Darling v. Mobil Oil Corp.

Decision Date04 January 1989
Docket NumberNo. 1296,D,1296
Citation864 F.2d 981
Parties, 57 USLW 2415 Byron C. DARLING, III, Plaintiff-Appellant, v. MOBIL OIL CORPORATION, Defendant-Appellee. ocket 88-7209.
CourtU.S. Court of Appeals — Second Circuit

Richard W. Farrell, Stamford, Conn. (Albert J. Barr, Farrell & Barr, Stamford, Conn., of counsel), for plaintiff-appellant.

Andrew J. Kilcarr, Washington, D.C. (Edward C. Duckers, Hogan & Hartson, Washington, D.C., of counsel), for defendant-appellee.

Dimitri G. Daskalopoulos, Washington, D.C., filed an amicus curiae brief for Service Station Dealers of America, Inc., Fair Franchising Coalition, New York State Assn. of Service Stations, Long Island Gasoline Retailers Assn., Tri State Gasoline and Automotive Retailers Assn. of Maine, New Hampshire and Vermont.

Before NEWMAN, KEARSE and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

This appeal from cross-motions for summary judgment requires an examination of the relationship between the Petroleum Marketing Practices Act, 15 U.S.C. Secs. 2801-2841 (1982) (PMPA or the Act), and the Connecticut Gasoline Dealer's Act, Conn.Gen.Stat. Sec. 42-133j-42-133n (1987) (Connecticut Act), in the context of the termination of a retail franchise agreement. The PMPA was enacted in 1978 primarily to prevent arbitrary terminations and nonrenewals of such franchises. Enacted under the state's police powers, the 1977 Connecticut Act is also designed to regulate certain aspects of franchise agreements, including terminations and nonrenewals.

Each enactment recognized the David versus Goliath aspect of the relationship between the small retailer franchisee and the giant petroleum company franchisor, and aimed at making that relationship more equal. In so doing, the federal act does not purport to tie the "giant's" marketing hands or to put it at a competitive disadvantage in the petroleum franchise business. The Connecticut Act, in contrast, is more protective of franchisees and more skeptical of franchisors than its federal counterpart. It is our task on this appeal to give effect to these competing statutory objectives.

The threshold issue is whether the federal statute, 15 U.S.C. Sec. 2802(b)(2)(A) and (b)(2)(B), under which Mobil Oil Corporation (Mobil) seeks to terminate its franchise agreement with Byron C. Darling III (Darling), controls this case and authorizes such termination because of Darling's failure to operate his service station 24 hours-a-day. Darling's principal defense to termination is a provision of the Connecticut Act. See Conn.Gen.Stat. Sec. 42- 133l(e). A second issue, assuming federal law controls, is whether Mobil's purported termination complies with the Act.

BACKGROUND FACTS and PRIOR PROCEEDINGS

Mobil has terminated Darling's retail franchise agreement based on his failure to operate the gasoline station according to the hours of operation provision of the agreement. The material facts as found by the district court are not contested. In November 1985 Darling purchased an interest in the Mobil service station franchise On December 23, 1986 Mobil formally notified Darling that his franchise would be terminated if he failed to implement the 24 hours-a-day provision. In response, Darling commenced the instant action on January 19, 1987 seeking injunctive and monetary relief and a declaratory judgment against Mobil that termination of his franchise agreement for failure to operate 24 hours-a-day is unlawful under the Connecticut Act and the PMPA. On March 5, 1987 Mobil terminated Darling's franchise pursuant to paragraph 5 of the lease and in accordance with Secs. 2802(b)(2)(A) and (b)(2)(B) of the PMPA. It also counterclaimed in Darling's action seeking declaratory, monetary and injunctive relief for Darling's alleged violation of the PMPA and for his breach of contract.

located at 33-35 Grassy Plains Street in Bethel, Connecticut, and became a Mobil franchisee. To operate a Mobil service station pursuant to a franchise agreement, a franchisee leases the land and the station from Mobil. In this case Darling purchased a prior franchisee's lease that ran from August 1, 1985 through July 31, 1988. The lease contained a provision that obligated the franchisee to operate the station 24 hours-a-day, seven days-a-week. Darling and Mobil discussed the 24-hours provision prior to Darling's purchase, but made no change in the agreement. Darling was aware of provisions in the Connecticut Act that prohibited franchise terminations for failure to operate the station between 10:00 P.M. and 6:00 A.M., if the station was certified as unprofitable during those hours. He initialed the 24 hours-a-day, seven days-a-week provision in the lease, and operated Grassy Plains Mobil on that basis from mid-December 1985 through mid-February 1986. Operations from 10:00 P.M. to 6:00 A.M. over these two months resulted in continuous financial loss during those hours. As a result, Darling advised Mobil in mid-February that he would cease to stay open round-the-clock. Throughout 1986 Mobil periodically advised him that failure to operate the station 24 hours-a-day violated the agreement and constituted grounds for termination of the franchise.

