Marathon Petroleum Co. v. Pendleton, C86-2340A.

• Decision Date: 16 May 1988
• Docket Number: No. C86-2340A.,C86-2340A.
• Parties: MARATHON PETROLEUM COMPANY, Plaintiff, v. Guy R. PENDLETON, Defendant.
• Court: U.S. District Court — Northern District of Ohio

689 F. Supp. 739

MARATHON PETROLEUM COMPANY, Plaintiff, v. Guy R. PENDLETON, Defendant.

No. C86-2340A.

United States District Court, N.D. Ohio, E.D.

May 16, 1988.

Robert Weller, Susan Haller, Jones, Day, Reavis & Pogue, Cleveland, Ohio, for plaintiff.

James Burke, Jr., Hart, Rawlings & Burke, Akron, Ohio, for defendant.

MEMORANDUM OPINION

DOWD, District Judge.

I. INTRODUCTION.

On April 24, 1986 Marathon Petroleum Company ("Marathon") terminated Guy Pendleton's ("Pendleton") franchise on ten day notice rather than ninety day because of Pendleton's failure to pay monies due Marathon and because Pendleton allowed his station to deteriorate in appearance and performance. Initially Pendleton refused to vacate, and on May 30, 1986 Marathon brought this action seeking a declaratory judgment and money damages against Pendleton. Marathon invoked this Court's jurisdiction pursuant to the Petroleum Marketing Practices Act, ("PMPA"), 15 U.S.C. §§ 2801-2806.

II. PROCEDURAL HISTORY.

Marathon's complaint raises three separate causes of action. The first cause of action seeks a declaration that Marathon's notice of intent to terminate the franchise complied with the PMPA and that Marathon's termination of Pendleton's franchise was lawful under the PMPA. Marathon also seeks the return of the premises unlawfully occupied by Pendleton in count one. The second cause of action seeks attorney's fees under the PMPA as a result of Marathon's need to institute the present action. The third cause of action seeks to recover the amount due on a promissory note between Marathon and Pendleton.

Pendleton filed an answer to the complaint and filed a counterclaim alleging that Marathon's termination constituted a malicious interference with a proposed agreement between Pendleton and a third party for the sale of the station. Pendleton claims that he was negotiating the sale of the station when Marathon terminated his franchise and that Marathon's termination was designed to prevent the sale.

On November 21, 1986 Marathon moved the Court for summary judgment on all three counts of its complaint and on Pendleton's counterclaim. Pendleton opposed the motion and sought leave of court to file an amended complaint adding additional claims to his original counterclaim.

The Court denied Marathon's motion for summary judgment on counts two and three of the complaint and Pendleton's counterclaim. With respect to count one of Marathon's complaint, the Court found that Marathon had a basis for the termination of the franchise under the PMPA as a matter of law. However, the Court found that summary judgment was inappropriate because there was a material issue of fact as to whether the notice requirement under the PMPA had been sufficiently complied with. Thus, the Court proceeded to trial on the issue of whether Marathon had given proper notice of termination under the PMPA. The Court denied Marathon's motion on Pendleton's counterclaim finding facts in dispute on that claim.

The Court also denied Pendleton's motion for leave to file an amended counterclaim. Pendleton had sought leave to add, among other claims, a counterclaim for wrongful termination under the PMPA. Pendleton's amended counterclaim, in the Court's view, alleged that Marathon's reason for terminating the franchise was an improper basis for termination under the PMPA. Thus, the Court denied the motion for leave to add an amended claim because it had already determined "that Marathon may terminate a lease for franchise agreement for failure to pay in a timely manner sums due to Marathon, and that the PMPA does not authorize the Court to investigate the reasonableness of termination based upon a statutorily prescribed events." March 10, 1987 Memorandum Opinion p. 14.

Thereafter, Pendleton moved the Court to reconsider its decision to deny him leave to file an amended counterclaim. Pendleton argued that the Court had "misconstrued the allegations in the counterclaim and that the defendant really intended to raise claims relating to whether Marathon acted reasonably in providing only 10 days notice prior to terminating the franchise." September 3, 1987 Order, p. 2. The Court, however, concluded that

although the defendant mentioned in passing the fact that Marathon only provided 10 days notice before terminating its franchise, the clear gist of the plaintiff's counterclaim, entitled "wrongful termination of franchise," is that Marathon acted unreasonably when it terminated the franchise because of the defendant's failure to make timely rent payments and other payments. The defendants' counterclaim cannot be reasonably interpreted to raise the issue of the 10 day notice.

September 3, 1987 Order, p. 2-3 (emphasis added).

On October 21, 1987 the Court entered an order bifurcating the case and proceeded with the plaintiff's claims before the Court while delaying the resolution of the defendant's counterclaim until such time that a jury could be seated. The Court conducted a trial on Marathon's claim against Pendleton on November 4 and 5, 1987.

