LUKOIL NORTH AMERICA LLC v. TURNERSVILLE PETROLEUM INC. et al

Filing 32

OPINION. Signed by Judge Renee Marie Bumb on 4/16/2015. (TH, )

NOT FOR PUBLICATION

[Docket No. 22]

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE

LUKOIL NORTH AMERICA LLC,
successor in interest to Getty
Petroleum Marketing, Inc.,
Civil No. 14-3810 (RMB/AMD)
Plaintiff,
OPINION
v.
TURNERSVILLE PETROLEUM INC.,
successor to N.B. Oil Inc., by
assignment, and SURINDER
BINDRA,
Defendants.
APPEARANCES:
Brett Berman
Lauren Winchester
Barry Muller
Christopher Kinkade
Fox Rothschild LLP
2000 Market Street, 20th Floor
Philadelphia, PA 19103
Attorneys for Plaintiff
Shalom Stone
Brown Moskowitz & Kallen, P.C.,
180 River Road 07901
Summit, New Jersey
Attorneys for Defendants
BUMB, United States District Judge:

This matter comes before the Court upon a Motion by
Plaintiff, Lukoil North America LLC (“LNA” or “Plaintiff”), to
dismiss all counterclaims filed by Defendant, Turnersville
Petroleum Inc., (“Turnersville” or “Defendant”) pursuant to
Federal Rule of Civil Procedure 12(b)(6).

For the reasons set

forth below, Defendants’ motion will be denied in part and
granted in part.
I.

Factual Background
LNA, through its predecessor in interest, Getty Petroleum

Marketing Inc., and Turnersville, successor to N.B. Oil Inc. by
assignment, were parties to a Petroleum Marketing Practices Act
(“PMPA”) Franchise Agreement effective June 1, 2005, and related
additional agreements (together referred to as the “Franchise
Agreement”).

Compl. at ¶ 15.

LNA has the exclusive right to

license and use in the United States the trademark “LUKOIL” and
various related trade names, trademarks and services marks, logos
and derivations thereof.

Id. at ¶ 9.

Citing default, LNA

terminated the franchise relationship with Turnersville effective
on November 26, 2013.

Id. at ¶ 20.

Counts One, Two and Three of Plaintiff’s Complaint allege
that Defendant has continued to market and sell oil and gas
through the unauthorized use of LUKOIL marks in violation of
2

various sections of the Lanham Act since the termination of the
Franchise Agreement.

Id. at ¶¶ 24-45.

In Count Four of the

Complaint, LNA alleges a Breach of Contract claim against
Turnersville, stating that Turnersville breached the terms of the
Franchise Agreement by, inter alia:
•
•
•

failing to use good faith and best efforts to maximize
the sale of products;
failing to purchase motor fuel from LNA and failing to
maintain an adequate inventory of motor fuel; and,
failing to pay LNA in a timely manner.

Complaint at ¶ 48.
In its Answer to the Complaint, Turnersville asserts several
counterclaims against LNA.

Turnersville alleges that the price

charged by LNA to Turnersville for motor fuel is an open price
term governed by the Uniform Commercial Code, codified in New
Jersey at N.J.S.A. 12A:-305, which provides that “[a] price to be
fixed by the seller or by the buyer means a price for him to fix
in good faith.”

Docket No. 12 at ¶ 11.

Turnersville further

alleges that LNA failed to set the price for fuel in good faith
and that “LNA often set[s] its wholesale price close to, equal
to, or even above the price being charged at retail by
Turnersville’s competitors.”

Id. at ¶¶ 13-14.

Turnersville

avers that it “reasonably expected that LNA would set its fuel
prices such that Turnersville could operate at a reasonable
3

profit.”

Id. at ¶ 15.

In sum, Turnersville alleges that because

of LNA’s pricing practices, it operated at a loss, suffered
substantial damages, and was “unable to continue purchasing
Lukoil-branded fuel, and was unable to continue as a Lukoil
franchisee.”

Id. at 17.

Based on these allegations,

Turnersville has asserted four counterclaims against LNA:
•
•
•
•

Count I: breach of contract;
Count II: violation of the Uniform Commercial Code;
Count III: breach of duty of good faith and fair dealing;
and
Count IV: violations of the New Jersey Franchise Practices
Act (“NJFPA”).

Id. at ¶¶ 19-25.

