May-Som Gulf, Inc. v. Chevron U.S.A., Inc., MAY-SOM

• Decision Date: 09 March 1989
• Docket Number: No. 87-4085,MAY-SOM,87-4085
• Citation: 869 F.2d 917
• Parties: GULF, INC., Al and Jerry's Service Center, Inc.; Yaron Anitai d/b/a Quality Gulf; William J. Hewitt d/b/a Warren-Munn Gulf; Cedar Green Gulf Service Center, Inc.; Mary M. D'Andrea d/b/a Ledgewood Gulf; Richard G. Ellis d/b/a Ellis Gulf Service; John Divincenzo d/b/a Warrensville Gulf; Bill Vanhoose d/b/a Bill's Gulf; Slane & Johnson, Inc.; D.A. Moyer, Inc. d/b/a Reynoldsburg Gulf; and Robert H. Headman, Plaintiffs-Appellants, v. CHEVRON U.S.A., INC. and Cumberland Farms, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 917

869 F.2d 917

MAY-SOM GULF, INC., Al and Jerry's Service Center, Inc.;

Yaron Anitai d/b/a Quality Gulf; William J. Hewitt d/b/a

Warren-Munn Gulf; Cedar Green Gulf Service Center, Inc.;

Mary M. D'Andrea d/b/a Ledgewood Gulf; Richard G. Ellis

d/b/a Ellis Gulf Service; John Divincenzo d/b/a

Warrensville Gulf; Bill Vanhoose d/b/a Bill's Gulf; Slane

& Johnson, Inc.; D.A. Moyer, Inc. d/b/a Reynoldsburg Gulf; and Robert H. Headman, Plaintiffs-Appellants, v. CHEVRON U.S.A., INC. and Cumberland Farms, Inc., Defendants-Appellees.

No. 87-4085.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 11, 1988.

Decided March 9, 1989.

Glenn D. Waggoner (argued), Donahue & Scanlon, Cleveland, Ohio, James A. Meaney, Crabbe, Brown, Jones, Potts & Schmidt, Columbus, Ohio, for plaintiffs-appellants.

William H. Wallace, Keith L. Carson, Thompson, Hine & Flory, Cleveland, Ohio, Joseph J. Dehner, Frost & Jacobs, Cincinnati, Ohio, E. Timothy Columbus, James R. Loftis, I, John B. Williams, Collier, Shannon, Rill & Scott, Washington, D.C., Maynard F. Thomson, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Robert P. Taylor (argued), San Francisco, Cal., for defendants-appellees.

Before KEITH, JONES and MILBURN, Circuit Judges.

KEITH, Circuit Judge.

In 1984, defendant Chevron U.S.A., Inc. ("Chevron") purchased Gulf Oil Corporation ("Gulf"). The acquired properties, including oil refineries, gasoline terminals, service stations and service station franchise agreements, retained the Gulf trademark. In 1986, Chevron sold its Ohio-based, Gulf marketing operations ("Ohio Gulf") to defendant Cumberland Farms, Inc. ("Cumberland"). Prior to the sale, the plaintiffs, twelve independent Ohio Gulf service station dealers, maintained franchise agreements with Chevron to sell motor fuel under the Gulf trademark. The plaintiffs brought this civil action complaining that Chevron's sale of Ohio Gulf to Cumberland constructively terminated their franchises in violation of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. Secs. 2801-2806. The plaintiffs also asserted state law claims for breach of contract and tortious interference with contract. The district court granted the defendants' motions for summary judgment and dismissed the plaintiffs' case. For the following reasons, we AFFIRM.

I.

A.

After Chevron's acquisition of Gulf in 1984, Chevron's aggregate corporate debt exceeded $15 billion. To reduce the size of that debt, Chevron solicited bids for the purchase of its operations in ten New England and mid-Atlantic states. On May 31, 1986, Chevron sold its Gulf marketing assets in the Northeast to Cumberland for $250 million (the "Northeast sale"). ¹

Later in 1986, Chevron began to evaluate the possible sale of Ohio Gulf, except for those Gulf assets located in the Cincinnati, Ohio area. Chevron contacted Cumberland and several other buyers who had the resources necessary to fulfill Chevron's commitments to its employees and dealers. On August 26, 1986, Chevron's Board of Directors conditionally accepted a bid from Cumberland, subject to the negotiation and execution of a formal purchase and sale agreement. On October 15, 1986, Chevron and Cumberland signed the Ohio Asset Purchase Agreement (the "Ohio sale"). For a price in excess of $13 million, Cumberland purchased the following assets from Chevron: two petroleum distribution terminals, an auto accessories sales center, forty-six service stations (including those leased to the plaintiffs), and trademark agreements, leases, and supply contracts with dealers operating under the Gulf trademark (including the plaintiff dealers). The Ohio sale closed on December 1, 1986.

Chevron structured both the Northeast sale and the Ohio sale to protect the continuity of dealer leases and supply contracts under the Gulf trademark. Pursuant to Section 2.5 of the Ohio Asset Purchase Agreement, Cumberland is required to assume all of Chevron's contractual commitments, including its trademark agreements, dealer leases and supply agreements. In addition, Section 7.6 of the Purchase Agreement requires Cumberland, as franchise agreements subject to the PMPA approach expiration, to " 'offer, in good faith, ... a new franchise on terms and conditions which are not discriminatory' " to each current dealer. See Brief of Appellee Chevron U.S.A., Inc. at 4 (quoting Ohio Asset Purchase Agreement).

