Baldauf v. Amoco Oil Co., G 81-72.

• Decision Date: 31 August 1981
• Docket Number: No. G 81-72.,G 81-72.
• Citation: 553 F. Supp. 408
• Parties: Harold BALDAUF and Douglas J. Lang, Plaintiffs and Counter-Defendants, v. AMOCO OIL COMPANY, a foreign corporation, Defendant and Counter-Plaintiff.
• Court: U.S. District Court — Western District of Michigan

553 F. Supp. 408

Harold BALDAUF and Douglas J. Lang, Plaintiffs and Counter-Defendants, v. AMOCO OIL COMPANY, a foreign corporation, Defendant and Counter-Plaintiff.

No. G 81-72.

United States District Court, W.D. Michigan, S.D.

August 31, 1981.

Mark H. Cousens, Detroit, Mich., for plaintiffs and counter-defendants.

Daniel G. Wyllie, Detroit, Mich., Anthony Derezinski, Grand Rapids, Mich., for defendant and counter-plaintiff.

OPINION

ENSLEN, District Judge.

This case involves provisions for notification of termination of non-renewal of the franchise relationship of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. It is before the Court on cross Motions for Summary Judgment and Defendant's counterclaim. Plaintiffs contend that Defendant has not complied with the requirements of the Petroleum Marketing Practices Act and contest Amoco's decision to convert to their full service gas station and associated auto repair shop into a high volume "pumper" type gasoline station to the exclusion of other services. Plaintiffs argue that they have long been associated with Amoco in the operation of a full service gas station and repair shop and that Amoco in the past has encouraged this activity. In addition, Plaintiffs contend that it would not be profitable for them to eliminate the automobile repair business in order to sell gasoline on a full time basis. For these reasons, Plaintiffs urge the Court to estop Defendant from carrying out its proposal even if the terms of the Petroleum Marketing Practices Act would permit such alterations.

Congress in enacting the PMPA was concerned with contracts of adhesion unilaterally imposed on reluctant dealers by distributors. Its intention was to regulate and to limit the circumstances in which the franchisor could terminate a relationship with the franchisee. This legislation was enacted when the relationships between franchisee and franchisors were strained as a result of the fuel shortages. However, Congress intended to be sensitive to the legitimate needs of franchisors as well as franchisees. Thus, the Court must look to the legislative history as well as to the express terms of the Act in construing its application to the case at bar.

The Act created a new term, the franchise relationship, as distinguished from the franchise itself. This term covers the broad relationship which exists between a franchisor and a franchisee by reason of the franchise agreement. It is used because the franchise, i.e. the contract, may no longer exist and it assures that the parties understand that even though the contract no longer is in effect, there may still be a viable relationship between the parties.

The parties agree that Plaintiffs have sold Defendant's products in the past and have operated a repair of motor vehicles business in a structure attached to the area utilized as a gasoline station, although they disagree about the economic effect that conversion to a "pumper" type station may have on Plaintiffs.

Defendant had not engaged in any discussion of the alteration of Plaintiffs' operations during the period of the current franchise from April 1976 until November 25, 1980 when Defendant issued a notice to Plaintiffs which indicated that Amoco desired the franchise relationship to continue upon the termination of the existing agreement, but that it intended to convert the premises to a "pumper" station. This notice explained that Plaintiffs' full time efforts would be needed to sell the volume of gasoline required to maintain a sufficient profit margin for the Defendant. (By stipulation Defendant has acceded to Plaintiffs' continuing to operate the station without prejudice to the rights of Defendant. Amoco has filed a counterclaim for possession of the property and damages.) Defendant's notice indicated that Plaintiffs would have to agree to structural changes on the premises as a condition for renewal of the franchise. Defendant expressly stated that failure to accept these changes would result in non-renewal of the franchise. While there are subordinate issues involved, the crux of the matter is whether this non-renewal complied with the requirements mandated by the Petroleum Marketing Practices Act.

