Hazara Enterprises v. Motiva Enterprises, LLC

• Decision Date: 21 December 2000
• Docket Number: No. 99-8568-CIV.,99-8568-CIV.
• Citation: 126 F.Supp.2d 1365
• Parties: HAZARA ENTERPRISES, INC. and Hasan Kahn, Plaintiffs, v. MOTIVA ENTERPRISES, LLC, Shell Oil Company, and Petropac, Inc., Defendants.
• Court: U.S. District Court — Southern District of Florida

126 F.Supp.2d 1365

HAZARA ENTERPRISES, INC. and Hasan Kahn, Plaintiffs, v.MOTIVA ENTERPRISES, LLC, Shell Oil Company, and Petropac, Inc., Defendants.

No. 99-8568-CIV.

United States District Court, S.D. Florida.

December 21, 2000.

Barry S. Balmuth, West Palm Beach, FL, for Plaintiffs.

Samuel A. Danon, Hunton & Williams, Miami, FL, Nancy C. Banner, Holland & Knight, LLP, West Palm Beach, FL, for Defendants.

ORDER ON DEFENDANTS' MOTION TO DISMISS OR IN THE ALTERNATIVE FOR SUMMARY JUDGMENT

HURLEY, District Judge.

THIS CAUSE is before the Court upon the defendantsMotiva Enterprises, LLC("MOTIVA") and Shell Oil Company("SHELL")'s motion to dismiss the plaintiff's Second Amended Complaint or in the alternative for summary judgment[DE # 73]¹ in a case brought under the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq.("PMPA" or "Act").The gravamen of the Complaint is that Shell evaded a provision of the PMPA that requires service station franchisors like Shell to offer assignment of lease options to their franchisees before terminating the franchise relationship.15 U.S.C. § 2802(c)(4)(B).

I.FACTUAL BACKGROUND

In 1959defendant Shell leased property for the operation of a gas station on Lake Worth Road in Lake Worth, Florida from Mary Kerskine for a primary term of 15 years, ending November 24, 1974.Upon expiration of the original lease term, Shell had options to extend the ground lease for two additional periods of five years each.On May 17, 1982, Shell and Kathleen Erskine Leutze(successor in interest to Mary Erskine) entered an Agreement Amending Lease providing Shell with options to extend the ground lease for four additional five year periods.

In February 1994, Shell entered into a franchise agreement with DME Gas Services Inc. through execution of a written Dealer Agreement and Motor Fuel Station Lease (collectively "dealer documents").The Dealer Agreement covers Shell's sale of Shell brand motor fuel and other products to the franchisee, while the Lease covers control and use of the service station property, equipment and improvements.On November 15, 1994, Hazara obtained the Shell franchise by assignment from DME.On that date, Shell and Hasan Khan, Hazara's President and sole owner, executed a Consent to Assignment Agreement, and Khan signed a personal guaranty covering all indebtedness incurred by Hazara to Shell for rent and the purchase of Shell petroleum products and other merchandise.

On September 14, 1998, Shell exercised the fourth and final remaining option to extend the ground lease, extending the term through calendar year 2004.Approximately two weeks later, on October 1, 1998, Shell assigned its interest in the ground lease, due to expire in 2004, as well as its interest in the dealer agreement and station lease, due to expire on January 31, 1999, to Motiva, a joint venture petroleum company owned by Shell, Texaco and Saudi Refining, Inc.

Motiva, in turn, advised Hazara by letter dated December 30, 1998 that it intended to extend the station lease and dealer agreement though the earliest of (1)December 31, 1999; (2) execution of a new Dealer Agreement and Station Lease; or (3) the effective date of a notice of nonrenewal.

Just over a month later, on February 3, 1999, Motiva voluntarily terminated the underlying Leutze ground lease effective November 30, 1999 pursuant to a lease term authorizing cancellation upon 180 days notice.Shortly thereafter, on April 8, 1999, Motiva verbally advised Hazara that it did not intend to renew its franchise agreement effective November 30, 1999 due to its cancellation of the underlying ground lease, and followed up with written confirmation of this decision on April 21 and July 26, 1999.Hazara thereafter attempted to negotiate a new lease directly from the landowner, but was not able to accomplish this until November 20, 1999, when it executed a new lease with Leutze providing for a monthly rental payment of $4500/month, a substantial increase from the $1500/month previously paid by Shell under the prior leasehold.

Shortly after it thus regained a right of possession to the marketing premises, on December 13, 1999, Hazara asked Motiva to sell the underground fuel lines and storage tanks to it, but Motiva refused.Instead, following a hearing before the Magistrate Judge on the parties' cross motions for preliminary injunctive relief relating to removal of this equipment from the marketing premises and a related ruling in favor of Motiva, the defendants retained Petropac Inc., to enter the property and remove the tanks and lines.

