Humboldt Oil Co., Inc. v. Exxon Co., USA

• Citation: 532 F. Supp. 896
• Decision Date: 24 February 1982
• Docket Number: Civ. No. R-82-29 BRT.
• Parties: HUMBOLDT OIL CO., INC., and J. R. Mastelotto, Plaintiffs, v. EXXON COMPANY, U.S.A., Defendant.
• Court: U.S. District Court — District of Nevada

532 F. Supp. 896

HUMBOLDT OIL CO., INC., and J. R. Mastelotto, Plaintiffs, v. EXXON COMPANY, U.S.A., Defendant.

Civ. No. R-82-29 BRT.

United States District Court, D. Nevada.

February 24, 1982.

Bell, Rosenberg, Spinetta & Randick by Peter L. Spinetta, Oakland, Cal., and Fahrenkopf, Mortimer, Sourwine, Mousel & Sloane by Julien G. Sourwine, Reno, Nev., for plaintiffs.

McCutchen, Doyle, Brown & Enersen by David M. Heilbron, San Francisco, Cal., John C. Renshaw, Vargas & Bartlett, Reno, Nev., for defendant.

MEMORANDUM OPINION AND ORDER

BRUCE R. THOMPSON, District Judge.

This is an action brought by Humboldt Oil Co., Inc. (Humboldt) and J.R. Mastelotto (Mastelotto), plaintiffs, for injunctive relief pursuant to 15 U.S.C. § 2805 to restrain defendant Exxon Company, U.S.A. (Exxon) from terminating distributorship contracts relating to Exxon products.

Mastelotto had two distributorships with Exxon. One was in his own name; the other was in the name of Humboldt. Humboldt is a wholly owned subsidiary of Bonus International Corporation (Bonus). At all pertinent times, Mastelotto owned all the capital stock of Bonus and served as president of Humboldt until December 1981. Mastelotto was also the owner of the J.R. Mastelotto distributorship. The distributorship contracts with Exxon, with respect to their termination, substantially track the provisions of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801 et seq. In the instant case, Exxon's actions to terminate the distributorships were allegedly supported both by the terms of the PMPA and the distributorship agreements.

On July 28, 1981, a federal jury, sitting in the Northern District of California, found Mastelotto guilty of ten counts of mail fraud and fraud by wire. The essence of the crimes charged in the indictment was that Mastelotto sold fraudulently labeled and branded used motor oil to the public as major brand "virgin" motor oil. On October 15, 1981, the judgment of conviction and sentence were entered against Mastelotto. This conviction is on appeal to the U.S. Court of Appeals for the Ninth Circuit. On November 19, 1981, within 120 days of Exxon's acquisition of knowledge of the conviction (15 U.S.C. § 2802(b)(2)(C)(i)), Exxon delivered notices to J.R. Mastelotto and to Humboldt that the respective distributorship agreements were terminated. The sole reason given by Exxon for termination was "the conviction of J.R. Mastelotto of a felony involving moral turpitude."

The PMPA contains specific provisions relating to the granting of equitable relief:

(2) Except as provided in paragraph (3), in any action under subsection (a) of this section, the court shall grant a preliminary injunction if—

(A) the franchisee shows—

(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and

(ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and

(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted.

(3) Nothing in this subsection prevents any court from requiring the franchisee in any action under subsection (a) of this section to post a bond, in an amount established by the court, prior to the issuance or continuation of any equitable relief.

15 U.S.C. § 2805(b)(2), (3).

The foregoing statutory standards make it clear that the traditional requirements for preliminary injunctive relief (1) that the plaintiff demonstrate likeliness of success on the merits, and (2) that he will suffer irreparable harm in the absence of relief, standards which have also been eroded by recent decisions of the Court of Appeals of the Ninth Circuit, do not obtain with respect to actions brought under the PMPA. The plaintiff to prevail need only show that there is a question which is "fair ground for litigation" and that the balance of hardship favors the franchisee.

