940 F.2d 744 (1st Cir. 1991), 90-1772, Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc.

Docket Nº:90-1772, 90-2149, 90-1773, 90-2148, 90-2017 and 90-2150.
Citation:940 F.2d 744
Party Name:CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellees, v. CUMBERLAND FARMS, INC., Defendant, Appellee, Chevron, U.S.A., Inc., Defendant, Appellant. CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellees, v. CUMBERLAND FARMS, INC., Defendant, Appellant. CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellants, v. CUMBERLAND FARMS, INC., and Chevr
Case Date:July 29, 1991
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
FREE EXCERPT

Page 744

940 F.2d 744 (1st Cir. 1991)

CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellees,

v.

CUMBERLAND FARMS, INC., Defendant, Appellee,

Chevron, U.S.A., Inc., Defendant, Appellant.

CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellees,

v.

CUMBERLAND FARMS, INC., Defendant, Appellant.

CHESTNUT HILL GULF, INC., et al., Plaintiffs, Appellants,

v.

CUMBERLAND FARMS, INC., and Chevron U.S.A., Inc.,

Defendants, Appellees.

Nos. 90-1772, 90-2149, 90-1773, 90-2148, 90-2017 and 90-2150.

United States Court of Appeals, First Circuit

July 29, 1991

Heard May 7, 1991.

Page 745

Robert P. Taylor with whom Walter R. Allan, Pillsbury, Madison & Sutro, San Francisco, Cal., Richard M. Reynolds, Steven M. Greenspan and Day, Berry & Howard were on brief, Hartford, Conn., for Chevron U.S.A., Inc.

John B. Williams with whom James R. Loftis, III, Marcy M. Rehberger, Collier, Shannon & Scott, Washington, D.C., Alan Van Gestel, Goodwin, Procter & Hoar, Boston, Mass., and Mark G. Howard were on brief, Canton, Mass., for Cumberland Farms, Inc.

Robert D. Cultice with whom Carl K. King, Louis J. Scerra, Jr. and Goldstein & Manello were on brief, Boston, Mass., for Chestnut Hill Gulf, Inc., et al.

Before SELYA and CYR, Circuit Judges, and BOWNES, Senior Circuit Judge.

BOWNES, Senior Circuit Judge.

This case arises under subchapter I of the Petroleum Marketing Practices Act, 15 U.S.C. Secs. 2801-2806 (the "Act" or "PMPA"). Chevron U.S.A., Inc. and Cumberland Farms, Inc., defendants-appellants, appeal judgments against them based on jury answers to special questions finding them liable for violations of the Act. There is also an appeal by one of the plaintiffs, Bolton Chevron Service, Inc., from a directed verdict for Chevron. A somewhat detailed exposition of the genesis of this case and the proceedings in the district court, as well as a discussion of the purpose and pertinent provisions of the Act, is necessary to understand the key issue: whether the Act applies.

I.

  1. The Sale by Chevron to Cumberland

    This case, along with a number of others, had its inception in the sale by Chevron to Cumberland of all of Chevron's assets in the states of Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. An asset purchase agreement between Chevron and Cumberland was entered into on December 19, 1985. The sale was consummated in 1986. The price for Chevron's assets was $310,207,000 subject to certain adjustments. The assets included the franchises between Chevron and the operators of its "motor fuel retail outlets." Most of the franchises were established and had a determinate

    Page 746

    period to run; some dealers had "trial" franchises. 1 Chevron assigned to Cumberland all of the franchises, established and trial, covering the operation of its motor fuel retail outlets.

    We quote in full section 8.6a of the agreement because it refers directly to the Act.

    8.6. Franchise Renewal.

    a. As to each and every contract transferred to Buyer pursuant to Section 1.1, which constitutes a "franchise" or evidences a "franchise relationship" as those terms are defined in the Federal Petroleum Marketing Practices Act (the "PMPA") or any applicable state law, Seller shall, prior to Closing, give written notice in accordance with the PMPA or any applicable state law to the franchisee that such contract shall not be renewed by Seller upon expiration of the current term thereof. Buyer agrees that upon expiration of the current term of any such contract, Buyer shall offer, in good faith, to each franchisee a new "franchise" on terms and conditions which are not discriminatory to the franchisee as compared to franchises then currently being offered by Buyer or franchises then in effect with respect to which Buyer is the franchisor; provided that Buyer shall have no obligation to offer a new "franchise" to such franchisee if Buyer has a valid ground for termination of the existing "franchise" or nonrenewal of the existing "franchise relationship" under the PMPA or applicable state law, and Buyer gives such notice of termination or nonrenewal to the franchisee as may be required by the PMPA or any applicable state law.

    Section 8.6.b. provides in pertinent part:

    b. If any lawsuit is brought by any franchisee under the PMPA or any applicable state franchise law with respect to the transactions contemplated by this Agreement or the notices of nonrenewal given by Seller pursuant to this Section 8.6, Seller shall indemnify and hold Buyer and its affiliates harmless from and against any judgment for monetary damages awarded to such franchisee in any such action.

    Under the agreement, Chevron agreed to "license Cumberland" the use of its trademarks and deliver to Cumberland at the closing its "Trademark Licenses."

  2. The Act

    Subchapter I of the Act establishes minimum Federal standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel by franchisors or suppliers of such fuel. S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.Code Cong. & Admin.News 873. 2 Congress recognized that the often complex and competing interests involved in petroleum franchises had "led to numerous complaints by franchisees of unfair terminations or nonrenewals of their franchises by franchisors for arbitrary and even discriminatory reasons." Id. at 875-76. The Act was therefore designed to prevent franchisors from terminating or failing to renew franchise agreements for technical or minor contract violations or compelling franchisees to comply with franchisors' marketing policies. Id. at 876-77. We noted in Veracka v. Shell Oil Co., 655 F.2d 445 (1st Cir.1981), that the Act's "basic effort to prevent franchise terminations reflects a recognition of the disparity of bargaining power between franchisor and

    Page 747

    franchisee and an effort to prevent coercive or unfair franchisor practices." Id. at 448.

    Although Congress intended to protect franchisees from arbitrary and discriminatory franchise termination and nonrenewal, it also recognized "the legitimate needs of a franchisor to be able to terminate a franchise or not renew a franchise relationship based upon certain actions of the franchisee, including certain failures to comply with contractual obligations or upon certain changes in circumstances. Particularly important is that legislation dealing with this subject recognize 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." S.Rep. No. 731, 95th Cong., 2d Sess. 19, reprinted in 1978 U.S.Code Cong. & Admin.News at 877.

    We next consider the pertinent provisions of the Act. There can be no doubt that, under the Act and prior to the sale of its assets to Cumberland, Chevron was a franchisor and the plaintiffs were its franchisees. Section 2801(1)(A) defines the term "franchise" as any contract--

    (i) between a refiner and a distributor,

    (ii) between a refiner and a retailer,

    (iii) between a distributor and another distributor, or

    (iv) between a distributor and a retailer,

    under which a refiner or distributor (as the case may be) authorizes or permits a retailer or distributor to use, in connection with the sale, consignment, or distribution of motor fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies motor fuel to the distributor which authorizes or permits such use.

    Under Sec. 2801(1)(B), the term "franchise" includes--

    (i) any contract under which a retailer or distributor (as the case may be) is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of...

To continue reading

FREE SIGN UP