Judge: Lukoil entitled to move on from bankrupt franchisee

By Nicholas Malfitano | May 7, 2015

PHILADELPHIA – A struggling gas station franchise owner’s application for preliminary injunctive relief under the Petroleum Marketing Practices Act (PMPA) was denied in federal court last week.

Middletown, Del., resident Darryl Wynn filed a complaint in federal court in January, alleging Lukoil North America, LLC and its territory sales managers Dave Schmidt and Lev Gendin, along with Operations Manager Jake Naggy, violated the PMPA in denying him access to fuel supplies and causing the operation of his gas station in Chester to fall into financial hardship.

According to the lawsuit filed in U.S. District Court for the Eastern District of Pennsylvania, Wynn, a gas station owner of more than 18 years, fell on hard financial times in 2012 and was unable to make payments to Lukoil.

The plaintiff alleged Schmidt, acting in his capacity as a Lukoil sales manager, ordered fuel deliveries withheld from Wynn’s station, resulting in a further loss of profit. By the time April 2013 arrived, Wynn’s unpaid balance to Lukoil totaled in excess of $50,000.

Wynn claimed Schmidt coerced him at that time to enter into the first of two repayment agreements, whereby he would exhaust his total working capital of $20,000 towards the debt and make regular installments of $5,000 until the remainder of the outstanding balance was paid off.

The plaintiff claims Schmidt forced him to agree to these terms, or else his franchise agreement would be terminated, effective immediately.

It is also this same agreement, the plaintiff claims, that put him into a place of financial hardship from which recovery was impossible. Wynn contends this was due to the “harmful” actions of defendants Schmidt, Gendin and Naggy.

According to court records, Wynn’s financial troubles continued to mount until his debt became a more sizable one in the spring of 2014. In an April 29 decision, Judge Mark A. Kearney stated, “There is no dispute as of March 2014, Wynn owed significant unpaid debts to Lukoil.”

That same month, Lukoil agreed to waive $40,669 of Wynn’s debts to help him move forward, in exchange for payment of the outstanding debt balance, which then totaled in excess of $20,000. In this second repayment agreement, Lukoil stipulated Wynn had to make weekly installments of $400 and sign a covenant agreement not to file suit against them.

However, Wynn was not able to make payments under the terms of the second agreement either, and failed to sell any gasoline from August 2014 forward. In response, Lukoil sent him a franchise termination notice on Oct. 2, and gave him a period of 12 days to vacate the premises of his gas station, whereby the termination would officially take effect on Oct. 14.

Wynn refused, maintaining his presence at the gas station in Chester and continuing to operate a convenience store on the property. In the interim, court records show Wynn has not paid rent to Lukoil or taxes on the gas station property and has not purchased fuel.

Wynn filed his complaint three months later, which Lukoil contested was null and void due to Wynn’s signature of the second repayment agreement, releasing Lukoil of any and all claims under both federal and state law.

Kearney ruled Wynn’s motion for injunctive relief was untimely, since the threshold for filing such a claim was 30 days, and his complaint was filed 92 days after receiving the October 2014 termination notice from Lukoil.

“The PMPA authorizes a preliminary injunction to preserve the franchise relationship during termination litigation,” Kearney opined.

“To award equitable relief, the plaintiff must show: 1) it is a franchisee under a covered franchise agreement which has been terminated or not renewed; 2) there are ‘sufficiently serious questions going to the merits to make such questions a fair ground for litigation’; and, 3) the hardships imposed upon him by a denial of the injunction exceed the hardships imposed on the franchisor by granting the injunction.”

Kearney decided Wynn had not satisfied both the second and third components of the preliminary injunction criteria, due to the accumulation of his unpaid debt and the near-certainty that Lukoil would not be able to recover those funds.

“Despite Wynn's apparent financial hardships, the Court finds that the hardship to Lukoil is substantial. Lukoil, the owner of the gas station, loses profits and rent every day. It has no assurance of payment. Given Wynn's bankruptcy, it appears unlikely that Wynn will overcome the financial setbacks and make the franchise financially successful for Lukoil if the Court granted injunctive relief,” Kearney said.

“At some point Lukoil is entitled to move forward and collect rent, real estate taxes and use its property as a gas station. We have reached that point.”

Kearney concluded by denying Wynn’s motion for preliminary injunctive relief.

“Whether Lukoil's requirement that Wynn release his claims in exchange for an agreement to forego termination comports with relevant provisions of the PMPA, is one of the issues that the Court will likely revisit at the summary judgment stage,” Kearney said.

“In addition, there is a dispute regarding whether Lukoil's notice of a mere twelve (12) days complies with the PMPA. The Court will likely revisit Wynn's substantive claims under the PMPA and under relevant state law at the summary judgment stage.”

The plaintiff represented himself in this matter.

The defendants are represented by Brett Adam Berman, Esq. and Christopher Varano, Esq. of Fox Rothschild LLP, in Philadelphia.

United States District Court for the Eastern District of Pennsylvania case 2:15-cv-00166


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