ATLANTIS PETROLEUM, LLC v. GETTY PETROLEUM MARKETING, INC. et al
MEMORANDUM AND ORDER THAT PLAINTIFF ATLANTIS PETROLEUM, LLC MOTION FOR TEMPORARY RESTRAINING ORDER IS GRANTED; ETC.. SIGNED BY HONORABLE R. BARCLAY SURRICK ON 4/19/11. 4/20/11 ENTERED AND E-MAILED AND FAXED BY CHAMBERS, MAILED TO UNREP(jl, ) Modified on 4/21/2011 (jl, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ATLANTIS PETROLEUM, LLC
GETTY PETROLEUM MARKETING,
LUKOIL AMERICAS CORPORATION,
APRIL 19 , 2011
Presently before the Court is the Motion of Plaintiff Atlantis Petroleum, LLC, for
Temporary Restraining Order and Preliminary Injunction. (ECF No. 4.) For the following reasons,
the Motion will be granted.
Plaintiff Atlantis Petroleum leases 71 service stations from Defendant Getty Petroleum
Marketing. The franchise agreement between Plaintiff and Defendant was entered into subject to
the Petroleum Marketing Protection Act, 15 U.S.C. §§ 2801 et seq. (“PMPA”), which limits the
circumstances under which a petroleum franchisor such as Defendant can terminate the franchise
relationship with a franchisee such as Plaintiff. Under the franchise agreement, Plaintiff subleases
the service stations and purchases fuel from Defendant. Plaintiff purchased fuel on credit, with the
outstanding balance usually being in the range of $6 million, by either tacit or explicit agreement of
In 2008, Plaintiff made a large purchase of diesel fuel from Defendant. Gas prices dropped
precipitously soon after, forcing Plaintiff to sell the fuel at a considerable loss. As a result,
Plaintiff’s credit balance with Defendant ballooned to over $10 million, some of which was past
due. Plaintiff entered into three agreements with Defendant in January 2009: a security agreement
that granted Defendant a security interest in Plaintiff’s assets; a cash-management agreement that
permitted Defendant to control all cash inflows and business expenses from Plaintiff’s business;
and a forbearance agreement in which Defendant agreed to forbear from taking action to collect
Plaintiff made little progress in paying off the debt over the following year. In early 2010,
Plaintiff and Defendant met with Plaintiff’s banker to discuss a bank loan that would assist Plaintiff
with paying down its debt to Defendant. Plaintiff contends that the parties conceived of a plan
under which the bank would lend Plaintiff $20 million and extend a $1 million letter of credit to
Plaintiff, who would use the credit to pay down its debt to Defendant to the $6 million level to
which the parties had grown accustomed. Defendant would sublease 58 additional service stations
to Plaintiff, who would use the revenue from these additional stations to pay down the line of credit
it had received from its bank. The bank extended the loan, and Plaintiff paid approximately $4.5
million to Defendant, who terminated the security interest and forbearance agreement as a result.
Defendant never provided Plaintiff with the additional 58 service stations that Plaintiff believed it
was entitled to under the terms of the deal. While Defendant agrees that the 58 additional service
stations were mentioned during the discussions with Plaintiff and the bank, it contends that there
was never an actual agreement to sublet those stations to Plaintiff.
In or around February 2011, Defendant informed Plaintiff that it would no longer supply
Plaintiff’s service stations with fuel. Plaintiff arranged for an alternative fuel supplier and
continued operations. On March 25, 2011, Defendant sent Plaintiff a letter terminating Plaintiff’s
sublease of its service stations effective April 25, 2011. Defendant informed Plaintiff via letter at
approximately 11:35 am on April 11, 2011, that it was terminating Plaintiff’s sublease as of noon
that same day. The letter requested that Plaintiff surrender the service stations no later than April
What occurred thereafter was the classic race to the courthouse. Defendant filed suit against
Plaintiff in the Southern District of New York on April 12, 2011, alleging breach of contract and
seeking an order requiring Plaintiff to surrender the service stations it currently leases from
Defendant. See Complaint, Getty Petroleum Marketing, Inc., v. Atlantis Petroleum, Inc., No. 112471 (S.D.N.Y. Apr. 12, 2011) (the “New York Litigation”). Plaintiff filed the instant action later
the same day and immediately filed a motion in the New York Litigation to transfer the case to the
Eastern District of Pennsylvania. Plaintiff argued that under § 2805(a) of the PMPA, the only
appropriate fora for this litigation are the Eastern District of Pennsylvania and the Eastern District
of New York. The New York court denied Plaintiff’s motion, concluding that § 2805(a) permits a
franchisee to file suit in those districts but does not require it, and that in any event, Defendant is a
franchisor, not a franchisee. See Opinion, Getty Petroleum Marketing, Inc., v. Atlantis Petroleum,
Inc., No. 11-2471 (S.D.N.Y. Apr. 15, 2011). The New York court scheduled a preliminary
injunction hearing for April 19, 2011, at 11 am.1
Plaintiff requests pursuant to § 2805(b)(2) of the PMPA that we issue a temporary
restraining order (“TRO”) preventing Defendant from terminating its agreements with Plaintiff.
