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Wednesday, July 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Franchisees Lose Bid to Block Sunoco Shift

(CN) - Northern Virginia Sunoco gas station franchisees cannot assert a first right of refusal over the company's transfer of ownership to its new parent entity, a federal judge ruled.

In a complaint filed in the Alexandria, Va. Federal Court in May, 11 franchise owners said they were contacted by Sunoco in June 2014, and told that company was undergoing an "internal reorganization" in order to "achieve financial and operating efficiencies" and that each of their agreements with Sunoco Inc. was being assigned to a new entity, Sunoco LLC.

"Notwithstanding the state in the notice of a simple 'internal reorganization' and assignment, Sunoco interested transferred its interest n all of the plaintiffs' station properties in October or November 2014, without further notice to plaintiffs," the complaint said.

The franchisees claimed the transfer violated the Virginia Petroleum Products Franchise Act because Sunoco failed to make a bona fide offer to sell, transfer or assigned its interest to them, and that it also failed to a offer a right of first refusal with respect to the leased marketing premises operated by each plaintiff.

They further maintained that a July 2014 amendment to the Act provided business owners a chance to refute the transfer of ownership to outside parties and entitled the gas station operators to liquidated damages and an acquisition bid.

But because the amendment was passed after Sunoco initiated the transfer of its assets, the rules do not apply.

Even if they did, U.S. District Judge Anthony Trenga Wrote in his Nov. 20 ruling, Sunoco's "internal asset restructuring" did not constitute a transfer of its holdings to "another person" as stipulated by the franchise act.

In August 2012, Sunoco sold a portion of its crude oil refinery interest to Philadelphia Energy Solutions, a subsidiary formed in part by Sunoco in which the company still retains a one-third equity interest and two board member appointments.

Sunoco, who distributes approximately 5.3 billion gallons of motor fuels annually, claimed that because they no longer exercise ownership of the Philadelphia plant, they are not considered oil refiners under the act.

"There is no doubt that PES has a close corporate association with the Sunoco organization and is an included entity in various consolidated regulatory and other public filings by the Sunoco organization," Trenga wrote.

"These facts, along with the manifest intent of the parties memorialized in the contribution agreement, establish a lawful and complete transfer of the disputed property approximately one month before the ... Amendment's effective date," Trenga said.

The gas station operators are represented by Stuart Schwager of Lerch, Early & Brewer who did not immediately respond to an email from Courthouse News seeking comment.

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