Brach v. Amoco Oil Co.

Citation677 F.2d 1213
Decision Date11 May 1982
Docket NumberNos. 80-2714,80-2721,s. 80-2714
Parties1982-2 Trade Cases 64,750 William C. BRACH, Plaintiff-Appellee, Cross-Appellant, v. AMOCO OIL COMPANY, a Maryland Corporation, Defendant-Appellant, Cross-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Jeffery M. Cross, Ross, Hardies, O'Keefe, Babdock & Parsons, Chicago, Ill., for defendant-appellant, cross-appellee.

William M. Doty, Jr., Chicago, Ill., for plaintiff-appellee, cross-appellant.

Before BAUER and WOOD, Circuit Judges, and EVANS, District Judge. *

HARLINGTON WOOD, Jr., Circuit Judge.

The district court below granted plaintiff Brach's motion for summary judgment on the issue of wrongful nonrenewal of his franchise relationship with defendant Amoco Oil Co. ("Amoco") under Title I of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. §§ 2801-2806 (Supp. III 1979), and his motion to dismiss Amoco's state counterclaim for lack of subject matter jurisdiction. The district court further granted Amoco's motion for summary judgment on the issues of Amoco's compliance with the PMPA notification requirements and of the availability of mandatory injunctive relief under the PMPA. Amoco appeals and Brach cross-appeals from those rulings. This appeal requires us to construe for the first time certain provisions of the PMPA.


Commencing in 1963, Brach entered into a franchise arrangement with Exxon Company, U. S. A. ("Exxon") under a series of renewable one-year leases of certain retail service station premises in Winfield, Illinois. Exxon last renewed that franchise on November 1, 1976. In August 1977, Exxon transferred its interest in the premises to Amoco as part of a larger business transaction. Apparently, the upkeep of the service station and the profitability of the relationship did not meet Amoco's expectations. Amoco notified Brach that the present lease would not be renewed when it expired on November 1, 1977, but that it would be extended six months (to May 1, 1978) to allow Brach time to relocate his business provided he complied with certain conditions pertaining to maintenance and hours.

Brach continued his service station business, paying rent to Amoco, beyond the May 1, 1978 expiration date. On May 25, 1978, Amoco sent to Brach by certified mail the following letter:

Please refer to your lease covering subject premises dated 11/1/76, which expired on 11/1/77 and which has been held over on a month-to-month basis. The purpose of this letter is to inform you that we do not elect to continue the existing lease arrangement with you and hereby cancel said lease effective June 30, 1978.

When Brach had not vacated by late June, Amoco sent another letter advising Brach that gasoline deliveries would continue pursuant to Department of Energy regulations (10 C.F.R. § 211.9 (1980)), but that such deliveries would not constitute "a waiver of Amoco's demand for possession of the premises effective June 30th." According to Amoco, the profitability of Brach's franchise did not improve, and in August, Brach received a letter informing him of a rent increase. Later, however, Amoco rescinded that letter and continued to accept Brach's rent payments in the previously agreed amount.

In an apparent effort to make the relationship more profitable, Amoco entered into negotiations for the sale of the premises to Brach. 1 In August 1979, the negotiations culminated in a real estate contract under which Brach agreed to purchase the premises for $200,000, depositing $10,000 as earnest money. Amoco obtained the requisite title commitment and insurance and forwarded copies to Brach's attorney. Amoco later received a letter from Brach's attorney stating that Brach expected to complete negotiations for financing and to close the sale in about three weeks. After not hearing from Brach or his attorney for some time, Amoco again wrote to Brach's attorney informing him that Amoco was ready, willing, and able to close. As it turned out, Brach was unable to secure the necessary financing and in January 1980, informed Amoco that he would be unable to close the transaction.

Shortly after learning of the default, Amoco notified Brach by certified letter of its intent permanently to close his account and that he had until May 31, 1980 to vacate the premises. Amoco enclosed a summary of Title I of the PMPA and told Brach that the reason for its decision was because he was "unable to purchase the premises as previously stipulated." In that letter, Amoco referred to the lease with Brach as "presently on a month-to-month basis."

