Court Won't Stop Sale of Shell Stations

But says partners can't oust marketer as manager

Published in CSP Daily News

By
Carole Donoghue, Petroleum Editor

NEW YORK -- Marketer Sammy Eljamal has been dealt a blow in his bid to hold on to 43 Shell stations in the New York metro market. A judge has refused to stop his partners from selling the sites.

But Judge William J. Giacomo did say that Eljamal's partners, commercial landlord Leon Silverman and entrepreneur James A. Weil, cannot oust him as a manager of the limited-liability firms that control the fee and leased sites.

The ruling came after Eljamal told the court that his removal could trigger default clauses in multi-million loans and force him into bankruptcy.

It is not clear whether Weil and Silverman will start trying to sell the Shell sites, located in Westchester, Brooklyn, the Bronx, Queens and Nassau and Suffolk counties. They had previously looked for buyers, but Eljamal obtained a temporary restraining order blocking any sale.

Attorneys for both sides did not respond to requests for comment by press time.

Eljamal has been locked in litigation with his business partners since last summer, when Weil and Silverman accused him of misappropriating $900,000 in company funds and tried to remove him from management of the firms. Eljamal denied any misappropriation, saying in court filings that the money was used to keep five failing stations open.

(See Related Content below for previous CSP Daily News coverage.)

Eljamal, Weil and Silverman are the sole managers of NY Fuel Holdings and four affiliated firms that own or lease the Shell sites. Eljamal bought the assets from Motiva for $43.27 million in 2010 and, as a condition of the deal, personally guaranteed the companies' responsibilities. Eljamal is also the only one of the three who personally guaranteed a $24 million loan from Manufacturers and Traders Trust Co.

The LLC operating agreements allow for the sale of the sites, providing Eljamal is given first refusal rights. Weil and Silverman decided to sell the stations and voted to amend the agreements to change the number of managers of the LLCs from three to two. Eljamal was not present when the vote was taken. He was offered first refusal rights and had been trying to raise the funds needed to buy the outlets.

Eljamal sued Weil and Silverman last June, citing fraud, emotional distress, breach of contract, and other claims. The court issued a temporary restraining order that said each of the parties could solicit potential buyers but neither of them could enter into a sales contract. Weil and Silverman also agreed to temporarily withdraw the notice ousting Eljamal.

Arguing for a preliminary injunction against Weil and Silverman, Eljamal said in court filings that any sale of NY Holdings and its assets would constitute "a significant threat to his livelihood" and that a sale should only be allowed by a unanimous vote of the LLC managers. He said he could lose a vast majority of his business if Weil and Silverman were allowed to proceed with the sale without his consent, that he would suffer "immediate financial ruin" as a result, and his business reputation would be "irreparably harmed."

Weil and Silverman, who have criticized Eljamal's ability to run the companies, said in court papers that the operating agreements require only a majority vote to sell the stations.

Judge Giacomo agreed to issue a preliminary injunction enjoining Weil and Silverman from ousting Eljamal from the LLCs, saying that Eljamal had shown that his removal, if eventually found by the courts to be improper, could harm his reputation in the fuel business.

Eljamal had established that there were "issues of fact" regarding whether he used $900,000 of NY Fuel's funds improperly, and it had been agreed that the money was to be repaid, the judge said. The potential harm Eljamal faces if he is removed is more than Weil and Silverman would face for letting him remain a manager. He ordered Eljjamal to post a $1 million undertaking in return for the motion of preliminary injunction.

But Judge Giacomo refused to issue a preliminary injunction prohibiting Weil and Silverman from selling NY Fuel Holdings. He said Eljamal had failed to establish the likelihood that he will succeed on the merits of his claim that a unanimous vote is required to sell the assets. The only act requiring unanimous consent under the LLC operating agreements is a voluntary filing for bankruptcy, he said.