Catch 26, LLC v. LGP Realty Holdings LP
MEMORANDUM Opinion and Order; The plaintiffs' motion for a preliminary injunction and expedited discovery 2 is granted in part and denied in part. A preliminary injunction is issued with respect to the Ingleside location, but denied with respect to the Grayslake and Woodstock locations. The terms of the injunction are set forth in a separate order. Signed by the Honorable Sharon Johnson Coleman on 10/27/2017 Mailed notice(rth, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
CATCH 26, LLC, an Illinois Limited Liability
Company, GAS CAP FUELS, LLC, an Illinois
Limited Liability Company, and GRAYSLAKE
STOP & SHOP, LLC, an Illinois Limited
) Case No. 17-cv-6135
) Judge Sharon Johnson Coleman
LGP REALTY HOLDINGS, LP, a Delaware
Limited Partnership, as successor by assignment )
from PT, LLC, BAPA, LLC and STATE OIL
COMPANY and LEHIGH GAS
WHOLESALE, LLC, a Delaware Limited
MEMORANDUM OPINION AND ORDER
The plaintiffs’ motion for a preliminary injunction and expedited discovery  is granted in
part and denied in part. A preliminary injunction is issued with respect to the Ingleside location, but
denied with respect to the Grayslake and Woodstock locations. The terms of the injunction are set
forth in a separate order.
The following are the general facts of this case, as established by the evidence and testimony
presently before this Court. Plaintiff Grayslake Stop & Shop LLC has operated a gas station and
convenience store in Grayslake, Illinois since 2003 (“the Grayslake location”). Plaintiff Gas Cap
Fuels, LLC has operated a gas station and convenience store in Ingleside, Illinois since 2013 (“the
Ingleside location”). Plaintiff Catch 26, LLC has operated a gas station and convenience store in
Woodstock, Illinois since 2014 (“the Woodstock location”). Defendant LGP Realty Holdings, LP
leases the Woodstock and Grayslake locations to the plaintiffs and is the title holder to the Ingleside
location, which is being purchased through an installment agreement. At the times relevant to this
suit, the Woodstock and Grayslake locations sold unbranded fuel and the Ingleside location sold
Marathon branded fuel, all of which was exclusively supplied by Lehigh Gas Wholesale, LP pursuant
to supply agreements executed with each location.
On July 5, 2017, the Woodstock location had an open balance of $6,564.80 for rent, real
estate taxes, and repair charges. It is disputed whether the repair charges were properly included in
that balance. On July 5, 2017, the Woodstock location’s pre-authorized account was debited for that
balance, but there were insufficient funds to satisfy the draft and it was returned. As a result, Lehigh
Gas Wholesale, LP placed the Woodstock location on a delivery hold. While the hold was in effect,
the Woodstock location purchased fuel from another supplier. At the time of the default, LGP
owed a credit of approximately $16,405.29 to the plaintiffs for excess escrow payments.
On August 4, 2017, the Grayslake location had an open balance for motor fuel receivables
totaling $40,562.44. The location’s pre-authorized account was debited for the amount of
$33,736.24, but there were insufficient funds and the draft bounced. Accordingly, the Grayslake
location was placed on a delivery hold on August 8, 2017. While the hold was in effect, the
Grayslake location purchased fuel from another supplier. At the time of the default, LGP owed a
credit of approximately $11,384.72 to the plaintiffs for excess escrow payments.
On August 5, 2017, the Ingleside location had an open balance of $17,208.90, which
included real estate taxes, a monthly installment payment, and a new POS system required by
Marathon. The Ingleside location’s pre-authorized account was debited for the then-outstanding
balance, but the transaction was rejected due to a dispute over the cost of the POS system (which
the parties seem to agree was a valid dispute). On August 10, 2017, the Ingleside location was
placed on a delivery hold. While that hold was in effect, the Ingleside location purchased fuel from
another supplier. At the time of the default, LGP owed a credit of approximately $12,441.58 to the
plaintiffs for excess escrow payments.
Although the plaintiff gas stations were placed on hold, the defendants continued to make
EFT transfers out of their bank accounts. The plaintiffs accordingly directed their banks to no
longer permit such transfers. On August 14, 2017, the plaintiffs were provided with a written notice
that the defendants were terminating the Ingleside, Woodstock, and Grayslake Supply Agreements,
the Woodstock and Grayslake Leases, and the Ingleside Installment Agreement, effective August 25,
2017. The plaintiffs subsequently filed this action, and moved this Court for injunctive relief under
the Petroleum Marketing Practices Act (PMPA). The Court ordered that the parties maintain the
status quo while the pending motion was briefed, argued, and taken under advisement.