In support of the NJFPA claims, Turnersville

claims that
LNA’s fuel prices were arbitrary and unreasonable. As a
result of LNA’s arbitrary and unreasonable fuel prices,
Turnersville's retail prices were higher than its
competitors' retail prices, which in turn caused significant
declines in Turnersville's volume of fuel sales. As a
result of LNA's arbitrary and unreasonable fuel prices and
the resulting significant decline in Turnersville's sales
volume, (a) Turnersville could not achieve the unrealistic
minimum sales volumes required by the Franchise Agreements,
and (b) the unrealistic minimum sales volumes imposed by LNA
on Turnersville were "unreasonable standards of performance"
within the meaning of the New Jersey Franchise Practices
Act.
Id. at ¶¶ 32-33.
LNA has moved to dismiss Plaintiff’s counterclaims I, II,
III and IV, arguing that all claims are preempted by the PMPA
4

and, in the alternative, arguing that Turnersville has failed to
state a claim under Counts I, II and III.
II.

Standard

When deciding a motion to dismiss counterclaims under
Federal Rule of Civil Procedure 12(b)(6), the court must limit
its review to the face of the counterclaims.

Barefoot Architect,

Inc. v. Bunge, 632 F.3d 822, 835 (3d Cir. 2011).

In other words,

a [counterclaim] is sufficient if it contains enough factual
matter, accepted as true, to "state a claim to relief that is
plausible on its face."

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570,
(2007).

However, legal conclusions and "[t]hreadbare recitals of

the elements of a cause of action, supported by mere conclusory
statements, do not suffice." Iqbal, 556 U.S. at 678.
When considering a Rule 12(b)(6) motion, a district court
should conduct a three-part analysis.
F.3d 560, 563 (3d Cir. 2011).

See Malleus v. George, 641

"First, the court must 'take note

of the elements a plaintiff must plead to state a claim.'" Id.
(quoting Iqbal, 556 U.S. at 675 (2009)).

Second, the court

should identify allegations that, "because they are no more than
conclusions, are not entitled to the assumption of truth." Id. at
680.

Third, "whe[n] there are well-pleaded factual allegations,
5

a court should assume their veracity and then determine whether
they plausibly give rise to an entitlement for relief." Id.
III. Analysis
LNA contends that all of Turnersville counterclaims must be
dismissed because they relate to LNA’s termination of the
Franchise Agreement and are thus preempted by the PMPA, 15 U.S.C.
§§ 2801-2841.

In the alternative, LNA argues that even if not

preempted, Turnersville’s claims fail under the Fed. R. Civ. P.
12(b)(6) standard.

This Court finds that Turnersville’s

counterclaims are not preempted by the PMPA and that the factual
allegations are sufficient at this juncture as to Count III, but
not as to Counts I and II for the reasons set forth below.
Turnersville will, however, be granted leave to cure its
deficient pleadings.
A. PMPA Preemption
In passing the PMPA, Congress noted the need for a “single,
uniform set of rules governing the grounds for termination and
non-renewal of motor fuel marketing franchises. . . .” S. Rep.
No. 731, 95th Cong., 2 Sess., 19.

In furtherance of this need for

uniformity, the PMPA specifically addresses the issue of
preemption:

6

To the extent that any provision of this title [15 U.S.C.S. §§
2801 et seq.] applies to the termination (or the furnishing of
notification with respect thereto) of any franchise, or to the
nonrenewal (or the furnishing of notification with respect
thereto) of any franchise relationship, no State or any
political subdivision thereof may adopt, enforce, or continue
in effect any provision of any law or regulation (including any
remedy or penalty applicable to any violation thereof) with
respect to termination (or the furnishing of notification with
respect thereto) of any such franchise or to the nonrenewal (or
the furnishing of notification with respect thereto) of any
such franchise relationship unless such provision of such law
or regulation is the same as the applicable provision of this
title [15 U.S.C.S. §§ 2801 et seq.].
15 U.S.C. § 2806(a)(1).

The Third Circuit, in interpreting this

provision, has stated that “the ‘PMPA only preempts state laws
that limit the permissible substantive reasons that a petroleum
franchisor can terminate a franchisee’ because ‘[t]he goal of the
framers of the PMPA was to create a uniform system of franchise
termination, not a uniform system of contract law.’”