Both parties moved for summary judgment. On March 2, 1987 the district court granted Mobil's motion for summary judgment, holding that the PMPA preempted the pertinent provisions of the Connecticut Act. It relied heavily on Mobil Oil Corp. v. Karbowski, 667 F.Supp. 927 (D.Conn.1987), which was decided after commencement of this action. The district court further ruled that the reasonableness standard for termination set forth in Sec. 2802(b)(2)(A) was "a subjective standard, in this instance evaluated principally from the perspective of the franchisor." Darling appeals the district court's grant of summary judgment to Mobil.

THE PMPA

To put the issues before us in proper perspective, it is necessary to review the purposes which prompted the passage of the PMPA and the Connecticut Act. In order to assess the PMPA's preemptive effect on state law, it is helpful to (1) "examine the statutory language and legislative history" [of the PMPA], (2) the subject matter of the regulated field and the interest in uniformity, and (3) the pervasiveness of the federal statutory scheme, and (4) the impediments that state regulation might pose to federal objectives." County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 57 (2d Cir.1984). In broad terms, the PMPA was enacted to establish federal standards regarding the termination and nonrenewal of petroleum marketing franchises. The Act also had more specific objectives.

Its overriding purpose is to establish "protection for franchisees from arbitrary and discriminatory terminations or non-renewals of their franchises." S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.Code Cong. & Admin.News 873, 874 (Senate Report ). Congressional hearings confirmed that petroleum distributors had been using the threat of termination to force franchisees to comply with the distributor's marketing policies. Congress recognized that franchisors had used their superior bargaining power and the threat of termination or nonrenewal to gain an In addition to redressing bargaining disparities and the ill effects that flow from them, Congress also designed the PMPA to achieve two other goals. The second objective was to establish a "single, uniform set of rules" to regulate the grounds for termination and nonrenewal and eliminate the "uneven patchwork of rules governing franchise relationships which differ from State to State." Senate Report at 877; see also 123 Cong.Rec. 10,384 (daily ed. April 5, 1977) (statement of Rep. Brown). Like the state of Connecticut, a number of states had previously passed legislation addressing problems in the petroleum franchise industry by a variety of methods.

unfair advantage in contract negotiations and disputes. Senate Report at 875-77. One of the principal purposes of the PMPA therefore was to correct the disparity of bargaining power and to protect franchisees from arbitrary or discriminatory practices by franchisors. See Bellmore v. Mobil Oil Corp., 783 F.2d 300, 304 (2d Cir.1986); see also Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987) (en banc ).

A third goal was to recognize "the legitimate needs of a franchisor" to terminate or not to renew based on misconduct of the franchisee, and to enable the franchisor to respond effectively to changing market conditions in a given geographic region. Senate Report at 877; see also 123 Cong.Rec. 10,383 (daily ed. April 5, 1977) (statement of Rep. Dingell). Although the PMPA was designed to serve the three goals of correcting disparities in bargaining power, providing nationwide uniformity in franchise relationships and permitting franchisor flexibility--its paramount objective is to redress disparities in bargaining power and to prevent the ensuing arbitrary termination. See Bellmore, 783 F.2d at 304-05; Esso Standard Oil Co. v. Department of Consumer Affairs, 793 F.2d 431, 434 (1st Cir.1984).

This view of the statute is best demonstrated by examining the language of the Act. In order to effectuate its purposes, Congress barred termination of a petroleum franchise unless it meets specific statutory justifications. Section 2802(b)(1)(B) provides that a termination must be based on a ground set forth in Sec. 2802(b)(2). Thus, a franchise may be terminated after proper notice is given, based on: "A failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship...." Sec. 2802(b)(2)(A). Subpart B of the same section similarly permits termination or non-renewal based on: "A failure by the franchisee to exert good faith efforts to carry out the provisions of the franchise...." Sec. 2802(b)(2)(B). Either subpart (A) or (B) are sufficient to justify...

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