Mac's Shell Serv., Inc. v. Shell Oil Prods. Co., No. 08–240.
| Decision Date | 02 March 2010 |
| Docket Number | No. 08–240. |
| Citation | 130 S.Ct. 1251,559 U.S. 175,176 L.Ed.2d 36 |
| Parties | MAC'S SHELL SERVICE, INC., et al. v. SHELL OIL PRODUCTS CO. LLC, et al. |
| Court | U.S. Supreme Court |
Jeffrey A. Lamken
, for Petitioners in No. 08-372.
David O'Neil, for United States as amicus curiae, by special leave of the Court, supporting Shell Oil Products Company, LLC.
John F. Farraher, Jr.
, for the Petitioner in No. 08-240.
, Vaughan Finn, Karen T. Staib, Shipman & Goodwin LLP, Hartford, CT, James Cowan, Senior Counsel, Houston, TX, Jeffrey A. Lamken, Robert K. Kry, MoloLamken LLP, Washington, D.C., Macey Reasoner Stokes, David M. Rodi, Baker Botts LLP, Houston, TX, Counsel for Shell Oil Products Company LLC, et al., Motiva Enterprises LLC, and Shell Oil Company.
John F. Farraher, Jr.
, Gary R. Greenberg, Louis J. Scerra, Justin F. Keith, Greenberg Traurig, LLP, Boston, MA, Mark E. Solomons, Laura Metcoff Klaus, Greenberg Traurig, LLP, Washington, DC, Counsel for Mac's Shell Service, Inc., et al.
delivered the opinion of the Court.
The Petroleum Marketing Practices Act (PMPA or Act), 92 Stat. 322, 15 U.S.C. § 2801 et seq.,
limits the circumstances in which petroleum franchisors may “terminate” a franchise or “fail to renew” a franchise relationship. § 2802. In these consolidated cases, service-station franchisees brought suit under the Act, alleging that a franchisor had constructively “terminate[d]” their franchises and had constructively “fail[ed] to renew” their franchise relationships. They asserted these claims even though the conduct of which they complained had not compelled any of them to abandon their franchises and even though they had been offered and had accepted renewal agreements. We hold that a franchisee cannot recover for constructive termination under the PMPA if the franchisor's allegedly wrongful conduct did not compel the franchisee to abandon its franchise. Additionally, we conclude that a franchisee who signs and operates under a renewal agreement with a franchisor may not maintain a claim for constructive nonrenewal. We therefore reverse in part and affirm in part.
Petroleum refiners and distributors supply motor fuel to the public through service stations that often are operated by independent franchisees. In the typical franchise arrangement, the franchisor leases the service-station premises to the franchisee, grants the franchisee the right to use the franchisor's trademark, and agrees to sell motor fuel to the franchisee for resale. Franchise agreements remain in effect for a stated term, after which the parties can opt to renew the franchise relationship by executing a new agreement.
Enacted in 1978, the PMPA was a response to widespread concern over increasing numbers of allegedly unfair franchise terminations and nonrenewals in the petroleum industry. See, e.g., Comment, 1980 Duke L.J. 522, 524–531. The Act establishes minimum federal standards governing the termination and nonrenewal of petroleum franchises. Under the Act's operative provisions, a franchisor may “terminate” a “franchise” during the term stated in the franchise agreement and may “fail to renew” a “franchise relationship” at the conclusion of that term only if the franchisor provides written notice and takes the action in question for a reason specifically recognized in the statute. 15 U.S.C. §§ 2802
, 2804. Consistent with the typical franchise arrangement, a “franchise” is defined as “any contract” that authorizes a franchisee to use the franchisor's trademark, as well as any associated agreement providing for the supply of motor fuel or authorizing the franchisee to occupy a service station owned by the franchisor.1 § 2801(1)
. The Act defines a “franchise relationship” in more general terms: the parties' “respective motor fuel marketing or distribution obligations and responsibilities” that result from the franchise arrangement. § 2801(2).
To enforce these provisions, a franchisee may bring suit in federal court against any franchisor that fails to comply with the Act's restrictions on terminations and nonrenewals. See § 2805. Successful franchisees can benefit from a wide range of remedies, including compensatory and punitive damages, reasonable attorney's fees and expert costs, and equitable relief. See § 2805(b), (d). The Act also requires district courts to grant preliminary injunctive relief to aggrieved franchisees, if there are “sufficiently serious questions going to the merits” that present “a fair ground for litigation” and the balance of hardships favors such relief. § 2805(b)(2).