On July 25, 1980, with Brach still in possession, Amoco filed a forcible detainer action in the Circuit Court of DuPage County, Illinois. In August, Brach filed this suit in the United States District Court for the Northern District of Illinois seeking an injunction against nonrenewal, exemplary damages, and attorney's fees. Specifically, Brach claimed that Amoco failed to give proper notice of nonrenewal and that nonrenewal was not justified under the PMPA. Amoco filed a counterclaim asking for an order to vacate the premises and damages. Both parties made oral cross-motions for summary judgment, the disposition of which is the subject of this appeal.


Congress enacted the PMPA in an effort to protect "franchisees from arbitrary or discriminatory termination or non-renewal of their franchises." S.Rep.No.95-731, 95th Cong., 2d Sess. 15, reprinted in (1978) U.S.Code Cong. & Ad.News 873, 874 ("Senate Report"). The franchise relationship in the petroleum industry is unique in that the franchisor commonly not only grants a trademark license and supplies the products but also leases the service station premises to the franchisee. As Congress noted, "(t)his relationship is, therefore, often complex and characterized by at times competing interests." Id. at 17, U.S.Code Cong. & Ad.News at 875. Congress designed the PMPA to allay three specific concerns: 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. Id. at 17-19, U.S.Code Cong. & Ad.News at 875-77.

The PMPA prohibits termination of any franchise or nonrenewal of any franchise relationship 2 except on the basis of specifically enumerated grounds and upon compliance with certain notification requirements. 15 U.S.C. §§ 2802(a), (b)(1). Section 2802(b)(2) sets forth grounds for termination and nonrenewal: (A) failure to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship; (B) failure to exert good faith efforts to carry out the provisions of the franchise; (C) the occurrence of an event which is relevant to the franchise relationship and makes termination or nonrenewal reasonable; (D) a written agreement to end the franchise relationship; and (E) a good faith decision to withdraw from the relevant geographic market. 3 Section 2802(b)(3) enumerates additional grounds which provide a basis for nonrenewal only: (A) failure to agree to good faith changes to the franchise provisions; (B) receipt of numerous bona fide customer complaints; (C) continued failure to operate the premises in a clean and safe manner; and (D) if the franchise term was at least three years long, a good faith decision to convert the premises to another use or that renewal would be uneconomical despite any reasonable changes to the provisions of the franchise.

The notice requirements of the PMPA are embodied in section 2804. Generally, notice of termination or nonrenewal must be "furnished" not less than 90 days before the effective date. Id. § 2804(a)(2). The PMPA provides two exceptions: in circumstances in which compliance would not be reasonable, the franchisor need only furnish notice at the earliest date practicable, id. § 2804(b)(1), and in the case of termination or nonrenewal based on a market withdrawal decision, the franchisor must furnish notice not less than 180 days before the effective date, id. § 2804(b)(2). The notification must be written and posted by certified mail (or personally delivered) and must contain a statement of intent to terminate or not to renew, the reasons therefor, the effective date of termination or nonrenewal, and a PMPA summary statement prepared by the Secretary of Energy. Id. §§ 2804(c), (d).


The district court found that a month-to-month tenancy existed at the time the PMPA went into effect on June 19, 1978 and therefore held the Act applicable. Amoco argues on appeal that the PMPA does not apply because the tenancy expired (and thus its failure to renew occurred) no later than May 1, 1978, which was more than one month before the Act became effective. Amoco insists that it involuntarily continued delivery of motor fuel pursuant to Department of Energy regulations and should not be deemed to have extended the tenancy beyond the May date.

The question then is whether Amoco's "failure to renew" occurred on or after June 19, 1978. 4 The district court recognized, and we agree, that the PMPA may apply to the nonrenewal of a month-to-month tenancy. Accord, Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1116 n.1 (D.Conn.1980); see also Halder v. Standard Oil Co., 642 F.2d 107 (5th Cir. 1981); Kajdan v. Exxon Co., U.S.A., 1980-1 Trade Cases P 63,262 (D.Conn.1980). With that Amoco has no argument. Rather, Amoco urges reversal of the district court's finding that a month-to-month tenancy existed on June 19, 1978.

Under Illinois law, "(a) holdover tenancy is created when a landlord elects to treat a...

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