Comptroller of Treasury v. Crown Central Petroleum Corp.

• Decision Date: 19 October 1982
• Docket Number: No. 4,4
• Citation: 52 Md.App. 581,451 A.2d 347
• Parties: COMPTROLLER OF the TREASURY v. CROWN CENTRAL PETROLEUM CORPORATION.
• Court: Court of Special Appeals of Maryland

Page 581

52 Md.App. 581

451 A.2d 347

COMPTROLLER OF the TREASURY v. CROWN CENTRAL PETROLEUM CORPORATION.

No. 4.

Court of Special Appeals of Maryland.

Oct. 19, 1982.

Charles O. Monk, II, Asst. Atty. Gen., with whom were Stephen H. Sachs, Atty. Gen., Michael F. Brockmeyer, and Gerald I. Langbaum, Asst. Attys. Gen., on the brief, for appellant.

Peter H. Gunst, Linda M. Richards, Frank, Bernstein, Conaway & Goldman, Thomas M. Wilson, III and Tydings & Rosenberg, Baltimore, for amicus curiae, The Greater Washington/Maryland Service Station Ass'n.

Morton A. Sacks, Baltimore, and Philip D. Hale, Annapolis, with whom were Ray R. Fidler, Cable, McDaniel, Bowie & Bond & Bald & Hale, Baltimore, on the brief, for appellee.

Argued before MOORE, WILNER and GARRITY, JJ.

WILNER, Judge.

In an action brought against the Comptroller of the Treasury (Comptroller) by Crown Central Petroleum Corporation (Crown), the Circuit Court for Anne Arundel County entered a summary judgment declaring that (1) certain regulations promulgated by the Comptroller under the purported authority of Md.Code art. 56, § 157B were invalid, and (2) the contractual relationship between Crown and its service station dealers as disclosed by the evidence presented to the court was not unlawful. The Comptroller appeals both aspects of that judgment.

The dispute with respect to the Comptroller's regulations is but the latest phase of a deeper controversy over the State's attempt to regulate the marketing of petroleum products within its borders--a controversy that has already produced two cases in the Court of Appeals and one in the Supreme Court of the United States. Some background would therefore be helpful in understanding the issues presented here in their proper context.

In 1973, the General Assembly declared that "since the distribution and sale through marketing arrangements of petroleum products in the State of Maryland vitally affect the economy of the State, the public interest, welfare, and transportation, it is necessary to define the relationships and responsibilities of the parties to certain agreements pertaining thereto." It attempted to define those relationships and responsibilities by enacting the "Maryland Gasoline Products Marketing Act" (Acts of 1973, ch. 662, then codified as Md.Code art. 23, § 167A, et seq., now codified as Commercial Law article, § 11-301, et seq.).

The 1973 law addressed what the General Assembly evidently saw as an imbalance of economic power between the oil companies and their dealers that it believed was detrimental to the State and in need of redress. The law required the oil companies to disclose certain information to prospective service station dealers before entering into marketing agreements with them; it precluded certain requirements and restrictions onerous to the dealers from being inserted in those marketing agreements; and it imposed certain requirements and restrictions upon the termination of the agreements. ¹ One of the protections afforded in the 1973 law was that a dealer "shall not be required to keep his retail outlet open for business for any specified number of hours per day, or days per week, unless his marketing agreement expressly sets forth the requirements."

In 1974, the General Assembly enacted two bills affecting the retail marketing of petroleum products. Chapter 852 amended the 1973 Gasoline Products Marketing Act by (1) closing a potential "loophole" in the definition of "distributor"; (2) forbidding distributors from unreasonably refusing to renew a marketing agreement; and (3) requiring distributors, upon termination of a marketing agreement for any reason other than material breach by the dealer, to pay the dealer the value of any "business goodwill enjoyed by the dealer" at that time.

The second act passed in 1974 is more at the root of the present controversy. Chapter 854--commonly known as the "divestiture" law--was for the stated purpose of "prohibiting producers or refiners of petroleum products from operating retail service stations." The legislative history of Chapter 854 and the intent of the General Assembly in enacting it are described in some detail in Governor of Maryland v. Exxon Corp., 279 Md. 410, 370 A.2d 1102 (1977), aff'd 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, reh. den. 439 U.S. 884, 99 S.Ct. 232, 58 L.Ed.2d 200 (1978). In summary, the legislature was reacting to what it perceived as a growing and harmful trend toward vertical integration in the marketing of petroleum products. Evidence was presented to the legislature that the oil companies had begun to change their marketing strategies, that they were beginning to favor stations owned and operated directly by them, with their employees, in lieu of the more traditional dealer-operated stations, and that, in furtherance of that policy, they discriminated against dealer-owned or operated stations in the allocation of product and in various pricing policies.

