Farm Stores, Inc. v. Texaco, Inc., 84-5070
| Decision Date | 24 June 1985 |
| Docket Number | No. 84-5070,84-5070 |
| Citation | 763 F.2d 1335 |
| Parties | , 54 USLW 2035 FARM STORES, INC., Plaintiff-Appellee, v. TEXACO, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Bruce C. Bailey, Houston, Tex., Smathers & Thompson, David Batchelor, Miami, Fla., G. Kenneth Handley, White Plains, N.Y., for defendant-appellant.
Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., Curtis Carlson, Miami, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before RONEY and TJOFLAT, Circuit Judges, and BROWN *, Senior Circuit Judge.
I. Nature of the Action
Farm Stores, Inc. instituted this action against Texaco, Inc. alleging that Texaco's failure to renew a contract between the parties violated the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. Sec. 2801, et seq. Farm Stores claimed that its relationship with Texaco constituted a franchise, thereby bringing the parties' contract under the protection of the PMPA. Specifically, Farm Stores contended that Texaco's notice of nonrenewal of the contract was a violation of Sec. 2804, the notice requirement provision of the PMPA. Under Sec. 2804 there are restrictions which limit a petroleum franchisor's ability to terminate a franchise.
The district court denied Texaco's counterclaim for ejectment and, employing the test of entreprenurial responsibility from Simpson v. Union Oil, 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964), found that Farm Stores was constructively covered by the PMPA and granted its claims for declaratory and injunctive relief, 577 F.Supp. 682.
After thorough examination of the statute, the legislative history of the PMPA, the prior case law, and the record, we reverse the district court's decision. In Part II of this opinion we examine the parties and their contractual relationship. In Part III we consider the legislative history of the PMPA. Part IV analyzes this case under the appropriate and controlling legal standards of this circuit. Part V concludes that Farm Stores is not protected by the PMPA, either expressly or constructively.
II. Case History
Farm Stores is a Florida corporation with its principal place of business in Dade County, Florida. Farm Stores operates approximately 265 convenience stores (and related facilities) which sell grocery and dairy products throughout the state of Florida. Approximately 90 of these facilities are used to market both food products and motor fuel. In some of the locations Farm Stores sells fuel under its own private label rather than the brand of a major oil company.
Texaco is an integrated oil company with worldwide operations. In Florida, Texaco has two types of operations: (1) retail outlets operated by conventional retailers/dealers, who, Texaco concedes, fall within the parameters of the PMPA; and (2) retail outlets operated by contract operators. Texaco contends these contract operators are not protected by the PMPA. Texaco maintains that Farm Stores is such a contract operator. 1
Texaco has owned the station site at issue since 1962. The raw land has a market value of $400,000. In 1982 Texaco built a "System 2000" self-service gasoline outlet on the property which cost approximately $500,000. The System 2000 also included a miniature convenience store and carwash.
During construction of the facility, Texaco considered various alternatives for its operation. Testimony revealed that Farm Stores had long sought to operate a facility on the site. However, in the spring of 1982, prior to entering any contractual relationship with a party to operate the System 2000, Texaco advised Farm Stores--in response to Farm Stores' inquiry--that it was negotiating a contract with the Southland Corp., the owner of the 7-11 convenience store chain.
Farm Stores' vice-president, Richard E. King, responded to this news by inquiring whether there was "anything Farm Stores could do" to obtain the location instead of Southland. Texaco informed Farm Stores that the only way to stop the Southland contract from being finalized was for Farm Stores to agree to Texaco's contract terms "as written." In its preliminary discussions with Texaco, Farm Stores had sought to negotiate a contract with a minimum life of three years. However, the contract Farm Stores agreed to sign to secure the location over a major competitor provided for a one-year term with renewals unless terminated by either party after giving notice. 2 Given Farm Stores willingness to accept the contract as written, Texaco awarded Farm Stores the location in August of 1982. 3
Under the contract Texaco assumed responsibility for structural maintenance, kept title to all gasoline products, and agreed to pay Farm Stores a certain fixed amount per hour to operate the station--regardless of whether any gasoline was sold. For its part, Farm Stores agreed to perform routine maintenance, hire suitable employees to run the store, and collect the self-service gasoline proceeds. 4 Farm Stores received a fixed payment per hour for the station's operation and was allowed to keep all proceeds from the food and carwash sales. In return, Farm Stores agreed to pay the cost of utilities for the station's operation. The contract identified nothing as a lease agreement, nor was a rent specified.
