Hinkleman v. Shell Oil Co.

• Decision Date: 21 July 1992
• Docket Number: No. 91-2328,91-2328
• Parties: , 1992-1 Trade Cases P 69,811 Francis George HINKLEMAN, Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 372

962 F.2d 372

60 USLW 2780, 1992-1 Trade Cases P 69,811

Francis George HINKLEMAN, Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.

No. 91-2328.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 28, 1991.

Decided May 6, 1992.

As Amended July 21, 1992.

Harry Carl Storm, Abrams, West & Storm, P.C., Bethesda, Md., argued, for plaintiff-appellant.

M. Albert Figinski, Weinberg & Green, Baltimore, Md., argued (Carol Saffran-Brinks, Weinberg & Green, on the brief), for defendant-appellee.

Before RUSSELL and WILKINS, Circuit Judges, and WARD, Senior United States District Judge for the Middle District of North Carolina, sitting by designation.

OPINION

PER CURIAM:

Francis Hinkleman, a service station operator, appeals the district court's disposition under Federal Rules of Civil Procedure 12(b)(6) and 56 of his franchise claims against Shell Oil Company. Hinkleman had filed a two-count complaint with the district court alleging: 1) that Shell Oil Company's termination of his petroleum marketing franchise agreement violated section 102(b)(2)(C) of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2802(b)(2)(C) (1988); and 2) that Shell's discriminatory pricing practices through its lease of real estate to Hinkleman violated Maryland antitrust law, specifically Md.Com. Law Code Ann. § 11-204(a)(5) (1990).

The district court first dismissed Hinkleman's state antitrust claim under Rule 12(b)(6) for failure to state a claim, holding that the state statute prohibiting price discrimination did not apply to real estate leases. In a subsequent hearing, the district court granted Shell's motion for summary judgment on the franchise termination, ruling that Shell's termination of the franchise did not violate the PMPA. We affirm the district court's rulings.

I.

Beginning in 1978, Francis Hinkleman leased and operated a service station in Pasadena, Maryland, with his son. Shell acquired the service station premises in November 1985 from Arco and offered Hinkleman a three-year franchise agreement to replace his existing agreement with Arco. The Shell franchise was renewed in November 1988 for five years.

Under all Shell franchise agreements, lessee dealers pay rent according to a Variable Rent Program (VRP). The VRP grants reductions in a dealer's monthly lease payment if the dealer's gasoline purchases for that month exceed a stated threshold volume. Shell calculates the threshold volume of gasoline to be purchased monthly by each dealer based on (1) the business value of the location to the dealer and to Shell; (2) the occupancy costs incurred by Shell; and (3) the fair market value of Shell's investment in the property. The exact method for determining a dealer's threshold volume is not made known to the dealers; Shell merely informs them of the determined volume. If a dealer's gasoline purchases exceed the threshold, he qualifies for a rent abatement in the amount of 3.5 cents per gallon purchased over the threshold level. The average rent reduction for all Shell dealers was 31.99% in 1987, 51.64% in 1988, and 49.04% in 1989. In comparison, Hinkleman's rent reductions for those years were 0%, 0%, and 10%, respectively. ¹

In late 1988 or early 1989, a dispute arose concerning certain items appearing on Hinkleman's monthly trade statement from Shell. As a result, an outstanding balance of approximately $1,500 was carried from January through October 1989. ² The matter was ultimately resolved in November 1989 after other problems with Hinkleman's account had developed.

In September 1989, Shell experienced the first in a series of problems collecting payments due under the franchise agreement. On September 20, a check for $9,448.14 tendered by Hinkleman to Shell as payment for a gasoline delivery was returned for insufficient funds. The bank admitted that the return of the check had been a bank error and issued a letter of apology to Hinkleman. Shell's territory manager nevertheless asked Hinkleman for a certified replacement check, refusing to accept a personal check offered by Hinkleman. When payment was not received, on September 27 Shell sent Hinkleman a written notice giving him until October 9 to replace the returned check or to be placed on certified funds status (i.e. requiring all payments be made by certified check).

On October 2, Hinkleman again tendered a noncertified replacement check, which Shell refused to accept. Hinkleman thereafter made no further attempts to pay before the October 9 deadline. On October 13, Shell sent a written demand for payment of $11,213.64 by October 20. This sum included the amount of the dishonored check from September as well as the disputed trade balance carried since January 1989. The letter threatened franchise termination if Hinkleman did not keep his account current in the future.

