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Emmanuel Joseph v. Sasafrasnet

December 28, 2012

EMMANUEL JOSEPH, PLAINTIFF,
v.
SASAFRASNET, LLC, A WISCONSIN LIMITED LIABILITY COMPANY, DEFENDANT.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

This matter is before the Court on remand from the Seventh Circuit. In light of the Seventh Circuit's opinion, the Court directed the parties to submit briefs on the outstanding issues with respect to Plaintiff's Motion for a Preliminary Injunction. The Court will now review those issues and re-examine its prior denial of Plaintiff's Motion.

I. BACKGROUND

Plaintiff Emmanuel Joseph (hereinafter, the "Plaintiff" or "Joseph") operates a British Petroleum ("BP") service station franchise in Chicago, Illinois. Defendant Sasafrasnet, LLC is an authorized distributor of BP products and Plaintiff's franchisor.

On April 27, 2006, Plaintiff entered into a Dealer Lease and Supply Agreement (the "DLSA") with BP Products North America. Pursuant to the DLSA, Plaintiff, as a franchisee, agreed to lease a service station located in Chicago, Illinois and sell "BP's trademarked motor fuels, motor oils, and other products to the motoring public." Pl.'s Compl.; Ex. 2 at 2; (Dkt. 1-2; Page ID #15). Plaintiff also agreed to pay $14,334.00 in monthly rent. Pl.'s Compl.; Ex. 2 at 2 (Dkt. 1-2; Page ID #16).

At some point after Plaintiff entered into the DLSA, BP sold the service station to Defendant Sasafrasnet, LLC, (hereinafter, the "Defendant" or "Sasafrasnet") who in turn, assumed all of BP's rights and responsibilities as Plaintiff's franchisor. Sasafrasnet asserts that since it assumed the role of Plaintiff's franchisor, Plaintiff "has been consistently problematic and in breach of his contractual obligations." Memo. In Opp. to Mot. for TRO, Ex. 1 at 2 (Dkt. 7-1; Page ID# 122). Because of Plaintiff's persistent problems, in November 2010, Sasafrasnet sent Plaintiff notice of its intent to terminate the franchise. Specifically, Sasafrasnet cited Plaintiffs repeated violations with respect to the payment and performance requirements of the DLSA as reasons for the termination.

Pursuant to the DLSA, Plaintiff is, among things, required to: establish an account with a financial institution, on terms acceptable to [Sasafrasnet], that provides [electronic funds transfer ("EFT")] services and to authorize [Sasafrasnet] to initiate certain transfers of funds between that account and designated accounts of [Sasafrasnet] for payment of any and all amounts due to [Sasafrasnet] under [the DLSA] Pl.'s Compl.; Ex. 3 at 4; (Dkt. 1-3; Page ID # 18).

The DLSA also obligates Plaintiff to manage and operate the station in satisfactory working order to maintain BP's reputation, brand, and image. It requires Plaintiff to meet certain standards with respect to the appearance of the service station and obligates Plaintiff to display the BP uniform, sign, and advertising materials. In order to ensure compliance with the aforementioned requirements, the DLSA mandates that Plaintiff participate in a Mystery Shopper inspection program where Plaintiff must achieve certain scores and promptly correct any deficiencies documented in the Mystery Shopper reports. The DLSA states "[f]ailure to do so may result in termination of this Agreement [the DLSA]." Pl.'s Compl.; Ex. 3 at 4; [Dkt. 1-3; Page ID #20].

The DLSA also contains a provision which authorizes the franchisor to terminate the franchise if Plaintiff "fail[s] . . . to make payment according to BP's EFT policy causing a draft to be dishonored for non-sufficient or uncollected funds" more than once within a twelve-month period. Id. at 2. [Dkt. 1-3; Page ID# 18].

In June 2009, shortly after Sasafrasnet became Plaintiff's franchisor, an EFT from Plaintiff's account for a fuel delivery was returned for non-sufficient funds ("NSF"). Over the next few weeks, an additional three EFTs were returned for the same reason.

