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American Petroleum Institute v. Cooper, No. 12-1078

Decided:  June 6, 2013

The Fourth Circuit held that the federal Petroleum Marketing Practices Act (“PMPA”) and Energy Policy Act of 2005 (“Energy Policy Act” or “federal renewable fuel program”) did not preempt North Carolina’s Ethanol Blending Statute (“the Blending Statute”), and that the question of whether the federal Lanham Act preempted the “splash blending” practice required by the Blending Statute constituted an issue of material fact.  The Fourth Circuit therefore affirmed the summary judgment of the United States District Court for the Eastern District of North Carolina with regard to the plaintiffs’ preemption claims under the PMPA and federal renewable fuel program, vacated the summary judgment with regard to the plaintiffs’ preemption claims under the Lanham Act, and remanded the case.

In furtherance of the Energy Policy Act, 42 U.S.C. § 7545(o), Congress authorized the Environmental Protection Agency (“EPA”) to require gasoline “suppliers”—i.e., parties that import pure gasoline to sell to “retailers,” who then deliver ethanol to consumers or final market vendors—to offer certain renewable fuels for sale, including ethanol.  As a practical matter, suppliers can blend ethanol with gasoline before its eventual sale to retailers (“inline blending”); conversely, retailers can purchase unblended gasoline and blend it themselves (“splash blending”).  Under the Blending Statute, N.C. Gen. Stat. § 75-90 (2008), suppliers must offer unblended gasoline to retailers—giving retailers the chance to partake in splash blending.  The plaintiffs—two trade organizations representing, inter alia, suppliers that import gasoline into North Carolina—filed a complaint against the State of North Caroline in 2008, concerned with splash blending’s alleged susceptibility to error.  The plaintiffs alleged that, inter alia, the federal renewable fuel program preempted the Blending Statute.  The plaintiffs also contended that the Blending Statute was preempted by two other federal statutes:  The PMPA, 15 U.S.C. §§ 2801–41, which governs the relationship between suppliers and retailers, and the Lanham Act, 15 U.S.C. §§ 1051–1113, which protects the quality-control rights of trademark holders.  The district court granted summary judgment to the defendants on the plaintiffs’ facial challenges to the Blending Statute, and subsequently granted summary judgment to the defendants with regard to the plaintiffs’ as-applied preemption challenges.  The plaintiffs appealed, reiterating their preemption challenges under each statute.

The Fourth Circuit noted that the PMPA’s preemptive scope was substantially narrowed by two 1994 amendments, which granted more deference to state laws governing supplier-retailer franchise arrangements – 15 U.S.C. §§ 2801(13)(C), 2802(b)(2)(A); § 2805(f)(1)(B).  Furthermore, the Fourth Circuit found that splash blending did not constitute “willful adulteration” warranting termination of a franchise agreement under the PMPA, as this term connoted “misbranding” or similar trademark violations rather than adulteration of fuel content; indeed, the court noted that ethanol blending is required and incentivized by Congress.  With regard to the federal renewable fuel program, the Fourth Circuit noted that, under the EPA’s regulatory regime, retailers were recognized as potential ethanol blenders.  Lastly, with regard to the Lanham Act preemption claim, the Fourth Circuit found that issues of material fact existed as to whether the splash blending process unlawfully interfered with the plaintiffs’ ability to control the quality of their trademarked goods.

Full Opinion

– Stephen Sutherland