A few days later Shell attempted to collect its October rent payment in normal course through electronic bank draft, but that attempt was rejected by the bank. Hinkleman, his lawyer and Shell's representatives then met and agreed that Hinkleman would provide a certified check to pay the September balance due and the October rent. Both amounts were paid on October 20. The disputed trade balance was ultimately resolved and paid on November 6.

On November 30, 1989, Shell sent Hinkleman a letter clearly warning that a termination notice would be issued if any further incident of indebtedness occurred. Approximately one month later, on December 25, another check tendered to Shell from Hinkleman did not clear the bank. Hinkleman notified Shell immediately upon learning of the check's dishonor and issued a replacement check on January 5, 1990.

In the ten-day interim before Shell received the replacement check, Shell sent Hinkleman a notice on January 4 stating its intent to terminate the lease and franchise agreement as of April 16, 1990. It cited Hinkleman's failure to make timely payments as the cause of termination. Shell had no set policy concerning the number of defaults it would tolerate before sending a notice of termination and determined each termination decision on the merits of the particular circumstances.

Two further incidents occurred after the date of the termination notice. On January 9, 1990, a check for $10,195.70 written for a gasoline delivery was returned for insufficient funds. Hinkleman subsequently replaced that check. The second incident took place on March 16, 1990, when Shell was unable to electronically draft the March rent because Hinkleman had closed his bank account. Hinkleman then tendered a check for the March rent within seven days. ³

On March 23, 1990, Hinkleman filed suit in the U.S. District Court for the District of Maryland seeking injunctive relief from termination of the franchise. Shell consented to a temporary restraining order until a hearing could be held on the preliminary injunction. After a hearing on May 2, the court denied the injunction and Hinkleman vacated the leased premises.

Hinkleman, with leave of the court, then filed a two-count amended complaint seeking damages only. Count I alleged that Shell's termination was not in compliance with section 102(b)(2)(C) of the PMPA, 15 U.S.C. § 2802(b)(2)(C), which permits termination of a franchise agreement under specified circumstances. Hinkleman alleged that he had paid all outstanding balances to Shell, with only insignificant delays, and that Shell's termination was arbitrary, discriminatory and pretextual. Count II added a claim under the Maryland Antitrust Act, specifically Md.Com.Law Code Ann. § 11-204(a)(5), alleging that Shell engaged in unlawful price discrimination against Hinkleman through its administration of the VRP. Hinkleman contended that Shell, by setting his threshold levels of gasoline purchases at unreasonably high levels, charged him a monthly rental amount in excess of that charged other Shell franchisees. He further contended that the leasing of the premises was a service provided by Shell directly connected with the sale of its gasoline to dealers. The Maryland Statute prohibits discrimination against a purchaser of a commodity bought for resale by furnishing any service connected with that commodity on unequitable terms to those purchasers.

Upon Shell's Rule 12(b)(6) motion, the district court dismissed Count II for failing to state a claim upon which relief could be granted. The court held that a real estate lease is not a "service" under the Maryland antitrust law, and, therefore, any allegations of discriminatory pricing practices through a real estate lease were not actionable under that statute. At a later date, the district court granted Shell's motion for summary judgment on Count I, finding that its termination of the franchise arrangement was in accordance with permissible terminations under the PMPA.

Hinkleman now appeals both judgments.

II.

We have jurisdiction in this case under 28 U.S.C. § 1291 (1988). We consider separately the district court's disposition of each claim, beginning with the grant of summary judgment on Count I.

A.

We review decisions granting summary judgment de novo, applying the same standards required of the district court. Shealy v. Winston, 929 F.2d 1009, 1011 (4th Cir.1991); see Higgins v. E.I. DuPont De Nemours & Co., 863 F.2d 1162, 1166-67 (4th Cir.1988). Summary judgment should be granted if the parties present no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Miller v. Federal Deposit Ins. Corp., 906 F.2d 972, 973 (4th Cir.1990). In assessing the record evidence, we must view the facts in the light most favorable to the non-moving party. Matsushita Elec Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

The substantive law governing petroleum franchise agreements is the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801-2841. Congress enacted Title I of the PMPA to...