This litigation involves a dispute between Shell Oil Company (Shell), a petroleum franchisor, and several Shell franchisees in Massachusetts.2 Pursuant to their franchise agreements with Shell, each franchisee was required to pay Shell monthly rent for use of the service-station premises. For many years, Shell offered the franchisees a rent subsidy that reduced the monthly rent by a set amount for every gallon of motor fuel a franchisee sold above a specified threshold. Shell renewed the subsidy annually through notices that “explicitly provided for cancellation [of the rent subsidy] with thirty days' notice.” Marcoux v. Shell Oil Prods. Co., 524 F.3d 33, 38 (C.A.1 2008)
. Nonetheless, Shell representatives made various oral representations to the franchisees “that the [s]ubsidy or something like it would always exist.” Ibid.
In 1998, Shell joined with two other oil companies to create Motiva Enterprises LLC (Motiva), a joint venture that combined the companies' petroleum-marketing operations in the eastern United States. Id., at 37.
Shell assigned to Motiva its rights and obligations under the relevant franchise agreements. Motiva, in turn, took two actions that led to this lawsuit. First, effective January 1, 2000, Motiva ended the volume-based rent subsidy, thus increasing the franchisees' rent. Id., at 38. Second, as each franchise agreement expired, Motiva offered the franchisees new agreements that contained a different formula for calculating rent. For some (but not all) of the franchisees, annual rent was greater under the new formula.
In July 2001, 63 Shell franchisees (hereinafter dealers) filed suit against Shell and Motiva in Federal District Court. Their complaint alleged that Motiva's discontinuation of the rent subsidy constituted a breach of contract under state law. Additionally, the dealers asserted two claims under the PMPA. First, they maintained that Shell and Motiva, by eliminating the rent subsidy, had “constructively terminated” their franchises in violation of the Act. Second, they claimed that Motiva's offer of new franchise agreements that calculated rent using a different formula amounted to a “constructive nonrenewal” of their franchise relationships.3
After a 2–week trial involving eight of the dealers, the jury found against Shell and Motiva on all claims. Both before and after the jury's verdict, Shell and Motiva moved for judgment as a matter of law on the dealers' two PMPA claims. They argued that they could not be found liable for constructive termination under the Act because none of the dealers had abandoned their franchises in response to Motiva's elimination of the rent subsidy—something Shell and Motiva said was a necessary element of any constructive termination claim. Similarly, they argued that the dealers' constructive nonrenewal claims necessarily failed because seven of the eight dealers had signed and operated under renewal agreements with Motiva, and the eighth had sold his franchise prior to the expiration of his franchise agreement. The District Court denied these motions, and Shell and Motiva appealed.
The First Circuit affirmed in part and reversed in part. In affirming the judgment on the dealers' constructive termination claims, the Court of Appeals held that a franchisee is not required to abandon its franchise to recover for constructive termination under the PMPA. See 524 F.3d, at 45–47.
Instead, the court ruled, a simple breach of contract by an assignee of a franchise agreement can amount to constructive termination under the Act, so long as the breach resulted in “such a material change that it effectively ended the lease, even though the [franchisee] continued to operate [its franchise].” Id., at 46 (internal quotation marks omitted). Turning to the dealers' constructive nonrenewal claims, the First Circuit agreed with Shell and Motiva that a franchisee cannot maintain a claim for unlawful nonrenewal under the PMPA “where the franchisee has signed and operates under the renewal agreement complained of.” Id., at 49. The court thus reversed the judgment on those claims.
We granted certiorari. See 557 U.S. ––––, 129 S.Ct. 2788, 2789, 174 L.Ed.2d 289 (2009)
.
The first question we are asked to decide is whether a service-station franchisee may recover for constructive termination under the PMPA when the franchisor's allegedly wrongful conduct did not force the franchisee to abandon its franchise. For the reasons that follow, we conclude that a necessary element of any constructive termination claim under the Act is that the franchisor's conduct forced an end to the franchisee's use of the franchisor's trademark, purchase of the franchisor's fuel, or occupation of the franchisor's service station.4
When given its ordinary meaning, the text of the PMPA prohibits only that franchisor conduct that has the effect of ending a franchise. As relevant here, the Act provides that “no franchisor ... may ... terminate any franchise,” except for an enumerated reason and after providing written notice. 15 U.S.C. § 2802(a)
-(b). The Act specifies that “[t]he term ‘termination’ includes cancellation,” § 2801(17), but it does not further define the term “terminate” or the incorporated term “cancel.” We therefore give those terms their ordinary meanings. See Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187, 115 S.Ct. 788, 130 L.Ed.2d 682 (1995).
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