The issue before the district court, now presented to us for review, is whether the contractual relationship between Texaco and Farm Stores is of the type Congress intended to protect with the PMPA. At trial Farm Stores argued that where the applicability of a congressional statute depends upon imprecise language in a contract, all ambiguities or doubts should be resolved against the draftsman. This is as accurate a statement of contractual interpretation as it is inapposite. We find that the language of the contract was clear. In fact, the first page of the contract states:
NO FRANCHISE. CONTRACTOR ACKNOWLEDGES THAT THIS CONTRACT DOES NOT CREATE, EXTEND, OR RENEW A FRANCHISE UNDER ANY LOCAL, STATE OR FEDERAL LAW, INCLUDING THE FEDERAL PETROLEUM MARKETING PRACTICES ACT. CONTRACTOR FURTHER ACKNOWLEDGES THAT THIS CONTRACT WITH TEXACO IS A SEPARATE AND DISTINCT CONTRACT FROM ANY OTHER AGREEMENTS, CONTRACTS, OR FRANCHISE RELATIONSHIPS WHICH MAY NOW OR HEREAFTER EXIST BETWEEN TEXACO AND CONTRACTOR.
While such a boldface statement alone is inconclusive, the contract between Texaco and Farm Stores clearly enumerates each party's obligations and these are consistent with the statement that Farm Stores is not a franchisee. The contract established a relationship which, by its own unambiguous terms, was to last for one-year periods until either party exercised its option to terminate the relationship.
As we perceive it, the question in this case involves whether Congress intended the PMPA--a complex remedial statute--to be applied to a clearly written contract which Farm Stores chose voluntarily to accept on an "as is" basis to keep a competitor from securing a particularly valuable business location.
III. The Petroleum Marketing Practices Act (PMPA)
In 1978 Congress enacted the PMPA to govern the termination of franchise relationships for the sale of motor fuel. The PMPA was passed to alleviate concern that franchise dealers could be subjected to unfair treatment by the supplier of their principal sales item, motor fuel. Specifically, it was designed to protect against the arbitrary or discriminatory termination or nonrenewal of a motor fuel franchise. Congress, at the same time, sought to preserve the flexibility needed for franchisors to initiate changes to respond to shifting market conditions and consumer preferences. As the legislative history makes clear:
The franchise relationship in the petroleum industry is unusual, in fact perhaps unique, in that the franchisor commonly not only grants a trademark license but often controls, and leases to the franchisee, the real estate premises used by the franchisee. In addition the franchisor almost always is the primary, even exclusive, supplier of the franchisee's principal sale item: motor fuel. This relationship is, therefore, often complex and characterized by at times competing interests.
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Central to the problems faced by franchisees in this regard is the disparity of bargaining power which exists between the franchisor and the franchisee. This disparity results in franchise agreements which some franchisees have argued amount to contracts of adhesion. The provisions of the contracts between the franchisor and the franchisee and the permeating influence of these contracts over nearly every major aspect of the franchisee's business may translate the original disparity in bargaining power into continuing vulnerability of the franchisee to the demands and actions of the franchisor.
It is important to note that while the relationship of the parties to a motor fuel franchise agreement is basically contractual in nature, normal remedies for violations of the contractual provisions are often eschewed by the franchisor. The disparity of bargaining power which disadvantages the franchisee in negotiations leading to the execution of the franchise agreement manifests itself in the contractually provided remedies for contract violations or changes in circumstances. Commonly the franchisor is able to capitalize on his disparity in bargaining power to obtain greater flexibility with respect to his rights to terminate the contractual relationship. As a result, termination of franchise agreements during the term as a remedy for contract violations has been repeatedly utilized.
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It is also important to note that often the reasonable expectations of the parties to a motor fuel franchise are that the relationship will be a continuing one. This expectation by the franchisee, in particular, is often the result of, and fostered...
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