At the hearing on Plaintiff’s request for the temporary restraining order, we attempted to
get the parties to agree that the entire dispute between them could be litigated either in the
Eastern District of Pennsylvania or in the Southern District of New York. Plaintiff would not
agree to the matter being heard in the Southern District of New York, and Defendant would not
agree to the matter being heard in this Court. Accordingly, we went on to hear the respective
positions of the parties.
Atlantis seeks a temporary restraining order which (1) bars Getty “from terminating the
Sublease and Distributor Agreement;” (2) prohibits Getty “from interfering with Atlantis’s quiet
enjoyment of the premises subject to the sublease and use of the trademarks and other intellectual
property licensed to it pursuant to the Distributor Agreement;” and (3) requires Getty “to supply
fuel to Atlantis in accordance with the Distributorship Agreement.”
“The PMPA was enacted in 1978 in recognition of ‘the disparity of bargaining power
which exists between the franchisor and the franchisee’ in the gasoline industry.” Sun Refining
and Marketing Co. v. Rago, 741 F.2d 670, 672 (3d Cir. 1984) (quoting S. Rep. No. 731, 95th
Cong., 2d Sess. 17, U.S.Code Cong. & Admin.News 1978, pp. 873, 877). The PMPA provides
that a franchisor may terminate a franchise only for certain “statutorily prescribed reasons.” Id. If
termination is otherwise appropriate, the franchisor must also provide the franchisee with
adequate notice of the proposed termination. Id. The franchisor who wishes to terminate the
franchise bears the burden of demonstrating compliance with the statutory provisions. Id. “The
effect of the PMPA thus is to create a presumption that any termination of a franchise is
“[The] PMPA was designed to benefit the small retailer and its standard for preliminary
injunctions was intentionally drawn to facilitate the grant of injunctive relief.” Barnes v. Gulf Oil
Corp., 824 F.2d 300, 306 (4th Cir. 1987). In “marked contrast” to the ordinary standard, which
requires “the moving party [to] demonstrate a likelihood of success on the merits and irreparable
harm to its interests,” Hilo v. Exxon Corp., 997 F.2d 641, 643 (9th Cir. 1993), the PMPA
the court shall grant a preliminary injunction if—
(A) the franchisee shows—
(i) the franchise of which he is a party has been terminated or
the franchise relationship of which he is a party has not been
(ii) there exist sufficiently serious questions going to the
merits to make such questions a fair ground for litigation; and
(B) the court determines that, on balance, the hardships imposed upon
the franchisor by the issuance of such preliminary injunctive relief
will be less than the hardship which would be imposed upon such
franchisee if such preliminary injunctive relief were not granted.
15 U.S.C. § 2805(b)(2). This provision allows “franchisees to obtain a preliminary injunction
upon a lesser showing than is usually required.” Sun Refining, 741 F.2d at 672; see also Dersch
Energies, Inc. v. Shell Oil Co., 314 F.3d 846, 865 (7th Cir. 2002) (noting “the lenient standard for
obtaining injunctive relief under the PMPA”).
Plaintiff argues that this lenient standard entitles it to an injunction against Defendant’s
attempt to eject it from its service stations in the New York Litigation. (Pl.’s Br. 21-43, ECF No.
4-1.) It is undisputed that Defendant has terminated the franchise relationship. The only inquiries
are therefore whether “there exist sufficiently serious questions going to the merits to make such
questions a fair ground for litigation” and whether the balance of hardships favors Plaintiff.
§ 2805(b)(2)(A), (B).
We find that there are “serious questions” about the propriety of Plaintiff’s termination and
the amount of notice Plaintiff was afforded. The different versions of the events leading up to the
termination raise a serious question as to whether Atlantis’s failure to pay its debt was due to
circumstances beyond its reasonable control—namely, its reasonable reliance upon the allegedly
false promises of Getty—and therefore whether such failure constituted grounds under the PMPA
for termination of the franchise agreement. We also find that there is a serious question as to
whether Plaintiff was afforded the 90 days’ notice required by § 2804(a)(2), as Plaintiff alleges
that it was given only 30 days’ notice of termination, which was subsequently reduced to
approximately 25 minutes’ notice.
In addition, we conclude that “ the hardships imposed upon the franchisor by the issuance
of such preliminary injunctive relief will be less than the hardship which would be imposed upon
such franchisee if such preliminary injunctive relief were not granted.” § 2805(b)(2)(B). Plaintiff
will essentially be out of business if the franchise agreement is terminated. This is greater than the
hardship that will be imposed on Defendant if we grant Plaintiff’s Motion.