At the conclusion of both parties' case in chief, each party made a motion to amend the pleadings to conform to the evidence. Transcript of Proceedings, Vol. II, pp. 369-70. The plaintiff expanded on the basis for its motion in its post-trial brief and asserts that leave should be permitted to file an amended counterclaim asserting a wrongful termination under the PMPA for the failure of Marathon to give adequate notice of termination.

III. THE PMPA FRAMEWORK.

Sections 2801 through 2806 of the PMPA appear in the United States Code under the subchapter entitled Franchise Protection. It is clear that this chapter of the PMPA was designed to protect franchisees from arbitrary and discriminatory termination or nonrenewal of franchises by the franchisors for failure to comply with the marketing policies of the franchisor. Wisser Co., Inc., v. Mobil Oil Corp., 730 F.2d 54 (2d Cir.1984); Kostantas v. Exxon Co., U.S.A., 663 F.2d 605 (5th Cir.), cert. denied, 456 U.S. 1009, 102 S.Ct. 2302, 73 L.Ed.2d 1305 (1982); Marks v. Shell Oil Co., 643 F.Supp. 1050 (E.D.Mich.1986).

Section 2802 establishes the general guidelines for the relationship between the franchisee and the franchisor. Under § 2801(b)(1)

any franchisor may terminate any franchise ... or may fail to renew any franchise relationship, if—(A) the notification requirements of sections 2804 of this title are met; and (B) such termination is based upon a ground described in paragraph (2) or such nonrenewal is based upon a ground described in paragraph (2) or (3).

15 U.S.C. § 2802(b)(1) (emphasis added). A lawful termination requires proper notice and a proper ground for termination under § 2802. "If a franchisor fails to comply with the requirements of section 2802 or 2803 ..., the franchisee may maintain a civil action against such franchisor." 15 U.S.C. § 2805(a). Section 2805 further provides that a successful franchisee in an action under § 2805(a) is entitled to actual damages, exemplary damages in cases of willful disregard of requirements of 2802 or 2803, and reasonable attorney fees. 15 U.S.C. § 2805(d)(1)(A), (B), and (C).

The majority of the cases under the PMPA are brought by the franchisee against the franchisor for wrongful termination of the franchise agreement. Often, the franchisee may bring an action for preliminary injunction to enjoin the franchisor from wrongfully terminating the franchise agreement. See, e.g., Barnes v. Gulf Oil Corp., 824 F.2d 300 (4th Cir.1987). It also appears that a franchisor may bring an action against the franchisee to terminate the franchise agreement notwithstanding any express provision for an action by the franchisor against the franchisee under the PMPA. See, e.g., Amoco Oil Co. v. D.Z. Enterprises, Inc., 607 F.Supp. 595 (E.D.N. Y.1985); Shell Oil Co. v. Kozub, 574 F.Supp. 114 (N.D.Ohio 1983); Exxon Corp. v. Miro, 555 F.Supp. 234 (C.D.Cal.1983); Crown Central Petroleum Corp. v. Waldman, 515 F.Supp. 477 (M.D.Penn.1981).

IV. MOTION FOR LEAVE TO AMEND THE PLEADINGS TO CONFORM TO THE EVIDENCE.

The Court finds that Pendleton's motion for leave to amend the pleadings to conform to the evidence is well taken.¹

At trial, each party presented substantial evidence on the issue of whether the notice provided by Marathon to Pendleton was within the requirements of the PMPA. Further, Pendleton's entire defense was presented as a wrongful termination case under the PMPA. Notwithstanding the Court's twice denial of Pendleton's leave to file a counterclaim for wrongful termination under the PMPA, it is quite clear to the Court that Pendleton's proposed amended counterclaim is for wrongful termination under the PMPA because of an alleged defect in the notice given by Marathon. Further, should the Court determine that the notice was improper, Pendleton would necessarily have a claim for wrongful termination because § 2802 requires both proper notice and a proper ground for termination before the franchisor can terminate the franchise.

The Court also finds that leave for Pendleton to amend its pleadings to conform to the evidence is necessary for the Court's continuing jurisdiction over this case.

The plaintiff's first cause of action seeks a declaratory judgment that its termination of the plaintiff's franchise was legally effective, that the notice of intent to terminate the lease complied with the requirements of the PMPA, and the restoration of the lease marketing premises to Marathon. Subsequent to the Marathon's motion for summary judgment, Pendleton vacated the premises on or about August 1, 1986. The Court's ruling on Marathon's motion for summary judgment resolved the legality of Marathon's termination and found that as a matter of law Marathon had a permissible basis for its termination. The only issue, therefore, left unresolved under count one of Marathon's complaint is whether the notice to terminate complied with the requirements of...