Kehm Oil Co. v. Texaco, Inc.

• Decision Date: 31 July 2008
• Docket Number: No. 07-1650.,07-1650.
• Citation: 537 F.3d 290
• Parties: KEHM OIL COMPANY; Golden Oil Company, Appellants v. TEXACO, INC.; Texaco Refining and Marketing (East), Inc., d/b/a Star Enterprise-Partnership; Chevron Corporation; Motiva Enterprises, LLC; SFM Energy, LLC; Chevron Products Company; Chevron U.S.A. Inc; ChevronTexaco Corporation; Star Enterprise Partnership, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

537 F.3d 290

KEHM OIL COMPANY; Golden Oil Company, Appellants v. TEXACO, INC.; Texaco Refining and Marketing (East), Inc., d/b/a Star Enterprise-Partnership; Chevron Corporation; Motiva Enterprises, LLC; SFM Energy, LLC; Chevron Products Company; Chevron U.S.A. Inc; ChevronTexaco Corporation; Star Enterprise Partnership, Appellees.

No. 07-1650.

United States Court of Appeals, Third Circuit.

Argued March 13, 2008.

Filed July 31, 2008.

Thomas J. Farnan (Argued), Robb, Leonard & Mulvihill, Pittsburgh, PA, for Appellants.

Samuel E. Stubbs (Argued), David M. Goldberg, Matthew E. Coveler, Esq., Jennifer B. Hogan, Esq., Pillsbury, Winthrop, Shaw & Pittman, Houston, TX, Eric L. Horne, Eckert, Seamans, Cherin & Mellott, Pittsburgh, PA, for Appellees.

Before: FUENTES, CHAGARES, and VAN ANTWERPEN, Circuit Judges.

OPINION OF THE COURT

FUENTES, Circuit Judge.

Kehm Oil and Golden Oil (collectively, "Kehm"), owned by George Kehm, were dealers of Texaco-branded gasoline in Western Pennsylvania for 44 years, owning 28 Texaco gas stations by the end of the relationship. Over that period of time, Kehm entered into franchise agreements with various distinct Texaco-owned entities, including Motiva Enterprises, LLC ("Motiva"). Motiva, which was at that time part-owned by Texaco, informed Kehm in 2002 that as of June 2006, it could no longer license the Texaco brand to Kehm and would terminate Kehm's franchise. When Motiva terminated Kehm's franchise in 2006, Kehm filed this action under the Petroleum Marketing Practices Act ("PMPA"), claiming that it had an unbroken "franchise relationship" with Texaco that was not properly cancelled under the PMPA.

In this opinion, we address whether Kehm was in a franchise relationship with Texaco, Inc. ("Texaco") at the time of termination, requiring Texaco to fulfill the requirements of the PMPA before terminating its relationship with Kehm. We conclude that Motiva, not Texaco, had a franchise relationship with Kehm at the time of termination and therefore Texaco did not, and could not, violate the PMPA.

I.

Following a number of franchise agreements that Kehm signed with various Texaco-owned entities over time, in 1998, Kehm entered into a five-year agreement with Star Enterprises ("Star")¹ (the "Final Contract"). Less than a year after the contract was signed, Star sent Kehm a letter indicating that the contract would be assigned to Motiva, a joint venture between Texaco, Shell Oil Company ("Shell"), and SRI. In October 2001, Texaco and Chevron Corporation ("Chevron") merged.² As a condition of approval for the merger, the Federal Trade Commission ("FTC") required Texaco to divest its interest in Motiva and, if certain conditions were met, to offer to extend Motiva's ability to license Texaco-branded oil until June 30, 2006. Chevron Corp. and Texaco Inc., F.T.C. Docket No. C-4023, Jan. 2, 2002. Accordingly, Texaco transferred its interest in Motiva to Shell and SRI and agreed to license its brand to Motiva through June 30, 2006.

In light of the impending loss of its ability to license Texaco products, Motiva sent a letter to Kehm in February 2002, stating that as of June 30, 2006, it would no longer have a license in the Texaco brand. Motiva also indicated that, in its new role as a Shell affiliate, it would consider whether to offer Kehm a Shell-branded franchise when the Texaco licensing agreement expired. In that letter, Motiva stated that "[a]s Motiva is losing its right to grant you the right to use the Texaco trademark, Motiva must formally end our Texaco brand franchise in accordance with the Petroleum Marketing Practices Act ... effective June 30, 2006." (A.642.)

Kehm claims that it did not consider Motiva's notice to terminate the franchise as an official termination from Texaco because a "Texaco" representative had stated that the relationship would continue beyond June 30, 2006. Specifically, an employee of Chevron Products Company, James Barnes, performed a site visit in March or April of 2006 allegedly to negotiate an agreement to continue the franchise relationship between Texaco and Kehm. Kehm also claims that in order to continue the relationship with Texaco it agreed to debrand six stations, invest $500,000 in improving the remaining 22 stations, and offer two of the stations for sale to fund the improvements. Kehm contends that it only learned that Texaco would not continue the franchise after June 30, 2006, at some point between April and June of that year. Kehm and Motiva continued to act under the terms of the Final Contract until the termination of the franchise on June 30, 2006.

