Beachler v. Amoco Oil Co.

• Decision Date: 01 May 1997
• Docket Number: No. 96-3091,96-3091
• Parties: Terry R. BEACHLER, Randall A. Greene, Wayne T. Neal, et al., Plaintiffs-Appellants, v. AMOCO OIL COMPANY, Johnson Oil Company, and Smith Oil Company of Kankakee, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 902

112 F.3d 902

Terry R. BEACHLER, Randall A. Greene, Wayne T. Neal, et al., Plaintiffs-Appellants, v. AMOCO OIL COMPANY, Johnson Oil Company, and Smith Oil

Company of Kankakee, Defendants-Appellees.

No. 96-3091.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 22, 1997.

Decided May 1, 1997.

Robert M. Riffle (argued), Michael R. Seghetti, Elias, Meginnes, Riffle & Seghetti, Peoria, IL, Richard M. Bing, Richmond, VA, for Plaintiffs-Appellants.

David J. Zott (argued), John R. Robertson, Kirkland & Ellis, Chicago, IL, for Defendant-Appellee Amoco Oil Co.

Alphonse M. Alfano (argued), Bassman, Mitchell & Alfano, Washington, DC, for Defendant-Appellee Johnson Oil Co.

Charles E. Ruch, Jr., Peterson, Deck, Ruch & Baron, Kankakee, IL, for Defendant-Appellee Smith Oil Co.

Before CUDAHY, ROVNER, and EVANS, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

The plaintiffs in this action under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. §§ 2801 et seq., are six individuals who operate gasoline service stations in Peoria and Springfield, Illinois pursuant to franchise agreements with Amoco Oil Company ("Amoco"). In July of last year, Amoco announced its intention to assign its agreements with these Peoria and Springfield dealers to two of its wholesale distributors and then to sell the underlying station properties to those distributors as well. The plaintiff dealers responded by filing the instant action under the PMPA, charging that the impending assignments and sales would violate that statute. Plaintiffs asked the district court to preliminarily enjoin the proposed transactions pursuant to 15 U.S.C. § 2805(b)(2). After a hearing, the district court declined the request for a preliminary injunction, and plaintiffs appealed. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1) and now affirm.

I.

Amoco has traditionally marketed its petroleum products both through direct-supply dealers such as the plaintiffs, and through independent wholesale distributors or "jobbers." At the time of the proceedings before the district court, plaintiffs operated as direct-supply dealers who purchased their motor fuel directly from Amoco, reselling it to consumers at their Peoria and Springfield service stations. The franchise relationship between Amoco and these dealers was governed by two agreements: a dealer supply agreement granting the dealers the right to use Amoco's trademarks and setting forth the terms and conditions under which the dealers were entitled to purchase motor fuel from Amoco for resale, and a lease agreement defining the terms under which the dealers leased the Amoco-owned station properties.

This lawsuit was precipitated by Amoco's decision to convert its direct-supply stations in Peoria and Springfield to jobber-supplied stations. That decision was part of a nationwide strategy to convert Amoco stations in certain smaller markets from direct- to jobber-supplied operations. Amoco apparently believes that local jobbers are in a better position than it is to invest the capital required to enable such stations to remain competitive in their markets. After each submitted a detailed business plan, Amoco selected defendant Johnson Oil Company ("Johnson") as the jobber to be assigned its Peoria stations and defendant Smith Oil Company of Kankakee ("Smith") as the jobber for its Springfield stations. Under the proposed assignments, the affected dealers in Peoria and Springfield would continue to operate the same Amoco-branded service stations and to be supplied with the same Amoco motor fuel (but by the jobber rather than by Amoco itself). The dealers also would retain the right to use Amoco's trademarks.

Once Amoco's plans for the assignments and sales were finalized, affected dealers in Peoria and Springfield were notified both orally and in writing. Six of the sixteen dealers then instituted this action under the PMPA for preliminary and permanent injunctive relief. Plaintiffs allege that the proposed assignments of their dealer supply and lease agreements would result in an illegal "termination" or "nonrenewal" of their franchises under the PMPA. They also contend that prior to selling the station properties to Johnson and Smith, Amoco was obliged to afford the occupying dealer an opportunity to purchase the property itself on the same terms and conditions that were being offered to the jobber. After filing the suit, the dealers asked the district court to preliminarily enjoin the proposed assignments and sales pursuant to 15 U.S.C. § 2805(b)(2). The district court conducted a hearing on that request on August 21, 1996, and at the conclusion of the hearing refused to issue the injunction. The court found that the plaintiff dealers had failed to establish that the proposed assignments and sales would result either in a termination or nonrenewal of their franchises under the PMPA. Based on that finding, the court also concluded that the dealers were not entitled to the opportunity to purchase their station properties before those properties could be sold to the jobbers.

