Meghani v. Shell Oil Co.

• Decision Date: 29 August 2000
• Docket Number: No. CIV. A. H-00-0547.,CIV. A. H-00-0547.
• Citation: 115 F.Supp.2d 747
• Parties: A.V. MEGHANI, et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

115 F.Supp.2d 747

A.V. MEGHANI, et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants.

No. CIV. A. H-00-0547.

United States District Court, S.D. Texas, Houston Division.

August 29, 2000.

Paul B. Rosen, Brian L. Jensen, Jensen, Rosen & Steinberg, P.C., Houston, TX, for plaintiffs.

J. Gregory Copeland, J. Michael Baldwin, Baker Botts L.L.P., Houston, TX, Ann Spiegel Senior Litigation Counsel, Houston, TX for defendants.

AMENDED MEMORANDUM AND ORDER

ATLAS, District Judge.

Pending before the Court in this gasoline dealer franchise dispute is the Defendants' Motion to Dismiss Plaintiffs' Petroleum Marketing Practices Act Claim ("Defendants' Motion") [Doc. # 10].¹ Plaintiffs are former and current owners of Shell gas station franchises.² Plaintiffs have responded in opposition.³ The Court has considered all matters of record and the applicable authorities, and concludes that Defendants' Motion should be granted.⁴

I. FACTUAL BACKGROUND

In mid-1999, Plaintiffs owned and operated twenty-nine Shell-brand gasoline stations in Houston, Texas. Plaintiffs filed this suit complaining of Shell's actions regarding twenty-one of their stations. See Plaintiffs' Original Complaint ("Plaintiffs' Complaint") [Doc. # 1]. Of these twenty-one stations, eighteen were operated under agreements that were not to expire until very late 1999 or thereafter.⁵

Defendants Shell Oil Company, Motiva Enterprises L.L.C. and Equiva Services L.L.C. (collectively, "Shell") are in the business of selling gasoline in the United States. One part of this business includes Shell-owned retail service stations that it leases to independent dealers ("lessee-dealers").

The "petroleum franchise" relationship under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801 et seq., between Shell and its lessee-dealers historically was controlled by several separate documents (collectively, the "lessee-dealer agreements"). The key agreements issued prior to Fall 1999 were a Motor Fuel Station Lease, which set forth the terms of the lease of the service stations from Shell, and a Dealer Agreement, which set forth the terms and conditions under which the lessee-dealer agreed to operate a Shell-brand service station. This latter agreement contained provisions for such things as the acquisition of gasoline and other petroleum products from Shell.

In the Fall of 1999, Shell amended its standard form lessee-dealer agreements. Shell sought to replace the Dealer Agreement with a Retail Sales Agreement, and to replace the Motor Fuel Station Lease with a Retail Facilities Lease (collectively, the "new agreements").⁶ Shell offered the lessee-dealers the new agreements in September 1999, whether or not the lessee-dealer agreements had expired.

At this time, many lessee-dealers had significant time remaining under the lessee-dealer agreements. Shell refers to the lessee-dealers whose lessee-dealer agreements had not expired as "mid-termers."⁷ Shell gave the mid-termers two choices: First, the mid-term lessee-dealer could decline to execute the new franchise agreements and continue to operate under the old agreements until the end of the old agreements' term or, alternatively, the mid-termer could terminate the lessee-dealer agreements before their expiration dates and commence operating under the new dealer agreements. Plaintiffs allege, more specifically, that in September 1999 Shell "presented Plaintiff[s] with a new set of dealer paper[work] significantly and arbitrarily altering the terms and conditions of the franchise relationship ...." Plaintiffs' Complaint, at 7, § 4.3. These new agreements, Plaintiffs contend, were accompanied by a letter from Shell (the "September 1999 letter") that stated that Shell would consider a request to

terminate the existing agreement by Plaintiff's execution of a mutual termination agreement together with the signing of the newly presented retail sales agreement, lease, ETD or auto care paper as applicable.

