BP Products North America Inc. v. Blue Hills Fuels, LLC.

Background

BP leased about 80 motor-fuel stations from PMG Northeast, LLC. In 2017, it signed a site lease for the property involved in this case and entered into a dealer agreement with Westward Service Station Inc., which operated the station as BP’s franchisee and sublessee. Blue Hills Fuels, LLC, an affiliate of PMG, currently owned the property.

When BP sought to rebrand the station, the Town of Brookhaven informed it of a 2008 letter from the New York State Department of Transportation. The letter said that two of the property’s three curb cuts had to be removed. BP tried to obtain approval for a traffic light or another arrangement, but the transportation department rejected its proposals in May 2020. BP then told Blue Hills that it intended to terminate the site lease and told Westward that it intended not to renew or terminate the dealer agreement.

BP sued for declarations that it could terminate the site lease and dealer agreement, and for rescission of the site lease based on mutual mistake. Westward asserted counterclaims for injunctive and declaratory relief, breach of contract, and breach of the implied duty of good faith and fair dealing. BP, Blue Hills, and Westward each moved for summary judgment. Summary judgment is a decision without a trial when the evidence shows no genuine dispute over an important fact and the moving party is entitled to win under the law.

Site Lease: Termination

BP relied on provisions allowing termination if the property could not be used for its intended purpose because of a government regulation or legal requirement, and if a taking or substantial interference continued for more than five months. The court held that the NYSDOT directive could fall within the lease’s broad definition of “Government Regulation.” It also rejected Blue Hills’s argument that the directive was irrelevant because NYSDOT had not brought an imminent enforcement action. The court noted that NYSDOT had maintained that two curb cuts had to be removed and had threatened enforcement in its 2008 letter.

The court nevertheless denied summary judgment on these termination theories because the parties’ expert reports conflicted about whether the station could safely operate with only one curb cut. BP’s expert said fuel trucks could face a serious collision risk, while Blue Hills’s expert said one curb cut could provide safe access without unusual risk or inconvenience. This factual dispute also prevented the court from deciding whether the directive constituted a taking.

Site Lease: Mutual Mistake

The court granted the defendants summary judgment on BP’s rescission claim. BP argued that the parties had mistakenly assumed the property could be operated as a gas station with three curb cuts. The court concluded that this was not a basis for rescission because the lease expressly addressed the risk that government regulation could prevent operation of the property as a gas station. In the court’s view, compliance with government requirements was therefore an allocated contractual risk, not an underlying mistaken assumption.

Petroleum Marketing Practices Act Claim

BP sought a declaration that the Petroleum Marketing Practices Act allowed it to terminate or decline to renew Westward’s franchise. The Act permits termination when an event occurring during the franchise relationship makes termination reasonable. A condemnation or taking is one example, but the court held that it is not the only possible event.

The court rejected Westward’s arguments that NYSDOT had waived its directive, that no qualifying event occurred during the franchise relationship, and that BP gave late notice. The court identified NYSDOT’s rejection of BP’s proposals in May 2020—not merely the earlier directive or 2008 letter—as the event supporting termination. BP notified Westward on July 8, 2020, within the applicable 120-day period. The court also held that BP’s notice provided more than 90 days before the agreement’s October 31 termination date and satisfied the notice requirement even though it did not state one single exact termination date.

The court denied both sides’ summary-judgment motions on the Petroleum Marketing Practices Act claim. Whether termination was reasonable still depended on the disputed question of whether the station could be safely operated with one curb cut.

Westward’s Counterclaims

The court denied summary judgment to both sides on Westward’s first three counterclaims, which sought to prevent termination or nonrenewal of the dealer agreement and to obtain declarations concerning termination of the dealer agreement and site lease. The same factual dispute also required denial of summary judgment on Westward’s breach-of-contract counterclaim.

The court rejected BP’s argument that the Petroleum Marketing Practices Act preempted Westward’s breach-of-contract claim. Because that claim depended on whether BP complied with the Act, the court found no conflict between the state-law claim and the federal statute.

The court granted BP summary judgment on Westward’s counterclaim for breach of the implied covenant of good faith and fair dealing. Under New York law, the court explained, that claim cannot proceed separately when it is based on the same facts as a breach-of-contract claim. Both counterclaims were based on BP’s decision to terminate the dealer agreement because of the curb-cut issue.

The court also denied Westward’s request to amend its counterclaims. Westward first sought amendment nearly a year and a half after filing its counterclaims and four months after discovery closed. The court found undue delay and potential prejudice to BP because amendment could require renewed discovery and motion practice.

Disposition

BP’s summary-judgment motion was granted with respect to Westward’s counterclaim for breach of the implied covenant of good faith and fair dealing, but otherwise denied. The defendants’ summary-judgment motions were granted with respect to BP’s rescission claim based on mutual mistake, but otherwise denied. Judge Denise Cote therefore left the principal lease-termination, franchise-termination, and related contract disputes for further proceedings.