Defendant does not strenuously contest whether Plaintiff is entitled to a TRO under the
PMPA’s lenient standard. Rather, Defendant argues that comity counsels in favor of restraint. It is
true that courts should be reluctant to enjoin proceedings in a sister court. See Darr v. Burford, 339
U.S. 200, 204 (1950) (“[C]omity . . . teaches that one court should defer action on causes properly
within its jurisdiction until the courts of another sovereignty with concurrent powers, and already
cognizant of the litigation, have had an opportunity to pass upon the matter.”); see also Transcore,
L.P. v. Mark IV Indus. Corp., No. 09-2789, 2009 WL 3365870, at *8 (E.D. Pa. Oct. 15, 2009)
(noting “the general judicial reluctance to enjoin a party from proceeding with a suit in another
district”). Thus, courts in which an action is first filed generally have the power to enjoin
subsequent actions regarding the same subject matter that are brought in other courts. E.E.O.C. v.
Univ. of Pa., 850 F.2d 969, 971-72 (3d Cir. 1988). “That authority, however, is not a mandate
directing wooden application of the rule without regard to rare or extraordinary circumstances,
inequitable conduct, bad faith, or forum shopping. District courts have always had discretion to
retain jurisdiction given appropriate circumstances justifying departure from the first-filed rule.”
Id. at 972.
We find that because of the language and purposes of the PMPA, the instant action is one of
the “rare or extraordinary” cases in which the first-filed rule does not apply. Id. The PMPA was
enacted by Congress to protect franchisees from arbitrary termination of their franchises. Kehm Oil
Co. v. Texaco, Inc., 537 F.3d 290, 293 (3d Cir. 2008). Congress found that franchisors had used
their superior bargaining power and threat of unfair termination to gain an advantage in contract
disputes with franchisees. Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir. 1987) (en banc).
“Congress therefore enacted legislation giving petroleum franchisees rights against termination and
non-renewal of their franchises.” O’Shea v. Amoco Oil Co., 886 F.2d 584, 588 (3d Cir. 1989).
Section 2805(b)(2) states, in no uncertain terms, that “the court shall grant a preliminary
injunction” if the franchisee meets the more lenient standard for injunctive relief prescribed by the
PMPA. (Emphasis added.) Although “‘comity’ ha[s] an established and substantial role in
informing the exercise of the court’s discretion,” Fair Assessment in Real Estate Ass’n v. McNary,
454 U.S. 100, 120 (1981), Congress has afforded courts little discretion in determining whether a
franchisee is entitled to injunctive relief under the PMPA. We therefore find that the principle of
comity, which is designed to “inform the exercise of the court’s discretion,” id., does not apply
where Congress has provided courts with little discretion. See id. at 120-21 (noting that “[t]here is
little room for ‘the principle of comity’ in actions” where “judicial discretion is at a minimum”);
see also id. at 121 n.5 (“[T]he role of comity must narrow with the scope of judicial discretion.”).
We believe that in this case we are not afforded discretion to simply ignore the express command
of Congress in favor of the first-filed rule and principles of comity.
We further note that the New York Litigation is a breach of contract action that seeks to
evict Plaintiff from the service stations it operates. It was not brought under the PMPA—a
distinction that both Defendant and the New York court noted in addressing Plaintiff’s motion to
transfer. By contrast, the instant action was brought by Plaintiff under the PMPA. These are
properly viewed as two different actions, though they involve the same subject matter, and the law
in the instant case entitles Plaintiff to an injunction to prevent termination of its franchise
agreement if Plaintiff meets certain requirements. Defendant argues that if Plaintiff is entitled to a
TRO under the PMPA, it can raise that issue in the eviction hearing in New York. But the PMPA
does not merely provide franchisees with a defense to be used during eviction proceedings. Section
2805 gives franchisees the right to not be subject to an eviction proceeding in the first place if there
is cause to believe that there are “ sufficiently serious questions going to the merits to make such
questions a fair ground for litigation.” As the New York Action is essentially an eviction hearing
brought under a different legal theory for the express purpose of terminating Plaintiff’s franchise
agreement, we have no choice under the PMPA but to enjoin Defendants from proceeding in that
Entering a temporary restraining order here while the New York court is considering
similar issues is not a step we take lightly. However, it is clear that in enacting the PMPA,
Congress intended to protect franchisees from precisely the sort of fast-track termination of their
franchises that Defendant is apparently pursuing in the New York Litigation. The statutory scheme
states that if a franchisee demonstrates that it is entitled to an injunction, courts do not have
discretion to withhold it. Under the circumstances we have very little choice. For these reasons,
Plaintiff’s Motion for Temporary Restraining Order will be granted.
An appropriate order follows.
BY THE COURT:
R. Barclay Surrick, Judge
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