Marks v. Shell Oil Co.

• Decision Date: 17 September 1986
• Docket Number: No. 85-CV-75082-DT.,85-CV-75082-DT.
• Citation: Marks v. Shell Oil Co., 643 F.Supp. 1050 (W.D. Mich. 1986)
• Parties: Rose MARKS, d/b/a Middlebelt-Eureka Shell, Plaintiff, v. SHELL OIL COMPANY, a Delaware corporation, Defendant.
• Court: U.S. District Court — Western District of Michigan

643 F. Supp. 1050

Rose MARKS, d/b/a Middlebelt-Eureka Shell, Plaintiff, v.SHELL OIL COMPANY, a Delaware corporation, Defendant.

No. 85-CV-75082-DT.

United States District Court, E.D. Michigan, S.D.

September 17, 1986.

James Wines, Ann Arbor, Mich., for plaintiff.

Thomas V. Giles, Birmingham, Mich., Thomas P. Beery, Houston, Tex., for defendant.

MEMORANDUM OPINION AND ORDER

ZATKOFF, District Judge.

This case was brought by plaintiff pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq., seeking damages for the alleged wrongful termination of plaintiff's franchise relationship with defendant.The case is presently before the Court on defendant's motion for summary judgment.

Summary judgment is appropriate where no genuine issue of material fact remains to be decided and the moving party is entitled to judgment as a matter of law.Blakeman v. Mead Containers,779 F.2d 1146(6th Cir.1986);Fed.R.Civ.P. 56(c).In applying this standard, the Court must view all materials offered in support of a motion for summary judgment, as well as all pleadings, depositions, answers to interrogatories, and admissions properly on file in the light most favorable to the party opposing the motion.Arnett v. Kennedy,416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15(1974);United States v. Diebold,368 U.S. 894, 82 S.Ct. 171, 7 L.Ed.2d 91(1962);Smith v. Hudson,600 F.2d 60(6th Cir.1979), cert. dismissed,444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415(1979).

On November 31, 1981, plaintiff, Rose Marks, entered into a lease agreement with defendant, Shell Oil Company, for the use of certain premises as a motor fuel station.On that same day, Marks also entered into a dealer franchise agreement with Shell that granted, among other things, the right to use the "Shell" trademark at the station as well as to market and sell products of the Shell Oil Company.The terms of both the lease agreement and the dealer franchise agreement were for the period beginning on December 1, 1981 and ending on November 30, 1984.

Shell, however, was not the outright owner of the property leased to Marks.The property leased to Marks by Shell was itself subject to a "base lease," entered into on June 10, 1969, between Shell and a third party.The base lease setting forth the rights of Shell commenced its primary term on January 1, 1970, for a term of sixteen years, expiring on December 31, 1985.In addition, the base lease granted to Shell the option to renew the base lease for three additional periods of five years.These options to renew were exercisable by Shell upon providing notice to the base lessors at least 45 days prior to the expiration of the primary lease term.

On November 27, 1984, Shell notified Marks as to the existence of the base lease.Marks was advised that Shell did not own the property on which the station was located and that the base lease would expire on December 31, 1985.Marks was further advised that, depending on whether or not Shell chose to renew the base lease, the dealer lease and franchise agreements between Shell and Marks may or may not be renewed.Nevertheless, on the same day, November 27, 1984, Marks elected to renew the dealer lease and franchise agreements for the period from December 1, 1984 through December 30, 1985.

On August 1, 1985, Shell notified Marks that it did not intend to renew the base lease and that the dealer lease and franchise agreements between the parties would expire on December 30, 1985.As a reason for the nonrenewal, Shell cited the expiration or termination of the underlying lease.

Plaintiff, Marks, thereafter commenced the instant lawsuit on October 30, 1985.By way of the Complaint, Marks does not allege a breach of any terms of the dealer lease or franchise agreements.Rather, Marks alleges that Shell acted in bad faith and with retaliatory and impermissible discriminatory motives in the termination of the franchise relationship.On December 26, 1985the Court denied plaintiff's motion for preliminary injunction.The instant motion for summary judgment was filed on July 1, 1986.