Chapter 854 had a dual thrust. Three of its subsections prohibited discrimination in allocation and pricing among the service station dealers. Two others--the divestiture provisions--prohibited the oil companies from "operat[ing] a major brand, secondary brand, or unbranded retail service station in the State of Maryland, with company personnel, a subsidiary company, or a commissioned agent" after July 1, 1975, and from opening any additional such stations after July 1, 1974. The Comptroller was authorized to adopt rules defining the circumstances in which a producer or refiner could temporarily operate "a previously dealer-operated station" and to permit "reasonable exceptions to the divestiture dates."

These provisions enacted by Ch. 854 were added not to the Gasoline Products Marketing Act but rather to the Motor Fuel Inspection Law, codified in Md.Code art. 56, § 157A, et seq. That law, as it then stood, was not concerned so much with the economic relationships between the oil companies and their dealers as with assuring that petroleum products sold to the public were properly graded and priced. It permitted the Comptroller to establish minimum specifications for the various gasoline and motor fuel products marketed in the State, required virtually all persons in the production and marketing chain to register with the Comptroller, gave the Comptroller the right to enter the premises of these registrants to inspect petroleum products stored there, required all substitutes or "improvers" of fuel products to be submitted to the Comptroller for approval, and established certain requirements for gasoline pumps and advertising placards at the service stations. In that general context, § 157B(a) of art. 56 provided, in part:

"The Comptroller of the Treasury is hereby authorized and required to administer the provisions of this subtitle. For this purpose, he shall have the power to promulgate such rules and regulations as may be necessary for the proper administration and enforcement of this subtitle."

In February, 1975, the Comptroller proposed a number of "Motor Fuel Inspection Regulations" under Ch. 854. See 2:4 Md.Reg. 228 (2/19/75). They dealt primarily with the "temporary" operation of service stations by producers and refiners and with procedures for obtaining exceptions to the mandatory divestiture dates, however, and did not attempt to define such terms as "company personnel" or "subsidiary company."

The 1975 session of the General Assembly produced two additional pieces of legislation. Chapter 624, Acts of 1975 amended a provision of the Gasoline Products Marketing Act. As introduced, it would have flatly prohibited a distributor from requiring a dealer to keep his station open for any specified number of hours per day or days per week; as enacted, it permitted such a requirement if "negotiated in good faith by both parties and arrived at in mutual agreement and is on the basis of a bona fide business need."

The second enactment--Chapter 608, Acts of 1975--amended the 1974 additions to the Motor Fuel Inspection Act to prohibit producers and refiners from using persons employed on a "fee arrangement" to operate service stations. The Legislature declared that "[t]he station must be operated by a retail service station dealer." With that amendment, § 157E(c) of art. 56 read as follows:

"After July 1, 1975, no producer or refiner of petroleum products shall operate a major brand, secondary brand, or unbranded retail service station in the State of Maryland, with company personnel, a subsidiary company, commissioned agent, or under a contract with any person, firm, or corporation managing a service station on a fee arrangement with the producer or refiner. The station must be operated by a retail service station dealer."

The 1974 and 1975 additions to the Motor Fuel Inspection Law were placed in a form of suspended animation when a number of oil companies filed suit to declare them unconstitutional. The divestiture dates were, in effect, delayed first until August, 1977 (4:15 Md.Reg. 1145 (7/20/77)), and ultimately until July, 1979.

Meanwhile, during the pendency of the litigation in the Court of Appeals ( Governor of Maryland v. Exxon Corp., supra, 279 Md. 410, 370 A.2d 1102) and the Supreme Court ( Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, reh. den. 439 U.S. 884, 99 S.Ct. 232, 58 L.Ed.2d 200 (1978)), several attempts were made in the General Assembly to amend the Gasoline Products Marketing Act in order to flatly prohibit distributors from requiring dealers to keep their stations open for any minimum number of hours or days and to void any provision in a marketing agreement establishing such minima. Each of these attempts failed and no such legislation was enacted. ²

On January 26, 1979, the Comptroller proposed a new, and much more comprehensive, set of regulations for the administration of the "divestiture" provisions of art. 56, § 157E. (6:2 Md.Reg. 76 (1/26/79)). Unlike the...