Cooking with Gas

A recent court case out of Virginia showed how rigid, in certain respects, the rules governing the granting of a preliminary injunction can be. As part of a larger corporate strategy, petrochemical giant BP had sold many of its gas stations in Virginia to Southside, a company that owns and operates many gas stations throughout the region. As part of the deal, Southside agreed to continue to use BP branding at its stations. Another provision of the contract gave BP a right of first offer should Southside decide to rebrand or sell any of the gas stations, and a right of first refusal if Southside decided to divest itself of all of its gas station business, including a requirement forcing Southside to provide documentation of any proposed sale to BP so that they would have the opportunity to match it.

The agreement was due to expire on October 2, 2013, and, as part of the legal formalities surrounding the process, sent a letter of non-renewal to Southside, who informed  BP that they would not be renewing the agreement, ending their relationship. It turned out, however, that, in the months leading up to the end of the contract, an affiliate of Sunoco, a competitor of BP, had reached an agreement with Southside’s holding company to purchase all of Southside’s stations, and had signed the contract in August 2013, two months before the end of the BP agreement, with a term ensuring that the deal would not close before October 4, 2013, after Southside’s agreement with BP would be terminated. On October 4, Sunoco announced it had acquired the Southside gas stations, and BP almost immediately filed a suit for breach of contract. As part of the suit, BP asked for a preliminary injunction preventing the rebranding of the Southside stations from BP to Sunoco.

As always, when deciding whether to grant a preliminary motion, a court will look at four factors: (1) likelihood of success on the merits; (2) likelihood of suffering irreparable harm; (balancing of the harms to each party; and (4)the interests of the public.

As to the first issue, the court was skeptical that BP would succeed on the merits of its claims. While there may have been something underhanded in how Southside conducted its business, the court thought it was not certain that they had actually breached the contract, as they had not, technically speaking, closed out the new contract before the expiration of the BP contract and, more to the point, noted that it was likely not uncommon in the industry to line up a new gas supplier before the termination of the contract with the previous supplier  to ensure a steady stream of gasoline for their stations.

BP fared no better in the analysis of the second prong, as the court noted that any injury would have been speculative, as the injury, by BP’s theory of the case, would have come from their inability to utilize their right of first refusal and purchase the stations for themselves. But as the court noted, given that BP had sold these stations to Southside in the first place, in order to get out of the gas station business, it does not seem likely that they would have re-entered that market, and it is hard to say they were harmed by not being able to exercise a contractual option they almost certainly would not have used.

Even more problematically, by the time BP had filed its suit, 33 of the 35 stations Southside had sold to Sunoco had already been rebranded, and the injunction, if granted, would merely save the final two BP-branded stations remaining, which, at that point, was not likely to prevent any real injury, as the cat was already out of the bag on that matter.

The third and fourth factors were, for all intents and purposes, ruled a wash by the court, as the harms to each party were roughly the same, and to the extent there was any public interest in how the gas stations were branded, it did not tip the scales in any meaningful way. 

As a result, the court denied the preliminary injunction motion, as, even if Southside had acted somewhat unethically, BP simply could not meet the burden for the preliminary injunction.

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