Kehm brought suit against Texaco, Texaco Refining and Marketing (East), Inc. ("TRMI"), Motiva, SFM Energy LLC, Chevron, Chevron USA Inc., Chevron Products Company, and Star in federal district court under the PMPA, seeking a TRO, a preliminary injunction, and damages under the PMPA and state law on June 14, 2006.³ The District Court denied the emergency relief, holding that Kehm only had a franchise relationship with Motiva and that Motiva had the right to terminate the relationship under the PMPA because Motiva lost the right to use the Texaco trademark.

Subsequently, Texaco, Chevron, TRMI, and Star filed motions for summary judgment, and Chevron also filed a motion to dismiss for lack of personal jurisdiction. The District Court granted Chevron's motion to dismiss for lack of personal jurisdiction and granted the other defendants' summary judgment motions, finding that Kehm failed to sue within the PMPA's one year statute of limitations period. Kehm Oil Co. v. Texaco, Inc., No. 2:06-cv-785, 2007 WL 626140, at *3, *5 (W.D.Pa. Feb.26, 2007). In the alternative, the District Court found that when its franchise was terminated, Kehm did not have a franchise relationship with Texaco, and Motiva, who Kehm did have a franchise relationship with, properly terminated the franchise under the PMPA. Id. at * 6. Kehm appeals.

II.

The District Court had subject matter jurisdiction over the PMPA claim pursuant to 15 U.S.C. § 2805(a) and 28 U.S.C. § 1331, and supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367. We have jurisdiction over the District Court's final decision pursuant to 28 U.S.C. § 1291. We exercise plenary review over the grant of Chevron's motion to dismiss for lack of personal jurisdiction and the grant of the remaining defendants' summary judgment motions. Marten v. Godwin, 499 F.3d 290, 295 n. 2 (3d Cir. 2007); Bus. Edge Group, Inc. v. Champion Mortgage Co., 519 F.3d 150, 153 n. 5 (3d Cir.2008). Summary judgment is appropriate if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). In reviewing the District Court's grant of the motion to dismiss and the motions for summary judgment, we view the facts in the light most favorable to the nonmoving party. Marten, 499 F.3d at 295 n. 2; Lighthouse Inst. for Evangelism, Inc. v. City of Long Branch, 510 F.3d 253, 260 (3d Cir.2007).

III.

The aim of the PMPA is to "protect[ motor fuel station] franchisees from arbitrary or discriminatory termination or non-renewal of their franchises." S.Rep. No. 95-731, at 15 (1978), as reprinted in 1978 U.S.C.C.A.N. 873, 874 (hereinafter "Senate Report"). According to the legislative history of the PMPA, Congress found that franchisors have more bargaining power than franchisees because franchisees depend on franchisors to supply their main product, motor fuel, and franchisors often control the premises upon which the franchisees operate. O'Shea v. Amoco Oil Co., 886 F.2d 584, 587 (3d Cir.1989). Because of the imbalance in bargaining power, franchisors, prior to the enactment of the PMPA, were able to enter into contracts granting them great flexibility in their ability to terminate. Senate Report at 17-18, 1978 U.S.C.C.A.N. at 876. Therefore, it was determined that there was a need to protect motor fuel franchisees because "terminations and non-renewals, or threats of termination or non-renewal, [were being] used by franchisors to compel franchisees to comply with marketing policies of the franchisor." Id. at 17, 1978 U.S.C.C.A.N. at 876.

Congress's purpose in enacting the PMPA was to "protect a franchisee's `reasonable expectation' of continuing the franchise relationship while at the same time insuring that distributors have `adequate flexibility ... to respond to changing market conditions and consumer preferences.'" Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987) (quoting Senate Report at 19, 1978 U.S.C.C.A.N. at 877). In order to achieve these goals, the PMPA restricts the grounds on which a franchisor can terminate or fail to renew a franchise.⁴ 15 U.S.C. § 2802. The PMPA also imposes notice requirements on franchisors looking to terminate or nonrenew the franchise relationship. 15 U.S.C. §§ 2804. Congress also included a statute of limitations for PMPA actions. The PMPA provides that "no ... action may be maintained [under the PMPA] unless commenced within 1 year ... of ... the date of termination of the franchise or nonrenewal of the franchise relationship." 15 U.S.C. § 2805(a)(1).

A review of the agreements Kehm signed with the defendants makes clear that Kehm's claims are time-barred. The most recent agreement between Kehm and Texaco expired, by its terms, on December 13, 1987. The agreement with TRMI expired, by its terms, on June 30, 1990. The Final Contract with Star was set to expire on June 30, 2003 but was assigned to Motiva in 1999. In the assignment letter, Star indicated to Kehm that "Motiva shall be substituted for Star with respect to the rights and obligations of Star under these agreements." (A.309.) Finally, Kehm never had a contractual relationship with Chevron, ChevronTexaco Corporation, Chevron Products Company, or Chevron U.S.A., Inc.⁵

Accordingly, Kehm's claims against the defendants are untimely because they were not "commenced within 1 year ... of ......