Kessler v. Amoco Oil Co.
| Decision Date | 28 September 1987 |
| Docket Number | No. 87-1036C(6).,87-1036C(6). |
| Citation | 670 F. Supp. 853 |
| Parties | Thomas KESSLER, Plaintiff, v. AMOCO OIL COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
Gregory D. Hoffmann, Francis E. Pennington, Christina A. Levison, Green, Kanefield, Hoffmann & Dankerbring, St. Louis, Mo., for plaintiff.
Gerald R. Ortballs, David M. Harris, Greensfelder, Hemker, Wiese, Gale & Chappelow, St. Louis, Mo., for defendant.
This matter has come before the Court upon the motion of defendant Amoco Oil Company (Amoco) for summary judgment. Plaintiff Thomas Kessler (Kessler)1 brings this action alleging that Amoco violated certain provisions of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. §§ 2801 et seq, when it elected not to renew Kessler's service station lease. Coincident with the commencement of this action, Kessler moved for a temporary restraining order, or preliminary injunction, to prevent Amoco from not renewing the service station lease. Following a hearing on Kessler's motion, the parties agreed to maintain the status quo pending this Court's consideration of Amoco's motion for summary judgment. Following briefing on the motion, the Court heard oral argument on July 8, 1987. Based upon all of the pleadings, affidavits, exhibits, briefs and arguments, this Court concludes that there is no genuine dispute of any material fact that Amoco has complied with PMPA's requirements when not renewing Kessler's service station lease and that it is therefore entitled to judgment in this cause as a matter of law.
Amoco is a Maryland corporation with its principal place of business in Chicago, Illinois. Its primary business is the retail distribution and sale of petroleum and petroleum-related products. This business is carried out, in part, through a large number of Amoco service stations. These service stations are typically leased to dealers, who in turn purchase petroleum and petroleum-related products from Amoco pursuant to certain agreements ancillary to a facility lease. Most such leases are for a period of three years.
Amoco manages its service station assets through two levels of control. First, station assets are supervised by district offices which are delineated by geographic boundaries. The districts are, in turn, supervised by zone offices that are also organized on broader geographic lines.
Amoco has a defined business procedure for determining whether to renew a dealer's service station lease. Sometime during the year prior to the expiration of a service station lease, Amoco evaluates the particular service station's profitability to determine whether the lease should be renewed, and if so, on what terms. The profitability of each service station is measured in accordance with its "profitability index" or "PI." The PI shows the level of profit to Amoco from each of its capital assets in terms of cash flow, adjusted to reflect the time value of money. To determine where Amoco can best apply its capital to enhance profit, a company policy has been set establishing minimum PIs that each capital asset must meet in order to be retained. For existing service stations the PI must be at least 10%.
A preliminary PI review is performed for the district. In the event the review of a service station shows a PI of less than 10%, the district will recommend a strategy, such as abandoning the station and offering it for sale to the dealer at a fair market value of the land and improvements. This recommendation is reflected on an Amoco Form 324 "Capital Asset Proposal." If the strategy calls for offering the service station for sale to the dealer, Amoco develops a fair market value for the land and improvements.
Amoco's procedure to establish the fair market value requires that its representative, for the pertinent district, appraise the land. In so doing, the representative may use: (1) any offers received for the property; (2) comparable sales; or (3) third party appraisal reports. The representative is permitted to adjust the value of the land reflected in the above three sources to account for any special factors which the representative, in his or her experience, has come to find significant in determining land values.
The appraisal is then forwarded to the zone office where it is reviewed and the improvements are valued. A mathematical formula has been developed to determine the present value of improvements at Amoco's service stations which is applied to Amoco's actual cost for the improvements. When the mathematical formula renders a value to the improvements, the land value, as approved by the zone office, is added to the improvements' value to develop Amoco's composite fair market value for the service station. That composite value underlies the offer to the dealer.