Plaintiffs appealed and asked the district court to enjoin the assignments and sales while their appeal was pending. See Fed.R.Civ.P. 62(c). The district court refused, and plaintiffs then renewed their request here. A motions panel of this court declined to issue an injunction pending resolution of plaintiffs' appeal. As a result, the transactions plaintiffs seek to enjoin--Amoco's assignment of the dealer supply and lease agreements and its sale of the underlying station properties to Johnson or Smith-have gone forward as planned.

II.

A.

Recognizing the vast disparity in bargaining power between franchisors and franchisees in the petroleum industry, Congress enacted the PMPA in an attempt to level the playing field on which these parties interact. See Beck Oil Co. v. Texaco Ref. and Mktg., Inc., 25 F.3d 559, 561 (7th Cir.1994); Valentine v. Mobil Oil Corp., 789 F.2d 1388, 1390 (9th Cir.1986). In Brach v. Amoco Oil Co., 677 F.2d 1213, 1216 (7th Cir.1982), this court identified three concerns the legislation was designed to address:

that franchisee independence may be undermined by the use of actual or threatened termination or nonrenewal to compel compliance with franchisor marketing policies; that gross disparity of bargaining power may result in franchise agreements that amount to contracts of adhesion; and that termination or nonrenewal may disrupt the reasonable expectations of the parties that the franchise relationship will be a continuing one.

(Citing S.Rep. No. 95-731, 95th Cong.2d Sess. 17-19, reprinted in 1978 U.S.C.C.A.N. 873, 875-77 ("Senate Report")). The legislative history makes plain that Congress primarily was seeking "to protect 'franchisees from arbitrary or discriminatory termination or non-renewal,' " and it attempted to accomplish this goal by adopting minimum standards governing the termination or nonrenewal of a petroleum franchise. Id. (quoting Senate Report at 15, reprinted in 1978 U.S.C.C.A.N. at 874). We indicated in Brach that as remedial legislation, the PMPA must be given "a liberal construction consistent with its overriding purpose to protect franchisees." Id. at 1221; see also Hilo v. Exxon Corp., 997 F.2d 641, 643 (9th Cir.1993); May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 921 (6th Cir.1989).

Yet other courts have cautioned that because the PMPA also serves to diminish the property rights of franchisors, it "should not be interpreted to reach beyond its original language and purpose." May-Som Gulf, 869 F.2d at 921; see also Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc., 940 F.2d 744, 750 (1st Cir.1991). That sensible admonition also has its roots in the Act's legislative history, which suggests that Congress was seeking to strike a balance between the need to protect franchisees and the need to preserve for franchisors "adequate flexibility so that [they] may initiate changes in their marketing activities to respond to changing market conditions and consumer preferences." Senate Report at 19, reprinted in 1978 U.S.C.C.A.N. at 877; see also Patel v. Sun Co., 63 F.3d 248, 250 (3d Cir.1995); Keener v. Exxon Co., USA, 32 F.3d 127, 130 (4th Cir.1994), cert. denied, 513 U.S. 1154, 115 S.Ct. 1108, 130 L.Ed.2d 1074 (1995); Little Oil Co. v. Atlantic Richfield Co., 852 F.2d 441, 445 (9th Cir.1988). In that sense, then, the PMPA is properly viewed as a " 'product of compromise,' " as it " 'affords franchisees important but limited procedural rights, while allowing franchisors significant latitude in responding to changing market conditions.' " Hilo, 997 F.2d at 645-46 (quoting Valentine, 789 F.2d at 1390).

Congress' remedial purpose in enacting the PMPA is reflected in the provision providing for preliminary injunctive relief, 15 U.S.C. § 2805(b)(2). A franchisee is entitled to a preliminary injunction under the Act based upon a lesser showing than would be required in the ordinary case under Fed.R.Civ.P. 65. Moody v. Amoco Oil Co., 734 F.2d 1200, 1216 (7th Cir.), cert. denied, 469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321 (1984); see also Sun Ref. and Mktg. Co. v. Rago, 741 F.2d 670, 672 (3d Cir.1984); Barnes v. Gulf Oil Corp., 824 F.2d 300, 306-07 (4th Cir.1987); Khorenian v. Union Oil Co., 761 F.2d 533, 535-36 (9th Cir.1985). Under section 2805(b)(2), a district court is required to grant a preliminary injunction if:

(A) the franchisee shows-

(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and

(ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and

(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief...