Four Corners Service Station, Inc. v. Mobil Oil Corp.

• Decision Date: 09 November 1994
• Docket Number: Nos. 94-1616,94-1718,s. 94-1616
• Citation: 51 F.3d 306
• Parties: FOUR CORNERS SERVICE STATION, INC., Plaintiff, Appellant, v. MOBIL OIL CORPORATION, Defendant, Appellee. FOUR CORNERS SERVICE STATION, INC., Plaintiff, Appellee, v. MOBIL OIL CORPORATION, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 306

51 F.3d 306

FOUR CORNERS SERVICE STATION, INC., Plaintiff, Appellant, v. MOBIL OIL CORPORATION, Defendant, Appellee.

FOUR CORNERS SERVICE STATION, INC., Plaintiff, Appellee, v. MOBIL OIL CORPORATION, Defendant, Appellant.

Nos. 94-1616, 94-1718.

United States Court of Appeals,

First Circuit.

Heard Nov. 9, 1994.

Decided March 22, 1995.

David R. Schaefer, with whom Brenner, Saltzman, Wallman & Goldman, New Haven, CT, was on brief, for Four Corners Service Station, Inc.

Paul D. Sanson, with whom Sheila Huddleston, Shipman & Goodwin, Hartford, CT, and Edward H. Beck, III, Fairfax, VA, were on brief, for Mobil Oil Corp.

Before CYR, Circuit Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

CYR, Circuit Judge.

Four Corners Service Station, Inc. ("Four Corners") appeals a district court judgment under the Petroleum Marketing Practices Act, 15 U.S.C. Secs. 2801-2806 (1994) ("PMPA"), disallowing its demands for compensatory damages and attorney fees against Mobil Oil Corporation ("Mobil") for unlawful nonrenewal of Four Corners' franchise agreement. Mobil cross-appeals the PMPA liability judgment entered against it. We affirm the district court judgment in all respects.

I BACKGROUND

Four Corners is a retail gasoline distributor in Three Rivers, Massachusetts. Since 1926, Four Corners had been party to a series of renewable franchise agreements ("Agreements") with Mobil, its exclusive gasoline supplier. The Agreements obligated Four Corners to purchase a specified minimum gallonage per annum, and also set maximum gallonage limits or so-called purchase "caps." These caps permitted Mobil to plan against unpredicted fluctuations in franchisee demands for gasoline. The caps increased by ten percent each year to allow for normal franchisee sales growth.

In March 1987, Four Corners discovered that the soil beneath its Three Rivers service station was severely contaminated with gasoline. The Massachusetts Department of Environmental Quality Engineering ("DEQE") issued a notice of responsibility, citing six underground gasoline storage tanks installed by Four Corners between 1942 and 1978 as likely sources of the contamination. Four Corners promptly notified Mobil that the DEQE-ordered remediation, involving the removal and replacement of the storage tanks and 250 cubic yards of contaminated soil, would require an immediate and indefinite closure of the service station, during which Four Corners would not be able to meet its minimum gallonage purchase obligations under the Agreements. Over the next several months, Four Corners repeatedly asked Mobil for advice and information on possible Although it promptly completed the required tank removal, Four Corners encountered problems arranging a cost-effective method for disposing of the contaminated soil, a prerequisite to installing replacement tanks and reopening its service station. The estimated costs of transporting the contaminated soil to an out-of-state disposal site ranged between $70,000 and $100,000, but transporters would not provide "firm" cost estimates without first reviewing DEQE site reports. DEQE in turn would not release the site reports until Four Corners signed a final contract with a transporter. Consequently, Four Corners eventually decided to "aerate," a natural remediation method which achieves decontamination on site by exposing the soil to the open air for extended periods of time.

methods for implementing and funding the required remediation, but to no avail.

In December 1987, Mobil notified Four Corners of its decision not to renew their sixty-year-old franchise agreement, effective in March 1988, due to Four Corners' breach of certain terms of their Agreements, specifically (1) its failure to meet the minimum gallonage provision; (2) its dilatory cleanup of the environmental contamination; and (3) its closure of the service station for more than seven consecutive days.

In March 1989, Four Corners initiated the present action in federal district court, alleging that Mobil had wrongfully refused to renew the franchise agreement, in violation of PMPA, 15 U.S.C. Secs. 2801-2806, for "reasons beyond [Four Corners'] control." The complaint sought reinstatement of the franchise, actual and exemplary damages, attorney fees and costs. Id. Sec. 2805.

In the meantime, Four Corners had opened an expanded and modernized service station at the same site in late 1988--under new ownership and management--which purchased its gasoline supplies from British Petroleum until December 1990, and later from Exxon. In July 1991, Four Corners filed a voluntary chapter 11 petition.

Following a jury-waived trial, the district court found that Mobil had violated PMPA by refusing to renew the franchise based on a breach "beyond the reasonable control of the franchisee." Four Corners Serv. Station, Inc. v. Mobil Oil Corp., No. 89-30044-FHF, 1993 WL 767121 (D.Mass. Dec. 2, 1993) ("Four Corners II "). Mobil did not prove that Four Corners actually caused the soil contamination, that Four Corners had any choice but to close the station under the mandatory DEQE remediation order, nor that Four Corners unreasonably failed to take the most expeditious approach for effecting soil decontamination. Id., slip op. at 14-15. The PMPA violation notwithstanding, the district court declined to grant reinstatement of the franchise and addressed Four Corners' request for a remedy at law--recovery of lost profits for the projected ten-year residual term of the Mobil franchise. Id. at 15. ¹ The parties were directed to submit supplemental briefs on the right to recover lost profits. Id. at 16.

For the five-year period immediately preceding trial, Four Corners calculated the profits lost due to Mobil's wrongful nonrenewal at $356,099; it estimated its future lost profits for the ensuing five-year period at $171,290. These calculations were based on the contention that Mobil's greater product strength in Western Massachusetts would have enabled Four Corners to sell 30% more Mobil gasoline than it did BP gasoline between 1988 and 1990, and 20% more Mobil gasoline than it did Exxon gasoline between 1991 and 1993.

The district court rejected Four Corners' "lost profits" calculations. It found no evidence that Mobil would have permitted Four Corners to exceed the annual purchase caps established in the Agreements. Four Corners Serv. Station, Inc. v. Mobil Oil Corp., No. 89-30044-FHF, slip op. at 5-8, 1994 WL 780708 (D.Mass. Mar. 22, 1994) ("Four Corners II "). Moreover, Four Corners actually succeeded in selling more BP and Exxon gasoline following Mobil's nonrenewal than it could have sold under the maximum Mobil gallonage limits fixed by the

                annual caps.  Thus, the court reasoned, Four Corners experienced an increase in profits, not a reduction.  Id. at 8. 2  Because Four Corners proved no actual damages, the court exercised its discretion, under 15 U.S.C. Sec. 2805(d)(1)(C), and denied an attorney fee award.  On appeal, Four Corners challenges only the rulings denying compensatory damages and attorney fees. 3  For its part, the Mobil cross-appeal challenges the district court finding that Mobil violated PMPA
                

II DISCUSSION

A. Statutory Overview

Congress enacted PMPA to avert the detrimental effects on the nationwide gasoline distribution system caused by the unequal bargaining power enjoyed by large oil conglomerates over their service-station franchisees. See generally Veracka v. Shell Oil Co., 655 F.2d 445, 448 (1st Cir.1981); S.Rep. No. 731, 95th Cong., 2d Sess. 17-19, reprinted in 1978 U.S.C.C.A.N. 873, 875-77. PMPA attempts to level the playing field by restricting the grounds upon which a franchisor can assert a unilateral termination or nonrenewal of a franchise. Grounds upon which unilateral termination by a franchisor is permitted under PMPA include (1) "[a] failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance," 15 U.S.C. Sec. 2802(b)(2)(A); (2) "[a] failure by the franchisee to exert good faith efforts to carry out the provisions of the franchise," id. Sec. 2802(b)(2)(B); or (3) "[t]he occurrence of an event which is relevant to the franchise relationship and as a result of which termination of the franchise or nonrenewal of the franchise relationship is reasonable," id. Sec. 2802(b)(2)(C). The failure of a franchisee to operate the marketing premises for seven consecutive days may constitute a relevant event under PMPA Sec. 2802(b)(2)(C). Id. Sec. 2802(c)(9)(A). However, unilateral termination or nonrenewal is not permitted under PMPA if the failure to comply with the terms of the franchise agreement was "beyond the reasonable control of the franchisee." Id. Sec. 2801(13).

PMPA also allocates and shifts burdens of proof between the parties to the franchise agreement. In a PMPA-based action for unlawful franchise termination or nonrenewal, the franchisee bears the initial burden of proving that a termination or nonrenewal occurred, at which point the burden of proof shifts to the franchisor to demonstrate that the termination or refusal to renew was based on a legitimate ground enumerated in PMPA. Id. Sec. 2805(c).

B. Liability: "Reasonable Control"

1. Cause of Environmental Contamination

The Mobil cross-appeal asserts two related challenges to the district court ruling on liability. First, it contends that there is no record support for the finding that the actual cause of the soil contamination at the Four Corners service station remained "unclear." Four Corners I, slip op. at 14. Mobil notes that Four Corners was the only gas station in the vicinity of the contamination; Four Corners had sole responsibility for maintaining the storage tanks and was the sole target of the DEQE notice of responsibility Four Corners concededly did not comply with environmental statutes and regulations requiring periodic testing of its storage tanks for leakage, see ...