Jimenez v. BP Oil, Inc.

• Decision Date: 16 November 1988
• Docket Number: Nos. 87-3843,s. 87-3843
• Citation: 853 F.2d 268
• Parties: Francisco S. JIMENEZ, Plaintiff-Appellee, v. BP OIL, INC., Defendant-Appellant. James PALMER; Torsak Rossaki; French Ray; Leon Uzarowski; Anton A. Bond; Farzin Afsahi; Ojan Fakhriyazdi; Firouz Rezazedeh; Sam Akindura; Edward Parlier; Luiz Azucena; Lal Ith Gnanasiri; Yoav Portnoy; Boo H. Chung; Jeffrey H. Kormann, Plaintiffs-Appellees, v. BP Oil, Inc., Defendant-Appellant. Carlos HORCASITAS, Plaintiff-Appellee, v. BP OIL, INC., Defendant-Appellant. (L), 87-3854 and 87-3855.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 268

853 F.2d 268

57 USLW 2127

Francisco S. JIMENEZ, Plaintiff-Appellee, v. BP OIL, INC., Defendant-Appellant.

James PALMER; Torsak Rossaki; French Ray; Leon Uzarowski;

Anton A. Bond; Farzin Afsahi; Ojan Fakhriyazdi; Firouz

Rezazedeh; Sam Akindura; Edward Parlier; Luiz Azucena;

Lal Ith Gnanasiri; Yoav Portnoy; Boo H. Chung; Jeffrey H.

Kormann, Plaintiffs-Appellees, v. BP Oil, Inc., Defendant-Appellant.

Carlos HORCASITAS, Plaintiff-Appellee, v. BP OIL, INC., Defendant-Appellant.

Nos. 87-3843(L), 87-3854 and 87-3855.

United States Court of Appeals Fourth Circuit.

Argued April 7, 1988.

Decided Aug. 8, 1988.

Rehearing Denied Nov. 16, 1988.

John Henry Lewin, Jr. (Arthur W. Machen, Jr., Venable, Baetjer & Howard, Baltimore, Md., on brief), for defendant-appellant.

Harry Carl Storm (Abrams, West & Storm, P.C., Bethesda, Md., on brief), for plaintiffs-appellees.

Before WIDENER, and CHAPMAN, Circuit Judges, and MICHAEL District Judge for the Western District of Virginia, sitting by designation only.

CHAPMAN, Circuit Judge:

This case involves the nonrenewal of a petroleum retailing franchise. The district court, 652 F.Supp. 329 (D.Md.1987), ruled that defendant BP Oil Company (BP) was liable to its franchisee-retailer, Francisco Jimenez, for goodwill payments, construing the nonrenewal as a "termination" under the Maryland Gasohol and Gasoline Products Marketing Act ("the Act" or "the Maryland Act"), Md. Comm. Law Code Ann. Secs. 11-301 to -308 (1983). It also ruled that the Federal Petroleum Marketing Practices Act (PMPA), 15 U.S.C. Sec. 2801 et seq. (1982), does not preempt the Maryland Act. Although the district court said BP had not violated the PMPA, it did find that its nonrenewal of the Jimenez' franchise was a termination under the Act, entitling Jimenez to payment for goodwill. The court thus granted summary judgment to appellees on their claim for payments under the Act, but found for appellant BP on the issue of liability under the PMPA. We find that the PMPA preempted the Maryland Act under the facts of the instant case, and we reverse.

I

Plaintiffs Jimenez, Horcasitas, and Palmer were multistation BP franchisees who operated in the Baltimore-Washington area pursuant to three-year franchise agreements. The franchises were scheduled to expire on April 30, 1985. For some time BP had been rethinking its decision to distribute petroleum products in that area. On April 18, 1985, it notified its plaintiffs that it would extend their franchises to October 31, 1985, and it would then determine whether it would remain in the local market and drop some less profitable distributorships, or whether it would completely exit the market. In September 1985 BP entered an agreement with Crown Central Petroleum Corporation ("Crown") by which Crown would purchase all of BP's Baltimore-Washington retail stations as of April 1, 1986. BP notified its franchisees of this agreement by letter dated October 17, 1985. BP then extended its franchises with plaintiffs through April 1, 1986, eleven months beyond the initially scheduled franchise expiration date.

Crown offered current BP franchisees franchises with terms less favorable than the BP franchise: particularly, Crown's prohibition of its franchisees operating more than one station. As a result, some of the BP franchisees, including plaintiffs, rejected offers of Crown franchises.

As planned, BP withdrew from the Baltimore-Washington market, and the Crown franchises with some of the former BP station owners became effective April 1, 1986. The plaintiffs brought an action on March 26, 1986 seeking a temporary injunction to prevent the termination of their BP franchises. They asserted that BP willfully violated the PMPA, and they sought goodwill payments under the Maryland Act. The United States District Court for the District of Maryland denied such relief.