Kehm Oil

Co. v. Texaco, Inc., 537 F.3d 290, 298 (3d Cir. 2008)(quoting
O’Shea, v. Amoco Oil Co., 886 F. 2d 584, 592-93 (3d Cir. 1989)). 1

1

In contrast, where a broad preemptive scope is sought,
Congress effectuates that aim via broad preemptive language. See
Civil Docket No. 14-1465, Millman v. Medtronic, Docket Entry No.
20 (D.N.J. Feb. 24, 2015)(discussing the broad preemptive sweep
of the Medical Devices Amendments, 21 U.S.C. §360c et seq., via
Congress’ use of language making clear that no sate may impose
“any requirement” relating to the safety or effectiveness of a
medical device. . . .” Id. at * 7.
7

In O’Shea, 886 F. 2d at 592, the Court emphasized the narrow
scope of PMPA preemption: “the PMPA preempts only those state
laws that regulate ‘the grounds for, procedures for, and
notification requirements with respect to termination,’ to the
extent that such laws are not the same as the PMPA.”

Id. 886

F.2d at 592 (quoting Bellmore v. Mobil Oil Corp., 783 F.2d 300,
304 (2d Cir. 1986))(emphasis added).

In light of the narrow

scope of preemption, the Third Circuit found that the plaintiff’s
state law claim for fraudulent inducement was not preempted
because the claim did not involve the procedures for or
notification requirements with respect to termination.

The Court

went on to add that “[t]here is no reference to any legislative
intent to preempt the common law of contract, even to the extent
that it may become involved in a PMPA action.”

Id. at 593.

Following O’Shea, the Third Circuit adopted the “intimately
intertwined test” in Kehm, noting that the Eleventh Circuit in
Shukla v. BP Exploration & Oil, Inc., 115 F.3d 849 (11th Cir.
1997), held that state law claims that were intimately
intertwined with the termination or nonrenewal of a franchise are
preempted.

There is, however, a paucity of case law in the Third

Circuit with respect to the actual application of the “intimately
intertwined” test.

In Kehm, the Third Circuit remanded the
8

plaintiff’s claims for breach of contract, promissory estoppel,
civil conspiracy, and interference with contract so that the
District Court could determine whether those claims were so
intimately intertwined with the nonrenewal of the franchise
relationship such that they were preempted by the PMPA.

The

District Court never made a determination, however, because the
parties stipulated to dismiss the matter.

See Docket No. 06-785,

Entry No. 75 (W.D. Pa. 2009).
After Kehm, there is only one other case within this Circuit
that this Court has located discussing PMPA preemption and the
intimately intertwined test: MacWilliams v. BP Products North
Am., No. 09-1844, 2010 U.S. Dist. LEXIS 8967 (D.N.J. Feb. 3,
2010).

In MacWilliams, the plaintiff asserted a state law breach

of contract claim allegation that “[a]s a result of [BP’s]
material breaches and termination of the Agreements, the
plaintiff has suffered damages. . . .”

Id. at *20.

Notably,

there was no actual termination alleged in that case, rather the
plaintiff was propounding a constructive termination claim.

In

his preemption analysis, Judge Kugler found:
The Complaint clearly alleges that BP has materially
breached its contractual agreements. This allegation
articulates a breach of contract. Thus, the allegation that
these material breaches occurred in the context of what
Plaintiff considers to be a constructive termination is of
9

little consequence. This is especially so in light of the
Court's conclusion that the Complaint states no such claim.
Congress intended the PMPA "to create a uniform system of
franchise termination, not a uniform system of contract
law." O'Shea, 886 F.2d at 593. The Senate Report on the PMPA
does not refer to any congressional intent to preempt the
common law of contracts, "even to the extent that it may
become involved in a PMPA action." Id. Thus, the Court does
not agree with BP that the PMPA preempts Plaintiff's
contract claim.

Id. at 21-22.
In support of its preemption argument, LNA argues that,
pursuant to Third Circuit law, where claims are intimately
intertwined with the termination or nonrenewal of franchise, they
are preempted by the PMPA.
537 F.3d at 299).

LNA Br. at 4 (citing Kehm Oil Co.,

Here, LNA contends that all four of

Turnersville’s counterclaims are intimately intertwined with the
grounds for LNA’s termination of the PMPA Franchise Agreement,
largely because Turnersville failed to maximize the sale of
products and purchase motor fuel from LNA as required by the
Franchise Agreement.

See e.g., Counterclaim at ¶ 17 (“As a

direct and proximate result of LNA’s pricing practices,
Turnersville suffered substantial damages, was unable to continue
purchasing Lukoil-branded fuel, and was unable to continue as a
Lukoil franchisee.”).

LNA states that the very genesis of

Turnersville’s counterclaims is that LNA allegedly set prices
10

unreasonably, such that Turnersville was unable to perform under
the Franchise Agreement; this, in turn, caused the related
inability to meet minimum sales—a basis for LNA’s termination of
that Agreement.

