Kudlek v. Sunoco, Inc. (R & M), 08-CV-00984 (NGG)(WDW).

CourtUnited States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
Citation581 F.Supp.2d 413
Docket NumberNo. 08-CV-00984 (NGG)(WDW).,08-CV-00984 (NGG)(WDW).
PartiesArthur KUDLEK, Haim Avla, Coram Automotive Center, Ltd. and Ghandi Halabi, Plaintiffs, v. SUNOCO, INC. (R & M) and Russell Construction Corp., Defendants.
Decision Date03 October 2008

David Ian Roth, Kressel, Rothlein, Walsh & Roth, LLC, Massapequa, NY, for Plaintiffs.

Arthur Christopher Young, Pepper Hamilton LLP, Eighteenth and Arch Streest, Philadelphia, PA, Stephanie L. Merk, Pepper Hamilton LLP, Princeton, NJ, for Defendants.

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, District Judge.

I. Introduction

Plaintiffs Arthur Kudlek ("Kudlek"), Haim Avla ("Avla"), Coram Automotive Center, Ltd. ("Coram") and Ghandi Halabi ("Halabi") (collectively, "Plaintiffs"1) are suing defendants Sunoco, Inc. (R & M) ("Sunoco") and Russell Construction Corp. ("Russell") for damages arising from a breach of contract and for rescission of a separate franchise agreement entered into by Plaintiffs and Sunoco. The suit was originally filed in New York Supreme Court, Suffolk County, on January 31, 2008 and raised only state common-law claims. Sunoco removed the case to federal court on March 10, 2008 on the basis of federal question jurisdiction, arguing that the claim for rescission was subject to and preempted by the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. ("PMPA"). Plaintiffs now move for remand. For the reasons that follow, their motion is GRANTED.

II. Background

Plaintiffs Kudlek, Coram and Halabi are owners and operators of Sunoco-branded fuel and service stations in Suffolk County, New York. Prior to purchasing the stations, each Plaintiff had been leasing the stations and premises from Sunoco and operating the stations pursuant to three-year dealer franchise agreements ("DFAs") with Sunoco.2 In August and September of 2004, each Plaintiff entered into a contract with Sunoco to purchase the stations. As a condition of purchase, Plaintiffs and Sunoco canceled their previous franchise agreements and entered into new Dealer Supply Franchise Agreements ("DSFAs"), which committed Plaintiffs to purchasing Sunoco-branded fuel for ten years. Each DSFA became effective on the dates that the particular Plaintiff and Sunoco signed the contract for sale of the property.

Each contract for sale of the property also contained a clause that required Plaintiffs and Sunoco to enter into Tank Removal and Replacement Agreements ("TRRAs") at the closing. Plaintiffs and Sunoco closed on the properties in early 2006 and entered into the TRRAs. The TRRAs required Sunoco to reimburse each Plaintiff for the installation costs of a new underground storage tank system upon proof of completed work. (Compl. ¶¶ 27, 28, 30, 40.) Plaintiffs contracted with defendant Russell, a Sunoco-approved contracting company, to perform the work.

Plaintiffs' state-court Complaint alleges common-law breach of contract claims against Sunoco, for breach of the TRRAs, and Russell, for breach of the repair contracts.3 The Complaint also seeks rescission of the ten-year DSFAs, on the basis that Plaintiffs were coerced into entering into the DSFAs as a condition of purchasing the properties.4

Sunoco removed this case to federal court on March 10, 2008. In the Notice of Removal, Sunoco contends that although no federal claim appears on the face of Plaintiffs' Complaint, the claim for rescission is subject to the PMPA, which regulates the termination and/or non-renewal of petroleum franchises and preempts state laws which attempt to regulate these subjects. 15 U.S.C. § 2806(a)(1).5 (Notice of Removal ¶¶ 22-24.) It contends that Plaintiffs' Complaint challenges, in part, the propriety of the termination and/or non-renewal of the previous DFAs and the "altering" of the franchise relationships between the Sunoco and Plaintiffs due to Sunoco's offer to sell the properties. (Notice of Removal ¶ 20.) The other defendant, Russell, has objected to the removal.6

On May 1, 2008, Plaintiffs moved to remand the action to state court. Plaintiffs contend that the PMPA does not govern their cause of action for rescission, because that claim arises out of the "conditions and circumstances surrounding the creation of the DSFA" and is not a challenge to a termination and/or non-renewal of a franchise relationship. (Certif. in Supp. of Mot. to Remand ¶ 21.) They state that they do not allege that Sunoco's linking of the DSFAs to the sale of the real estate was a violation of the PMPA. (Id.) In addition, Plaintiffs note that removal is improper because defendant Russell objected to removal.7 (Mem. in Opp. to Def. Mot. To Transfer Venue 10).