Hazara now operates a gas station on the original marketing premises under the Marathon brand name.

II.CLAIMS AND COUNTERCLAIMS

On July 20, 1999, Hazara and Khan filed this action against Shell and Motiva alleging violations of the Petroleum Marketing Practices Act² as well as state law claims for breach of oral contract, negligent misrepresentation and estoppel.

On the PMPA claims, plaintiffs allege that Motiva violated 15 U.S.C. § 2804(c)(4)(B) by neglecting to offer Hazara an assignment of the remainder of the underlying ground lease when it decided to terminate the franchise relationship based on expiration of the ground lease (Count I).In addition, plaintiffs allege that Motiva violated § 2804(c)(4)(C)³ by failing to offer to sell, transfer, or assign Motiva's interest in underground fuel storage tanks, lines, fuel pumps and other equipment located on the premises when it terminated its franchise relationship with Hazara.(Count II).

Plaintiffs also raise state law claims for breach of oral contract (Count IV), negligent misrepresentation (Count V), and promissory estoppel (Count VI), alleging that Shell fraudulently induced Hazara to enter into the franchise agreements by misrepresenting that it intended to expand the station facility with addition of a convenience store in the near future, and that it intended to continue indefinitely a variable rent program which allowed for rent fluctuations based on the amount of "Shell" branded gasoline products sold at the station.In addition, plaintiffs assert negligence claims against Motiva and Petropac, Inc., a company retained by Motiva to remove underground storage tanks and lines from the station property following termination of the puncture of one of the underground storage tanks and consequent contamination of the station property, as well as damage to the asphalt curbing, landscaping and irrigation systems located on the station property.(Count III).

Defendants Shell and Motiva deny any liability under the PMPA, contending that Motiva had no obligation to offer an assignment of its interest in the underlying ground lease to Hazara at the time it decided not to renew the franchise agreement because it did not possess an "option to extend" the underlying lease contemplated by 15 U.S.C. § 2802(c)(4)(B) at that time.As to the franchisee's requested sale of the underground storage tanks and fuel lines, defendants maintain that these issues were conclusively resolved by an earlier order of the court adopting the Magistrate Judge's recommendation to grant preliminary injunctive relief to defendants which allowed the defendants to remove the equipment, finding § 2802(c)(4)(B) no impediment to the removal on ground that the equipment in question was potentially dangerous, and on ground that the franchisee's request to purchase the equipment was untimely.

Finally, these defendants lodge counterclaim against plaintiffs for $34,911.48 allegedly due under the dealer documents for rent, gas and other Shell products purchased by Hazara during its operation of the franchise.

As to the state law claims, defendants argue that any alleged oral misrepresentations made prior to Hazara's execution of the Consent to Assignment Agreement are unenforceable as a matter of law under the doctrine of merger and by force of an integration clause contained in that Agreement, which provides:

This Consent to Assignment Agreement contains the complete agreement of the parties...and the parties respectively declare that no conflicting or additional representations have been made by or to such party with reference to such assignment...

Defendants also invoke the integration clause contained in Dealer Agreement⁴ and Lease Agreement⁵ which Hazara accepted by assignment in support of its merger and integration defense to the contract claims.

III.DISCUSSION

A. PMPA Claims

Motiva concedes that its relationship with Hazara is a franchise relationship covered by the PMPA.Therefore, the limited issue presented on the statutory claims is whether Motiva violated the PMPA when it failed to renew Hazara's franchise agreement without first offering to assign its interest in the underlying ground lease to Hazara at that time (Count I) or when it refused to offer to assign its interest in the underground tanks and fuel lines located on the leased premises to Hazara when it obtained a new lease from Leutze in November of 1999.(Count II)

Congress enacted the PMPA in 1978 in large part because it was concerned that franchisors had been using their superior bargaining power to compel compliance with certain marketing policies and to gain an unfair advantage in contract disputes.Patel v. Sun Co., Inc.,141 F.3d 447(3d Cir.1998);Hutchens v. Eli Roberts Oil Co.,838 F.2d 1138(11th Cir.1988).In particular, Congress sought to protect petroleum franchisees from franchisors' "arbitrary or discriminatory terminations or non-renewals."Id., citingSenate ReportNo. 731, 95th Cong.2d Sess. 17-19, reprinted in1978 U.S.C.C.A.N. 873, 875-77.Toward these ends, the Act sets forth the circumstances under which a franchisor may terminate or decide not to renew a franchise and imposes certain notice requirements.15 U.S.C. § 2804.Shukla v. BP Exploration & Oil Inc.,115 F.3d 849, 852(11th Cir.1997).It also enumerates a series of grounds that permit a franchisor to terminate or...