Pro Sales, Inc. v. Texaco, U.S.A., Div. of Texaco, Inc.
| Decision Date | 25 June 1986 |
| Docket Number | No. 85-3626,85-3626 |
| Citation | 792 F.2d 1394 |
| Parties | PRO SALES, INC., Plaintiff-Appellant, v. TEXACO, U.S.A., a DIVISION OF TEXACO, INC., a Delaware corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Ridgway K. Foley, Jr., J.P. Graff, Schwabe, Williamson, Wyatt, Moore & Roberts, Portland, Or., for plaintiff-appellant.
Eric J. Nieman, Arden E. Shenker, Tooze, Kerr, Marshall & Shenker, Portland, Or., for defendant-appellee.
Appeal from the United States District Court for the District of Oregon.
Before FLETCHER, ALARCON and WIGGINS, Circuit Judges.
Plaintiff Pro Sales, Inc. (Pro Sales) appeals the district court's dismissal for lack of subject matter jurisdiction of its action against Texaco, USA (Texaco) under the Petroleum Marketing Practices Act (PMPA or the Act). We have jurisdiction under 28 U.S.C. Sec. 1291 (1982), and we reverse and remand.
Texaco is a major refiner of petroleum products and sells its products in part through wholesale distributors. At the time this suit was filed, Pro Sales was a wholesale distributor of Texaco products in Oregon. The relationship between Pro Sales and Texaco was governed by a three- In February, 1983, Texaco reduced Pro Sales' credit rating from $700,000 to $350,000, and again in November to $200,000. This resulted in Pro Sales not being able to buy the amount of gasoline it normally would have bought for the first seven months of the 1983-84 contract year, which was the period used by Texaco to determine its dealers' volume allocations for its 1984-87 franchise agreements. Pro Sales eventually supplied Texaco with the security Texaco required to upgrade Pro Sales' credit to its original standing. Texaco had not required such security before, and there is no dispute that Pro Sales' credit with Texaco was excellent.
year agreement running from May 1, 1981 to April 30, 1984. The agreement required Pro Sales to buy and Texaco to sell a maximum of 8,800,000 gallons of gasoline and a minimum of 80% of that amount annually during the term of the agreement.
In January, 1984, Texaco sent Pro Sales a proposed 1984-87 franchise agreement, which included a reduced volume of gasoline that Pro Sales would be allowed to buy. On January 26, 1984, Texaco sent Pro Sales a ninety-day notice of nonrenewal as required by 15 U.S.C. Sec. 2804 (1982).
On April 30, 1984, the day the 1981 franchise expired, Pro Sales signed the new franchise agreement "under protest" and at the same time filed this action. Pro Sales also moved for and on May 2 was granted a temporary restraining order continuing the terms of the 1981 agreement pending determination of the merits of the action. These terms continued in effect by stipulation of the parties throughout the district court proceedings and by order of the court pending resolution of this appeal.
On May 18, 1984, Texaco offered Pro Sales a new agreement, which provided for more gasoline than the April 30, 1984 protested agreement but less than the 1981 agreement. Texaco claims that it discovered an error in its calculation of the volumes in the April 30 agreement and corrected it; Pro Sales claims that the new offer was intended to minimize the impact of Texaco's soon-to-be-discovered use of a formula to calculate Pro Sales' allocation that differed from the formula used to calculate allocations for other distributors. Pro Sales signed the revised May 18 agreement, again "under protest."
At trial, Pro Sales contended that the franchise relationship had not been renewed, notwithstanding the signing of the new agreements under protest, and that Texaco had discriminated against it and had not acted in good faith in reducing Pro Sales' fuel allocations. Texaco denied nonrenewal, discrimination, and bad faith.