This case is governed by the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq.The primary purpose behind the Act is to protect gasoline distributor franchisees from arbitrary or discriminatory termination or nonrenewal of their franchises.Kostantas v. Exxon Corp.,663 F.2d 605(5th Cir.1981), cert. denied,456 U.S. 1009, 102 S.Ct. 2302, 73 L.Ed.2d 1305(1982);L.C. Williams Oil Co., Inc. v. Exxon Corp.,627 F.Supp. 864(M.D.N.C.1986);Slatky v. Amoco Oil Co.,626 F.Supp. 1223(M.D.Pa.1986).The fundamental jurisdictional requirement to bring an action under the Act is the termination or failure to renew a franchise, and without such action there is no justiciable case or controversy.Halder v. Standard Oil Co.,642 F.2d 107(5th Cir.1981);Naso v. Sun Refining & Marketing Co.,582 F.Supp. 1566(N.D.Oh.1983).The Act preempts state regulation of the termination or nonrenewal of such franchise relationships.15 U.S.C. § 2806(a).

In an action brought under the Act, the franchisee has the burden of proving the termination or nonrenewal of the franchise.The franchisor then has the burden of going forward with evidence sufficient to establish that the termination or nonrenewal was permitted under the Act. 15 U.S.C. § 2805(b);Lippo v. Mobil Oil Corp.,776 F.2d 706(7th Cir.1985).Here, there is no dispute as to Shell's nonrenewal of the base lease and the franchise relationship with Marks.The sole question then is whether such nonrenewal was permissible or, alternatively, an action which is forbidden by the Act.

The Act sets forth general ground rules for the termination or nonrenewal of franchise relationships.Among the various circumstances allowing termination or nonrenewal is the following:

The 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, if such event occurs during the period the franchise is in effect and the franchisor first acquired actual or constructive knowledge of such occurrence:

(i) not more than 120 days prior to the date on which notification of termination or nonrenewal is given, if notification is given pursuant to Section 2804(a) of this title;

15 U.S.C. § 2802(b)(2)(C).The Act then sets forth certain "events," as described above, that are sufficient to make a termination or nonrenewal reasonable:

Loss of the franchisor's right to grant possession of the leased marketing premises through expiration of an underlying lease, if the franchisee was notified in writing, prior to the commencement of the term of the then existing franchise: (A) of the duration of the underlying lease, and (B) of the fact that such underlying lease might expire and not be renewed during the term of such franchise (in the case of termination) or at the end of such term (in the case of nonrenewal) ...

15 U.S.C. § 2802(c)(4).

Therefore, under the Act, nonrenewal or termination of a franchise is explicitly made permissible provided that proper notice is given.Stated simply, the notice provisions of the Act require that there be a loss of the franchisor's right to grant possession through the expiration of the underlying lease.The franchisee must have received written notification from the franchisor, prior to the commencement of the franchise period, of the duration of the underlying base lease and notice that the base lease might expire and not be renewed.

In this case, Shell has satisfied the notice requirements.Shell sent Marks written notification of the underlying lease on November 27, 1984.The letter states in pertinent part:

"This is to advise that Shell does not own the land on which the above station is located, but it leases such land from a third party under an underlying lease which, by its terms will expire on December 31, 1985 or is otherwise subject to termination on such date.Accordingly, you are advised that Shell's underlying lease might expire or end on such date and not be extended or renewed, with the result that, depending on the above ending date of the Lease and Agreement, the Lease and Agreement (a) may be terminated during their terms, (b) may not be renewed, or (c) may be renewed for a limited duration only."

Nevertheless, Marks executed a new Lease and Agreement on the same day, November 27, 1984.On August 1, 1985, Shell notified Marks that it would not be renewing the Lease and Agreement due to the loss of Shell's right to grant possession of the premises because of the expiration or other termination of the underlying lease.Based on these uncontested facts, then, Shell provided the requisite notice prior to the commencement of the franchise term.

Notwithstanding the above, Marks argues that Shell had "knowledge" of the "occurrence"(i.e. the impending nonrenewal of the franchise relationship) more than 120 days prior to the time at which Marks received notice thereof—thereby rendering the nonrenewal impermissible under the Act.See15 U.S.C. § 2802(b)(2)(C)(i), supra.The Court, however, finds this argument unpersuasive.As noted by other courts who have considered this argument, the 120 day requirement was intended by Congress to force a franchisor to make a quick decision when confronted with events such as fraud, bankruptcy or illness that might reasonably be found to constitute an adequate basis for franchise termination.By requiring rapid notice (i.e. within 120 days) in the face of a lease-terminating event, the franchisee is safeguarded from stale accusations.At the same time, the franchisor is prevented from reaching into the distant past for a colorable basis as a subterfuge or "front" for terminating a franchise for otherwise impermissible reasons.In other words, the 120 day notice requirement prevents a franchisor from doing indirectly what he could not accomplish directly.See, e.g....