Thus, LNA contends that the appropriate vehicle

for such claims is the PMPA, and these counterclaims cannot be
recharacterized as state law claims in the instant matter.
In response, Turnersville argues that its counterclaims
“have nothing to do with the grounds invoked by LNA, or the
procedure it followed in terminating the franchise agreement with
Turnersville – and have everything to do with the lack of good
faith on LNA’s part in its performance of the Franchise Agreement
and with its breach thereof.”

Turnersville Opp. Br. at 1.

Because the counterclaims relate to the performance of the
Agreement and not its termination or nonrenewal, Turnersville
argues that said claims are outside the narrow preemptive scope
of the PMPA.

In support of this contention, Turnersville cites

O’Shea, 886 F. 2d at 592, for the proposition that “the PMPA only
preempts state laws that regulate the circumstances relating to
when a franchisor terminates or non-renews a franchisee.”
Turnersville Br. at 4.
With respect to the decision in Kehm Oil Co., also cited by
LNA, Turnersville addresses the intimately intertwined test,
11

noting that the cases cited by the Third Circuit in Kehm, in
relation to the adoption of that test, “are within the narrow
focus of termination or non-renewal of a franchise relationship.”
Turnersville Br. at 5.

For example in Simmons v. Mobil Oil

Corp., 29 F.3d 505 (9th Cir. 1993), the Court held that a
franchisee’s claim for breach of duty of good faith and fair
dealing was preempted by the PMPA, but that claim was intimately
intertwined with the franchisor’s actions in the renewal of the
franchise agreement.

Turnersville avers that its counterclaims,

by contrast, relate to LNA’s performance under the Agreement –
i.e., setting fuel prices arbitrarily and even above the price
set by Turnersville’s competitors.
Outside of the Third Circuit, other Courts have applied the
intimately intertwined test in a manner that reflects the narrow
scope of PMPA preemption.

For example, in a case with factual

similarity to the instant matter, Citgo Petroleum Corp., v.
Ranger Enterprises, Inc., 573 F. Supp. 2d 1114 (W.D. Wis. 2008),
Citgo, the franchisor, sued defendant franchisee, Ranger
Enterprises, for breach of contract, arguing that Ranger’s debranding and failure to buy minimum fuel requirements constituted
a breach of the parties’ franchise agreement.

Ranger responded

with counterclaims including, inter alia, wrongful nonrenewal of
12

the franchise agreement, brand damage, and failure to supply fuel
in accordance with the franchise agreement during 2005.

Because

of the delivery failures, Ranger’s business nearly failed, and
Ranger questioned whether it could remain a Citgo franchisee.

In

early 2006, Citgo proposed new franchise agreements as the prior
agreements were set to expire in July 2006.

The proposed terms

were commercially unreasonable and Ranger advised Citgo that it
would not renew the agreement.
Citgo moved to dismiss Ranger’s counterclaims arguing, in
relevant part, that the alleged failure to meet contractual fuel
supply obligations in 2005 was preempted by the PMPA.

In finding

that the counterclaim was not preempted, the Court held that it
was not intimately intertwined with the non-renewal claim:
“Instead, it seeks independent damages for breach of the contract
prior to non-renewal.”

Id. at 1123.

Similarly, in the instant matter, Turnersville seeks
independent damages for breach of contract, violation of the
Uniform Commercial Code, breach of duty of good faith and fair
dealing, and violations of the NJFPA prior to LNA’s termination
of the franchisee for events that took place during the life of
the Franchise Agreement.

In light of the guidance from this and

other Circuits, this Court finds that Turnersville’s
13

counterclaims are not preempted by the PMPA.

The mere fact that

LNA chose to terminate the franchise should not deprive
Turnersville of the ability to bring claims for a breach of the
Franchise Agreement.

See O’Shea, 886 F.2d at 593 (“[t]here is

simply no merit to O'Shea's contention that ‘once a termination
notice has been served, the Federal courts acquire [exclusive]
jurisdiction over [all aspects of] the controversy.’”).

The fact

that LNA has claimed that it terminated the Franchise Agreement
because Turnersville breached the agreement by failing to use
good faith and best efforts to maximize the sale of products is
not dispositive.

Again, as stated in O’Shea, “[t]here is no

reference to any legislative intent to preempt the general common
law of contract, even to the extent that it may become involved
in a PMPA action.” 886 F.2d at 593.

