Pearman v. Texaco, Inc., 79-0964-CV-W-3.

• Decision Date: 21 November 1979
• Docket Number: No. 79-0964-CV-W-3.,79-0964-CV-W-3.
• Citation: 480 F. Supp. 767
• Court: U.S. District Court — Western District of Missouri
• Parties: Larry Robert PEARMAN, Plaintiff, v. TEXACO, INC., Defendant.

480 F. Supp. 767

Larry Robert PEARMAN, Plaintiff, v. TEXACO, INC., Defendant.

No. 79-0964-CV-W-3.

United States District Court, W. D. Missouri, W. D.

November 21, 1979.

James K. Oppenheimer, Kansas City, Mo., for plaintiff.

Edward E. Schmitt, Louis Huber, III, Dietrich, Davis, Dicus, Rowlands & Schmitt, Kansas City, Mo., for defendant.

ORDER

RUSSELL G. CLARK, District Judge.

Plaintiff filed a complaint on October 26, 1979 seeking a temporary restraining order and injunction relief prohibiting the defendant from terminating or non-renewing plaintiff's franchise as well as actual and punitive damages and attorney's fees. A temporary restraining order enjoining defendant from terminating or non-renewing the franchise relationship with plaintiff was issued on October 26, 1979 effective until November 5, 1979. The temporary restraining order was extended in accordance with Rule 65 of the Federal Rules of Civil Procedure on November 5, 1979 for an additional ten days. On November 8, 1979 a hearing on plaintiff's motion for a preliminary injunction was held. The parties agreed that the temporary restraining order would remain in effect until November 23, 1979 in order to give the Court an opportunity to review any additional suggestions the parties wished to submit.

Plaintiff's action is brought pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. which seeks to regulate the circumstances in which franchisors may terminate or refuse to renew franchises. 15 U.S.C. § 2802(a) provides:

(a) Except as provided in subsection (b) of this section and section 2803 of this title, no franchisor engaged in the sale, consignment, or distribution of motor fuel in commerce may —

(1) terminate any franchise (entered into or renewed on or after June 19, 1978) prior to the conclusion of the term, or the expiration date, stated in the franchise; or

(2) fail to renew any franchise relationship (without regard to the date on which the relevant franchise was entered into or renewed).

15 U.S.C. § 2802(b) provides:

(b)(1) Any franchisor may terminate any franchise (entered into or renewed on or after June 19, 1978) or may fail to renew any franchise relationship, if —

(A) the notification requirements of section 2804 of this title are met; and (B) such termination is based upon a ground described in paragraph (2) or such nonrenewal is based upon a ground described in paragraph (2) or (3).

The statutory provisions concerning non-renewal at issue in this case provide in § 2802(b)(3):

(3) 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.

Plaintiff's complaint alleged that on July 6, 1979 defendant attempted to terminate plaintiff's franchise relationship but that the termination did not comply with the Act. Additionally, plaintiff claims that the changes or additions to the contract proposed by Texaco were not the result of determinations made in good faith and in the normal course of business but were the result of Texaco's insistence upon such changes for the sole purpose of preventing the renewal of the franchise relationship.

The standards for determining whether a preliminary injunction should issue are delineated by the Act. 15 U.S.C. § 2805(b)(2) provides:

(2) Except as provided in paragraph (3), in any action under subsection (a) of this section, the court shall grant a preliminary injunction if —

(A) the franchisee shows—

(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and

(ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and

(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted.

FACTUAL FINDINGS

Based on testimony presented by the parties and stipulations agreed to, the Court makes the following findings:

1. Plaintiff began leasing the service station at I-435 and 51st Street in October of 1972. The rental agreement at that time provided that plaintiff would pay $595.00 per month plus .01 cent per gallon for each gallon of fuel delivered to the premises during the succeeding months. (Defendant's Exhibit 2.)

2. In June of 1977 Texaco asked plaintiff to sign a new three year lease with a rental rate of $1,100.00 per month during the first year of the lease, $1,350.00 per month during the second year, and $1,500.00 per month during the third year. (Defendant's Exhibit 3.)