Instead of deciding the case on the merits, the district court acted on a suggestion in Texaco's posttrial brief and dismissed for lack of subject matter jurisdiction. Relying on Hodge v. Arnett, Civ.No. 81-893-RE (D.Or. June 4, 1982) (unpublished), the district court held that Pro Sales had not met the jurisdictional prerequisite of "nonrenewal" of the franchise relationship and dismissed its action. Pro Sales timely appealed. 1
We review dismissal for lack of subject matter jurisdiction de novo. See Redding Ford v. California State Board of Equalization, 722 F.2d 496, 497 (9th Cir.1983), cert. denied, --- U.S. ----, 105 S.Ct. 84, 83 L.Ed.2d 31 (1984). Whether a given set of facts constitutes "nonrenewal" under the terms of the PMPA presents a question of law, also reviewable de novo. See United States v. McConney, 728 F.2d
1195, 1201 (9th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).
Pro Sales brought this action based on section 105 of the Petroleum Marketing Practices Act, 15 U.S.C. Sec. 2805 (1982), which provides in relevant part:
(a) Maintenance of civil action by franchisee against franchisor; jurisdiction and venue; time for commencement of action
If a franchisor fails to comply with the requirements of section 2802 or 2803 of this title, the franchisee may maintain a civil action against such franchisor. Such action may be brought, without regard to the amount in controversy, in the district court of the United States in any judicial district in which the principal place of business of such franchisor is located or in which such franchisee is doing business, except that no such action may be maintained unless commenced within 1 year after the later of--
(1) the date of termination of the franchise or nonrenewal of the franchise relationship; or
(2) the date the franchisor fails to comply with the requirements of section 2802 or 2803 of this title.
Pro Sales alleges that Texaco failed to renew the franchise relationship as required by section 2802 and failed to fall within section 2802(b)(3), the only provision that would arguably have allowed it not to renew. 15 U.S.C. Sec. 2802 (1982), provides in relevant part:
(a) General prohibition against termination or nonrenewal
Except as provided in subsection (b) of this section ..., no franchisor engaged in the sale, consignment, or distribution of motor fuel in commerce may--
* * *
(2) fail to renew any franchise relationship
....
(b) Precondition and grounds for termination or nonrenewal
(1) Any franchisor ... may fail to renew any franchise relationship, if--
* * *
(B) ... such nonrenewal is based upon a ground described in paragraph ... (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.
The district court ruled that Pro Sales could not maintain an action under the PMPA because it had not proved "nonrenewal" of the franchise agreement. This lack of nonrenewal, the district court held, took the action out of the PMPA and deprived the district court of subject matter jurisdiction.
As a threshold matter, we must place the issue in its proper posture. The district court characterized its dismissal of Pro Sales' suit as a dismissal for lack of subject matter jurisdiction. Its basis for doing so, however, was its conclusion that the facts relied on by Pro Sales did not constitute "nonrenewal" under the terms of the PMPA.
Given that basis for its decision, the district court mischaracterized its dismissal. If the jurisdictional issue and the substantive issues of a cause of action are so intertwined that the question of jurisdiction is dependent on the resolution of the merits the court must address the case in terms of its merits. As the Supreme Court held in the seminal case of Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946):
Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction.
We have applied this principle to the PMPA in Sun Valley Gasoline, Inc. v. Ernst Enterprises, Inc., 711 F.2d 138, 140 (9th Cir.1983) (), and it applies as well in the present case. In both cases, the determination that the facts of the case fell outside the PMPA definition would have defeated the merits of the plaintiff's action as well as subject matter jurisdiction. 2
Under Sun Valley, 3 therefore, the district court was incorrect in dismissing for lack of subject matter jurisdiction. See also Abadjian v. Gulf Oil Corp., 602 F.Supp. 874, 878-79 (C.D.Cal.1984). Because it based its dismissal on its conclusion that the facts asserted by Pro Sales did not constitute nonrenewal under the PMPA, the district court was in fact granting summary judgment; it determined that none of the issues of disputed fact were material to the issue of "nonrenewal" and that Texaco was entitled to judgment as a matter of law. 4
We turn now to the merits of the district court's dismissal: whether Pro Sales' actions with regard to the successor contracts with Texaco constitute "renewal" under the PMPA. 5 We conclude that the district court erred...
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