Thus, the fact the Franchise

Agreement was terminated does not necessarily render all
potential counterclaims by Turnersville preempted by the PMPA.
See Seckler v. Star Enterprise, 124 F.3d 1399, 1406 (11th Cir.
1997) (“The PMPA was not written to allow petroleum franchisors
to hide behind the preemption provision to avoid tort, contract
or fraud suits brought by franchisees with regard to actions that
do not constitute termination or non-renewal of a franchise or
notification of such action.”); Simmons v. Mobil Oil Corp., 29
14

F.3d 505, 512 (9th Cir. 1994)(“The fact that Simmons himself
eventually terminated the franchise does not preclude him from
bringing a claim based on Mobil’s alleged breach of the covenant
of good faith.”).

For the above reasons, this Court finds that

Turnersville’s claims are not preempted by the PMPA.

B. Failure to State a Claim
Even if Turnersville’s claims are not preempted, LNA argues
that counterclaims I (Breach of Contract), II (Violation of the
U.C.C.) and III (Breach of Duty of Good Faith and Fair Dealing),
are conclusory assertions devoid of the necessary factual
enhancement sufficient to survive under Federal Rule of Civil
Procedure 12(b)(6).

The Court will address each of

Turnersville’s counterclaims in turn.
i. Breach of Contract
“To prevail on a breach of contract claim under New Jersey
law, a plaintiff must establish three elements: (1) the existence
of a valid contract between the parties; (2) failure of the
defendant to perform its obligations under the contract; and (3)
a causal relationship between the breach and the plaintiff's
alleged damages.”

Sheet Metal Workers Int'l Ass'n Local Union

No. 27 v. E.P. Donnelly, 737 F.3d 879, 900 (3d Cir. 2013); Sapta
15

Global, Inc. v. Cilicorp, LLC, No. 13-3698, 2015 U.S. Dist. LEXIS
40186 at *5-6 (D.N.J. Mar. 20, 2015)(citing Murphy v. Implicito,
392 N.J. Super. 245, 920 A.2d 678, 689 (N.J. App. Div. 2007).
Other Courts in this Circuit have required a fourth element: that
the party asserting the claim for breach of contract allege that
it was performing its obligations under the contract.

See Pauly

v. Houlihan’s Restaurants, Inc., 2012 U.S. Dist. LEXIS 180215, at
*13-14 (D.N.J. Dec. 20, 2012)(stating that there are four
elements to a breach of contract claim under New Jersey law,
including that “plaintiff performed its obligations). 2
LNA argues that Turnersville fails to allege exactly how LNA
breached the Franchise Agreement and that the assertion that LNA
failed to set prices fairly or in good faith is an “utterly vague
and conclusory assertion.”

Def.’s Br. at 6-7.

LNA also argues

that Turnersville does not even claim to have performed its
obligations under the contract as required.
In response, Turnersville contends that it has adequately
pled the relevant elements. More specifically that,
•
•

2

LNA and Turnersville were parties to the PMPA Franchise
Agreement. Counterclaim ¶ 6;
The fuel price was subject to the U.C.C. requirements
(Id. at ¶ 11), and LNA failed to set prices fairly or

Citied by Turnersville to this Court.
16

•
•

in good faith such that prices were arbitrary and
commercially unreasonable. Id. at ¶ 13;
LNA set its prices close to or equal to or above that
being charged by Turnersville’s retail competitors. Id.
at ¶ 14; and,
As a result of these pricing practices, Turnersville
operated at a loss and suffered substantial damages.
Id. at ¶¶ 16-17.

Turnersville, however, makes no argument with regard to whether
it has alleged that it was adequately performing its obligations
under the contract.
Based on the above, this Court finds that Turnersville has
adequately pled a claim for breach of contract with respect to
the issue of breach.

It is clear that the factual allegation

supporting the alleged breach is that LNA set the prices close,
equal to or above competitors’ prices and, in doing so, failed to
set the prices fairly or in good faith. See supra at 16.
Because, however, there are no allegations discussing
Turnersville’s performance of its obligations under the contract,
this Court finds that a needed element of the claim for breach is
missing.

As such, LNA’s motion to dismiss Count I shall be

granted.

Plaintiff will, however, have 21 days to cure the

pleading deficiency identified.

ii. Uniform Commercial Code

17

LNA argues that Count II is devoid of factual allegations
sufficient to state a cause of action for a violation of the
U.C.C.

New Jersey’s codification of Section 2-305 of the UCC,

N.J.S.A. 12A:2-305, provides, in relevant part,
(1) The parties if they so intend can conclude a contract
for sale even though the price is not settled. In such a case the
price is a reasonable price at the time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and
they fail to agree; or
(c) the price is to be fixed in terms of some agreed
market or other standard as set or recorded by a third
person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means
a price for him to fix in good faith.
LNA contends that Turnersville’s allegation that it failed
to set the price for fuel in good faith is without factual
support, and, even assuming LNA had made such allegations,
Turnersville cannot show that LNA had an obligation to set prices
in a way to guarantee that Turnersville would make a profit.

