Barnes v. Gulf Oil Corp.

• Decision Date: 08 July 1986
• Docket Number: No. 85-1851,85-1851
• Parties: Evelyn L. BARNES, t/a Triangle Gulf, Appellant, v. GULF OIL CORPORATION, Anderson Oil Company, Inc., Vernon H. Anderson and Betty W. Anderson, Appellees. Service Station Dealers of America, Inc., Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 358

795 F.2d 358

Evelyn L. BARNES, t/a Triangle Gulf, Appellant, v. GULF OIL CORPORATION, Anderson Oil Company, Inc., Vernon H.

Anderson and Betty W. Anderson, Appellees.

Service Station Dealers of America, Inc., Amicus Curiae.

No. 85-1851.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 9, 1986.

Decided July 8, 1986.

Ronald M. Pearce (Richard M. Bing, Pearce & Bing, Richmond, Va., on brief) for appellant.

Robert S. Bassman (Douglas B. Mitchell, Bassman, Mitchell & Alfano, Washington, D.C., on brief) for appellees Anderson Oil Co., Inc., and Vernon H. and Betty W. Anderson.

R.S. Henderson (Waller T. Dudley, Boothe, Pritchard & Dudley, Alexandria, Va., on brief) for appellee Gulf Oil Corp.

Dimitri G. Daskal, on brief, for amicus curiae.

Before RUSSELL and HALL, Circuit Judges, and BUTZNER, Senior Circuit Judge.

BUTZNER, Senior Circuit Judge:

Evelyn L. Barnes appeals the judgment of the district court dismissing her complaint. Barnes alleges that Gulf Oil Corporation terminated her service station franchise by assigning Gulf's interest to Anderson Oil Co. and selling the premises to Vernon H. Anderson and Betty W. Anderson in violation of Title I of the Petroleum Marketing Practices Act, 15 U.S.C. Secs. 2801-2806 (1982). The primary issue is whether the assignment of a franchise that increases the retailer's cost of gasoline over the franchise's stipulated price gives rise to a cause of action against the refiner under the Act. This issue divides two district courts, and no court of appeals appears to have decided it. ¹ We conclude that such an assignment affords the retailer a cause of action. We vacate the judgment of the district court and remand the case for further proceedings.

I

Barnes has operated a service station since September 1, 1979, pursuant to a series of franchise agreements with Gulf. Barnes's initial franchise agreement expired on August 30, 1980. This agreement was renewed for a two-year period that ended on August 31, 1982. The agreement was subsequently extended for a three-year period ending on August 31, 1985. Prior to May 6, 1985, Barnes leased her service station premises from Gulf.

Barnes alleges that on May 6, 1985, Gulf terminated her franchise by assigning its interest in the franchise agreement to Anderson Oil. Gulf also sold the premises to Vernon H. Anderson and Betty W. Anderson subject to Barnes's right of occupancy pursuant to the franchise agreement. Barnes complains that Gulf did not notify her of its decision to assign the franchise agreement and sell the premises and that Gulf did not offer to sell the premises to her. Barnes also contends that the assignment was invalid under Virginia law and that the invalid assignment terminated the franchise.

Barnes filed an affidavit setting forth facts supporting her allegations. Gulf and Anderson answered the complaint and filed motions to dismiss for failure to state a claim. At the hearing on the motions, the parties and the court referred to the uncontradicted facts set forth in Barnes's affidavit. ² By considering Barnes's affidavit, the district court, without objection by any party, treated the motions to dismiss as motions for summary judgment. See Fed.R.Civ.P. 12(b).

The district court held that the assignment and sale did not terminate the franchise because Barnes was still in business as a Gulf retailer. It also held that the assignment did not violate Virginia law. It granted the motions filed by Gulf and Anderson.

II

Congress enacted Title I of the Act in response to widespread terminations and nonrenewals of the franchises of independent gasoline retailers and distributors. It was concerned about the "[n]umerous allegations ... that terminations and non-renewals, or threats of termination or non-renewal, have been used by franchisors to compel franchisees to comply with marketing policies of the franchisor." S.Rep. No. 731, 95th Cong., 2d Sess. 17, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 876. Congress noted that such practices threaten "the independence of the franchisee as a competitive influence in the marketplace." S.Rep. No. 731, supra, at 18, U.S.Code Cong. & Admin.News 1978, p. 877. It acted to promote competition within the industry by protecting franchisees "from arbitrary or discriminatory termination or nonrenewal of their franchises." S.Rep. No. 731, supra, at 15 U.S.Code Cong. & Admin.News 1978, p. 874; see also Kostantas v. Exxon Co., U.S.A., 663 F.2d 605, 606 (5th Cir.1981); Comment, Judicial Interpretation of the Petroleum Marketing Practices Act: Conflict and Diversity, 32 Emory L.J. 273, 279-83 (1983).

