Atlantic Autocare, Inc. v. Shell Oil Products Co.

• Decision Date: 11 March 2009
• Docket Number: No. 06 Civ. 4242 (SHS).,06 Civ. 4242 (SHS).
• Citation: 605 F.Supp.2d 463
• Parties: ATLANTIC AUTOCARE, INC., et al., Plaintiffs, v. SHELL OIL PRODUCTS COMPANY LLC (f/k/a Shell Oil Products Company), Shell Oil Company, and Motiva Enterprises LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

605 F.Supp.2d 463

ATLANTIC AUTOCARE, INC., et al., Plaintiffs, v. SHELL OIL PRODUCTS COMPANY LLC (f/k/a Shell Oil Products Company), Shell Oil Company, and Motiva Enterprises LLC, Defendants.

No. 06 Civ. 4242 (SHS).

United States District Court, S.D. New York.

March 11, 2009.

COPYRIGHT MATERIAL OMITTED

Curtis Victor Trinko, Law Offices of Curtis V. Trinko, LLP, New York, NY, James A. Maro, Jr., Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, Stephen E. Connolly, Kendall S. Zylstra, Schiffrin & Barroway, LLP, Radnor, PA, for Plaintiffs.

Karen Therese Staib, Paul Dewitt Sanson, Vaughan Finn, Shipman & Goodwin, LLP, Hartford, CT, Laurie Ann Sullivan, Shipman & Goodwin, LLP, Stamford, CT, Lauren C. Fantini, Philadelphia, PA, Mark Allen Robertson, Fulbright & Jaworski L.L.P., New York, NY, for Defendants.

Jerome T. Marcus, Marcus, Auerbach & Zylstra, L.L.C., Elkins Park, PA.

OPINION & ORDER

SIDNEY H. STEIN, District Judge.

Plaintiffs currently operate — or have operated — gas stations in the New York City area. They sell either "Shell" or "Texaco" brand gasoline under franchise agreements with defendant Motiva Enterprises LLC, a joint venture of the Shell Oil Company, Texaco, Inc., and Saudi Aramco.

Plaintiffs allege that Motiva, as well as defendants Shell Oil Products Company LLC and Shell Oil Company, have terminated or "constructively terminated" their franchise agreements in violation of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. §§ 2801-06. Plaintiffs also allege that defendants have breached the parties' franchise agreements by setting gasoline prices in violation of the open price term provision of N.Y. U.C.C. § 2-305.

Following fact and expert discovery, defendants have moved for summary judgment with respect to each of plaintiffs' claims. Summary judgment for defendants is granted. First, a claim of "constructive termination" under the PMPA is actionable only in the context of an assignment of a franchise agreement, and plaintiffs admit that they have not brought a constructive termination claim based on an assignment. Second, plaintiffs have failed to offer evidence in support of a claim of actual termination under the PMPA. Third, based on the evidence in this record, no reasonable finder of fact could conclude that defendants have violated N.Y. U.C.C. § 2-305 by setting the price of gasoline in bad faith.

I. BACKGROUND

The Second Amended Complaint originally contained five claims for relief, but plaintiffs voluntarily withdrew Count Three, which alleged violations of the Robinson-Patman Act, 15 U.S.C. § 13a (Order, June 13, 2008). In addition, Count Five, which alleged a breach of contract based on defendants' automated gas delivery system, was dismissed pursuant to Fed. R.Civ.P. 12(b)(6) (Order, Apr. 13, 2007).

Furthermore, many of the original thirty-two plaintiffs are no longer a part of this action. Nine plaintiffs voluntarily withdrew (Order, Sept. 18, 2007; Order, Mar. 7, 2008), and one was dismissed for failure to respond to discovery requests (Order, July 13, 2007). Summary judgment was granted with respect to six plaintiffs that had signed releases barring their claims against defendants. (Order, Mar. 7, 2008.)

There are now three claims remaining in this action. Plaintiffs assert two counts based on the PMPA — one for injunctive relief (Count One) and one for money damages (Count Two) — and one count (Count Four) based on the open price term provision of N.Y. U.C.C. § 2-305.

II. DISCUSSION

Summary judgment is appropriate if the evidence shows "that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether a genuine issue of material fact exists, the Court "is to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Patterson v. County of Oneida, 375 F.3d 206, 219 (2d Cir.2004). The nonmoving party, however, "may not rely on mere conclusory allegations or speculation, but instead must offer some hard evidence" in support of its factual assertions. D'Amico v. City of N.Y., 132 F.3d 145, 149 (2d Cir.1998).

A. "Constructive Termination" Under the PMPA

Plaintiffs allege that defendants have charged "unconscionably high rents," "control[ed] Plaintiffs' requests for the delivery of gasoline," "increased prices for wholesale gas," and directly competed with plaintiffs "in the retail sale of gasoline." (Second Am. Compl. ¶¶ 106, 112-13.) All of this, plaintiffs claim, has been part of an effort by defendants to "constructively terminate" the parties' franchise agreements in violation of the PMPA. (Id.)