LNA

also argues that Turnersville has failed to allege that it
complied with the notice requirement of Section 2-607 of the
U.C.C., or N.J.S.A. 12A:2-607(3), which provides, in relevant
part that, “[w]here a tender has been accepted (a) the buyer must
within a reasonable time after he discovers or should have
discovered any breach notify the seller of breach or be barred
from any remedy.”
18

Comment 4 accompanying this provision sheds light on the
contours of notice requirement:
The content of the notification need merely be sufficient to
let the seller know that the transaction is still
troublesome and must be watched. There is no reason to
require that the notification which saves the buyer's rights
under this section must include a clear statement of all the
objections that will be relied on by the buyer, as under the
section covering statements of defects upon rejection
(Section 2-605). Nor is there reason for requiring the
notification to be a claim for damages or of any threatened
litigation or other resort to a remedy. The notification
which saves the buyer's rights under this Article need only
be such as informs the seller that the transaction is
claimed to involve a breach, and thus opens the way for
normal settlement through negotiation.
N.J.S.A. 12A:2-607(3), Comment 4 (emphasis added).
LNA argues that generalized complaints about price, with
nothing more, fail to suffice with respect to notice and that
Turnersville’s allegation that it “regularly, repeatedly and
within a reasonable time notified LNA that LNA’s fuel prices were
unfair and unreasonable. . .” is insufficient.
at ¶ 18.

See Counterclaim

More specifically, LNA faults Turnersville for not

alleging “that it notified LNA that it believed the Franchise
Agreement had been breached as a result of the ‘unfair and
unreasonable’ price setting.”

Def.’s Reply Br. at 5.

In response, Turnersville points to its factual allegation
that pricing was close to, equal to or above the price changed at
19

retail by its competitors as sufficient support for its
allegation that the prices were arbitrary and unreasonable.
Turnersville contends that these allegations of a lack of good
faith combined with its allegation that such conduct by LNA
deprived it of the expectations and benefits of its bargain with
LNA suffice to sustain its U.C.C. claim.

Citing Wilson v.

Amerada Hess Corp., 168 N.J. 236, 251 (2001), Turnersville argues
that the New Jersey Supreme Court has held that where there is a
contractual open price term, the party setting the price may not
do so arbitrarily, unreasonably or capriciously with the
objective of denying the other party from reaping the benefits of
its bargain without a legitimate purpose.

The Wilson case,

however, did not deal with a U.C.C. claim but rather a claim for
breach of covenant of good faith and fair dealing (discussed
further infra).

Finally, with respect to notice, Turnersville

points to its allegation that it “regularly, repeatedly and
within a reasonable time notified LNA that LNA’s fuel prices were
unfair and unreasonable but LNA failed and refused to change its
ways,” as sufficient pleading.

See Counterclaim at ¶ 18.

This Court finds that Turnersville’s allegations suffice at
this juncture with respect to a violation of N.J.S.A. 12A:2-305
because the allegations address the fact that prices were set at
20

or above the competitions.

See Pauly v. Houliahan, No. 12-0025,

2012 U.S. Dist. LEXIS 180215, *16-17 (D.N.J. Dec. 20,
2012)(finding that plaintiff adequately pled a claim under
N.J.S.A. 12A:2-305 where plaintiff alleged that defendant
restaurant charged a price for drinks in excess of the good faith
reasonable price even where plaintiff did not allege what the
price he paid for the drinks was versus what a reasonable price
would be).

With respect to notice, however, this Court agrees

with LNA, however, that Turnersville has failed to plead adequate
notice as required.

In JOC, Inc. v. ExxonMobil Oil Corp., No.

08-5344, 2010 U.S. Dist. LEXIS 32305 (D.N.J. Apr. 1, 2010), the
plaintiffs alleged that “[i]n early 2006 [plaintiffs] reached out
to [Exxon] and explained that due to the factors detailed in the
preceding paragraphs [which includes the discriminatory DTW 3
prices], they were unable to cover their operating expenses or
achieve a profit.”

Id. at *12-13.

The Court found this

allegation insufficient for notice, stating: “[g]eneralized
allegations that Exxon knew that these stations were struggling
financially do not suffice as an assertion that notice of a
breach of contract had been given.