15 U.S.C. § 2802(b)(3)(A) provides for the non-renewal of a franchise relationship:

(A) The failure of the franchisor and the franchisee to agree to changes or additions to the provisions of the franchise, if —

(i) such changes or additions are the result of determinations made by the franchisor in good faith and in the normal course of business; and

(ii) such failure is not the result of the franchisor's insistence upon such changes or additions for the purpose of preventing the renewal of the franchise relationship. (Emphasis supplied)

In their supplemental brief opposing Defendant's Motion for Summary Judgment, Plaintiffs acknowledge that Defendant has a profit motive for converting to pumper type operations:

Amoco's marketing plan is this: a dealer who operates a full-service gasoline station has two sources of income: service and repair and gasoline. Such a dealer is not as motivated towards volume sales of gasoline as is a dealer who has but one source of income. The latter dealer must sell gasoline at a lower price in order to attempt to increase volume, hoping that volume sales will increase his income. Greater volumes at a lesser profit still equal increased income.

Amoco is interested in selling volumes of its product. It, theoretically, does not set the pump price of gasoline, and its profit per gallon sold is fixed. Hence, Amoco is entirely unconcerned about the amount of profit the dealer takes, but is very concerned about volume since volume dictates its profit from the location. (Plaintiffs' supplemental brief at 2-3)

Plaintiffs contend that the Act is concerned with the "bona fide" involved for each party. As Plaintiffs earned much of their income from the repair service, they allege that Defendant at least had a duty to negotiate terms in good faith when such a major change was involved, and not merely to issue a notice on a take it or leave it basis. This Court, however, is limited to interpreting the Act as it exists, together with the legislative history, in order to determine Congressional intent. Although I might desire to do so, I cannot determine the rights of the parties outside the context of the Act. Section 2802(b)(3) specifically states that if the parties fail to agree to changes or additions made by the franchisor in good faith and in the normal course of business, a ground for non-renewal exists.

In view of the number of conversions throughout the country of full service gas stations to "pumper" type operations, Amoco's decision to follow suit apparently falls into the category of being a good faith decision in the normal course of business. Good faith, however, is determined subjectively. Munno v. Amoco Oil, 488 F.Supp. 1114 (D.Conn.1980). Subjective good faith can be shown from objective evidence such as interoffice memos tending to constitute a demonstration of bad faith. Plaintiffs argue that, for purposes of summary judgment, Defendant has not adequately demonstrated its purpose in selecting Plaintiffs' station to convert. Amoco, however, points to a study that it conducted in 1976 analyzing sales potential of conventional stations throughout the Great Lakes if they were to be rebuilt which indicated that Plaintiffs' station, because of projected sales differentials based on traffic patterns, demographics and competition would be a prime candidate for conversion. An affidavit of the District Manager of the Saginaw District for Amoco states that Plaintiffs' gas station is only marginally profitable for Amoco as it exists and that it would fall below Amoco's national investment standards if the company were to continue the same operation. The affidavit further states that its study showed that Plaintiffs' station has the single most pumper gasoline potential in the Saginaw District. Therefore, the record is uncontroverted that Amoco, from its perspective, made a sound business decision in the normal course of business.

The question remains whether Amoco's profit motive is a sufficient indicia of good faith under the Act. Certainly, the course of dealing between the parties would not have led Plaintiffs to predict that Amoco would suddenly alter its manner of doing business. Plaintiffs have demonstrated that they have relied on this course of dealing for many years and have made investments, not only in time and effort, but in equipment that would be lost under the new terms. Munno v. Amoco Oil Company, supra, addresses the problem of determining good faith as it applied to a change in the monthly rental as a condition for renewal.

It is beyond dispute that Amoco's decision to increase the amount of rent charged was made with subjective "good faith" and in the "normal course of business." There has been no suggestion of a bad motive or of a subterfuge aimed at driving the plaintiff from the market. While Amoco is admittedly unwilling to negotiate the amount of the monthly rent, its explanation belies any claim of bad faith. Amoco established that its other New England dealers have accepted revised rents based on the new formula, and it is concerned that if it makes an exception for the plaintiff it may be exposed to liability, presumably under the Robinson Patman Act, 15 U.S.C. § 13. Id. at 1117.

In Munno, the plaintiff's expert indicated that the rental formula was beneficial for both the dealer and the oil company. There is no consensus on mutual benefit here as Plaintiffs do not feel that they can sell the volume of gasoline required to compare with the income derived from their repair business. The Munno court discussed the test for good faith further and concluded that it was an appropriate issue for summary judgment.

Construing all the facts in favor of the plaintiff, as this court must on the defendant's

...