In March 2010, another three EFTs from Plaintiff's account were returned NSF. At this time, Sasafrasnet notified Plaintiff that he was now required to prepay for his fuel. Plaintiff agreed to this.

However, the prepayment method was not ideal for Sasafrasnet. Thus, after Plaintiff made a series of timely prepayment, on May 7, 2010, Sasafrasnet sent Plaintiff a letter indicating that Sasafrasnet would allow Plaintiff to resume paying for deliveries by EFT, but informed him that if he incurred future NSFs, Plaintiff would have to pay a $2,500 penalty. The letter also notified Plaintiff that Sasafrasnet would require Plaintiff to prepay again if he had two more NSFs. Plaintiff agreed to the terms and signed the letter.

From May 2010 to June 2010 Plaintiff made EFT payments without a NSF. Nevertheless, a future issue with respect to Plaintiff's payment ensued. On July 8, 2010, Plaintiff notified Sasafrasnet he was changing banks. At this time, Plaintiff directed Sasafrasnet to withdraw future EFTs from his new bank account. However, Plaintiff failed to provide Sasafrasnet advanced notice of the account change. Indeed, Plaintiff had an EFT payment due on the July 8, 2010, (the same day he notified Sasafrasnet of the change) which Sasafrasnet debited from the old account. Not surprisingly, this was returned for NSF.

On July 12, 2010, Sasafrasnet again debited the old account which was returned NSF. Sasafrasnet has admitted that this NSF was the result of Sasafrasnet "incorrectly submit[ing]" the EFT to Plaintiff's old account, implying that this NSF was its fault, not Plaintiffs. Def. Sasafrasnet, LLC Memo. of Law in Opp. to Pl.'s Emergency Mot. for Temp. Restraining Order and Preliminary Injunction at 6, n. 3 [Dkt. 7 Page ID #111]. Because of its error, on July 15, 2010, Sasafrasnet tried to withdraw from the new account. However, this EFT was also returned NSF. (Plaintiff claims that the reason for the July 15, 2010 NSF was partially because Sasafrasnet had collected credit card receipts on Plaintiff's behalf and failed to deposit these funds into Plaintiffs' new bank account, and partially because Plaintiff failed to transfer funds from the old account to the new account.)

In November 2010, Sasafrasnet gave Plaintiff the requisite notice that Sasafrasnet would be terminating Plaintiff's franchise. In this notice, Sasafrasnet cited the July 2010 NSFs and Plaintiff's failing Mystery Shopper inspection scores as the bases for the termination.

Before the termination became effective, Plaintiff filed the instant suit under the Petroleum Marketing Practices Act, ("PMPA") seeking a temporary restraining order and/or other preliminary relief to prevent Sasafrasnet from terminating the franchise.

On April 28, 2011, this Court held a hearing to determine whether to grant Plaintiff's motion for preliminary relief. After finding Plaintiff's late payments were a per se reasonable basis for Sasafrasnet to terminate the franchise under the PMPA, the Court determined that Plaintiff could not satisfy the standard set by the PMPA for preliminary relief, and therefore denied his Motion.

On May 6, 2011, Plaintiff filed a Notice of Appeal to the Seventh Circuit challenging the Court's denial. (At this time, Plaintiff also filed a Motion to Stay enforcement of this Court's Order pending his appeal, which the Court granted.) On August 17, 2012, the Seventh Circuit reversed and remanded the case back to this Court for further proceedings. In its opinion, it instructed the Court to address explicitly the term "failure" set out in 15 U.S.C. § 2801(13) to determine whether the July 2010 NSFs were within Plaintiff's reasonable control. It further directed the Court to "consider whether the July 2010 NSFs that were within Mr. Joseph's reasonable control were only technical or unimportant to the franchise relationship." Joseph v. Sasafrasnet, LLC, 689 F.3d 683, 692-93 (7th Cir. 2012).

The Court instructed both parties to submit briefs on the remaining issues, which both parties filed timely. Accordingly, the Court now will consider those issues that remain to determine whether to grant ...


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