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CEDAR BROOK STATION v. CHEVRON U.S.A.

August 13, 1990

CEDAR BROOK SERVICE STATION, INC., ET AL., PLAINTIFFS,
v.
CHEVRON U.S.A., INC., AND CUMBERLAND FARMS, INC., DEFENDANTS.



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

MEMORANDUM AND ORDER

In 1986, defendant Chevron U.S.A. Inc. ("Chevron") sold its United States northeast regional motor fuel properties, including service stations and related contracts and leases to defendant Cumberland Farms Inc. ("Cumberland"). Plaintiffs, eleven New York service station dealers, brought this action against Chevron and Cumberland to set aside the sale as violative of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (hereinafter the "Act") and of New York law, asserting that under the Act plaintiffs are entitled to an opportunity to purchase the stations they leased under their franchise agreements.

Citing recent federal court decisions, defendants move to reconsider Judge Costantino's decision denying them summary judgment in a Memorandum and Order of June 5, 1989, 746 F. Supp. 268 ("Cedar Brook I"), familiarity with which is assumed.

Background

This is one of various suits challenging Chevron's sale to Cumberland of various motor fuel marketing assets Chevron had acquired from the Gulf Corporation in 1984. The history of that takeover and of the decision to sell those assets is more fully detailed in Cedar Brook I.

The sale transferred to Cumberland almost five hundred service station properties, as well as gasoline distribution terminals, warehouses, associated inventories, accounts receivable, and other properties, together with Chevron's supply agreements with jobbers and service station dealers, including plaintiffs.

Under the asset purchase agreement Cumberland assumed all of Chevron's contractual commitments, including its leases to service station dealers such as plaintiffs, and related supply agreements. As franchise agreements came up for renewal, Cumberland was obligated to offer, in good faith, a new franchise to each dealer on non-discriminatory terms and conditions, in accordance with the Act.

To ensure that the "Gulf" trademark remained available to Gulf dealers, Chevron granted Cumberland exclusive use of the trademark in the northeast United States for 15 1/2 years at no royalty, with an option to renew indefinitely for $1,000,000 per year. Chevron also transferred its northeast Gulf and Chevron credit card systems, and agreed to sell Cumberland virtually the entire gasoline output of Chevron's Philadelphia refinery. This agreement, extended in 1987, continues on a year-to-year basis.

By letter dated February 14, 1986, Chevron notified all affected Gulf and Chevron dealers of the sale, which closed on May 31, 1986. That letter advised each dealer that Chevron did not believe that the sale to Cumberland triggered the Act or represented a termination or nonrenewal of the dealer's contract of sale, service station lease and related agreements with Chevron. The letter assured the dealers that they would retain all of their rights under the Act against Cumberland Farms.

The letter went on to recite that, on the chance that someone might later claim that the transfer involved a termination or nonrenewal subject to the Act, Chevron was taking the precaution of giving formal notice of nonrenewal of dealer agreements in accordance with the Act, although "in fact" the agreements with Chevron would continue in effect and would be renewed by Cumberland.

At the time of the sale plaintiffs were leasing their stations and purchasing gasoline from Chevron under product supply agreements for resale under the Gulf trademark. After the sale plaintiffs continued to do business under their service station leases, using the Gulf trademark, buying gasoline at the same prices as they had from Chevron. As each dealer lease expires, Cumberland offers a new lease which contains a seven percent increase over the previous rent plus increases in applicable property taxes. Seven plaintiffs have signed new leases with Cumberland.

Plaintiffs claim that the sale resulted in the termination or nonrenewal of their franchises in violation of the Act. The Act provides that no franchisor may "terminate any franchise" or "fail to renew any franchise relationship" except under the conditions enumerated in the Act. 15 U.S.C. § 2802(a).

Defendants contend that there has been no such termination or failure to renew within the meaning of the Act, arguing that the assignment did not affect the statutory rights of the franchisees and that there was no constructive termination of the franchise by reason of an assignment invalid under state law.

Alternatively, defendants say that even if the assignment be deemed a termination of the franchises, defendants complied with the market withdrawal provisions of 15 U.S.C. ยง 2802(b)(2)(E), reciting the conditions under which a franchisor withdrawing ...


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