The Second Circuit has not yet determined whether to recognize claims of "constructive termination" under the PMPA.¹ Defendants, therefore, urge this Court to hold that constructive termination claims are never actionable under the PMPA. Plaintiffs, in turn, ask this Court to hold that constructive termination claims are actionable under the standards articulated by the First Circuit in Marcoux v. Shell Oil Prods. Co., 524 F.3d 33, 45 (1st Cir. 2008), and the Fourth Circuit in Barnes v. Gulf Oil Corp., 795 F.2d 358, 360-64 (4th Cir.1986). Whether or not constructive termination claims are actionable need not be decided in this action because plaintiffs' constructive termination claims fail even if this Court adopts the approaches set forth in Marcoux and Barnes.

1. The PMPA

The PMPA provides uniform national standards for the "termination or nonrenewal" of gasoline franchise agreements. See 15 U.S.C. § 2802. "Both the text and the structure of the Act indicate that Congress enacted the PMPA to address the disparity in bargaining power then existing between franchisors (typically major oil companies) and franchisees in the petroleum industry, and to level the playing field on which these parties interact." Dersch Energies, Inc. v. Shell Oil Co., 314 F.3d 846, 855 (7th Cir.2002); see also Bellmore v. Mobil Oil Corp., 783 F.2d 300, 304 (2d Cir.1986). Accordingly, the PMPA prohibits franchisors from terminating or declining to renew franchise agreements unless certain enumerated conditions are met. See 15 U.S.C. §§ 2802-04. It also provides a cause of action to a franchisee harmed by its franchisor's failure to comply with certain parts of the Act. See id. § 2805.

The PMPA "was not," however, "designed to provide franchisees with a federal forum for the resolution of run-of-the-mill contract disputes." Dersch, 314 F.3d at 861-62. Instead, the "regulation of petroleum franchise relationships has traditionally been a matter of local concern in which the parties frame their relationships with reference to state law." Id. Thus, disputes between a franchisee and its franchisor are ordinarily governed by the terms of the contract they have entered into — namely, the franchise agreement. A franchisee may bring suit under the PMPA only when its franchisor has terminated or declined to renew the franchise agreement. See id. at 861 ("[T]here is nothing in the PMPA suggesting that Congress intended for franchisees to sue franchisors under the Act's remedial provisions ... when a termination or nonrenewal is not at issue.").

2. The Purpose of "Constructive Termination" Claims

Certain courts have also recognized "constructive termination" claims under the PMPA, though such claims have been limited to one specific context: when a franchisor has assigned the franchise agreement to a third party. E.g., Marcoux, 524 F.3d at 45. The PMPA, courts have reasoned, protects three "statutory components" of a franchise: "(1) the right to occupy leased marketing premises; (2) the right to sell motor fuel under a trademark owned or controlled by a refiner; and (3) the right to be supplied with that fuel." Ackley v. Gulf Oil Corp., 726 F.Supp. 353, 361 (D.Conn.1989) (citing 15 U.S.C. § 2801(1)). An assignment that results in a breach of one of those three statutory components can give rise to a claim of constructive termination under the PMPA. Alternatively, an assignment that violates state law can also give rise to a constructive termination claim. The Sixth Circuit summarized as follows:

[T]o sustain a claim, under the PMPA, that a franchisor assigned and thereby constructively terminated a franchise agreement, the franchisee must prove either: (1) that by making the assignment, the franchisor breached one of the three statutory components of the franchise agreement, (the contract to use the refiner's trademark, the contract for the supply of motor fuel, or the lease of the premises), and thus, violated the PMPA; or (2) that the franchisor made the assignment in violation of state law and thus, the PMPA was invoked.

May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 922 (6th Cir.1989).² Several courts have agreed with that formulation and have addressed claims of constructive termination by applying a similar test. See, e.g., Marcoux, 524 F.3d at 45 (citing Chestnut Hill Gulf v. Cumberland Farms, Inc., 940 F.2d 744 (1st Cir. 1991)); Portland 76 Auto/Truck Plaza, Inc. v. Union Oil Co. of Cal., 153 F.3d 938, 948 (9th Cir.1998); Beachler v. Amoco Oil Co., 112 F.3d 902, 906 (7th Cir.1997); Shukla v. BP Exploration & Oil, Inc., 115 F.3d 849, 853 (11th Cir.1997); Barnes, 795 F.2d at 360-64.

The point of a constructive termination claim is to allow a franchisee to recover from its former franchisor — that is, from the party that made the assignment. As the First Circuit explained in Marcoux, the PMPA "does not contemplate that a franchisee should be relegated to seeking damages from an assignee that might not have the resources to satisfy a judgment." 524 F.3d at 45 (quoting Barnes, 795 F.2d at 362). Instead, a franchisee asserting a constructive termination claim may recover against its former franchisor if its...