808 F.2d 221 (2nd Cir. 1986), 225, Russo v. Texaco, Inc.

Docket Nº:225, Docket 86-7520.
Citation:808 F.2d 221
Party Name:Michael A. RUSSO, t/a Nor-Bridge Service Center, Inc., and Robert A. Loringer, t/a Bob's Getty Service Station, Plaintiffs-Appellants, v. TEXACO, INC., a Delaware Corporation, and Power Test Corporation, a Delaware Corporation, Defendants-Appellees.
Case Date:December 30, 1986
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 221

808 F.2d 221 (2nd Cir. 1986)

Michael A. RUSSO, t/a Nor-Bridge Service Center, Inc., and

Robert A. Loringer, t/a Bob's Getty Service

Station, Plaintiffs-Appellants,

v.

TEXACO, INC., a Delaware Corporation, and Power Test

Corporation, a Delaware Corporation, Defendants-Appellees.

No. 225, Docket 86-7520.

United States Court of Appeals, Second Circuit

December 30, 1986

Argued Oct. 9, 1986.

Page 222

Jerry C. Cohen, Washington, D.C. (Cohen, Milstein & Hausfeld, Arnold P. Azarow, Westbury, N.Y., of counsel), for plaintiffs-appellants.

Randolph S. Sherman, New York City (Milton J. Schubin, Claire Shows Hancock, Kaye, Scholer, Fierman, Hays & Handler, New York City, David A. Luttinger, John F. Carberry, White Plains, N.Y., of counsel), for defendant-appellee, Texaco, Inc.

John F. Collins, Saul P. Morgenstern, Dewey, Ballantine, Bushby, Palmer & Wood, New York City, Michael B. Himmel, Greenbaum, Rowe, Smith, Ravin, Davis & Bergstein, Woodbridge, N.J., of counsel, for defendant-appellee, Power Test Corp.

Before CARDAMONE and PIERCE, Circuit Judges, and BONSAL, Senior District Judge. [*]

PIERCE, Circuit Judge:

This is an appeal from an order of the United States District Court for the Eastern District of New York, Weinstein, Chief Judge, entered February 21, 1986, granting appellees' motions for summary judgment and denying appellants' cross-motion for summary judgment, and from a judgment, entered June 3, 1986, dismissing appellants' claims under the Petroleum Marketing Practices Act ("PMPA" or the "Act"), 15 U.S.C. Secs. 2801-2806.

Appellants, Michael A. Russo and Robert A. Loringer, maintain that appellee Texaco, Inc. ("Texaco") terminated their franchises in violation of the PMPA. Specifically, they claim that Sec. 2802(b)(2)(C) of the Act which provides that a franchisor may terminate a franchise "upon the occurrence of an event which is relevant to the franchise

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relationship and as a result of which termination of the franchise is reasonable" is not applicable to Texaco's divestment to appellee Power Test Corporation ("Power Test") of certain Getty Oil Company ("Getty") assets, including their Getty franchises.

The district court ruled that Texaco's termination of appellants' franchises was permissible under Sec. 2802(b)(2)(C) of the Act. Russo v. Texaco, Inc., 630 F.Supp. 682 (E.D.N.Y.1986). Chief Judge Weinstein's ruling was premised on two grounds. First, he held that Texaco's loss of the right to grant the right to use the "Getty" trademark as a result of a Federal Trade Commission ("FTC" or "Commission") divestiture order fell within Sec. 2802(c) which enumerates certain events any one of which conclusively establishes the reasonableness of termination under Sec. 2802(b)(2)(C). Alternatively, after reviewing the legislative history of the PMPA and the divestiture as a whole, Judge Weinstein concluded that Texaco's termination of appellants' franchises was in any event reasonable under Sec. 2802(b)(2)(C) as an event not enumerated in Sec. 2802(c).

Reviewing this question of law de novo, we hold, in substantial agreement with the first prong of Judge Weinstein's opinion, that Texaco's loss of the "Getty" trademark pursuant to the FTC order was an event enumerated in Sec. 2802(c), and therefore that Texaco's termination of appellants' Getty franchises is conclusively presumed to be reasonable under Sec. 2802(b)(2)(C). We do not find it necessary to reach, and therefore do not review, Judge Weinstein's alternative holding that Texaco's termination of the Getty franchises was in any event reasonable.

We affirm the judgment dismissing appellants' claims under the Act.

BACKGROUND

This case arises out of Texaco's acquisition of Getty in 1984 and its subsequent sale to Power Test in 1985 of certain Getty assets, including appellants' Getty franchises, pursuant to an order of the FTC. We need not recount here all the facts surrounding those transactions, but only those necessary for an understanding of the issues presented in this appeal.

