The U.S. District Court for the District of New Jersey granted a motion for summary judgment in favor of Lehigh Gas, a franchisor of gas stations and convenience stores, finding that it properly terminated seventeen franchise agreements, leases, and fuel supply contracts with its franchisee Universal Property Services (UPS) for failure to supply an acceptable letter of credit as required under the fuel supply contracts and for failure to pay upwards of $750,000 for rent, fees, and fuel. Universal Prop. Servs., Inc. v. Lehigh Gas Wholesale Servs. Inc., 2026 WL 114751 (D.N.J. Jan. 15, 2026).
Lehigh and UPS were parties to contracts for seventeen gas stations in Florida. Under the contracts, UPS assigned to Lehigh all proceeds of credit card fuel sales. UPS was also required to supply a letter of credit in favor of Lehigh as security for UPS’s failure to pay Lehigh. The issuing bank did not pay Lehigh when it sought to draw funds on the letter of credit following UPS’s default. Lehigh requested a new letter of credit from UPS, and talks broke down because Lehigh never received an original signed, physical letter of credit. Lehigh started withholding credit card proceeds from fuel sales due to UPS’s continuing failure to make required payments under the fuel supply and lease agreements. Lehigh sent a letter of termination in February 2020 for UPS’s failure to provide an acceptable letter of credit and make payments due; UPS challenged the termination.
The court held that the termination was permitted. Under the Petroleum Marketing Practices Act (PMPA) termination is allowed if a franchisee fails to comply with a material and reasonable provision of the franchise agreement. For a provision to be material and reasonable, it must be a non-technical, significant, and substantive requirement related to the way the franchisee must run the franchised business. However, termination is not permitted if the franchisee’s failure was beyond their reasonable control. Under the lease agreements, UPS had to pay rent on the 1st day of each month without setoff. UPS withheld rent from November 2019 through February 2020, arguing that it had a right to receive approximately $1,000,000 in credit card proceeds being withheld by Lehigh. The court found that the express provisions of the contracts were unambiguous that rent was due without setoff, and that termination was proper as the payment of rent was material, reasonable, and within UPS’s control. The court held that Lehigh’s withholding of funds as security against UPS’s payment defaults was not unlawful and permitted by the contracts given the absence of a valid letter of credit. Finally, the court held that Lehigh did not withhold amounts that were unreasonable, as they were insufficient to satisfy the missed rental payments.