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Law360 (March 29, 2022, 7:54 PM EDT) -- A liquid petroleum transport business that leases a dock at Delaware's Port of Wilmington does not have to pay terminal usage fees and is entitled under its 2008 lease to access its storage tanks via disputed terminal roads, a Delaware vice chancellor said Tuesday.
The decision from Vice Chancellor J. Travis Laster addresses a dispute that came to a head in April 2020, when Buckeye PT Terminals LP and its parent company, Buckeye Partners LP, sued port operator GT USA Wilmington LLC after it cut off access to the gas storage tanks because the company had refused to pay the disputed fees.
In a 75-page post-trial opinion, Vice Chancellor Laster invoked the implied covenant of good faith and fair dealing, concluding that it was warranted for "issues of compelling fairness."
GT maintains that Buckeye lacks any legal right to access the storage tanks via terminal roads, meaning that GT could cut off the company's access whenever it wanted to, the vice chancellor wrote. "Under that scenario, the company's business exists as a matter of GT's grace. GT can demand whatever terms it wishes and impose any fees it wants, and if the company does not submit, then GT can destroy the company's business."
The dispute dates back to 2018, when GT, which managed the port on behalf of Diamond State Port Corp., began charging a new "terminal usage fee" on stevedores or parties engaged in stevedoring.
Buckeye's predecessor, Magellan Terminals Holdings LP, which had been operating at the terminal for many years, refused to pay the new fees, arguing that it wasn't a stevedore and the rent it paid under its lease already covered its business activities.
Buckeye's customers include companies such as Wawa Wholesale Fuels LLC, which distributes gas to Wawa gas stations in Pennsylvania, New Jersey, Delaware, Maryland and Virginia.
In April 2020, about two weeks after Buckeye bought the fuel storage tanks and petroleum transport business from Magellan, GT informed the company that it would block access to the tanks due to nearly $1,000,000 in unpaid fees.
Buckeye sued, and within hours, the vice chancellor barred GT from blocking access to the tanks.
The vice chancellor's decision on Tuesday addressed two issues: whether the company owes terminal usage fees and whether GT can prevent the company from using the disputed roads.
The vice chancellor found in favor of the company on both points.
"On the first issue, the company proved that it does not owe the terminal usage fees because it was neither a stevedore nor engaged in stevedoring," the opinion said.
Vice Chancellor Laster also found that the company proved that the lease includes an implied contractual right for the company and its customers to use the disputed roads to access the storage tanks.
During its most recent lease negotiations, Diamond State and Buckeye did not even address whether it had a contractual right to use the disputed roads to access its tanks "because the reality of the company's access was so fundamental that it did not warrant consideration," the vice chancellor wrote.
The company or its predecessor had conducted the same business at the port and had used the roads to access its tanks since at least 1973, the opinion said. And similar operations had taken place going back to the 1920s, the opinion said.
The parties were thus negotiating "against some nine decades of established practice," Vice Chancellor Laster wrote, and were negotiating a lease that could last for up to 43 years.
"This evidence establishes that Diamond State and the company negotiated with the background understanding that the disputed roads could be used to access the tanks in connection with the terminalling business," he wrote.
In addition, the existing provisions of the lease demonstrate that the parties recognized the nature of the company's business, the inherent linkage between the dock and the tanks, and the need for the company and its customers to make reasonable use of the disputed roads to access the tanks, he wrote.
"On the facts of this case, recognizing an implied contractual right to use the disputed roads is necessary to preserve the spirit of the parties' bargain," the vice chancellor concluded. "The court therefore will enter a declaration establishing that the lease includes an implied term permitting the company and its customers to make reasonable use of the disputed roads to access the tanks for purposes of the company's terminalling business."
In a statement emailed to Law360, Buckeye Partners said, "We appreciate Vice Chancellor Laster's thoughtful decision and the court's thorough review of this important matter."
Counsel for GT did not immediately respond Tuesday to requests for comment.
Buckeye Partners LP and Buckeye PT Terminals LP is represented by Jody C. Barillare, Amy M. Dudash, Michael D. Blanchard and Julie S. Goldemberg of Morgan Lewis & Bockius LLP and Leslie B. Spoltore, Nicholas Poduslenko, and Matthew S. Olesh of Obermayer Rebmann Maxwell & Hippel LLP.
GT USA Wilmington LLC is represented by Brian E. Farnan and Michael J. Farnan of Farnan LLP and Thomas J. Elliott, Frederick P. Santarelli, Jack P. Elliott and Colin J. O'Boyle of Elliott Greenleaf PC.
The case is Buckeye Partners LP et al. v. GT USA Wilmington LLC, case number 2020-0255, in the Court of Chancery of the State of Delaware.
--Additional reporting by Rose Krebs. Editing by Jay Jackson Jr.
Update: This story has been updated to include comment from Buckeye Partners.
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