I. Legal Standard

A defendant may remove an action to federal district court if the latter court has original jurisdiction, 28 U.S.C. § 1441(a), which includes any action arising under federal law, 28 U.S.C. § 1331. When a party files a motion to remand challenging the removal of an action from state court, "the burden falls squarely upon the removing party to establish its right to a federal forum by `competent proof.'" R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979) (quoting McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936)). "In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). Accord Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 31, 123 S.Ct. 366, 154 L.Ed.2d 368 (2002) (noting that "statutory procedures for removal are to be strictly construed"). "If the removing party cannot demonstrate federal jurisdiction by `competent proof,' the removal was in error and the district court must remand the case to the court in which it was filed." Hill v. Delta Int'l Mach. Corp., 386 F.Supp.2d 427, 429 (S.D.N.Y.2005). Courts determine whether subject matter jurisdiction exists by "looking to the complaint as it existed at the time the petition for removal was filed." Id. (footnote omitted).

II. Discussion

Sunoco contends that although no federal claim appears on the face of Plaintiffs' Complaint, the substance of Plaintiffs' common-law claim against Sunoco for rescission of the DSFAs is essentially a challenge to the "termination and/or non-renewal" of a franchise relationship, which they claim is subject to and preempted by the PMPA. (Notice of Removal ¶¶ 22-23). It argues that the factual allegations "seek to challenge the manner by which Sunoco offered the Leased Marketing Premises for sale to the Plaintiffs and terminated the franchise relationship that existed before the DSFAs were executed." (Def. Mem. in Opp. to Mot. to Remand 6).

Ordinarily, determining whether a particular case arises under federal law turns on the "well-pleaded complaint rule," which provides that federal question jurisdiction exists "only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) (citation omitted). "The rule makes the plaintiff the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law." Id. As such, "a defense that plaintiffs claims are preempted by federal law will not suffice to confer federal question jurisdiction . . . ." Marcella v. Capital Dist. Physicians' Health Plan, 293 F.3d 42, 45 (2d Cir.2002) (citation omitted); see also Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) ("Federal pre-emption is ordinarily a federal defense to the plaintiff's suit. As a defense, it does not appear on the face of a well-pleaded complaint, and, therefore, does not authorize removal to federal court.").

Sunoco, however, invokes the "artful pleading" doctrine, an exception to the well-pleaded complaint rule, which allows removal even where no federal question appears on the face of the complaint, so long as federal law "completely preempts a plaintiffs state-law claim." Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 475, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998). "When a federal statute `wholly displaces the state-law cause of action through complete pre-emption, the state claim can be removed.'" Aetna Health Inc. v. Davila, 542 U.S. 200, 207, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (quoting Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003)). In those circumstances, removal is authorized because "[w]hen the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law." Aetna Health, 542 U.S. at 207-08, 124 S.Ct. 2488. Given that the Plaintiffs' Complaint pleads only state-law causes of action, the burden is on Sunoco to demonstrate that the PMPA has complete preemptive force. Neither party has briefed the issue of complete preemption.

The Second Circuit has considered the scope of the PMPA's preemption provision, 15 U.S.C. 2806(a)(1).8 The court noted that the PMPA was enacted to establish "protection for franchisees from arbitrary or discriminatory termination or non-renewal of their franchises." Bellmore v. Mobil Oil Corp., 783 F.2d 300, 305 (2d Cir.1986) (quoting S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.C.C.A.N. 873, 874). The statute explicitly prohibits the termination of a franchise or non-renewal of a "franchise relationship" except on various enumerated grounds and in accordance with the statute's accompanying notice requirements. See 15 U.S.C. §§ 2801, 2802. Relying on the statutory text and legislative history of the PMPA, the Second Circuit found that "[t]he PMPA neither expressly nor impliedly...

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