The Act defines a franchise in terms of three elements: a contract to use the refiner's trademark, a contract for the supply of motor fuel to be sold under the trademark, and a lease of the premises at which the motor fuel is sold. See S.Rep. No. 731, supra, at 29; Brach v. Amoco Oil Co., 677 F.2d 1213, 1216 n. 2 (7th Cir.1982). ³

The Act establishes "a single, uniform set of rules governing the grounds for termination and non-renewal of motor fuel marketing franchises and the notice which franchisors must provide franchisees prior to termination of a franchise." S.Rep. No. 731, supra, at 19, U.S.Code Cong. & Admin.News 1978, p. 877. Section 2802(b)(2) enumerates five circumstances under which a franchise may be terminated during its term. The Act prohibits any termination that is not based on one of these grounds. S.Rep. No. 731, supra, at 15. Gulf and Anderson do not contend that any of these grounds exist.

A franchisor may not terminate a franchise, notwithstanding the existence of one of the grounds described in the legislation, without first giving notice to the franchisee as provided by section 2804. See Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1390-91 (10th Cir.1981). With certain exceptions, the franchisor must give the franchisee an opportunity to buy the premises if the franchisor decides to sell. See Sec. 2802(b)(3)(D)(iii). Gulf concedes that notice was not given to Barnes, nor was Barnes given a right of first refusal for the premises.

Section 2805 provides that if a franchisor terminates a franchise in the absence of one of the grounds specified in the legislation, or if the franchisor fails to comply with the notice or right of first refusal requirements of the Act, the franchisee may bring an action against the franchisor for damages and other relief.

III

Barnes alleges that as a result of the assignment she no longer has any direct dealings with Gulf. Prior to the assignment, she bought her gasoline directly from Gulf. The franchise agreement expressly incorporated a contract for the supply of motor fuel that provided that Gulf would sell to Barnes at its dealer tank wagon price. Barnes alleges that she must now buy her gasoline from Anderson, which sells to her at a markup over Gulf's current tank wagon price. She states that the increased price amounts to $1,000 a month. As a consequence, she claims that she has been forced to raise her prices, and her sales and net income have declined.

Gulf admits that it contracted with Barnes to sell motor fuel at its dealer tank wagon price. With regard to the increased price for motor fuel that Barnes must pay Anderson, Gulf and Anderson point out that the contract defines the dealer's tank wagon price as the "seller's scheduled price in effect at time and for place of delivery." They contend that because Anderson, by reason of the assignment, is now the seller, Anderson is not obligated to deliver at Gulf's current dealer tank wagon price and that any effort by Gulf to make Anderson do so would violate federal antitrust laws. It is their position that Anderson can charge a higher price than Gulf's current dealer tank wagon price if Anderson acts in good faith.

Gulf also contends that even if Anderson improperly increased the cost of gasoline, Barnes has only a breach of contract action against Anderson. Gulf relies on Aldrich v. Amoco Oil Co., 2 Business Franchise Guide (CCH) p 8322, at 15,113 (S.D.Iowa Jan. 7, 1985), where the court held that the assignee's failure "to provide motor fuel at the dealer buying price may form the basis of a contract breach claim against [the assignee]. It does not, however, constitute a [Petroleum Marketing Practices Act] violation."

A contrary result was reached in Hodge v. Texaco, Inc., No. 81-228-RE (D. Ore. June 4, 1982) (unpublished), where Texaco assigned its interest in Hodge's franchise to a distributor who increased the price of gasoline. The court denied Texaco's motion for summary judgment, stating:

The Agreement of Sale ... is a franchise within the meaning of 15 U.S.C. Sec. 2801(1)(A)(iv). The Agreement of Sale provides that Texaco will sell and Hodge will buy Texaco Skychief Gasoline and Texaco Fire Chief Gasoline at Texaco's "posted retailer tankwagon prices." As such, this is a contract "pertaining to the supply of motor fuel which is to be sold, consigned or distributed-... (I) under a trademark owned or controlled by a refiner ...." 15 U.S.C. Sec. 2801(1)(B)(I).

Contrary to Aldrich, we conclude that Barnes's remedy is not confined to an action against Anderson. We agree with Hodge that the Act affords a remedy against the franchisor. The Act regulates the termination of "any contract pertaining to the supply of motor fuel." Sec. 2801(1)(B)(ii). The Act protects the motor fuel contract because Congress recognized that in the absence of such protection, "the substantive provisions of the title, relating to the termination of a franchise ... may ... be circumvented by a termination or non-renewal of the ... motor fuel supply agreement which thereby renders the trademark license valueless." S.Rep. No. 731, supra, at 29, U.S.Code Cong. & Admin.News 1978, p. 888. The Act 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. A franchisor...