Id. at 8, § 4.4. Plaintiffs allege that the September 1999 letter advised that if the lessee-dealer did not return the executed documents by October 31, 1999, a "request for renewal" would not be considered. Shell disputes this interpretation of the September 1999 letter, contending that Plaintiffs add an interpretive gloss that simply is not in the correspondence. Furthermore, Plaintiffs contend that Shell stated that it would not, under any circumstances, renew the franchise relationship if Plaintiffs did not execute the new agreements. Id. Shell also disputes this characterization of its September 1999 letter.⁸

Plaintiffs' responses to this letter varied depending on the circumstances of the stations. Plaintiffs attempted to sell the Racetrack, Westheimer, and Highway 59 locations back to Shell. Id. at 11-12, § 4.9.⁹ On November 23, 1999, Plaintiffs abandoned their lessee-dealer agreements on eight other stations, the Highway 6, Foxwood, Cypress, Ella, Woodedge, Belfort, Copperfield and North Belt locations. Id. at 12, § 4.10. On September 27, 1999, Plaintiffs signed the new agreements for the Sheldon, South Main, Humble, Scott, North Loop, Silber, Aldine, Scarsdale, 43rd Road and West Mount Houston locations. Id. at 12-13, § 4.11. Plaintiffs allege that they attempted to sell the Scott, North Loop, Silber, and Aldine stations back to Shell, but they could not reach an agreement on the terms. Plaintiffs' Complaint, at 13, § 4.12. Plaintiffs also allege, as to the Scarsdale, 43rd Road, and West Mount Houston stations, that Shell failed to execute and return the new dealer documents to Plaintiffs. Therefore, Plaintiffs withdrew these signed agreements on November 20, 1999, and these stations continued the franchise relationship on a month-to-month basis under the terms of the prior lessee-dealer agreements.

In an attempt to ameliorate their financial losses allegedly caused by Shell, Plaintiffs filed this suit on February 22, 2000, alleging PMPA claims and various state law causes of action.¹⁰ Shell has moved to dismiss the PMPA claim and the Motion is ripe for decision.

II. APPLICABLE LEGAL STANDARDS

A. Motion to Dismiss

A motion to dismiss should be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure only when the pleadings on their face reveal beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Shipp v. McMahon, 199 F.3d 256, 260 (5th Cir.2000); Garrett v. Commonwealth Mortgage Corp. of America, 938 F.2d 591, 594 (5th Cir.1991). A plaintiff's complaint ordinarily need only be a short and plain statement that gives the defendant notice of what the claim is and the grounds upon which it rests. Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993); see also Hart v. Bayer Corp., 199 F.3d 239, 248 n. 6 (5th Cir.2000).

In considering a Rule 12(b)(6) motion, the Court must accept all well-pleaded facts as true and must view those facts in the light most favorable to the Plaintiff. Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th Cir.1995). However, legal or unsupported conclusions need not be accepted, nor conclusory allegations taken at face value. Campbell, 43 F.3d at 975; Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir.1992). "[T]he complaint must contain either direct allegations on every material point necessary to sustain a recovery ... or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial." Campbell, 43 F.3d at 975 (quoting 5 WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1216, at 156-69 (footnote omitted)).

B. The PMPA

The PMPA regulates the termination and non-renewal of franchise relationships. 15 U.S.C. § 2801 et seq. Plaintiffs base their PMPA claim on § 2802(a), which is a general prohibition against termination or non-renewal of franchises.¹¹ The PMPA mandates that a franchisor may terminate a franchise or may decline to renew any franchise relationship only when (1) the notification requirements of 15 U.S.C. § 2804 are met, and (2) the termination or non-renewal is based on grounds described in § 2802(b) of the statute. See 15 U.S.C. § 2802(b)(1). Specifically pertinent to Plaintiffs' claim, a franchisor may fail to renew a franchise when the franchisee refuses to agree to changes or additions to a new franchise agreement and:

(i) such changes or additions are the result of determinations made by the franchisor in good faith and in the normal course of business; and

(ii) such failure is not the result of the franchisor's insistence upon such changes or additions for the purpose of converting the leased marketing premises to operation by employees or agents of the franchisor for the benefit of the franchisor or otherwise preventing the renewal of the franchise relationship.

Id. § 2802(b)(3)(A).

These provisions were designed for two purposes. First, the PMPA increases "the bargaining strength of individual franchisees in the petroleum industry" by limiting and regulating the circumstances under which a franchisor may terminate or fail to renew a petroleum franchise. Halder v. Standard Oil Co., 642 F.2d 107, 109-10 (5th Cir.1981). The Act also, however, seeks to allow franchisors the ability to exercise their business judgment and modify their franchise agreements without undue interference from the courts. See Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc., 940 F.2d 744, 747 (1st Cir. 1991); May-Som Gulf, Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 921 (6th Cir. 1989). The policy analysis by the court in May-Som is apt in defining this second aim of the PMPA: "[I]n an age of increasing corporate competition the major petroleum firms must retain the freedom to seek greater economic efficiency through corporate reorganizations, mergers and...