Plaintiffs contend that Humboldt is the only franchisee, that Humboldt has not been convicted of anything, and that there is therefore no basis for termination. The facts and the statutory language belie this contention. While it may well be that the service stations receiving products under the distributorship franchises are doing business with Humboldt, it is nevertheless clear that the distributorship agreement for more than three-fourths of the service stations in question was entered into with Mastelotto as an individual. It is also clear that under 15 U.S.C. § 2801, Mastelotto is a franchisee even with respect to the agreement executed with Humboldt, a corporation. With reference to section 2801, subsection (4) defines "franchisee" as meaning "a retailer or distributor"; subsection (6) defines "distributor" as meaning "any person, including any affiliate of such person, who purchases motor fuel, etc."; subsection 15 defines "affiliate" as meaning "any person who controls, is controlled by, or is under common control with, any other person."

It is provided in 15 U.S.C. § 2802(c)(12) that termination of a franchise is reasonable upon "conviction of the franchisee of any felony involving moral turpitude." Under the foregoing definitions, and the admitted facts, it is obvious that Mastelotto controls Humboldt which is an affiliate and therefore a franchisee within the meaning of the statute. The conviction of Mastelotto was the conviction of a franchisee.

Plaintiffs next contend that the offenses of which Mastelotto was convicted were not offenses involving moral turpitude. This contention also is specious. Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844 (9th Cir. 1954); Black's Law Dictionary 1359-60 (5th ed. 1979).

Plaintiffs also argue that Mastelotto's conviction is totally irrelevant to the franchise relationship and accordingly does not provide a reasonable basis for its termination. There are no foundations in the statute or the franchise agreements for this contention. Title 15 U.S.C. § 2802(c) expressly states: "As used in subsection (b)(2)(C) of this section, the term `an event which is relevant to the franchise relationship and as a result of which termination of the franchise or nonrenewal of the franchise relationship is reasonable' includes events such as ... (12) conviction of the franchisee of any felony involving moral turpitude." Nothing could be more explicit.

The only argument made by plaintiffs which has given us any concern as presenting an issue involving a fair ground for litigation is the contention that Mastelotto's conviction, which is presently pending on appeal before the U.S. Court of Appeals for the Ninth Circuit, does not constitute a conviction within the meaning of 15 U.S.C. § 2802(c)(12). This contention involves a matter of statutory interpretation with respect to whether the word "conviction" should be held to mean final conviction, or whether conviction in the trial court is alone sufficient. On this issue, plaintiffs rely primarily on state cases, such as, In re Riccardi, 182 Cal. 675, 189 P. 694 (1920). Defendant cites an unreported decision, Fayad v. Mobil Oil Corp., from the District of Massachusetts, where the conviction was based on a plea of guilty, which was subsequently followed by a motion to withdraw the plea and vacate the conviction. This case is not apposite inasmuch as the motion was a collateral attack rather than a direct attack on the conviction. The other precedents relied upon by defendant correctly state the general rule that a conviction should be considered final even though an appeal is pending. Our research does not, however, support this as fully applicable law in the instant situation. We think the discussion by the court in United States v. Samson, 533 F.2d 721 (1st Cir. 1976), is pertinent:

Defendant's present appeal raises several matters. His first contention is that the statute requires a final conviction. Concededly, this is solely a question of construction; lawfully a classification may be based upon a mere indictment. United States v. Craven, 6 Cir., 1973, 478 F.2d 1329, cert. denied, 414 U.S. 866, 94 S.Ct. 54, 38 L.Ed.2d 85; United States v. Thoresen, 9 Cir., 1970, 428 F.2d 654, 661-62. Defendant argues that where Congress did not include indictments, it must have intended the other extreme. This does not follow. By its normal meaning a defendant has been `convicted by a court' even though the conviction may sometime be reversed. Whether only a final conviction is meant in the particular instance is a matter of overall intent. If the disability imposed by the statute

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