Brownstein v. Arco Petroleum Products Co., Civ. A. No. 84-4282.

• Decision Date: 03 January 1985
• Docket Number: Civ. A. No. 84-4282.
• Citation: 604 F. Supp. 312
• Parties: Irwin BROWNSTEIN v. ARCO PETROLEUM PRODUCTS COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

604 F. Supp. 312

Irwin BROWNSTEIN v. ARCO PETROLEUM PRODUCTS COMPANY.

Civ. A. No. 84-4282.

United States District Court, E.D. Pennsylvania.

January 3, 1985.

Gary A. DeVito, Norman P. Zarwin, Zarwin, Baum, Resnick & Cohen, Philadelphia, Pa., for plaintiff.

Richard Gaines, Sara A. Augenbraun, Legal Dept., Atlantic Richfield Company, Philadelphia, Pa., for defendant.

MEMORANDUM

DITTER, District Judge.

On October 18, 1984, I granted plaintiff Irwin Brownstein's motion for a preliminary injunction pursuant to section 105 of the Petroleum Marketing Practices Act, 15 U.S.C. § 2805 (1982), against defendant Arco Petroleum Products Co. (Arco). I now supplement the findings and conclusions I then made as the bases for that relief.

The operative facts are mostly undisputed. On September 23, 1981, the parties entered into a franchise arrangement consisting of a lease and an allied products-marketing contract covering a service station at Roosevelt Boulevard and Rhawn Street, Philadelphia. Under the terms of these agreements, the franchise relationship was to run until November 1, 1984.

By letter dated March 29, 1984, Arco advised Brownstein that it had determined to sell the premises and that the lease and allied marketing agreement would not be renewed. Thereafter, on June 4, 1984, Arco offered to sell the premises to plaintiff for $290,000. Upon receipt of Arco's offer, Brownstein contacted Louis Iatarola, a designated, independent MAI real estate appraiser, and asked him to appraise the premises.

Iatarola used two methods of appraisal: the market approach and the cost approach. Under the former, he compared the premises to eight service stations in Northeast Philadelphia that had been sold in the preceding 19 months. Using the sales prices of these comparable properties as a benchmark, Iatarola made adjustments to reflect dissimilarities among the comparable properties and the subject property. In this way, he estimated the fair market value of the property to be $190,000.

Under the cost approach, Iatarola first estimated the value of the land by comparing it to five unimproved parcels that had been sold in the preceding 19 months. He determined the land to have a fair market value of $140,000. To this figure, Iatarola added the depreciated reproduction costs of the building, equipment, and site improvements, concluding the total fair market value of the property to be $192,000.

Based on Iatarola's appraisal, Brownstein's attorney wrote to Arco and rejected the $290,000 offer, urging that it was too far in excess of fair market value.

In arriving at its offering price of $290,000, Arco had engaged the services of Felice A. Rocca, Jr., a designated, independent MAI real estate appraiser. Using only the market approach, Rocca compared the subject property to five comparable properties that had been sold in the recent past, and set the value of the property at $250,000.

Arco's Philadelphia area commercial properties representative, Kinsley E. Shannon, prepared an internal sales proposal, noting the $250,000 appraisal and requesting his superiors to approve a $290,000 offering price. In a portion of the proposal labeled, "Negotiating history and recommendations," Shannon indicated that because Brownstein was being divorced, a sale would probably not be consummated through negotiation. Shannon further stated that although the location is a good one, the volume of business transacted there was low and would probably not substantiate the market value.

An Arco internal worksheet, dated May 3, 1984, noted the property is highly visible and worth the $290,000 price.¹ However, ironically, the worksheet recognizes that the asking price is well over fair market value.

On May 3, 1984, Richard E. Erdlitz, Arco's commercial properties manager for the eastern area, sent Shannon an authorization for commitment to sell the property to Brownstein for $290,000. This document also noted that although the location of the property is good, the asking price is well over market value.

On July 1, 1984, in response to the letter of Brownstein's attorney rejecting the $290,000 offer, Erdlitz sent Shannon an internal memorandum which stated that the premises is "good property;" if exposed to the outside market would generate substantial interest; there was nothing in Arco's policy that would require it to offer the property at fair market value; and the Petroleum Marketing Practices Act does not require the price to be a specific amount. On cross examination, Erdlitz stressed that Arco believes it is in no way bound to sell property subject to the strictures of the Act at fair market value.²

The Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801 et seq. (1982), was enacted to combat the severe imbalance in bargaining power that existed between petroleum franchisors and franchisees. See S.Rep. No. 95-731, 95th Cong., 2d Sess. 17-18, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 875-76. Prior to passage of the PMPA, a leading franchise commentator observed:

In the Nation's second largest industry, the major oil firms have the gasoline dealers in virtual bondage, hinged on the constant threat that their short-term contracts will not be renewed unless they submit to burdensome franchisor-imposed practices.

Brown, Franchising — A Fiduciary Relationship, 49 Tex.L.Rev. 650, 655-57 (1971). See also Comment, Retail Gasoline Franchise Terminations and Nonrenewals under Title I of the Petroleum Marketing Practices Act, 1980 Duke L.J. 522, 524-25.

The PMPA attempts to alter this imbalance by regulating the grounds and conditions for which a franchisor may terminate or not renew a franchise. 15 U.S.C. § 2802 (1982); Roberts v. Amoco Oil Co., 740 F.2d 602 (8th Cir.1984). The Act gives the franchisee a cause of action against the franchisor for violations of the Act's provisions, including the right to seek a preliminary injunction prior to the expiration of the franchise. 15 U.S.C. § 2805 (1982).

One of the permissible grounds for a franchisor's decision not to renew the franchise is that it, in good faith and in the ordinary course of business, has decided to sell the leased premises. Id. § 2802(b)(3)(D). To avail itself of that ground for nonrenewal, however, the franchisor must also, within 90 days of sending notice of nonrenewal, tender to the franchisee a bona fide offer to sell the leased premises. Id. § 2802(b)(3)(D)(iii).

The PMPA's enforcement provisions are set forth at 15 U.S.C. § 2805 (1982). The standard for granting a preliminary injunction is not the usual, two-part requirement of probability of success on the merits and irreparable harm. Rather the PMPA sets forth a preliminary injunction standard that is significantly more lenient than the general equity standards. See Gilderhus v. Amoco Oil Co., 470 F.Supp. 1302, 1303 (D.Minn.1979). A court need merely find that plaintiffs' allegations raise "serious questions going to the merits which provide a fair ground for litigation," and that "on balance, the hardships imposed upon the franchisor by the issuance of the preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted." 15 U.S.C. § 2805(b)(2) (1982).

Legislative history to the PMPA makes clear the proper assignment of the parties' burdens under section 2805. The franchisee has the burden of demonstrating: (1) the existence of a franchise relationship; (2) his status as a franchisee; and (3) the nonrenewal of the franchise relationship by the franchisor. See H.R.Rep. No. 95-297, supra, at 41, 1978 U.S.Code Cong. & Ad.News at 899. Thereafter, the burden shifts to the franchisor to show that there was a permissible ground for nonrenewal pursuant to section 2802(b). See id.

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