To allow the service station dealers to retain their Gulf identities, Chevron granted Cumberland the exclusive use of the Gulf trademark in Ohio. Cumberland was licensed to use the trademark for fifteen years at no royalty, with an option to renew the license indefinitely for an annual royalty of $100,000. Chevron also permitted Cumberland to accept both Chevron and Gulf credit cards at Ohio Gulf service stations. In addition, many of Chevron's marketing employees were retained by Cumberland to insure continuity in the operations of Ohio Gulf.

B.

On November 18, 1986, after the Ohio Asset Purchase Agreement was signed, but before the deal closed, Chevron notified the affected Gulf service station dealers of the Ohio sale. The notice was sent by certified mail and provided that:

[A]ll of Chevron's agreements with Gulf ... dealers in the relevant area will be assigned to Cumberland Farms. Cumberland Farms will assume all of Chevron's obligations to its Gulf ... dealers under these agreements.

May-Som Gulf, Inc. v. Chevron U.S.A., Inc., Bus. Franchise Guide (CCH) p 9000 at 18, 324 (N.D. Ohio 1987) (quoting November 18, 1986 Letter from Chevron to Gulf dealers in Ohio). The letter also explained to the dealers that:

Chevron does not believe that the sale to Cumberland Farms of Chevron's marketing assets in the relevant area and the assignment to and assumption by Cumberland Farms of Chevron's ... dealer agreements in that area triggers the PMPA or represents a termination or nonrenewal of your Dealer Contract of Sale, Service Station Lease ... and related agreements with Chevron ("dealer agreements"). Your dealer agreements with Chevron will be transferred to another supplier who will honor all of the terms and conditions of those agreements and will have the right to continue to authorize you to utilize the Gulf trademarks and brand name. You will retain all of your rights under the PMPA against Cumberland Farms, your new supplier.

On the chance, however, that someone might later claim that this transfer involves a termination or nonrenewal that is subject to the PMPA, we are taking the precaution of giving you formal notice of nonrenewal of your dealer agreements in accordance with the PMPA. We wish to repeat that in fact your agreements with Chevron will continue in full force and effect and will be renewed by Cumberland Farms--unless Cumberland Farms independently has grounds under the PMPA to terminate or not to renew those agreements.

Your present dealer agreements will not, however, be renewed by Chevron, and Chevron hereby gives you notice that those agreements and your relationship with Chevron will not be renewed by Chevron and will expire as of the later of (i) 180 days after your receipt of this notice or (ii) the expiration date of the current term of those agreements. Chevron is taking this action because of Chevron's determination to withdraw from the marketing of motor fuels through retail outlets in the relevant geographic market area.

Id. at 18,324-25.

After receiving Chevron's November 18, 1986 letter, the plaintiffs brought this civil action pursuant to 15 U.S.C. Secs. 2801-2806. On November 24, 1986, the plaintiffs filed a complaint against Chevron and Cumberland contending: (1) that the assignment of their franchises was invalid under Ohio law, and thus, that the assignment constructively terminated their franchises in violation of the PMPA; and (2) the manner in which the constructive termination occurred violated the PMPA.

After the parties conducted extensive discovery, Chevron and Cumberland filed motions for summary judgment on May 15, 1987. Based on the evidence of record, Chevron and Cumberland argued that plaintiffs could not, as a matter of law, demonstrate a genuine issue for trial as to any fact material to their claims. The plaintiffs filed a brief to oppose the summary judgment motions on May 27, 1987. The district court, however, held that on the undisputed material facts, Chevron and Cumberland were entitled to summary judgment as a matter of law. May-Som Gulf, Inc., Bus. Franchise Guide (CCH) p 9000 at 18,329.

In a memorandum opinion, the district court held that under Ohio law governing the delegation and assignment of contracts, Chevron's assignment to Cumberland of the Gulf franchise agreements was lawful and valid. Thus, the assignment did not constructively terminate the plaintiffs' franchises in violation of the PMPA. See id. at 18,326-27. The district court then found that even if the assignment was invalid, the franchises were lawfully terminated under the PMPA because Chevron and Cumberland established the affirmative defense of withdrawal from the relevant geographic market, pursuant to 15 U.S.C. Sec. 2802(b)(2)(E). See id. at 18,327-28. The district court next held that Chevron complied with the PMPA's notice requirements to establish the market withdrawal defense. See id. at 18,328-29. Because the PMPA preempts state law governing service station franchise termination, the district court concluded that the plaintiffs' state law claims for breach of contract and tortious interference with contract were without merit. Finally, the district court dismissed the plaintiffs' complaint in its entirety on November 2, 1987. The plaintiffs filed a joint and timely notice of appeal on November 30, 1987.

II.

In 1978, Congress enacted the PMPA to establish minimum federal standards governing the termination and nonrenewal of motor fuel marketing franchises and the notice which franchisors must give franchisees before termination or nonrenewal of their...