In re Anne Cara Oil Co., Inc.

• Decision Date: 01 September 1983
• Docket Number: Bankruptcy No. 4-83-0170-G,Adv. No. 4-83-070.
• Citation: 32 BR 643
• Parties: In re ANNE CARA OIL COMPANY, INC., Debtor. SHELL OIL COMPANY, Plaintiff, v. ANNE CARA OIL CO., INC. and William Humphrey Tucker, United States Trustee, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

32 B.R. 643 (1983)

In re ANNE CARA OIL COMPANY, INC., Debtor.

SHELL OIL COMPANY, Plaintiff, v. ANNE CARA OIL CO., INC. and William Humphrey Tucker, United States Trustee, Defendants.

Bankruptcy No. 4-83-0170-G, Adv. No. 4-83-070.

United States Bankruptcy Court, D. Massachusetts.

September 1, 1983.

Charles Donelan, John B. Nolan, Day, Berry & Howard, Boston, Mass., for plaintiff.

Norman Novinsky, Goodman & Novinsky, P.C., Brockton, Mass., for defendants.

Gerrard Kelley, Boston, Mass., U.S. Trustee's office.

MEMORANDUM ON COMPLAINT FOR RELIEF FROM STAY

PAUL W. GLENNON, Bankruptcy Judge.

Anne Cara Oil Co., Inc. ("Anne Cara" or "debtor") is the lessee of certain premises located in Leominster, Massachusetts pursuant to a motor fuel station lease ("lease") entered into on July 14, 1982 with the plaintiff, Shell Oil Company ("Shell"). The lease was to be effective for the term beginning January 1, 1983 through December 31, 1985 unless extended (pursuant to certain requirements not applicable herein) and could be terminated by Shell, at its option, upon notice (as defined by the Petroleum Marketing Practices Act ("PMPA")) for any one of a number of enumerated grounds. On the same date, Anne Cara and Shell entered into a dealer agreement ("agreement") whereby the debtor was granted the right to use the Shell trademark and sell Shell products. The agreement contained a provision prohibiting Anne Cara from mixing Shell products with non-Shell products and from offering for sale non-Shell products. The term of the agreement was concurrent with that set forth in the lease. Termination was governed by grounds similar to those which governed the lease.

The PMPA, 15 U.S.C. §§ 2801 et seq. (effective June 19, 1978) regulates oil franchising. It was enacted, inter alia, "to provide for the protection of franchised distributors and retailers of motor fuel . . .", S.Rep. No. 731, 95th Cong. 2d Sess. 1 (1978), U.S.Code Cong. & Admin.News 1978, p. 873, and to "establish . . . minimum Federal standards governing the termination and nonrenewal of franchise relationships for the sale of motor fuel by the franchisor or supplier of such fuel." Id at 15, U.S.Code Cong. & Admin.News 1978, p. 873. Under the terms of 15 U.S.C. § 2801, the lease and dealer agreement created a franchise relationship the termination of which is subject to the standards of the PMPA. See also Frisard v. Texaco, Inc., 460 F.Supp. 1094 (E.D.La.1978).

In enacting the PMPA, Congress was mindful of the often-times unequal bargaining positions of franchisors (large oil companies) and potential franchisees. Typically, in addition to the prohibitions contained in the dealer agreement, the oil company owns the land on which the gas station is situated, and the oil company is in a position to set the rental price, minimum gallonage requirements, hours of operation and sales of tie-ins (e.g. tires, batteries and accessories). Prior to the enactment of the PMPA, oil companies were subject only to state law requirements when terminating franchises, which produced varying results across the country.¹See generally S.Rep. supra at 17-19 and Note, Retail Gasoline Franchise Terminations and Nonrenewals under Title I of the Petroleum Marketing Practices Act, 1980 Duke L.J. 522. The PMPA attempts to remedy any previous disparities.

By providing detailed preconditions of termination (15 U.S.C. § 2802), the PMPA "establishes protection for franchisees from arbitrary or discriminatory termination or non-renewal of their franchises." S.Rep. supra at 15, U.S.Code Cong. & Admin.News 1978, p. 874. Where appropriate, a franchisee may seek money damages and injunctive relief in District Court (without regard to the amount in controversy) if he believes the relationship was wrongfully terminated. The franchisor has the burden of proving compliance with the PMPA. 15 U.S.C. § 2805.

