BP Products North America, Inc. v. Stanley, No. 10-2097

Decided Feb. 14, 2012

Charles Stanley, Jr., who had been operating a service center and gas station under a direct lease from BP, elected to purchase the property from BP rather than continue to operate under a lease from BP’s “jobber,” Eastern Petroleum. The purchase agreement for the property contained a fifteen-year restrictive covenant requiring, among other things, that no petroleum products not produced by BP be sold on the property. However, Stanley complained that BP was selling its products at a commercially unreasonable price and began offering a competitor’s gasoline. BP sued, seeking monetary relief and an injunction; Stanley countersued and asked the court to declare that BP was selling its gasoline at unreasonable prices and that the covenant invalid as overbroad. The district court found in favor of Stanley.

On appeal, the Fourth Circuit reversed in part and vacated in part. Applying Virginia law, the court observed that restrictive covenants on land use are considered less restrictive than covenants in the employment context. Land use restrictions need only “afford a fair protection to the interests of the party in favor of whom it is given, and [be] not so large as to interfere with the interests of the public.” Noting that Stanley’s inability to sell a competitor’s gasoline in only this location does not have an adverse effect on public interest, the court held that the restriction was not overbroad and not invalid. The court also held, agreeing with BP, that the restriction did not prevent Stanley from operating a repair center on the property so long as the same property does not also sell non-BP gasoline products.

Judge Floyd filed a dissenting opinion. He would find that the covenant restricted more than necessary to protect BP’s legitimate business interests and was therefore overbroad. He also noted the disfavor of “blue penciling” overbroad agreements to remove offending language. Because BP is a sophisticated multi-national corporation, he argues, allowing it to draft overbroad restrictions that are judicially adjusted only when challenged by its retailers is detrimental to the principles of contract law and the public interest.

Full Opinion

-C. Alexander Cable

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