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Akshayraj, Inc. v. Getty Petroleum Marketing

December 20, 2007

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



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

OPINION

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, as well a breach of contract under New Jersey and Pennsylvania state law.

To date, this case has involved a preliminary injunction hearing, an Opinion and Order denying Plaintiffs' request for injunction, and an Opinion and Order on Defendants' motion to dismiss all of Plaintiffs' claims, which the Court granted in part, denied in part, and converted in part to a motion for summary judgment. When Defendants' motion was converted into one for summary judgment, the Court adjourned the resolution of the motion for twenty days in order to provide Plaintiffs with proper notice of the conversion and the opportunity to present their proofs to support their opposition to Defendants' motion. Plaintiffs provided their proofs as directed by the Court, but in the weeks following their submission and Defendants' response, Plaintiffs filed a motion to consolidate their case with another similar case pending before this Court, and they also filed a motion for leave to supplement to their proofs. Defendants have opposed both motions.

Three issues are presently before the Court for resolution:

(1) Defendants' converted motion for summary judgment, which also concerns Plaintiffs' request to supplement their proofs, (2) Defendants' motion to dismiss Lukoil Americas Corporation for lack of personal jurisdiction, which the Court had previously adjourned pending Plaintiffs' submission of additional proofs, and (3) Plaintiffs' motion for consolidation.

II. DISCUSSION

A. Defendants' Converted Motion for Summary Judgment

Defendants' converted motion concerns Plaintiffs' Counts I, III, V and VI, which involve Plaintiffs' claims that Defendants constructively terminated their franchise agreements. The dispositive issue in determining whether Defendants constructively terminated Plaintiffs' agreements is whether, as Plaintiffs have crafted the issue, Lukoil is a brand or a generic.

Due to the procedural posture of the case, that issue had already been decided for the purposes of the preliminary injunction. The Court found that sufficient evidence was lacking to conclude that Lukoil is a generic mark. As explained in the Court's March 6, 2007 Opinion, however, that decision could only be considered in resolving Defendants' motion to dismiss if Defendants' motion was converted into one for summary judgment. Consequently, the Court converted Defendants motion, and held that Defendants met their burden on summary judgment to show the absence of a genuine issue of fact with regard to whether Lukoil is a generic mark. Plaintiffs were then afforded the opportunity to submit their proof in order to defeat summary judgment. It is now Plaintiffs' burden to present specific facts showing that there is a genuine issue for trial on whether Lukoil is a brand or generic.

Plaintiffs' proof consists of an affidavit and expert report from Jeffrey Bernard. (Bernard Aff., Pl.'s Ex. A.) Bernard is the founder of J. Bernard Associates, LLC, a petroleum marketing consulting firm, and he advises petroleum marketing clients on business, pricing and brand strategies, service culture, organizational improvement, convenience store retailing, business valuation, property acquisition, and lease and contract negotiations. Based on his experience, which includes nearly 30 years in the marketing and customer support areas of Mobil Oil Company, Bernard provides his opinions on three questions: (1) What constitutes branded gasoline versus unbranded (i.e., generic) gasoline in the petroleum marketing industry?; (2) Is Lukoil a customer recognized branded gasoline versus an unbranded gasoline?; and (3) Did the change from the Mobil brand to Lukoil name have an impact on the plaintiffs?

With regard to the first question, Bernard explains that in the petroleum marketing business, the industry recognizes a number of brand categories--major brands, regional brands, sub-majors, independent brands, and unbranded. Bernard explains that that major brands are historically identified by customers in a group of high quality, trusted brands, such as Exxon, Mobil, Shell, Chevron, and BP. Major brands typically receive a brand premium from the consumer that varies from 1 to 5 cents per gallon. Regional brands, such as Sunoco and Valero, also qualify as major brands in the minds of the geographical areas in which they market.

According to Bernard, consumers of sub-majors, such as CITGO and Gulf, are willing to pay a small premium for these brands versus generic gasoline, although the gasoline at these sub-majors are typically priced slightly below the recognized major brands. Independent brands, such as Speedway and Wawa, are typically priced at the low end of the market, and have little differentiation from unbranded gasoline, but the consumers tend to associate with the gasoline the favorable characteristics of the store which sells the gasoline.

Bernard explains that all other gasoline is considered unbranded, such as Delta, Riggins, or Xtra. Even though these petroleum products are commonly sold with a trademark name, they do not qualify as a brand in the petroleum marketing industry because they are sold at the lowest retail price, as the consumer perceives no brand value with the unbranded gasoline products.

Based on these categories of branded and unbranded gasoline, Bernard concludes that Lukoil is not a branded gasoline, primarily because it is not a brand with the loyal customer base associated with a recognized brand. Bernard explains that it "will take years to develop a loyal customer base that differentiates them from an unbranded supplier. [Lukoil] must consistently invest over the next five to ten years in consumer research and other marketing initiatives that the gasoline customer equates to a branded oil company before they might achieve a recognized gasoline brand status." (Bernard Aff. at 16.)

Bernard also considers Lukoil to be unbranded because dealers who converted from the Mobil brand to the Lukoil name lost both volume and profit as a result of the conversion. Bernard explains that after the conversion, Lukoil maintained a price posture that was similar to Mobil's major brand price position, but because the consumer did not recognize the Lukoil name and could no longer use the proprietary credit cards or Speedpass to purchase fuel, they were not willing to ...


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