Munno v. Amoco Oil Co.

• Decision Date: 27 March 1980
• Docket Number: Civ. No. H-79-187.
• Citation: 488 F. Supp. 1114
• Parties: Joseph J. MUNNO, Jr. v. AMOCO OIL COMPANY.
• Court: U.S. District Court — District of Connecticut

488 F. Supp. 1114

Joseph J. MUNNO, Jr. v. AMOCO OIL COMPANY.

Civ. No. H-79-187.

United States District Court, D. Connecticut.

March 27, 1980.

Dominic J. Caciopoli, New Haven, Conn., for plaintiff.

Richard M. Reynolds, John B. Nolan, Kenneth W. Ritt, Day, Berry & Howard, Hartford, Conn., for defendant.

RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

BLUMENFELD, District Judge.

This is an action brought by Joseph Munno a franchisee-lessee gasoline dealer, against Amoco Oil Company ("Amoco") his franchisor-lessor, in which Munno claims that the franchisor is illegally refusing to renew his lease. The plaintiff's claims arise under the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq. ("PMBA"),¹ and this court has jurisdiction under 15 U.S.C. § 2805 and 28 U.S.C. § 1332. Defendant Amoco has filed counterclaims in which it seeks back rent and possession of its service station. Jurisdiction to entertain these compulsory counterclaims is properly found under Fed.R.Civ.P. 13(a). Ruling on Plaintiff's Motion to Dismiss Counterclaim, Nov. 16, 1979.

Amoco is a major gasoline distributor which sells its product, in part, through service stations operated by franchisee dealers. Generally, these stations are owned or leased by Amoco and then leased or subleased to its dealers. Throughout the 1960's and early 1970's the rent charged to dealers was based on the number of gallons of gasoline which they sold. However, with the advent of the 1973-1974 Arab oil embargo and the general tightening of supply, maximizing gasoline sales became less of a concern to Amoco than obtaining a fair return on its real estate investments. Consequently, Amoco decided to change its lease agreements so as to provide for a flat cash rental in an amount based on a formula which took into account the base historical rent and the current occupancy cost.²

This formula was arrived at in consultation with various Amoco dealer organizations and now is applied nationwide to Amoco's 6500 lessee-dealers. There is no question that it is being applied uniformly nor is it possible, because of the nature of the formula, to use it to discriminate in favor of or against any given franchisee in figuring his rent.

On May 31, 1978, Joseph Munno's lease for his Middletown service station expired. Amoco offered him a four-year lease which was the same as his previous lease in all relevant respects except that the amount of the monthly rent payment was increased in accordance with the new formula.³ Mr. Munno, through his attorney, declined to sign the new lease and indicated that he objected to its terms. He remained on the premises, and Amoco continued to supply him with its products. On September 11, 1978, Amoco provided Mr. Munno with the notice required under the PMPA indicating that the "lease with Amoco is terminated effective January 2, 1979." January came and went, and Mr. Munno still refused to quit the premises. Consequently, in February of 1979 Amoco instituted a summary process action in state court in order to have Mr. Munno evicted. Later that month plaintiff filed a complaint in state court alleging that Amoco's actions were in violation of the PMPA. Through a series of complicated procedural maneuvers, not relevant here, these issues have now been removed to federal court.⁴ The parties have submitted briefs and exhibits and have presented live testimony, all of which has been considered in ruling on this motion.

It is beyond dispute that Amoco's decision to increase the amount of rent charged was made with subjective "good faith" and in the "normal course of business." There has been no suggestion of a bad motive or of a subterfuge aimed at driving the plaintiff from the market. While Amoco is admittedly unwilling to negotiate the amount of the monthly rent, its explanation belies any claim of bad faith. Amoco established that its other New England dealers have accepted revised rents based on the new formula, and it is concerned that if it makes an exception for the plaintiff it may be exposed to liability, presumably under the Robinson-Patman Act, 15 U.S.C. § 13.

Amoco has offered to renew its franchise with the plaintiff if he signs the new lease and pays the outstanding rental charges due. Moreover, plaintiff's own expert in service station management referred to the formula as "excellent" from the standpoint of both the dealer and the oil company and refused to "believe that Amoco would come out intentionally and operate in bad faith."

