CEDAR BROOK SERVICE STATION v. CHEVRON USA

• Decision Date: 13 August 1990
• Docket Number: No. 86 C 4240.,86 C 4240.
• Citation: 746 F. Supp. 278
• Parties: CEDAR BROOK SERVICE STATION, INC., et al., Plaintiffs, v. CHEVRON U.S.A., INC., and Cumberland Farms, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

746 F. Supp. 278

CEDAR BROOK SERVICE STATION, INC., et al., Plaintiffs, v. CHEVRON U.S.A., INC., and Cumberland Farms, Inc., Defendants.

No. 86 C 4240.

United States District Court, E.D. New York.

August 13, 1990.

Arnold P. Azarow (Susan G. Piskiel, of counsel), Westbury, N.Y., for plaintiffs.

Cohen, Milstein, Hausfeld & Toll (Jerry S. Cohen, of counsel), Washington, D.C., for plaintiffs.

Wilentz Goldman & Spitzer (Frank M. Ciuffani, of counsel), Woodbridge, N.J., Pillsbury Madison & Sutro (Robert P. Taylor, of counsel), San Francisco, Cal., for defendant Chevron U.S.A. Inc.

Dewey, Ballantine, Bushby, Palmer & Wood (John Collins, of counsel), New York City, Collier, Shannon & Scott (James R. Loftis, III, R. Timothy Columbus, Gerard P. Fox, Robert M. Hubar, of counsel), Washington, D.C., Mark G. Howard, Canton, Mass., for defendant Cumberland Farms, Inc.

MEMORANDUM AND ORDER

NICKERSON, District Judge:

In 1986, defendant Chevron U.S.A. Inc. ("Chevron") sold its United States northeast regional motor fuel properties, including service stations and related contracts and leases to defendant Cumberland Farms Inc. ("Cumberland"). Plaintiffs, eleven New York service station dealers, brought this action against Chevron and Cumberland to set aside the sale as violative of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (hereinafter the "Act") and of New York law, asserting that under the Act plaintiffs are entitled to an opportunity to purchase the stations they leased under their franchise agreements.

Citing recent federal court decisions, defendants move to reconsider Judge Costantino's decision denying them summary judgment in a Memorandum and Order of June 5, 1989, 746 F.Supp. 268 ("Cedar Brook I"), familiarity with which is assumed.

Background

This is one of various suits challenging Chevron's sale to Cumberland of various motor fuel marketing assets Chevron had acquired from the Gulf Corporation in 1984. The history of that takeover and of the decision to sell those assets is more fully detailed in Cedar Brook I.

The sale transferred to Cumberland almost five hundred service station properties, as well as gasoline distribution terminals, warehouses, associated inventories, accounts receivable, and other properties, together with Chevron's supply agreements with jobbers and service station dealers, including plaintiffs.

Under the asset purchase agreement Cumberland assumed all of Chevron's contractual commitments, including its leases to service station dealers such as plaintiffs, and related supply agreements. As franchise agreements came up for renewal, Cumberland was obligated to offer, in good faith, a new franchise to each dealer on non-discriminatory terms and conditions, in accordance with the Act.

To ensure that the "Gulf" trademark remained available to Gulf dealers, Chevron granted Cumberland exclusive use of the trademark in the northeast United States for 15½ years at no royalty, with an option to renew indefinitely for $1,000,000 per year. Chevron also transferred its northeast Gulf and Chevron credit card systems, and agreed to sell Cumberland virtually the entire gasoline output of Chevron's Philadelphia refinery. This agreement, extended in 1987, continues on a year-to-year basis.

By letter dated February 14, 1986, Chevron notified all affected Gulf and Chevron dealers of the sale, which closed on May 31, 1986. That letter advised each dealer that Chevron did not believe that the sale to Cumberland triggered the Act or represented a termination or nonrenewal of the dealer's contract of sale, service station lease and related agreements with Chevron. The letter assured the dealers that they would retain all of their rights under the Act against Cumberland Farms.

The letter went on to recite that, on the chance that someone might later claim that the transfer involved a termination or non-renewal subject to the Act, Chevron was taking the precaution of giving formal notice of nonrenewal of dealer agreements in accordance with the Act, although "in fact" the agreements with Chevron would continue in effect and would be renewed by Cumberland.

At the time of the sale plaintiffs were leasing their stations and purchasing gasoline from Chevron under product supply agreements for resale under the Gulf trademark. After the sale plaintiffs continued to do business under their service station leases, using the Gulf trademark, buying gasoline at the same prices as they had from Chevron. As each dealer lease expires, Cumberland offers a new lease which contains a seven percent increase over the previous rent plus increases in applicable property taxes. Seven plaintiffs have signed new leases with Cumberland.