Plaintiffs amended their complaint on July 18, 1986 and alleged that BP violated the PMPA, 15 U.S.C. Sec. 2802(b)(2)(E)(iii)(II), which provides that when a franchisor sells his interest in marketing premises, the purchaser must offer a franchise with terms and conditions "which are not discriminatory to the franchisee as compared to franchises then currently being offered" by the purchaser of seller's franchises. Plaintiffs reiterated their claim under the Maryland Act for goodwill payments as a result of the termination of their franchises.

The district court granted summary judgment for BP on the claims under the PMPA. It determined that the terms offered by Crown were nondiscriminatory and that BP's decision to exit the market was a "good faith" economic reason for termination or nonrenewal of their franchises. See 15 U.S.C. Sec. 2802(b)(2)(E).

The district court found for plaintiffs on their claims for goodwill under the Maryland Act. It found that the PMPA did not preempt the Maryland Act because the provisions of the state law as to goodwill payments upon franchise termination were not inconsistent with PMPA but were supplemental thereto. The court held that the instant case involved a termination rather than a "reasonable nonrenewal" for purposes of the Act and that plaintiffs were entitled to goodwill under the Maryland statute.

BP appeals. Its threshold argument is that the Act was intended to address wrongful conduct--unreasonable nonrenewals and terminations--rather than the instant situation: a complete withdrawal by an oil distributor from a geographic market. It also argues that the Federal PMPA preempts the Act's provision requiring goodwill payments for cancellation, termination, or unreasonable nonrenewal of retailing franchises. In the alternative, it argues that if goodwill payments are necessary, the Act's failure to establish a method for valuating goodwill gives the parties the ability to do so through their franchise agreement.

II

A. Applicability of the Maryland Act

It is well established that a court should avoid deciding a constitutional question when it can dispose of a case on another basis. Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 347, 56 S.Ct. 466, 483, 80 L.Ed. 688 (1936) (Brandeis, J., concurring). Thus, before we decide BP's preemption claims under the Supremacy Clause, we must decide whether the district court properly found the Maryland Act applicable to the present facts. Turning to the Maryland statute, we think it unclear whether the Act covers complete market withdrawal as was accomplished by BP in the Baltimore-Washington area.

The Maryland statute seeks to prevent oil producers and refiners from forcing an independent retailer, who leases his station, to choose between either submitting to terms imposed by the company or losing his franchise. The effect of such maneuvering had been the vertical integration of producers into the retailing business. This, in turn, resulted in decreased competition, since there were fewer independent retailers to engage in price competition with company-operated stations. The Maryland Act was intended to remedy onerous supplier practices and price discrimination aimed at forcing independent retailers into a desired pricing line. See generally Governor of Md. v. Exxon Corp., 279 Md. 410, 418-22, 370 A.2d 1102, 1108-10 (1977); Comment, Gasoline Marketing Practices and "Meeting Competition" Under the Robinson-Patman Act: Maryland's Response to Direct Retail Marketing by Oil Companies, 37 Md.L.Rev. 323, 323-27 (1977).

The goodwill payment requirement of the Act, Md. Comm. Law Code Ann. Sec. 11-304(i), serves this purpose only when a producer seeks to force its way into the retailing market. BP is not seeking to capitalize on goodwill established by its independent retailers. There has been merely a substitution of franchisors--Crown for BP. Thus, we initially question whether the Maryland Act intended to operate as a "toll" to be paid by distributors seeking to exit a geographic market.

B. Preemption of Maryland Law

Given the paucity of Maryland statutory or common law on whether the Maryland Act applies to market withdrawals, we will assume here that the Maryland legislature intended such. We thus move to the central issue: Whether the Maryland goodwill payment provision is preempted by the PMPA. We find that it is, at least insofar as it applies to complete market withdrawals.

The PMPA was enacted in 1978 in part to establish minimum federal standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel. S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S. Code Cong. & Admin. News 873 [hereinafter S.Rep.]. The main purpose of the safeguards of the PMPA was to combat termination and nonrenewal, or threats of termination and nonrenewal, that had been used by franchisors to compel franchisees to comply with marketing policies of the franchisor. S.Rep., supra, 1978 U.S. Code Cong. & Admin. News at 876. The Senate Report stated to this effect:

Needed is a single, uniform set of rules governing the grounds for termination and non-renewal of motor fuel marketing franchises and the notice which franchisors must provide franchisees prior to termination of a franchise or non-renewal of a franchise relationship. Such a set of rules would clearly define the rights and obligations of the parties to the franchise relationship in the crucial area of termination of a franchise or non-renewal of the franchise relationship.

S.Rep., supra, 1978 U.S. Code Cong. & Admin. News at 877.

The PMPA provides for preemption of certain state laws governing the same subject matter:

(a) To the extent that any provision of this subchapter applies to the termination (or furnishing of notification with respect thereto) of any franchise, or to the nonrenewal (or the furnishing of notification with respect thereto) of any franchise relationship, no State or political subdivision thereof may adopt, enforce, or continue in effect any provision of any law or regulation (including any remedy or penalty...