Just prior to the preliminary injunction hearing, the defendants filed a motion to dismiss.
Because that motion questions the applicability of the PMPA in this action, this Court provided the
parties with the opportunity to file supplemental briefing on that issue prior to ruling on the
plaintiffs’ motion for a preliminary injunction under the PMPA.
The PMPA provides that a court must grant a preliminary injunction upon a showing that
the franchise has been terminated or not renewed, there is a sufficiently serious question going to
the merits as to make the question a fair ground for litigation, and the balance of hardships favors
granted the injunction. 15 U.S.C. § 2805(b)(2). Accordingly, a franchisee need only establish a
reasonable chance of success on the merits, not a “strong or reasonable likelihood” of success.
Moody v. Amoco Oil Co., 734 F.2d 1200, 1216 (7th Cir. 1984).
The defendants contend, in their motion to dismiss, that the PMPA does not apply to the
Grayslake and Woodstock locations. Because the plaintiffs are seeking statutory relief under the
PMPA, this Court must address the threshold issue of whether the PMPA applies before it can
proceed to consider the relevant factors under section 2805.
Broadly speaking, the PMPA protects the interests of franchisees by regulating when and
how gas station franchises can be terminated. Under section 2801(1)(A) of the PMPA, the term
franchise is defined as:
(1) between a refiner and a distributor,
(ii) between a refiner and a retailer,
(iii) between a distributor and another distributor, or
(iv) between a distributor and a retailer,
under which a refiner or distributor (as the case may be) authorizes or
permits a retailer or distributor to use, in connection with the sale,
consignment, or distribution of motor fuel, a trademark which is owned
or controlled by such refiner or by a refiner which supplies motor fuel to the
distributor which authorizes or permits such use.
15 U.S.C. § 2801(1)(A) (emphasis added). That definition further states that the term “franchise”
(i) any contract under which a retailer or distributor (as the case may
be) is authorized or permitted to occupy leased marketing premises,
which premises are to be employed in connection with the sale,
consignment, or distribution of motor fuel under a trademark which is
owned or controlled by such refiner or by a refiner which supplies
motor fuel to the distributor which authorizes or permits such
(ii) any contract pertaining to the supply of motor fuel which is to be
sold, consigned or distributed—
(I) under a trademark owned or controlled by a refiner; or
(II) under a contract which has existed continuously since May 15,
1973, and pursuant to which, on May 15, 1973, motor fuel was
sold, consigned or distributed under a trademark owned or
controlled on such date by a refiner; and
(iii) the unexpired portion of any franchise, as defined by the
preceding provisions of this paragraph, which is transferred or
assigned as authorized by the provisions of such franchise or by any
applicable provision of State law which permits such transfer or
assignment without regard to any provision of the franchise.
15 U.S.C. § 2801(1)( B) (emphasis added).
Here, it is undisputed that the Ingleside location sold fuel under the Marathon trademark
and therefore constituted a franchise pursuant to the PMPA. It is similarly undisputed that the
Grayslake and Woodstock locations are unbranded gas stations that do not sell fuel under a refiner’s
trademark. Accordingly, those locations do not constitute franchises within the meaning of the
PMPA. PDV Midwest Refining, L.L.C. v. Armada Oil and Gas Co., 305 F.3d 498, 505 (6th Cir. 2002)
(observing that a letter concerning unbranded gasoline did not reference the PMPA because
“unbranded contracts are not subject to the requirements of the PMPA.”); Unified Dealer Grp. v. Tosco
Corp., 16 F. Supp. 2d 1137, 1140 (N.D. Cal. 1998) (noting that a contract to sell unbranded motor
fuel is not subject to the PMPA because a trademark is an essential element of a PMPA franchise.”),
aff’d 216 F.3d 1085 (9th Cir. 2000).
This conclusion is supported by the lease agreements for the Grayslake and Woodside
properties, both of which expressly provide that:
This lease is not a Franchise within the meaning of federal or state
legislation. Landlord is not selling a way of doing business, and is not
selling the right to use a trademark. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by a third party
to create the relationship of principal and agent or of partnership or
of joint venture or of any association whatsoever between Landlord
and Tenant, it being expressly understood and agreed that neither the
method of computation of rent nor any other provisions contained in
this Lease nor any act or acts of the parties hereto, shall be deemed to
create any relationship between Landlord and Tenant other than the
relationship of Landlord and Tenant.
