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BP Products North America Inc. v. Top Speed Gas, LLC

2008 WL 4724006 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

AGREEMENTS; RESTRICTIVE COVENANTS —A restrictive covenant, such an obligation to sell a particular brand of gasoline, is enforceable if it is reasonable and does not violate anti-trust policies.

A businessman operated two gas stations through corporate entities. The entities had purchased the two properties from a gasoline supplier. In consideration for these property transactions (one property was an ownership interest; the other was a leasehold interest), the entities agreed that, for ten years, they would sell only the supplier’s brand of motor fuel and petroleum products. This promise was in both the sale agreements and in restrictive covenants in the deed and the lease. The entities entered into five year term gasoline supply agreements. Four years later, complaining of steep increases in gasoline prices, the entities refused to purchase additional fuel from the supplier. The supplier terminated the supply agreements and removed its trademarks and logos from the two stations. The entities began selling gasoline from another supplier at one of the properties.

At this point, the supplier sued in United States District Court and obtained a default judgment against the entities. About six months after the entry of default, and nearly three months after the entities retained counsel, the entities filed a motion to vacate the default judgment.

The Court considered the threshold question of whether the entities had a meritorious defense, which would, if established at trial, constitute a complete defense to the action. If the defense was meritorious, the default judgment could be vacated. The entities argued that the restrictive covenant was unenforceable at the gas station owned outright because the covenant’s terms were unreasonable. The Court noted that a reasonable restrictive covenant to refrain from competitive practices is enforceable. Here, it held that the covenant was reasonable and did not violate anti-trust policies just because it mandated sale of a particular brand of gasoline. As to the leasehold interest, the entities argued that the covenant could not be enforced because the supplier did not retain a remainder interest in the property. The Court dismissed this argument, holding that the supplier could seek damages for breach of contract despite having no possessory interest in the property. Because the Court found the entities lacked meritorious defenses, it refused to vacate the default judgment.

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