Hutchens v. Eli Roberts Oil Co.

• Decision Date: 29 February 1988
• Docket Number: No. 86-3846,86-3846
• Citation: 838 F.2d 1138
• Parties: Robert HUTCHENS, Plaintiff-Appellant, v. ELI ROBERTS OIL COMPANY and American Petrofina Marketing, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1138

838 F.2d 1138

Robert HUTCHENS, Plaintiff-Appellant, v. ELI ROBERTS OIL COMPANY and American Petrofina Marketing Inc., Defendants-Appellees.

No. 86-3846.

United States Court of Appeals Eleventh Circuit.

Feb. 29, 1988.

David J. Busch, Tallahassee, Fla., for plaintiff-appellant.

Gary P. Sams, Hopping, Boyd, Green & Sams, Elizabeth C. Bowman, Tallahassee, Fla., for American Petrofina.

Robert McDonald, Roberts, Baggett, LaFace & Richard, Tallahassee, Fla., for Eli Roberts Oil Co.

Appeal from the United States District Court for the Northern District of Florida.

Before VANCE and HATCHETT, Circuit Judges, and O'KELLEY ^*, District Judge.

VANCE, Circuit Judge:

Appellant Robert Hutchens appeals from the district court's judgment for the defendants in his action under the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. Secs. 2801-2841. We affirm in part and reverse in part.

I.

In 1973 defendant American Petrofina Marketing, Inc. (now Fina Oil & Chemical Co., hereafter Fina) bought a service station located at 2910 Mahan Drive in Tallahassee, Florida. Fina frequently leases its stations to petroleum jobbers or distributors who in turn lease to retailers, and later in 1973 it entered into a distributor sales contract with defendant Eli Roberts Oil Co. (Roberts Oil). Under this agreement Roberts Oil leased two Tallahassee service stations from Fina, including the one at 2910 Mahan Drive, and supplied a number of other Fina stations in the area as Fina's exclusive distributor.

On January 1, 1974 Roberts Oil subleased the Mahan station to Hutchens. The lease was for a term of one year renewable annually, and provided that either party could terminate the lease at the end of the year on thirty days notice. Hutchens operated the station as a Fina station, and bought Fina gasoline and products from Roberts Oil.

By 1983 Fina had become dissatisfied with the station's sales performance. Although similarly situated stations sold as much as 100,000 gallons of gasoline per month, Hutchens' sales ranged from 9,500 to 12,000 gallons per month. Finally in July 1984 Roberts Oil, at Fina's request, agreed to the cancellation of the underlying lease on the Mahan station effective January 1, 1985. On September 28, 1984 Roberts Oil told Hutchens that because the underlying lease was to be cancelled, it could not renew Hutchen's sublease for 1985. The underlying lease between Fina and Roberts Oil was in fact cancelled, and in June 1985 Fina evicted Hutchens from the premises.

In the meantime Hutchens had brought this action under the PMPA against Roberts Oil and Fina in November 1984. Hutchens' motion for a preliminary injunction was denied, and the matter was tried before the court in July and August of 1986. The district court held that: (1) although there was a franchise relationship between Roberts Oil and Hutchens, the cancellation of the underlying lease was an event that justified the nonrenewal of the relationship under the PMPA; (2) Fina had not violated the PMPA because there was no franchise relationship between it and Hutchens; (3) Fina was entitled to $7,290 on its counterclaim for rent; and (4) Hutchens' claim against Fina was frivolous and Fina was thus entitled to attorneys' fees under 15 U.S.C. Sec. 2805(d)(3). This appeal followed.

II.

We first consider Hutchens' claim against Roberts Oil. Congress enacted the PMPA in 1978 to address the disparity in bargaining position between fuel suppliers and their franchisees. The Act sets forth the circumstances under which a supplier may terminate or decide not to renew a franchise and imposes certain notice requirements. Roberts Oil concedes that its relationship with Hutchens is a franchise relationship covered by the PMPA. We must therefore decide whether Roberts Oil's decision not to renew Hutchens' lease was made in conformity with the PMPA. Hutchens contends that it was not. He argues that Roberts Oil failed to establish a legitimate ground for nonrenewal under the PMPA and that it failed to comply with the Act's notice requirements.

A.

As its justification for failing to renew Hutchen's lease Roberts Oil relies on 15 U.S.C. Sec. 2802(b)(2)(C). That section allows a franchisor to terminate or fail to renew a franchise upon:

The 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....

Congress has defined such events to include:

loss of the franchisor's right to grant possession of the leased marketing premises through expiration of an underlying lease....

