Ewing v. Amoco Oil Co.

• Decision Date: 21 July 1987
• Docket Number: 85-2691,Nos. 85-1655,s. 85-1655
• Citation: 823 F.2d 1432
• Parties: Bill EWING and Bill Ewing Service Center, Inc., Plaintiffs-Appellees, v. AMOCO OIL COMPANY, Defendant-Appellant. Bill EWING and Bill Ewing Service Center, Inc., Plaintiffs-Appellants, v. MOBIL OIL CORPORATION and Amoco Oil Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1432

823 F.2d 1432

Bill EWING and Bill Ewing Service Center, Inc., Plaintiffs-Appellees, v. AMOCO OIL COMPANY, Defendant-Appellant.

Bill EWING and Bill Ewing Service Center, Inc., Plaintiffs-Appellants, v. MOBIL OIL CORPORATION and Amoco Oil Company, Defendants-Appellees.

Nos. 85-1655, 85-2691.

United States Court of Appeals, Tenth Circuit.

July 21, 1987.

Rehearing Denied Aug. 14, 1987.

Joseph W. Kennedy (Robert W. Coykendall, with him on brief), of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, Kan., for Amoco Oil Co.

Robert J. O'Connor of Hershberger, Patterson, Jones & Roth, Wichita, Kan. (Robert C. Fox, Mobil Oil Corp., AMF O'Hare, Ill., and David E. Bengston of Hershberger, Patterson, with him on brief), for Mobil Oil Corp.

Roger Sherwood (Kurt A. Harper, on brief) of Sherwood & Hensley, Wichita, Kan., for Bill Ewing and Bill Ewing Service Center, Inc.

Before McKAY, SEYMOUR and TACHA, Circuit Judges.

SEYMOUR, Circuit Judge.

These consolidated appeals arise from two actions brought pursuant to subchapter I of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. Secs. 2801-2806 (1982). In case number 85-1655, Bill Ewing sued Amoco Oil Company for damages and injunctive relief, claiming that Amoco violated the PMPA by wrongfully failing to renew its gasoline service station franchise with Ewing. In 85-2691, Ewing sued both Amoco and Mobil Oil Corporation for damages, claiming that Mobil violated the PMPA when it sold Amoco the service station at which Ewing was the franchisee because Mobil failed to ensure that Amoco offered Ewing in good faith a new franchise with nondiscriminatory terms. In 85-1655, we affirm the granting of a preliminary injunction. In 85-2691, we reverse the granting of summary judgment in favor of Mobil and affirm it in favor of Amoco.

I.

In May 1983, Mobil announced its intention to withdraw from the marketing of petroleum products in a large area of the midwest. One of the service stations affected by this decision was operated by Bill Ewing, a Mobil franchisee. Amoco offered to purchase nine of Mobil's service stations, including the station operated by Ewing. After a period of negotiations, Mobil and Amoco executed a sales contract that specifically obligated Amoco to offer new franchises to Mobil's old franchisees as follows:

"Amoco shall offer such lessees, in good faith, a lease and ancillary product sales agreement (i.e., a franchise) on terms and conditions which are not discriminatory as compared to franchises currently being offered by Amoco."

Rec., No. 85-2691, vol. I, doc. no. 23, exh. E (hereinafter Sales Contract). In November 1983, Mobil informed Ewing of the sale of his service station to Amoco and of Amoco's agreement to offer Ewing an Amoco franchise.

The parties agree that a franchise relationship between Ewing and Amoco began in May 1984, the same time that Ewing's previous franchise with Mobil ended. Numerous factual disputes remain, however, regarding the nature and intended duration of the Ewing-Amoco franchise. In general, Amoco offers one-year trial franchises to all new franchisees. Current Amoco franchisees, and those new franchisees who survive the one-year probationary period, are offered franchises with three-year terms.

As part of the terms of its agreement with Ewing, Amoco required him to undergo a "3-D" renovation of his service station. A 3-D station is one with full-service pumps, self-service pumps, and a convenience store. All 3-D stations are required to remain open twenty-four hours per day. According to the unrefuted testimony of several Amoco employees, Amoco's decision to convert a particular station to 3-D operations rested solely on various economic factors, such as the size of the market and the relative proximity of other Amoco stations. However, current Amoco franchisees, i.e., those with three-year franchises, are given a choice whether to undergo 3-D conversions. New Amoco franchisees are not given such an option. Ewing was treated as a new franchisee and required to have his station renovated and to remain open twenty-four hours per day if he chose to continue working at his station after it was purchased by Amoco. Amoco did not require all of the former Mobil franchisees to undergo these changes in order to become Amoco franchisees.

