrary, the Defendants seek to continue to supply Plaintiffs with motor fuel. Since there has not been any actual termination, Plaintiffs can not demonstrate a required element of their claim for injunctive relief. Therefore, there is no "sufficiently serious" question going to the merits to make a fair ground for litigation and therefore no injunctive relief under the PMPA.

11. If the Court were to adopt the Fifth or Second Circuits' approach, Plaintiffs would again not meet the first two elements of the injunction standard because despite Plaintiffs' contention that Lukoil is "unbranded," there is insufficient evidence on the record to conclude that Lukoil is, as Plaintiffs claim, a generic mark.

12. In fact, the existing record is to the contrary. Even though Lukoil is a relatively new trademark, it is a trademark in the classical sense: it is registered with the United States Patent and Trademark Office, it is advertised, and there is a concerted and vigorous effort to connect the name or symbol with a particular product which is sold to consumers. Affidavit of Vincent De Laurentis, ¶ 9.

13. Consequently, no evidence has been presented at this time to suggest that Lukoil is generic in nature, and all the record evidence is to the contrary. So long as Defendants continue to furnish Plaintiffs with a branded product, there is no constructive breach of the agreement. Plaintiffs are not entitled under the PMPA to the use of a particular mark. Unified Dealer Group v. TOSCO Corp., 16 F. Supp. 2d 1137 (N.D. Ca. 1998), aff'd, 216 F.3d 1085 (9th Cir. 2000). Plaintiffs' narrow construction of the statute -calling any relatively new mark "generic" - would rob market participants of the adaptability to changing market conditions and decrease competition. Both of these results are contrary to the intent of Congress when it passed the PMPA and imposed a structure on contractual relationships ordinarily left to free markets. Franchisees were to be protected from more powerful franchisors but not so much as to disrupt the ability of those same franchisors to make good faith business decisions in reaction to ever changing markets. Plaintiffs' narrow ...


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