15 U.S.C. § 2802 sets forth the grounds for termination, i.e., "failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship . . ." and "occurrence of 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 . . .". The latter ground includes "failure by the franchisee to pay to the franchisor in a timely manner when due all sums to which the franchisor is legally entitled", "willful adulteration, mislabeling or misbranding of motor fuels or other trademark violations by the franchisee", and "knowing failure of the franchisee to comply with Federal, State, or local laws or regulations relevant to the operation of the . . . premises." 15 U.S.C. § 2802(c). Under the terms of the franchise relationship, the relevant grounds for termination include the grounds set forth above. Under 15 U.S.C. § 2804, notice of termination must be provided at least ninety days prior to the date set for termination and must be in writing, sent by certified mail or personally delivered to the franchisee, contain a statement of the franchisor's intent to terminate the franchise and the reasons therefor, the date on which termination takes effect, and a summary of Title I of the PMPA as published in the Federal Register.

In the instant case, Shell sent a letter, certified mail, to William Hannigan ("Hannigan") the president of Anne Cara², on January 12, 1982³ sic. The grounds for termination were stated as failure to timely pay Shell all monies due. The date of termination was set for April 15, 1983. In all respects, the letter appears to satisfy the requirements of the PMPA. On March 15, 1983, Shell again mailed a notice of termination to Hannigan, repeating the balance due and reaffirming the April 15, 1983 date of termination. The grounds set forth in the second letter were the mixing of Shell products with non-Shell products.⁴ Even though it appears that the PMPA was enacted to offer protection to the rights of franchisees rather than franchisors,⁵ it is beyond dispute that "once a franchisee accepts the legal and contractual obligations of the franchise agreement, he is not free to disregard them." Crown Central Petroleum Corp. v. Waldman, 515 F.Supp. 477, 485 (M.D.Pa.1981), aff'd mem., 676 F.2d 684 (1982).

The Senate Report recognizes that "termination is an extreme remedy. It is fundamentally punitive and not compensatory in nature, i.e., the franchisor is not compensated for any financial injury experienced by reason of the franchisee's contractual violations. . . . On the other hand, franchise termination may be appropriate as a remedy for franchisee misconduct in some cases. Some contractual violations, although not readily reducible to a dollar value, may be so serious as to undermine the entire relationship." S.Rep. supra at 18, U.S.Code Cong. & Admin.News 1978, p. 876. A number of courts have found that the commingling of franchisor gasoline with non-franchisor gasoline is so serious a violation to be valid grounds for termination under 15 U.S.C. § 2802. See e.g., DiNapoli v. Exxon Corp., 549 F.Supp. 449 (D.N.J. 1982); Pugh v. Mobil Oil Corp., 533 F.Supp. 169 (S.D.Tex.1982); Haynes v. Exxon Co., 512 F.Supp. 543 (E.D.Tenn.1981); and Gilderhus v. Amoco Oil Co., 470 F.Supp. 1302 (D.Minn.1979). The PMPA itself lists failure to pay the franchisor as grounds for termination.

On April 14, 1983, Anne Cara filed its Chapter 11 petition. Its schedules revealed a total secured debt of $10,035.00 and total unsecured debt of $31,018.85 (of which $15,000 was listed as owing to Shell). The total number of creditors is five (a local bank holds two separate secured claims and three unsecured claims) including debts owing the Internal Revenue Service and the Commonwealth of Massachusetts for taxes. Total assets are listed in the amount of $25,800.00.⁶ On April 29, 1983, on the verified complaint of Shell and upon a short order of notice, the Court entered an order preliminary enjoining Anne Cara from: using and selling non-Shell products under the Shell trademark, commingling Shell products with non-Shell products, and further using the Shell trademark. The Court declined to enjoin the debtor from further using the leased premises.⁷ The debtor's counsel was aware of the hearing yet did not appear. A further hearing on the merits of Shell's complaint was held. The complaint alleged that the franchise relationship terminated April 15, 1983 which termination is grounds for relief from the automatic stay of 11 U.S.C. § 362(a). Additionally, the defaults in the franchise relationship are incurable and therefore no adequate protection could be offered to Shell, cause exists to grant Shell relief from the stay, no means exist whereby the debtor could assume the contracts under 11 U.S.C. § 365, and further, the relationship is a nonassumable personal service contract pursuant to 11 U.S.C. § 365(e)(2)(A). Finally, Shell argues alternatively that the debtor has no equity in the leased premises, no prospects for reorganization, and the franchise relationship is not necessary for an effective reorganization. The debtor's answer contained a counterclaim requesting an order requiring Shell to continue to supply products to Anne Cara and for attorneys' fees because on April 15, 1983, without having obtained relief from the stay, Shell attempted to take possession of the leased premises and discontinued supplying Anne Cara. No answer was filed to the counterclaim.

Under 11 U.S.C. § 541(a), "the commencement of a case . . . creates an estate. . . . Such estate is comprised of all legal or equitable interests of the debtor in property, wherever located, as of the commencement of the case." "The scope of this paragraph is broad . . ., however it is not intended to expand the debtor's rights against others more than they exist at the commencement of the case." H.R.Rep. No. 595, 95th Cong. 1st Sess. 367 (1977) and S.Rep. No. 989,...