Plaintiffs claim that the sale resulted in the termination or nonrenewal of their franchises in violation of the Act. The Act provides that no franchisor may "terminate any franchise" or "fail to renew any franchise relationship" except under the conditions enumerated in the Act. 15 U.S.C. § 2802(a).

Defendants contend that there has been no such termination or failure to renew within the meaning of the Act, arguing that the assignment did not affect the statutory rights of the franchisees and that there was no constructive termination of the franchise by reason of an assignment invalid under state law.

Alternatively, defendants say that even if the assignment be deemed a termination of the franchises, defendants complied with the market withdrawal provisions of 15 U.S.C. § 2802(b)(2)(E), reciting the conditions under which a franchisor withdrawing from a regional market may decline to renew a franchise relationship.

Standard of Review

As plaintiffs point out, Cedar Brook I is now "law of the case." Generally, once a court decides a rule of law, that decision should govern the same issues in later stages of the case. Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983). But this is no more than a sensible practice in the judge's discretion, and does not prohibit the court from correcting error. See id. Where circumstances warrant the court may reconsider. See Dictograph Products Co. v. Sonotone Corp., 230 F.2d 131, 134 (2d Cir.) cert. dismissed, 352 U.S. 883, 77 S.Ct. 104, 1 L.Ed.2d 82 (1956).

Such circumstances exist here. Since the argument of Cedar Brook I, two circuit courts have ruled on the issue of whether the Act applies to an assignment in cases involving either the assignment from Chevron to Cumberland, see Ackley v. Gulf Oil Corp., 889 F.2d 1280 (2d Cir.1989), aff'g 726 F.Supp. 353 (D.Conn.), cert. denied, ___ U.S. ___, 110 S.Ct. 1811, 108 L.Ed.2d 941 (1990), or one identical in its terms, see May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917 (6th Cir.1989). In light of these decisions, the District of New Jersey has recently reconsidered and changed its decision in another case involving this transaction cited in Cedar Brook I. See Florham Park Chevron, Inc. v. Chevron U.S.A., Inc., No. 86-4748, 86-5107, opinion at 6-7, 1990 WL 61787 (D.N.J. May 4, 1990) (hereinafter Florham Park III).

The court thus considers it appropriate to entertain defendants' renewed motion for summary judgment. It may grant summary judgment if "there is no genuine issue as to any material fact." Fed.R. Civ.P. 56(c). The burden of so showing rests on the moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The court resolves all ambiguities and draws all reasonable inferences in favor of the party opposing the motion. Donahue v. Windsor Locks Board of Fire Commissioners, 834 F.2d 54, 57 (2d Cir.1987).

Applicability of the Act

The overriding purpose of the Act was to protect franchisees from "arbitrary and discriminatory terminations or nonrenewals of their franchises." S.Rep. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.Code Cong. & Admin.News 873, 874 (hereinafter Senate Report). To this end, the Act prohibits franchisors from terminating a franchise or not renewing a franchise relationship except under specific enumerated conditions. See 15 U.S.C. § 2802(b).

In order to establish a claim under the Act, a franchisee must prove either a termination of the franchise or nonrenewal of the franchise relationship. "Franchise relationship" is defined in the statute as "the respective motor fuel marketing or distribution obligations and responsibilities of a franchisor and a franchisee which result from the marketing of motor fuel under a franchise." 15 U.S.C. § 2801(2).

Cedar Brook I rejected defendants' argument that there was no termination or nonrenewal of the franchise relationship because Cumberland completely assumed Chevron's obligations. The court distinguished the term "franchise relationship" as defined in the Act at 15 U.S.C. § 2801(2) from the same term as used in § 2802(b)(2)(A). Citing the Senate Report at page 30, 1978 U.S.Code Cong. & Admin. News at p. 888, the court in Cedar Brook I read that term as used in § 2802(b)(2) to mean "the relationship between the parties rather than the specific rights or obligations of the parties under the franchise agreement." Cedar Brook I, memorandum at 11 (emphasis added in opinion). The court considered Chevron's withdrawal from retail marketing constituted a nonrenewal of the "relationship", even though plaintiffs were afforded continued protection of their franchise rights. Id. at 11-12.

On reconsideration, an examination of the legislative history persuades this court that it does not support this conclusion. The relevant passage is as follows:

In connection with the nonrenewal provisions of the title, ... the term franchise relationship is utilized for two reasons. First, in the renewal context, the contract which constitutes the franchise may no longer exist and the term "franchise relationship" is utilized to avoid any contention that because the "franchise" does not exist there is nothing to renew. The renewal

...