Palmieri v. Mobil Oil Corp.
| Decision Date | 08 January 1982 |
| Docket Number | H-81-928.,Civ. No. H-81-898 |
| Citation | 529 F. Supp. 506 |
| Parties | Joseph A. PALMIERI v. MOBIL OIL CORPORATION Anthony MORIN v. MOBIL OIL CORPORATION |
| Court | U.S. District Court — District of Connecticut |
Richard W. Farrell, Albert J. Barr, Abate, Fox & Farrell, Stamford, Conn., for plaintiffs.
William E. Glynn, Scott P. Moser, John A. Danaher, III, Day, Berry & Howard, Hartford, Conn., for defendant.
RULING ON PLAINTIFFS' MOTIONS FOR A PRELIMINARY INJUNCTION
The plaintiffs Joseph Palmieri and Anthony Morin seek to enjoin the defendant Mobil Oil Corporation ("Mobil") from terminating their respective franchise agreements until such time as their claims for permanent relief have been adjudicated. In this consolidated action, they claim that the Petroleum Marketing Practices Act1 ("PMPA"), as enacted by Congress, imposes a legal duty on petroleum franchisors like Mobil to act in a reasonable, nonarbitrary manner when dealing with their franchisees and that Mobil has violated that duty. Mobil argues that the PMPA requires only that a franchisor must not discriminate against individual franchisees, nor should it purposefully act so as to force particular franchisees out of business when negotiating rental terms and policies. Mobil maintains that it has satisfied this legal burden.
The Court finds that the plaintiffs have failed to meet their statutory burden under the PMPA, because they have been unable to demonstrate convincingly that a substantial question exists as to whether Mobil has selectively and purposefully discriminated against them when implementing its new rental policy and accordingly the plaintiffs' motions for a preliminary injunction are denied.
Palmieri and Morin have operated retail gasoline stations in Connecticut under franchise agreements with the defendant Mobil prior to the recent expiration of such agreements. Palmieri's lease actually terminated on November 30, 1981, while Morin's lease expired on December 5, 1981. Both plaintiffs continue to operate their service stations without leases, per Court order, pending the resolution of this application for injunctive relief.
Under the terms of their now expired franchise agreements, both plaintiffs had agreed that in consideration for the exclusive use of a three bay Mobil service station, together with the opportunity to sell Mobil gasoline and related petroleum products at their respective locations, they would pay Mobil according to the terms of a contractually established rental formula. Mobil recently adopted a new formula to apply to the rental package that it now offers to its retail dealers when their franchises come up for renewal. Under this formula, Mobil projects the gasoline profit center ("GPC") and alternate profit center ("APC") for each franchisee and the sum of these two components determines the franchisee's monthly rental.2
Mr. Palmieri and Mr. Morin were informed by Mobil in 1980 that this new rental formula would be included in the computation of their monthly rental when their franchise agreements came up for renewal in 1981.3 Mobil reached this business decision without consulting or negotiating any terms of agreement with either plaintiff, and concededly offered its new rental package to these men on a "take it or leave it" basis. Indeed, Mobil did not consider the actual gasoline and other retail sales that these stations had recorded, but rather it determined the volume of sales that they should have achieved according to Mobil projections. As a result of Mobil's newly adopted rental formula and sales projections, the monthly rental for Mr. Palmieri and Mr. Morin under the proposed franchise agreements would have increased substantially.4
Mobil concedes that if the full monthly rental increase, as defined by the franchise proposal, were charged to the plaintiffs, it would be financially onerous if not impossible for these men to pay such rent. Mobil has assured its franchisees orally, however, that they will not actually be charged this maximum rent, unless market conditions change abruptly and higher rentals are warranted. Mobil also has implemented several incentive programs for its franchisees, including a temporary rental maximum (70% of the prior year's volume in the month in question multiplied by 1.6¢) and volume discounts (4¢ for each gallon of gasoline that a dealer sells in excess of 70% of their volume for the prior year and 6¢ for each gallon that a dealer sells in excess of 90% of his prior year's volume) to enable its franchisees to earn what Mobil considers to be a reasonable profit. The fact remains, however, that under the defendant's franchise proposal, the plaintiffs' monthly rental could be raised unilaterally by Mobil up to the maximum rent plus 20%, as permitted under the contract. The defendant's lease thus affords franchisees like the plaintiffs no protection from the purely subjective discretionary monetary decisions by Mobil to increase or decrease the monthly rental within the "range" provided for in the lease agreement. Mobil responds that there has been no selective discrimination against either of these two franchisees, because all of the franchisees in the southern New England District and, in fact, throughout the several states across the country have had leases tendered to them based upon the same formula.