3

Plaintiffs have not alleged

Referring to wholesale gasoline prices.
21

in the Complaint that they notified Exxon that they believed
their PMPA Agreements had been breached as a result of the high
prices or resulting financial difficulties.”

Id. at *16.

Similarly in Slack v. Suburban Propane Partners, L.P., No.
10-2548, 2010 U.S. Dist. LEXIS 135530 (D.N.J. Dec. 22,
2010)(“Slack II”), the Court found that plaintiffs did not give
proper notice as required under N.J.S.A 12A:2-305.

There,

plaintiffs had alleged that they “and other customers have
complained about Suburban Propane's unreasonable and unauthorized
prices, but Suburban Propane often has failed to make proper and
complete price adjustments.”

Id. at 14.

The Court found this

allegation to be a generalized complaint insufficient to meet the
notice standard of the statute.

While the Slack II court

acknowledged that buyers enjoy a degree of flexibility with
respect to the form of notice that must be given, it nevertheless
found that the plaintiffs failed to adequately notify the
defendant that they believed their service agreements had been
breached because of the high prices.

Id. at *15-16 (granting

motion to dismiss N.J.S.A. 12A:2-305 claim for lack of adequate
notice but allowing plaintiff the opportunity to cure the
pleading via amendment).

22

Like the allegations deemed insufficient in Slack II and JOC
Inc., Turnersville has failed to allege anything more than a
generalized complaint.

There is no indication, as currently

pled, that LNA would have been aware that Turnersville considered
the Franchise Agreement was being breached by LNA’s conduct.
Moreover, mere notice that Turnersville was struggling
financially as a result of the prices set by LNA is insufficient.
See JOC, Inc., 2010 U.S. Dist. LEXIS 32305 at *16 (finding that
allegations that Exxon knew that these stations were struggling
financially do not suffice as an assertion that notice of a
breach of contract had been given).

Because of the deficient

notice, this Court will grant the motion to dismiss but, similar
to Slack II, will provide Turnersville an opportunity to cure its
allegations by way of amendment.

iii. Breach of Covenant of Good Faith and Fair Dealing
All contracts in New Jersey contain an implied covenant of
good faith and fair dealing.

Black Horse Lane Assoc., L.P. v.

Dow Chem. Corp., 228 F.3d 275, 288 (3d Cir. 2000).

The covenant

operates to ensure that “neither party shall do anything which
will have the effect of destroying or injuring the right of the
other party to receive the fruits of the contract.”
23

Sons of

Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 587 (1997).

“The

party claiming a breach of the covenant of good faith and fair
dealing ‘must provide evidence sufficient to support a conclusion
that the party alleged to have acted in bad faith has engaged in
some conduct that denied the benefit of the bargain originally
intended by the parties.’” Brunswick Hills Racquet Club, Inc. v.
Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2005)(quoting
23 Williston on Contracts § 63:22, at 513-14 (Lord ed. 2002));
Black Horse Lane Assoc., L.P., 228 F.3d at 288 (“A party to a
contract breaches the covenant if it acts in bad faith or engages
in some other form of inequitable conduct in the performance of a
contractual obligation.”). In addition “[t]he Supreme Court of
New Jersey has clearly held that bad motive is ‘essential’ to a
claim for breach of the implied covenant of good faith and fair
dealing.”

Vasaturo Bros. v. Alimenta Trading-USA, No. 09-2049,

2011 U.S. Dist. LEXIS 80026, at *13-14 (D.N.J. July 22, 2011).
As stated in Wilson v. Amerada Hess Corp., 168 N.J. 236
(2001), a case cited by both parties in support of their
respective arguments,
a party exercising its right to use discretion in setting
price under a contract breaches the duty of good faith and
fair dealing if that party exercises its discretionary
authority arbitrarily, unreasonably, or capriciously, with
24

the objective of preventing the other party from receiving
its reasonably expected fruits under the contract.

Id. at 251.

While the Wilson Court noted that, “an allegation of

bad faith or unfair dealing should not be permitted to be
advanced in the abstract and absent improper motive,” it
acknowledged that a plaintiff must be given a fair opportunity to
show bad motive.

Id. at 252 (remanding for discovery on the

issue of bad motive).
LNA argues that Turnersville’s allegations with respect to a
breach of duty of good faith and fair dealing are insufficient
because Turnersville’s averment that LNA set prices that “were
arbitrary and commercially unreasonable” see Counterclaim at ¶
13, are bare assertions devoid of factual support.
In response, Turnersville cites to its allegation that LNA
set prices “close to, equal to or even above” the price being
charged to Turnersville’s competitors.