During a portion of the summer of 1984 and at several times during the remainder of 1984, Ewing failed to operate his station twenty-four hours per day. In February 1985, Amoco informed Ewing that it had decided not to renew his franchise, which Amoco claimed would expire in May 1985. In its notice of nonrenewal, Amoco stated that the reason for nonrenewal was Ewing's failure to operate twenty-four hours per day.

II. No. 86-1655

After receiving notice from Amoco that his franchise would not be renewed, Ewing brought suit against Amoco, claiming that the nonrenewal of his franchise violated the PMPA. Amoco argued that, beginning in May 1984, it entered into a one-year trial franchise with Ewing, and that the PMPA allows a franchisor to terminate or refuse to renew a trial franchise for any reason whatsoever. Ewing claimed that his relationship with Amoco did not satisfy the PMPA's requisites for a trial franchise. ¹ Ewing also argued that, even if their relationship was a trial franchise, the PMPA does not allow Amoco to fail to renew the franchise for arbitrary or pretextual reasons.

The trial court granted Ewing a preliminary injunction under which Ewing was allowed to continue to operate his service station. In its order granting the injunction, the court determined that Amoco had intended from the outset of its relationship with Ewing to terminate his franchise. Without deciding whether the parties' agreement constituted a trial franchise, the court held that even such a franchise requires valid reasons for nonrenewal. According to the court, the failure of Ewing to operate twenty-four hours per day was not a valid reason because, during the summer of 1984, Ewing was unable to operate those hours due to the service station renovations, and because Amoco, at the time it decided not to renew the franchise, was not aware of the other occasions that Ewing's station had been closed.

On appeal, Amoco challenges the trial court's holding that the PMPA requires "valid" reasons for the termination of a trial franchise. The PMPA operates generally to allow franchisors to terminate or fail to renew most franchises only for certain enumerated reasons and only after complying with detailed notice requirements. See 15 U.S.C. Secs. 2802, ² 2804. The statute also allows parties to enter into "trial" franchises under certain circumstances. See 15 U.S.C. Sec. 2803. The provisions of the PMPA that expressly restrict the ability of franchisors to terminate or fail to renew, 15 U.S.C. Sec. 2802(b), do not apply to trial franchises, see 15 U.S.C. Sec. 2803(a). Amoco argues, therefore, that a franchisor may refuse to renew a trial franchise for any reason at all.

The trial court did not decide whether the parties entered into a trial franchise, and, as discussed below, the propriety of the preliminary injunction does not depend on the presence or absence of such a finding. Because, after further fact findings, the trial court may determine that the franchise is not a trial one, we see no need to decide at this point the extent to which the statute may limit the franchisor's ability not to renew a trial franchise. ³

We turn then to the propriety of the preliminary injunction. Under the PMPA, a trial court is directed that it

"shall grant a preliminary injunction if--

(A) the franchisee shows--

(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and (ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and

(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted."

15 U.S.C. Sec. 2805(b)(2) (emphasis added).

Several salient features of this provision are worth noting. First, granting an injunction is not discretionary with the trial court. If it finds that the statutory standards are satisfied, it must grant the injunction. Second, the standards for granting an injunction are more lenient than the standards under Fed.R.Civ.P. 65. Under Rule 65, the movant must demonstrate that (1) there is a substantial likelihood of success on the merits; (2) irreparable injury will result if the injunction is not granted; (3) the threatened injury to the movant outweighs whatever damage an injunction would cause the opposing party; and (4) an injunction would not be adverse to the public interest. Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir.1980). ⁴ Under section 2805(b)(2), however, the movant need only show that the "balance of hardships preponderates in favor of the franchisee," see Gilderhus v. Amoco Oil Co., 470 F.Supp. 1302, 1304 (D.Minn.1979); see also Khorenian v. Union Oil Co., 761 F.2d 533, 535 (9th Cir.1985) ("greater hardship" standard not difficult for franchisee to establish in most PMPA cases), and that "there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation," 15 U.S.C. Sec. 2805(b)(2)(A)(ii). This latter requirement has been interpreted to require less of a showing of likely success than is generally required under Rule 65. See, e.g., Moody v. Amoco Oil Co., 734 F.2d 1200, 1216 (7th Cir.), cert. denied, 469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321 (1984); Walters v. Chevron U.S.A., Inc., 476 F.Supp. 353, 355 (N.D.Ga.1979), aff'd, 615 F.2d 1135 (5th Cir.1980) (per curiam).

In addition, overlaying the very liberal injunction provisions of the PMPA is section...