3. Plaintiff was reluctant to sign the lease proposed in June of 1977 and Texaco eventually gave notice that the old lease was being terminated. Eventually however, Texaco withdrew its cancellation and plaintiff continued occupying the premises under the terms of the 1972 lease.

4. Plaintiff and Texaco have been involved in two disputes prior to the attempt to terminate plaintiff's lease in 1977. In April of 1973, representatives of Texaco padlocked plaintiff's pumps for ½ day. In 1976 Texaco sued Larry and Janice Pearman in the Magistrate Court of Jackson County claiming $1,909.25 plus interest for merchandise Texaco allegedly delivered to Mr. Pearman. The Magistrate Court found for defendant in that action and assessed costs against plaintiff. (See plaintiff's Exhibit 8.)

5. In June of 1979 a representative of Texaco, Mr. Woodrow Lowry, met with plaintiff and offered him a new three year lease. The proposed lease provided for rent at the rate of $1,400.00 per month the first year, $1,600.00 per month the second year, and $1,941.00 per month the third year of the lease. (See defendant's Exhibit 4.) Mr. Pearman indicated that he would think about signing the lease. Further discussions between Mr. Pearman and Mr. Lowry concerning the lease were conducted over the phone. Mr. Pearman denies ever actually refusing to sign the lease.

6. On July 6, 1979, Texaco sent plaintiff notice that it was cancelling plaintiff's lease for his failure to agree to the changes in the terms of the lease. (See defendant's Exhibit 5 and plaintiff's Exhibit 1.) The Court finds that this notice complied with the requirements of 15 U.S.C. § 2804(c) in that it was in writing, sent by certified mail, contained a statement of intent not to renew the franchise, the reasons therefore, and the date on which the non-renewal would take effect. Also enclosed was a summary of the provisions of the Petroleum Marketing Practices Act compiled by the Secretary of Energy. (Defendant's Exhibit 5 and plaintiff's Exhibit 1.)

7. Plaintiff indicates that even after receiving defendant's notice of termination (plaintiff's Exhibit 1), he and Mr. Lowry had conversations concerning the new lease and possible continuations of the old lease. At one point plaintiff indicated he asked how soon Mr. Lowry could get the new lease to him. Mr. Lowry indicated that the lease had been returned to Oklahoma and when plaintiff had not signed it, Texaco considered it automatically cancelled and had made arrangements to lease the premises to someone else.

8. Texaco received a letter from plaintiff dated September 21, 1979 wherein plaintiff indicated that he was declining to sign the new lease because of the high rent. He further indicated that he felt his existing lease was automatically renewable and would initiate court action to enforce the lease if necessary. Plaintiff testified that the signature on the letter was not his and the Court after reviewing his signature on other documents notes that the signature on defendant's Exhibit 9 differs substantially from plaintiff's signature on other documents.

9. Mr. Pearman testified extensively concerning the effect that the rental increases would have on his net profits. In Mr. Pearman's view this rental increase would significantly decrease his net profits.

10. Mr. Lowry indicated that plaintiff called him in September to request that Texaco lease the premises to Jessie Brown, the manager of plaintiff's service station.

11. Prior to 1977, rental rates of Texaco filling stations were determined by the gallon volume of gas sold at that station. In 1977 Texaco determined that each filling station should be judged individually based on the value of the real estate where the station was located and other factors. Prior to 1977 leases had been for one year and automatically renewed. In 1977 the Texaco Company instituted a nationwide policy of three year leases with a flat monthly rental rate. The company was aiming to eventually realize a 10% return per year on their investment. Texaco admitted that this change in policy nationwide was dictated in part by inflation.

12. A stipulation entered into by the parties included the following facts.

(a) Texaco had leased the station at 4341 Northeast Chouteau Trafficway (adjacent to I-35) to Jim Leathers. Sales by Texaco to that station run approximately 22,027 gallons per month. Mr. Leathers has been operating under a three year contract since 1977. The terms of which provided for $800.00 per month rent for the year 1977-78; $845.00 per month rent for the year 1978-79; and $930.00 per month rent for the year 1979-80. The property at this location is valued at $115,000.

(b) The Texaco station at 3027 Van Brunt adjacent to I-70 leased by Mr. Lawrence has volume sales of 34,300 gallons of gas per month. Prior to February 1, 1980, the rental rate is

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