Id. at ¶ 14.

Citing

Wilson, Turnersville states that LNA’s pricing rendered it
impossible for Turnersville to meet its expenses and perform
profitably and, as in Wilson, LNA should be required to provide
‘an explanation for its pricing that is not arbitrary,
capricious, or unreasonable.’”

Turnersville Br. at 15 (quoting

Wilson, 168 N.J. at 254).
25

Both parties have cited two cases to this Court on point
that militate in favor of denying the motion to dismiss on this
Count.

First, in Slack II, 2010 U.S. Dist. LEXIS 135530, the

Court found that the plaintiffs’ amended allegations were
sufficient to survive a motion to dismiss where plaintiffs
alleged that “Suburban Propane engaged in a pattern and practice
of false pricing, whereby it knowingly overcharged customers an
inflated price that was commercially unreasonable, later offered
to reduce the price as a so-called ‘courtesy’ if customers
noticed the overcharge, and pocketed the overcharge for its
remaining customers."

Id. at 35.

In reviewing this allegation

under the 12(b)(6) standard, the Court held that, “Plaintiffs’
allegations concerning the ‘after-the-fact price reductions’
could be construed as suggestive that Defendants have exercised
their discretionary authority over its pricing arrangements in an
arbitrary or unreasonable manner.”

Id. at ¶ 36.

In light of

this finding, the Court allowed the claim to proceed.

See id. at

36-37 (citing Wilson, 168 N.J. at 253 (“[A] plaintiff must have a
reasonable opportunity to obtain facts not available to it other
than through formal discovery.”)). 4

4

In Slack v. Suburban Propane Ptnrs., L.P., 2010 U.S. Dist.
LEXIS 98602, * 18-19 (D.N.J. Sept. 21, 2010), (“Slack I”), the
26

Similarly in JOC, Inc., the Court allowed plaintiffs’ breach
of implied covenant of good faith and fair dealing to proceed
where plaintiff “specifically alleged that Defendant exercised
its discretionary authority over DTW pricing, rental rates and
other decisions arbitrarily, unreasonably, or capriciously” and
“that Exxon knew that its DTW prices and other decisions
prevented them from receiving the contractual rewards or benefits
they reasonably expected.”

Id. at 21.

The Court found that the

terms “‘arbitrarily, unreasonably, or capriciously’ connote bad
faith,” and noted that while the case law requires plaintiffs to
make a showing of bad motive, it does not required the use of the
words bad motive.

Id. at n.10.

As in Joc, Inc., Turnersville, while not using the words
“bad motive,” has sufficiently alleged that LNA set rates in an
arbitrary and capricious manner that prevented Turnersville from
performing profitably.

Moreover, unlike the conclusory

Court dismissed the plaintiffs breach of covenant of good faith
and fair dealing claim where plaintiffs only alleged that
Suburban Propane “breached the covenant of good faith and fair
dealing by exercising its purported discretionary price-making
and fee-making authority under its residential propane contracts
arbitrarily, unreasonably and/or capriciously, in bad faith, with
the objective of preventing its residential propane customers
from receiving their reasonably expected fruits under such
contracts.”
27

allegations found in Slack I, Turnersville supports its
allegation that LNA set prices arbitrarily and capriciously with
the factual allegation that LNA set fuel prices “close to, equal
to, or even above the price being charged at retail by
Turnersville’s competitors.”

Counterclaim at ¶ 14.

Although it

is questionable as to whether setting the fuel prices close to or
equal to the competitors’ prices states a claim, the Court need
not resolve this issue at this juncture.

The allegation that LNA

set the prices “above” the prices being set by Turnersville’s
competitors is sufficient under the relevant case law because
such a factual allegation supports the averment that LNA’s
conduct arbitrarily deprived Turnersville of the benefit of its
bargain.

Accordingly, LNA’s motion to dismiss shall be denied as

to Count III.

See Slack, 2010 U.S. Dist. LEXIS 135530 at *36

(construing plaintiff’s allegations regarding price reductions as
suggestive that defendants exercised discretionary authority over
pricing in an arbitrary or capricious manner, and allowing breach
of good faith and fair dealing claim to proceed).
IV.

Conclusion

For the reasons set forth above, the Plaintiff’s motion to
dismiss will be denied in part and granted in part.

To the

extent any of the pleading deficiencies identified above can be
28

cured, Turnersville shall have 21 days to amend its
counterclaims.

An appropriate Order will issue this date.

s/Renée Marie Bumb
RENÉE MARIE BUMB
United States District Judge
Dated:

April 16, 2015

29