In January 1984, Texaco agreed to acquire the shares and assets of Getty for approximately $10.1 billion. Because of the size of the transaction, FTC review of the acquisition was required under the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. Sec. 18a. Anticipating that it would be necessary to divest certain assets in order to obtain FTC approval, Texaco, on January 27, 1984, agreed to sell to Power Test virtually all of the Getty gasoline station assets, supply contracts, and franchise agreements in the Northeast and Mid-Atlantic regions. Under that agreement, Texaco would have retained ownership of the "Getty" trademark and granted Power Test a license to use the "Getty" mark and name.

The FTC was indeed concerned about the antitrust ramifications of the merger between Texaco and Getty. A draft complaint was published in March 1984 which expressed, among other concerns, the FTC's concern that the effect of the acquisition may be substantially to lessen competition in several markets. See Texaco Inc. and Getty Oil Co.; Proposed Consent Agreement With Analysis To Aid Public Comment, 49 Fed.Reg. 8550, 8556 (March 7, 1984). Specifically, the draft complaint noted that "[c]ontrol by Texaco of Getty's marketing operations is likely to reduce price competition in gasoline and middle distillate marketing provided by Getty...." Id.

However, rather than enjoin the entire merger, the Commission proposed specific remedial action to alleviate its particular concerns. Among the proposed remedies, which were embodied in a consent order, was one which called for Texaco not only to divest Getty's wholesale gasoline terminals in six specific Northeast and Mid-Atlantic markets but also the Getty retail stations served by the terminals to be divested. In this way, the FTC sought to maintain competition at the wholesale level by guaranteeing

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that the divested assets would continue to be part of "an ongoing, viable petroleum marketing business." Id. at 8551. The FTC analysis which accompanied the proposed order made clear that the Commission would not rubber stamp any prior agreement between Texaco and Power Test, that the contemplated transaction would not be permitted without Commission approval, and that FTC scrutiny would be forthcoming only after Texaco had first committed itself to a final divestiture order. 1 FTC Analysis, 49 Fed.Reg. at 8559 (emphasis added).

After a period for considering public comments, a final consent order was entered into on July 9, 1984. That order required Texaco to divest absolutely and in good faith certain Getty assets, including the Getty franchises at issue herein and the "Getty" brand name and trademark. The provision requiring Texaco to divest the "Getty" name and mark was included at the sole insistence of the FTC and was not a subject of negotiation between Texaco and the FTC. Moreover, the FTC required that any potential purchaser first be approved by the Commission. Finally, on January 17, 1985, after consideration of public comments and other information, the FTC approved Texaco's divestiture of certain Getty gasoline station assets, supply contracts, franchise agreements, and the "Getty" name and mark to Power Test.

Shortly thereafter, in a letter dated March 4, 1985, Texaco notified each of the Getty dealers whose station properties were being divested to Power Test that their franchise relationships would be terminated pursuant to the provision of the PMPA which provides for termination of franchises when reasonable, 15 U.S.C. Sec. 2802(b)(2)(C). 2 Appellants are former Getty franchisees whose franchises were divested by Texaco to Power Test. They brought suit alleging that their franchises were terminated in violation of the Act. 3 Finding that no violation of the Act had occurred, the district court granted appellees' motions for summary judgment, denied appellants' cross-motion for summary judgment, and entered a judgment dismissing the claims under the Act. This appeal followed.

DISCUSSION

Congress enacted the PMPA to establish " 'protection for franchisees from arbitrary or discriminatory termination ... of their franchises.' " Bellmore v. Mobil Oil Corp., 783 F.2d 300, 304 (2d Cir.1986)

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(quoting S.Rep. No. 731, 95th Cong., 2d Sess. 15, [hereinafter cited as "Senate Report"], reprinted in 1978 U.S.Code Cong. & Ad.News 873, 874). At the same time however, Congress was aware of the need to protect a franchisor's ability to terminate a franchise because of a change in circumstances. Specifically, the legislative history of the Act reveals that Congress recognized "the importance of providing adequate flexibility so that franchisors may initiate changes in their marketing activities to respond to changing market conditions and consumer preferences." Senate Report at 19, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 877. The statutory scheme of the Act reflects these concerns.

The Statutory Scheme

Section 2802(b)(1)(B) prohibits termination of any franchise relationship unless the franchisor can show that such termination is based upon a ground described in Sec. 2802(b)(2). Section 2802(b)(2) describes several grounds for lawful termination of a franchise. The provision relied upon by Texaco in terminating the Getty...

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