The Supply Agreements at the Woodstock and Grayslake locations, similarly, confer no right
to use a trademark on the plaintiffs; although they do contain provisions contemplating the
possibility that branded fuel might later be sold. Those provisions, however, do not confer any
actual trademark rights and therefore are incapable of satisfying the PMPA’s definition of
“franchise.” See 15 U.S.C. § 2801(1).
The plaintiffs alternatively contend that the defendants are bound by their past admission
that the PMPA applies to the Grayslake and Woodstock locations. Indeed, the defendants’ actions
before and during this case, up until the newly filed motion to dismiss, have reflected their
understanding that the PMPA applies to all three locations. The Woodstock and Grayslake gas
stations’ supply agreements state that “[t]he parties specifically acknowledge and agree that the
franchise relationship (as defined in the Petroleum Marketing Practices Act, 15 USC §2801 et seq.)
created by this Agreement between the Retailer and the Supplier is necessarily contingent upon the
Retailer's ability to maintain possession of the Premises.” It is apparent that the parties intended for
their agreement to be subject to the PMPA. The question of what the parties intended to contract
for, however, is distinct from the question of whether a given law applies to that contract. This
Court is not aware of, and the plaintiffs have not offered, any legal authority which would permit
this Court to apply the PMPA based solely on the parties’ belief that it applies. To the contrary, this
Court must find that the parties’ relationship satisfies the expressly codified requirements of the
PMPA before it can contemplate granting any relief under that statute.
Finally, the plaintiffs contend that the cross-default provision renders all three gas stations
subject to the PMPA because the Ingleside location is subject to the PMPA. The cross-default
provision at issue provides that any default under any agreement between the supplier and retailer
related to other locations owned or otherwise controlled by the retailer would constitute a default
under the supply agreement. The sole case that the plaintiffs offer to support their theory that the
cross-default provision renders all three gas stations subject to the PMPA, however, does not
actually involve a cross-default provision. Instead, it involves an explicit contractual term providing
that the termination of a premises lease and motor fuel franchise agreement would automatically
terminate a separate mini-market franchise agreement. See Atlantic Richfield Co. v. Brown, 85 C. 5131,
1985 U.S. Dist. Lexis 14720 at *20 (N.D. Ill. Oct. 21, 1985) (Kocoras, J.) (holding that “where
termination of the premises lease automatically triggers termination of [a] mini-market agreement,
the lease, motor fuel franchise agreement, and mini-market are so inextricably linked that the PMPA
will govern termination of the mini-market agreement as well”). This Court, moreover, notes that
the cross-default provision does not appear to apply to the Grayslake location because the
contracting “retailer” in the Grayslake Supply Agreement was Grayslake Stop & Shop LLC and not,
as in the other two supply agreements, Catch 26, LLC.
This Court accordingly holds that the PMPA does not apply to the Grayslake and
Woodstock locations and that the plaintiffs therefore are not entitled to the issuance of a preliminary
injunction under the PMPA at those locations. 1
This Court next addresses the question of whether a preliminary injunction should issue with
respect to the Ingleside location. In pertinent part, the PMPA requires the issuance of a preliminary
injunction upon a showing that (1) the franchise has been terminated, (2) there exist sufficiently
serious questions going to the merits to make such questions a fair ground for litigation, and (3) that
the balance of the hardships favors granted relief. 15 U.S.C. § 2805(b)(2). Accordingly, a franchisee
need only establish a reasonable chance of success on the merits, not a “strong or reasonable
likelihood” of success as is ordinarily required for injunctive relief. Moody v. Amoco Oil Co., 734 F.2d
1200, 1216 (7th Cir. 1984).
In support of termination, the defendants’ August 14th notice of termination asserts that
plaintiffs (1) failed to pay sums due in a timely manner at the Grayslake and Ingleside locations, (2)
willfully adulterated, mislabeled, or misbranded fuel at the Grayslake and Woodstock locations, and
(3) unilaterally changed the EFT information at the Grayslake and Woodstock locations.
Although this Court holds that the PMPA does not confer it with power to issue injunctive relief under that statute, its
ruling does not address the possibility that the parties’ relationship was governed by the joint belief or understanding that
the PMPA applied.
