April Marketing & Distributing Corp., Inc. v. Diamond Shamrock Refining and Marketing Co.

• Decision Date: 10 January 1997
• Docket Number: No. 95-11096,95-11096
• Citation: 103 F.3d 28
• Parties: APRIL MARKETING & DISTRIBUTING CORPORATION, INC., Plaintiff-Appellee, v. DIAMOND SHAMROCK REFINING AND MARKETING COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 28

103 F.3d 28

APRIL MARKETING & DISTRIBUTING CORPORATION, INC., Plaintiff-Appellee, v. DIAMOND SHAMROCK REFINING AND MARKETING COMPANY, Defendant-Appellant.

No. 95-11096.

United States Court of Appeals Fifth Circuit.

Jan. 10, 1997.

Olan John Boudreaux, James A. Huguenard, Fisher, Gallagher & Lewis, Houston, TX, Donald Hayes Grissom, Grissom & Thompson, Austin, TX, for plaintiff-appellee.

William Wendell Hall, Renee A. Forinash, Brynley L. James, III, Fulbright & Jaworski, San Antonio, TX, for defendant-appellant.

Charles Leslie Irvin, Conroe, TX, for Star Enterprise, amicus curiae.

Cullen M. Godfrey, San Antonio, TX, for Fina Oil and Chemical Company, amicus curiae.

Stanley W. Crawford, Houston, TX, for Coastal Refining and Marketing, Inc., amicus curiae.

Glenn G. Goodier, New Orleans, LA, for Ashland Petroleum Company, a division of Ashland, Inc., amicus curiae.

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

Before REAVLEY, GARWOOD and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This appeal arises out of a franchise between Diamond Shamrock Refining and Marketing Company ("Diamond Shamrock") and April Marketing and Distributing Corporation ("April Marketing"). April Marketing brought suit against Diamond Shamrock in federal district court, alleging constructive termination of the franchise in violation of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. §§ 2801 et seq., and, alternatively, unjust enrichment and violation of the duty of good faith and fair dealing under Texas state law. Diamond Shamrock moved for partial summary judgment on April Marketing's PMPA wrongful termination claim. The district court denied the motion and certified its order for interlocutory appeal to this court under 28 U.S.C. § 1292(b). We granted Diamond Shamrock's petition for leave to appeal.

Because April Marketing has failed to allege any facts that would support a termination claim under the PMPA, we reverse the order of the district court.

I.

April Marketing is a wholesale and retail distributor of motor fuel and related products in the Dallas area. Diamond Shamrock refines and markets petroleum products. A series of "jobber contracts" governed April Marketing's and Diamond Shamrock's franchise relationship. Under the franchise agreement in effect when the termination allegedly occurred, Diamond Shamrock gave April Marketing the right to use Diamond Shamrock's trademarks, trade names, and brands, but only at locations specifically approved by Diamond Shamrock in writing. Diamond Shamrock also agreed to sell motor fuel and other products to April Marketing. April Marketing in turn agreed to pay Diamond Shamrock's "established price" for these items in cash, unless the parties agreed upon another arrangement. Although Diamond Shamrock as a matter of practice extended credit to April Marketing, the agreement gave Diamond Shamrock the right to alter or suspend April Marketing's credit at any time. In April of 1991, Diamond Shamrock exercised its right to terminate April Marketing's credit line.

April Marketing's wrongful termination claim is premised on three basic assertions. First, Diamond Shamrock entered into direct competition with April Marketing by opening its own retail stores near April Marketing's stores and selling gasoline and other products to its own stores at or below wholesale price. Second, Diamond Shamrock imposed onerous conditions before it would allow April Marketing to use the Diamond Shamrock logo at new April Marketing locations and in some cases refused to grant permission altogether. Third, Diamond Shamrock terminated April Marketing's credit line, forcing April Marketing to pay cash for gasoline and other goods. April Marketing alleges that these actions constructively terminated April Marketing's franchise in violation of the PMPA.

II.

The centerpiece of the PMPA, 15 U.S.C. § 2802(a), prohibits a franchisor from terminating a franchise or failing to renew a franchise relationship, except in the manner and for the reasons specified by the PMPA. ¹ The Act does not define "termination," other than to specify that it "includes cancellation." Id. § 2801(17).

This circuit has not recognized a cause of action for "constructive termination" under the PMPA. ² We need not address the question of whether a constructive termination is actionable under the PMPA; in this case, Diamond Shamrock's actions did not breach any obligation it owed April Marketing and thus cannot provide the basis for a termination claim under the PMPA.

Those courts that have recognized constructive termination under the PMPA have indicated that there is no constructive termination absent a breach of the franchise. ³ See May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 922 (6th Cir.1989); Barnes v. Gulf Oil Corp., 795 F.2d 358, 362-64 (4th Cir.1986); ⁴ see also Fresher v. Shell Oil Co., 846 F.2d 45, 46-47 (9th Cir.1988) (holding that the dismissal of a PMPA wrongful termination action was proper where the franchisee failed to allege "breach of any agreements which constitute components of their franchises"). Cf. Smith v. Atlantic Richfield Co., 533 F.Supp. 264, 268-69 (E.D.Pa.) (recognizing that termination of a core secondary arrangement can constitute a termination of a franchise in violation of the PMPA), aff'd mem., 692 F.2d 749 (3d Cir.1982).

April Marketing does not dispute that none of Diamond Shamrock's actions in this case violated the parties' agreement, nor does it claim that the contractual provisions that authorized Diamond Shamrock's actions themselves violate the PMPA. Diamond Shamrock's actions were clearly within its rights under the franchise. The agreement explicitly authorized Diamond Shamrock both to refuse to brand additional April Marketing stores and to refuse to extend credit to April Marketing. Further, neither the PMPA nor the contract prohibits Diamond Shamrock from competing directly with April Marketing.

Still undaunted, April Marketing argues that a franchisor's actions, even if compliant with the terms of the franchise, can be considered a PMPA termination because franchises are contracts of adhesion. The short answer is that Congress could have chosen to prescribe the terms of franchise agreements as a means of addressing the disparity of bargaining power between the parties, for example, by requiring or regulating the extension of credit to franchisees. But it did not. The legislative history of the PMPA indicates that Congress was well aware of the inequality in the bargaining positions of franchisors and franchisees. See S.REP. NO. 731 at 17-19, 1978 U.S.C.C.A.N. at 873, 875-878. Congress chose to address this problem not by regulating the details of the franchise agreement but rather by limiting the franchisor's ability to employ the "extreme remedy" of termination. See S.REP. NO. 731 at 18, 1978 U.S.C.C.A.N. at 876. Thus, we conclude that a franchisor's actions, if those actions do not breach the franchise, cannot be considered a "termination" within the meaning of the PMPA.

III.

We need not address whether a franchisee can ever state a cause of action for wrongful termination under the PMPA absent a formal termination or cancellation of the franchise by the franchisor. We...