Judge Can't Help Dealers About to Lose Stations

"Powerless," warns of "domino effect" of injunction in BP-dealer embroglio

Published in CSP Daily News

By  Carole Donoghue, Petroleum Editor

Janis L. Sammartino

SAN DIEGO -- A federal judge said she is "powerless" to issue a temporary restraining order to prevent BP from terminating the franchises of more than 100 ARCO and Thrifty dealers whose Southern California stations are to be turned over to independent refiner Tesoro.

Judge Janis L. Sammartino said that the dealers had no case under the Petroleum Marketing Practices Act, the federal dealer-day-in-court law. BP was also within its rights to put the dealers on cash-on-delivery (COD) terms until their leases expire, she said.

The court is "wary of the domino effect" such an injunction would have, said Sammartino, noting that if she compelled Thrifty to renew the dealer leases with BP, Thrifty would also have to back out of its new lease deal with Tesoro.

BP's big concern now is that some dealers will not leave their stations on the quit date, and that Thrifty will then sue BP on the grounds that that its deal with Tesoro is being jeopardized, CSP Daily News sources said.

"In instances recently, BP has sent various maintenance contractors or other parties to these sites, only to have the current dealers prohibit them from performing any work an ordering them to leave the premises," said one inside source. "The dealers are outraged and feel, rightly or wrongly, that BP really screwed them over by not exercising the master lease option or otherwise assigning it to them."

Sammartino's ruling, although bad news for the dealers, did hold out one small hope. She said that that the dealers had not shown that they would suffer any harm that money damages could not repair, one of the primary requirements a court looks at before for issuing a preliminary injunction.

"They can continue with the lawsuit seeking damages, but BP will most likely file a motion for summary judgment on that part if they can prove that Thrifty would not sign a release then BP had no obligation to assign the remaining options," said a marketer attorney familiar with the case.

BP told the dealers it was terminating their subleases on the stations because it was losing its own ground lease on the sites, beginning in April this year.

The outlets are owned by chain marketer Thrifty Oil, which leased a total 261 sites to BP in March 1997. Under the lease deal, BP also got a license to use the Thrifty brand name, so the stations variously fly the ARCO or Thrifty flags.

Each of the sites were leased for an initial 15- or 17-year term, with the option for BP to extend the term of all 261 sites for three consecutive five-year terms. BP had to notify Thrifty by July 1, 2010, if it wanted to extend the lease for the first five-year period.

BP decided not to exercise its option, and as a result, the leases between Thrifty and BP are expiring. Terminations started to take effect April 23, on a rolling basis. Thrifty has arranged for Tesoro Refining & Marketing Co. to take over the stations. Tesoro plans to put its own commission operators in the stations (see Related Content below for previous exclusive CSP Daily News coverage).

The PMPA prohibits the nonrenewal or termination of a franchise except for specific grounds, which includes the loss of a lease, without proper notification.

One group of dealers sought an injunction to prevent BP not only from terminating their franchises but also from putting them on COD terms 14 days before their franchises end. Having to pay by cashier's checks would be the "death knell" of their franchises, they said.

Another retailer, Crossroad Petroleum, asked the court to block Thrifty's transfer of their stations to Tesoro, claiming that Thrifty was covered by PMPA because of its affiliation with Golden West Refining Co., a former gasoline refinery and a subsidiary of Thrifty. The company should also be liable because it licensed and controlled the Thrifty trademark, they said.

Crossroad said that it had been in talks with Thrifty as recently as March 12 this year about the possibility of leasing stations directly from Thrifty and was "led to believe" that it would be offered leases for its current stations or different outlets.

BP and Thrifty argued that the PMPA does not apply to Thrifty because the company is only a commercial landlord. It is neither a refiner nor a distributor, as required under the law, and has no direct contractual relationship with the dealers, and so is not covered by PMPA.

Thrifty executive vice president Barry W. Berkett said in a deposition that Golden West had not operated as a refiner since 1991 and that Thrifty had not been in the fuel distribution business since 1997 but the dealers submitted no evidence to back their claim, said Sammartino.

Just because it licenses a trademark does not bring Thrifty within the scope of the PMPA. The fact that Crossroad held talks with Thrifty was not enough to show that it might win at trial. The dealers also failed to show that they had any franchise relationship with Thrifty, she said.

"The court is powerless to issue an injunction against BPWCP that would necessarily enjoin Thrifty as well," wrote Sammartino. Even if Thrifty could be sued, any injunction issued against Thrifty would also impact Tesoro, which is "a stranger to this litigation," she said.

Sammartino said that she had pressed for more information from dealers that a COD requirement would force them to shut their doors, but had received none, even though several of the retailers had been placed on cash terms as long ago as April 10. Their franchise agreements with BP also allowed them to be put on COD.

"Regarding irreparable harm, the court does not doubt that Crossroad--and all the franchisees--may suffer significant financial hardship by the loss of their franchises," Sammartino concluded. " Many of the franchisees have invested substantial resources into their service stations, and the stations are a primary source of income for many of these individuals and their families. The court is sympathetic to these losses, but they are nevertheless reparable by money damages."