Franchising & Distribution Law Blog

The plaintiffs in the case, the American Petroleum Institute and American Fuels and Petrochemical Manufacturers Association, sought to enjoin enforcement of North Carolina’s Ethanol Blending Statute claiming that it is preempted by (1) the PMPA; (2) the federal renewable fuel program; and (3) the Lanham Act.

The challenge to the statute focused on the two methods of blending ethanol with conventional gasoline: (1) inline blending, where a supplier blends at the terminal and (2) splash blending, where a retailer adds the ethanol, after the rack, in the transport vehicle. Because suppliers are concerned that splash blending is subject to greater error, they asserted that it is more likely to result in an incorrect ethanol ratio.

The North Carolina statute prohibits suppliers from restricting retailers from splash blending.

First, the Fourth Circuit affirmed the district court’s ruling that the PMPA does not preempt the statute. Looking to the 1999 PMPA amendments, the court held the provision giving states authority to make certain provisions illegal or unenforceable rendered the statute immune for the preemption claim, and held that splash blending is not a “willful adulteration” allowing termination under the PMPA.

Second, the court affirmed the district court’s ruling that the federal renewable fuel program does not preempt the statute.

Finally, the court reversed in part the district court’s ruling on the Lanham Act. The Fourth Circuit held that there were genuine issues of material fact as to whether splash blending could be conducted in a way to maintain the quality reasonably required by the trademark owner. The court remanded the issue for further findings of fact to determine whether quality controls, imposed at the insistence of suppliers, are sufficient to actually protect the quality of the trademarked gasoline and whether the quality of motor fuel that is splash blended meets a supplier’s quality standards to be blended in the manner specified by the owner of the mark.

The case is American Petroleum Institute v. Cooper/State of North Carolina (4^th Cir. June 6, 2013).