However, construing all facts in favor of the plaintiff, as this court must on the defendant's motion for summary judgment, Ambook Enterprises v. Time, Inc., 612 F.2d 604, 611 (2d Cir. 1979), it is possible that a jury might find that the effect of applying the Amoco formula to the plaintiff's station would produce unreasonably harsh results. The new rental figure represents a 200-300% increase over the old rent. Furthermore, Mr. Munno testified that this increase comes at a time when his gallonage is slipping, and he is facing competition from a nearby cut-rate gasoline station. Mr. Munno contends that the increase in rent will drive him from business. While there was no evidence produced at the hearing on this motion which would support Mr. Munno's claim, it is possible that he might produce some such evidence in the event of a trial.

Thus the question for the court on summary judgment is clear. If under the PMPA proposed changes in the lease are to be tested against a subjective good faith standard, the defendant is entitled to summary judgment. If instead the test is "reasonableness," summary judgment is inappropriate.

Section 102(b)(1) of the PMPA, 15 U.S.C. § 2802(b)(1) permits a franchisor such as Amoco to terminate or fail to renew its franchise if after appropriate notice "such nonrenewal is based upon a ground described in paragraph (2) or (3)." Paragraph (3) provides in part:

"For purposes of this subsection, the following are grounds for nonrenewal of a franchise relationship:

(A) The failure of the franchisor and the franchisee to agree to changes or additions to the provisions of the franchise, if — (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 preventing the renewal of the franchise relationship."

15 U.S.C. § 2802(b)(3)(A) (emphasis added). Plaintiff maintains that the words "good faith" as they are used in this statute must be read to mean "objective good faith" which, he claims, involves questions of the reasonableness of the rent as applied to the franchisee. Defendant, on the other hand, argues that all that it is required to show under the statute is that it acted without impermissible motives or objectives.

Where a statute is to be construed, the object of the court is to ascertain the congressional intent and to give effect to the legislative will. Chapman v. Houston Welfare Rights Org., 441 U.S. 600, 607-08, 99 S.Ct. 1905, 1910-1911, 60 L.Ed.2d 508 (1979); Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975). Proper construction requires that the court consider the terms of the statute in light of the mischief the statute was intended to remedy. Liberation News Service v. Eastland, 426 F.2d 1379, 1383 (2d Cir. 1970).

The legislative history behind this section of the PMPA establishes that Congress was concerned with abuses of the franchisor-franchisee relationship.⁵ Because of the vast disparity in bargaining power between the parties, the franchise relationship frequently amounted to a contract of adhesion unilaterally imposed on reluctant dealers by an all-powerful distributor. The legislature history also documents Congressional concern over the way in which franchisors could force unwanted modifications of the agreements on dealers by threatening to terminate the franchise relationship or by threatening to fail to renew the relationship when the existing contract expired.⁶ Consequently, Congress decided to regulate and limit those circumstances under which a franchisor could terminate its relationship with the franchisee.⁷

However, because of the potential for sham determinations — determinations actually based on impermissible motives but outwardly justified in terms of the statutory requirements — Congress was also moved to consider additional protection for the franchisees.

Two proposals were considered. An early draft of the statute contained the following language permitting nonrenewals where

"the franchisor and the franchisee fail to agree to reasonable changes or additions to the provisions of the franchise, unless such failure is the result of the franchisor's insistence upon such changes or additions for the primary purpose of preventing the renewal of the franchise relationship . . .."

H.R. 130, 95th Cong., 1 Sess. (1977) reprinted in Petroleum Marketing Practices; Hearings Before the Subcomm. on Energy and Power of the House Comm. on Interstate and Foreign Commerce on H.R. 130 et seq., 95th Cong., 1st Sess. 11-12 (1977) (emphasis added). After hearings on the question, however, the "reasonableness" test was rejected, and a second test — a "good faith" test — was adopted. "Good faith" clearly referred to subjective intent:

"At this point it is appropriate to note that considerable debate has focused upon recognition of so-called `reasonable business judgments' of the franchisor as grounds for termination or non-renewal. This standard has not been adopted by the committee. Instead, a two-fold test has been utilized to judge certain specified determinations including that of market withdrawal.

"One test is whether the determination was made `in good faith'. This good faith test is meant to preclude sham determinations from being used as an artifice for termination or non-renewal. The second test is

...