Thus, the only reason offered for termination as to the Ingleside location was the failure to
timely pay sums due. 2 The evidence presented, however, calls into question whether the plaintiffs
failed to timely pay sums due. It is undisputed that on August 5, 2017, Catch 26 was debited for its
open balance of $17,208.90. The plaintiffs’ evidence, however, establishes that $11,051.70 of that
amount was disputed. The disputed amount stemmed from a POS system which the plaintiff was
not expecting to have charged at that time, which had not yet been installed, which was charged at a
cost well-in-excess of the previously-agreed-to price, and which was not identified on the notice of
the EFT. Plaintiffs’ evidence establishes that the EFT was denied due to that disputed charge, and
that the plaintiff was unaware of any mechanism to pay only the undisputed charges. Additionally,
at the time of the denied EFT plaintiff was owed a credit of approximately $12,000 in excess escrow
payments with respect to the Ingleside location, which the plaintiffs contend should have been
credited to the undisputed portion of the denied EFT.
A substantive dispute also exists as to whether the defendants were required to give the
Ingleside location notice and an opportunity to cure. The Ingleside supply agreement expressly
provides that “[i]n the event of a breach by Retailer of any of its material covenants or obligations
contained herein, not cured within five (5) days after notice, or default by Purchaser under the terms
of the Installment Contract, the parties agree that the Supplier, in addition to any other remedy
available to it at law or equity, shall be entitled to terminate the Agreement.” Here, however, the
plaintiffs contend that they never received notice or an opportunity to cure prior to the defendants’
termination of their franchise.
The defendants have similarly failed to establish that they provided adequate notice of the
termination. Although the PMPA generally requires that notice of termination be delivered at least
Defendants now contend that termination is justified based on the plaintiffs misbranding of fuel at the Ingleside
location. The notice of termination, however, does not set this forth as a basis for termination. The question of
whether or not misbranding occurred is therefore not presently before this Court and is immaterial to the outcome of
90 days prior to its effective date, notice of less than 90 days is permissible where it would not be
reasonable to furnish 90 days’ notice. 15 U.S.C. § 2804. Courts and Congress have both recognized
that misbranding is a serious default of the franchise agreement warranting termination without
lengthy notice. See Wisser Co., Inc. v. Mobil Oil Corp., 730 F.2d 54, 60 (2d Cir. 1984) (discussing the
legislative history as it relates to misbranding). It has been similarly recognized, however, that nonpayment is not a permissible basis for providing less than ninety days of notice before termination
absent aggravating circumstances. Id. (citing Escobar v. Mobil Oil Corp., 522 F. Supp. 593 (D. Conn.
1981); cf State Oil Co. v. Khan, 839 F. Supp. 543, 546 (N.D. Ill. 1993) (collecting cases in which less
than ninety days’ notice was found reasonable in light of the size of the default, lengthy duration of
the default, or rapid growth of the default ). Here, the Ingleside location defaulted on a fund
transfer of $17,208.90 which was initiated on 8/5/2017. A mere nine days later, defendants sent a
notice of termination providing eleven days’ notice. Defendants do not argue that this was
“reasonable” notice based on the Ingleside location’s default, and, based on the authorities
referenced above, this Court therefore holds that a reasonable dispute as to the adequacy of the
notice therefore exists. 3
This Court accordingly concludes that there is a question as to the merits sufficient to be the
subject of litigation. Accordingly, this Court turns its attention to the balance of harms. The
defendants’ primary argument is that the strength of their position on the merits renders the
balancing of harms irrelevant. This argument, for those reasons previously set forth, is unavailing.
Based on those reasons for termination properly before this Court at the present time, the balance
of hardships weighs in favor of granting the injunction requested in this case. Greco v. Mobil Oil
Corp., 597 F. Supp. 468, 473 (N.D. Ill. 1984) (Leighton, J.). The harm to plaintiffs, the loss of the
As previously noted, the defendants allegations of misbranding are irrelevant to this Court’s review of the notice of
termination now at issue. This Court acknowledges that it appears a subsequent notice of termination was sent in
October, in apparent violation of this Court’s August 25, 2017 order. That notice of termination is not presently before
this Court, and this Court will not consider arguments regarding its propriety absent a properly noticed motion.
Ingleside franchise, far outweighs any harm to the defendants if the franchise relationship is
continued until the merits of the parties’ claims can be reached.
For the foregoing reasons, the plaintiffs’ motion for a preliminary injunction is granted with
respect to the Ingleside location, but denied with respect to the Grayslake and Woodstock locations.
IT IS SO ORDERED.
Date: October 27, 2017
SHARON JOHNSON COLEMAN
United States District Court Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?