15 U.S.C. Sec. 2802(c)(4). Roberts Oil contends that the cancellation of its lease with Fina fits squarely within section 2802(c)(4) and was therefore an event that justified nonrenewal under section 2802(b)(2)(C). Hutchens on the other hand argues that a franchisor's voluntary cancellation of its underlying lease cannot constitute "[t]he occurrence of an event" under section 2802(b)(2)(C). To hold otherwise, he argues, would render the remedial purpose of the PMPA nugatory.

This court has not addressed the question of whether section 2802(c)(4) encompasses a franchisor's voluntary relinquishment of its lease. The courts of appeals that have addressed the issue, however, are unanimous in their conclusion that it does. For instance in Veracka v. Shell Oil Co., 655 F.2d 445 (1st Cir.1981), the franchisor had taken affirmative steps to stop the otherwise automatic extension of its underlying lease. As a result, the franchisee's sublease could not be renewed. In the franchisee's action under the PMPA the franchisor, relying on section 2802(c)(4), argued that the loss of its underlying lease was an event that justified nonrenewal under section 2802(b)(2)(C). The court agreed, rejecting the franchisee's argument that section 2802(c)(4) is applicable only when the loss of the lease is outside the franchisor's control. Id. at 448. The court stated:

We do not accept this argument, for it fits neither the Act's language nor its purposes as revealed by its legislative history. The Act itself refers to "expiration" of the lease, without reference to the expiration's cause.

Id.; see also Lugar v. Texaco, Inc., 755 F.2d 53, 56-57 (3d Cir.1985) (section 2802(c)(4) encompasses franchisor's voluntary decision not to renew underlying lease); Zarcone v. Amerada Hess Corp., 661 F.Supp. 615, 617 (E.D.N.Y.1987) (same); cf. Russo v. Texaco, Inc., 808 F.2d 221, 227 (2d Cir.1986) (citing Veracka in support of its conclusion that section 2802(c)(6) encompasses a voluntary loss of the right to grant the use of a trademark).

We find Veracka persuasive and hold that section 2802(c)(4) encompasses a franchisor's voluntary relinquishment of its lease. As the First Circuit noted in Veracka, section 2802(c)(4) makes no reference to the cause of the underlying lease's termination. Indeed, the legislative history suggests that Congress intended to include voluntary terminations within the scope of section 2802(c)(4). According to the Senate Report:

Expiration of the underlying lease could occur under a variety of circumstances including, for example, a decision by the franchisor not to exercise an option to renew the underlying lease. However, it is not intended that termination or non-renewal should be permitted based upon the expiration of a lease which does not evidence the existence of an arms length relationship between the parties and as a result of the expiration of which no substantive change in control of the premises results.

S.Rep. No. 731, 95th Cong., 2d Sess. 38, reprinted in 1978 U.S.Code Cong. & Admin.News 873, 896. Thus, in deciding whether the termination of a franchisor's underlying lease falls within section 2802(c)(4) the cause of the lease's termination is not determinative. Rather, we must be satisfied that the termination represents an arms length transaction in which the franchisor actually gives up control of the premises. See Hifai v. Shell Oil Co., 704 F.2d 1425, 1429 (9th Cir.1983); Veracka, 655 F.2d at 448.

Here the record clearly establishes that Roberts Oil relinquished all control over the premises upon the cancellation of its lease on January 1, 1985. This is not a case in which a franchisor has maintained control somehow over the premises in an attempt to capitalize on the departed franchisee's goodwill. We thus agree with the district court's conclusion that the cancellation of the underlying lease between Fina and Roberts Oil was an event that justified the nonrenewal of Hutchens' sublease under 15 U.S.C. Sec. 2802(b)(2)(C). ¹

B.

Having found that Roberts Oil's decision not to renew Hutchens' sublease was justified under the PMPA, we must decide whether Roberts Oil satisfied the Act's notice requirements. This case involves three separate notice requirements. In addition to the general notice requirement of section 2804, both section 2802(b)(2)(C) and section 2802(c)(4) contain notice provisions that must be satisfied by franchisors that rely on those sections to justify termination or nonrenewal.

Hutchens does not challenge Roberts Oil's compliance with the notice provisions of section 2804. He argues, however, that Roberts Oil failed to meet the notice requirements of both section 2802(b)(2)(C) and section 2802(c)(4). The district court found that the notice requirement of section 2802(c)(4) supplanted that of section 2802(b)(2)(C), and that therefore section 2802(b)(2)(C) did not apply. ² It further found that the notice requirement of 2802(c)(4) had been materially satisfied.

A franchisor that seeks to justify its nonrenewal of a franchise based on the occurrence of an event within the meaning of section 2802(b)(2)(C) must have acquired knowledge of the event:

not more than 120 days prior to the date on which notification of termination or nonrenewal is given, if notification is given pursuant to section 2804(a) of this title.

15 U.S.C. Sec....