The Franchise Memorandum

A federal court in New York recently denied a franchisor’s motion for summary judgment on claims related to its termination of a lease and dealer agreement. BP Prods. N. Am. Inv. v. Blue Hills Fuels, 2022 WL 16540804 (S.D.N.Y. Oct. 28, 2022). BP signed a lease with PMG Northeast for a property where Westward Service Station would operate a gas station pursuant to a dealer agreement. The property was owned by PMG’s affiliate Blue Hills Fuels. During the permitting process, the New York State Department of Transportation notified BP that two of three curb cutouts leading to the premises needed to be removed before it would grant a permit. After failing in its efforts to reverse NYSDOT’s decision, BP notified Blue Hills and Westward that it intended to terminate its agreements with each party. BP then initiated litigation, seeking a declaration that it had the right to terminate the agreements. Blue Hills counterclaimed for breach of contract and the implied duty of good faith and fair dealing, seeking a declaration that BP had no right to terminate the dealer agreement and an injunction preventing it from doing so. BP and Westward cross-moved for summary judgment on BP’s claims and Westward’s counterclaims; Blue Hills moved for summary judgment on BP’s claims.

The court denied all of the motions. Blue Hills and Westward argued that the gas station could be safely operated with only a single curb cutout, and that the NYSDOT’s decision was not a binding regulation or law that would justify termination. BP argued the opposite, and each side produced expert reports to support its position as to the safe operation of a gas station at the site. The court held that these “dueling reports” were sufficient to create a genuine dispute of material fact. The court further held that this factual dispute precluded summary judgment on whether BP’s refusal to renew the dealer agreement met the federal Petroleum Marketing Practices Act’s requirement of a “reasonable” basis for termination.