Amoco owns a service station at the southwest corner of Lindbergh and Ladue Roads in Creve Coeur, Missouri. Kessler has leased the station from Amoco pursuant to a three year lease, the term of which expired as of May 31, 1987. In 1986, Amoco's St. Louis District reviewed the profitability of Kessler's service station for the purpose of determining whether to renew the lease. Utilizing the PI formula, the district found that Kessler had a PI of 7.1% based on his operations for the past three years. In addition, Amoco found that to meet the minimum PI criteria of 10%, Kessler would have to sell 1,615,000 gallons of gasoline and other fuels, an amount more than double his 1986 sales of 806,800 gallons. Further, Kessler's gasoline sales have declined over the last three years from nearly 1 million gallons in 1984 to the 806,800 gallons in 1986, almost a 20% decline. Based on the 7.1% PI, the district prepared a capital asset proposal for the station, recommending that the service station be sold to Kessler.
The Amoco representative for the St. Louis District then developed an appraisal for the property at $750,000 based on an earlier third party appraisal of the property conducted for Amoco. The appraisal was relayed to Amoco's zone office along with the capital asset proposal. At the zone office, Amoco's formula for valuing the improvements was applied to determine that the improvements were worth $276,157.
While the capital asset proposal was under review at the zone office, the Amoco representative received an offer for the service station from Gilco Construction Company (Gilco). Gilco offered $750,000 for the station with an option for it to either take only the land or the land and improvements. In the event Gilco purchased only the land, Amoco would be responsible for removing all improvements. In either event, Amoco was to pay a $75,000 commission on the sale if completed. The Amoco representative revised his appraisal of the property based on this offer and recommended to the zone office that the fair market value of the land alone was $750,000 to which the improvements value should be added.
The zone office agreed with the representative. However, in this instance, it decided to deduct the amount of the sales commission ($75,000) to arrive at the fair market value of $675,000 for the land. Based on the land value reflected in the Gilco offer, and the computation of the value of the improvements, Amoco determined that the fair market value of the land and the improvements was $951,157.
By certified mail dated February 25, 1987, Amoco advised Kessler that it was not going to renew his lease. The stated reasons for nonrenewal were as follows:
Under the requirements of the Petroleum Marketing Practices Act, you are notified that the reason for the nonrenewal is the fact that the renewal of the lease and franchise relationship is likely to be uneconomical to our company, despite any reasonable changes or additions to the contract. Specifically, the present discounted cash flow from the station is below the level which the management of Amoco requires from each capital investment of the company.
By that same correspondence, Amoco also offered to sell the premises, land and all improvements, except Amoco credit card processing equipment (SVB) and Amoco signage, for $951,157.
On April 1, 1987, Gilco increased its offer for the station to $1,050,000.
Kessler rejected Amoco's offer and commenced this action challenging the nonrenewal as violative of PMPA on three grounds: (1) that the notice was deficient in that it failed to specify the reasons for nonrenewal; (2) that the decision not to renew was lacking in good faith; and (3) that the $951,157 sale offer was not bona fide.
By way of overview, Congress enacted PMPA for the general purpose of protecting service station dealers, or "franchisees" in the parlance of PMPA, "from arbitrary or discriminatory termination or nonrenewal of their franchises." Greco v. Mobil Oil Co., 597 F.Supp. 468, 471 (N.D. Ill.1984), quoting, S.Rep. No. 95-731, reprinted in 1978 U.S.Code Cong. and Ad. News, 873, 874. Congress perceived a general imbalance of bargaining power between service station dealers and oil companies (franchisors) with respect to the dealer's ability to continue operating a service station. See Roberts v. Amoco Oil Co., 740 F.2d 602, 605 (8th Cir.1984). To address this imbalance, PMPA specifies those permissible grounds for nonrenewing a dealer and sets forth a required procedure for effectuating nonrenewal. In the context of this matter, PMPA requires the franchisor to give the dealer 90 days written notice of nonrenewal, the reason for the nonrenewal must be one enumerated by PMPA as permissible, and the franchisor must extend a bona fide offer to sell the station to the dealer.
The standards for summary judgment for PMPA claims, as well as any other, are well established. Summary judgment can only be entered if it appears from the record that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law....
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