When this proposal was communicated to the plaintiffs, both men refused to sign the revised rental agreements. Mobil promptly informed Palmieri and Morin that their franchises would terminate when their present agreements expired unless they accepted the new proposed lease. The plaintiffs responded to the defendant's notice of termination by commencing this action, claiming that the PMPA imposes a duty on franchisors to act in a nonarbitrary, nondiscriminatory manner when implementing changes in franchise agreements and that Mobil had violated this legal standard. Specifically, they have argued that the PMPA requires that Mobil use reasonable, economically realistic figures for a petroleum retailer's profit margin and gasoline sales volume in its proposed rental formulas. Palmieri and Morin testified that the defendant's rental formula, based upon a 17.7¢ retail profit margin and 1978 Department of Energy defined base volume,5 is patently unrealistic under present competitive market conditions.6 They argue that the 17.7¢ profit margin and DOE volume figures are unrealistic because several factors, including government deregulation of the petroleum industry, greater consumer conservation measures, and rising prices have contributed to increased competition, lower sales volume, and decreased profit margins. The plaintiffs testified further that they could not operate their businesses on a profitable basis, if such onerous financial terms were included in their franchise agreements.
Mobil has objected to the plaintiffs' request for injunctive relief, claiming that a petroleum franchisor must be afforded some economic flexibility when dealing with its independent retail franchisees given the volatile nature of the petroleum industry, where price, supply and demand often are subject to rapid fluctuation. The defendant maintains that its proposed formula accomplishes this economic objective by providing for a rental maximum, together with a rental "range",7 which enables Mobil to increase or decrease a franchisee's monthly charges in response to changing market forces. Finally, and more importantly for purposes of this litigation, Mobil argues that the good faith duty imposed by the PMPA requires only that franchisors not discriminate between individual franchisees, nor act with evil purpose to terminate or fail to renew a dealer's franchise.
These arguments as offered by the respective parties highlight the fundamental issue to be resolved here. The Court must decide whether Congress, when enacting the PMPA, intended to hold petroleum franchisors strictly accountable for the reasonableness or arbitrariness of their actions, when negotiating franchise agreements or alternatively whether the legislature intended that the PMPA would serve a more limited function, namely, to protect franchisees from selective and purposeful discrimination by franchisors.
When considering the legal rights and duties imposed by the PMPA, this Court's legal analysis properly must begin with a brief explanation of the relationship between franchisors and franchisees in the retail petroleum industry. The typical franchise agreement is prepared by the franchisor without consulting the franchisee and contains rental terms that are imposed unilaterally by the franchisor. The franchisee is confronted often with the unenviable choice of agreeing to onerous rental terms or risking the termination of his franchise and the loss of his accumulated goodwill and livelihood.
Recognizing this potential for abuse within the petroleum franchise relationship, Congress enacted the PMPA to provide some protection for the independent gasoline retailer.8 Within the PMPA's comprehensive legislative framework, § 102(b) was adopted specifically to address situations, as here, where franchisor elects to terminate or fails to renew the franchise agreement. This section permits a franchisor to terminate or fail to renew its franchise only where, after appropriate notice,9 "such non-renewal is based upon a ground described in paragraph (2) or (3)." Paragraph (3), the relevant section for purposes of this litigation, provides in pertinent part:
To continue reading
Request your trial
-
Cason v. Texaco, Inc.
...Amoco Oil Co., 677 F.2d 1213 (7th Cir.1982); Meyer v. Amerada Hess Corp., 541 F.Supp. 321, 330 (D.N.J.1982); Palmieri v. Mobil Oil Corp., 529 F.Supp. 506, 509-511 (D.Conn.1982), aff'd, 682 F.2d 295 (2d 6 The Court notes that this subjective intent does not need to be proved by direct eviden......
-
Total Petroleum Puerto Rico Corp. v. Colon-Colon
...against franchisees[.]'" Esso Standard Oil Co. v. Dep't of Consumer Affairs, 793 F.2d at 432 (quoting Palmieri v. Mobil Oil Corp., 529 F.Supp. 506, 511 (D.Conn.1982)). If this allows for abuse by franchisors in their demands, "`the legislature may decide to regulate the franchise relationsh......
-
Coast Village, Inc. v. Equilon Enterprises, LLC
...enough to establish bad faith. See, e.g., Brown v. The Magness Co., Inc., 617 F.Supp. 571, 575 (S.D.Tex.1985); Palmieri v. Mobil Oil Corp., 529 F.Supp. 506, 507 (D.Conn.1982); Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1117 (D.Conn.1980); see also Pearman v. Texaco, Inc., 480 F.Supp. 767, 77......
-
Mobil Oil Corp. v. Karbowski
...business judgments and decisions. Gruber v. Mobil Oil Corp., 570 F.Supp. 1088, 1093-94 (E.D.Mich.1983); Palmieri v. Mobil Oil Corp. 529 F.Supp. 506, 510-11 (D.Conn.), aff'd, 682 F.2d 295, 296 (2d Cir.1982) (per curiam); Bellmore v. Mobil Oil Corp., 524 F.Supp. 850, 853-54 (D.Conn.), aff'd m......