Slatky v. Amoco Oil Co.
| Decision Date | 30 September 1987 |
| Docket Number | No. 86-5102,86-5102 |
| Citation | 830 F.2d 476 |
| Parties | SLATKY, John, Appellant, v. AMOCO OIL COMPANY, Appellee, Service Station Dealers of America, Inc., Amicus Curiae. |
| Court | U.S. Court of Appeals — Third Circuit |
Before BECKER, MANSMANN, Circuit Judges, and TEITELBAUM, District Judge. *
Reargued In Banc May 4, 1987.
Before GIBBONS, SEITZ, WEIS, HIGGINBOTHAM, SLOVITER, BECKER, STAPLETON and MANSMANN, Circuit Judges.
Under Title I of the Petroleum Marketing Practices Act, ("PMPA"), 15 U.S.C. Secs. 2801-06, an oil company that terminates or fails to renew a franchise for a permissible business purpose unrelated to the franchisee's misconduct must make a "bona fide offer" to sell to the franchisee the leased property used by the franchisee in his business. Secs. 2802(b)(2)(E)(iii)(I); 2802(b)(3)(D)(iii)(I). This appeal from the judgment of the district court, 626 F.Supp. 1223, following a bench trial, in favor of appellee Amoco Oil Company and against one of its franchisees, appellant John Slatky, requires us to decide what this "bona fide offer" provision requires the oil company (hereinafter "distributor") to do and in what manner courts should scrutinize the distributor's offer in determining its bona fides.
The district court found that Amoco sincerely believed its offer price, derived from its internal business practices, was at fair market value and that the offer had a reasonable basis in fact because its procedures were reasonable, notwithstanding that the price was substantially higher than the estimate of independent appraisers retained by Slatky and by Amoco itself. We conclude that the district court erred in failing to insist that the offer be objectively reasonable, i.e., that it approach fair market value. We therefore reverse and remand for further proceedings.
Title I of the PMPA generally regulates the relationship between distributors of motor fuel, principally oil refiners, and their franchisees, principally retail gas station operators, many of whom lease their stations from the distributors. Evidence at Congressional hearings indicated that distributors had been using the threat of termination or nonrenewal to compel franchisees to comply with the distributor's marketing policies. See S.Rep. No. 731, 95th Cong., 2d Sess. 17-19, reprinted in [1978] U.S. CodeCong. & Ad.News 873, 875-77 (hereinafter "Senate Report"). In addition, Congress found that franchisors had used their superior bargaining power and the threat of termination to gain an unfair advantage in contract disputes. Id.
In passing the PMPA, Congress determined that franchisees had a "reasonable expectation[ ]" that "the [franchise] relationship will be a continuing one." Senate Report at 18, U.S.Code Cong. & Ad.News 1978, at 876. The PMPA's goal is to protect a franchisee's "reasonable expectation" of continuing the franchise relationship while at the same time insuring that distributors have "adequate flexibility ... to respond to changing market conditions and consumer preferences." Senate Report at 19, U.S.Code Cong. & Ad.News 1978, at 877. To accomplish these purposes, the PMPA works principally by limiting the grounds on which distributors may terminate or fail to renew a franchise. 15 U.S.C. Sec. 2802. The PMPA also provides various notification requirements, some of which guarantee a franchisee an opportunity to correct any improper conduct with which he has been charged. See Secs. 2802, 2804.
Most of the grounds for termination or nonrenewal involve some form of franchisee misconduct. For example, a distributor may terminate for a franchisee's failure to pay sums due under the franchise agreement, see Sec. 2802(b)(2)(C) (incorporating Sec. 2802(c)(8)), or for a franchisee's "fraud or criminal misconduct ... relevant to the operation" of the property, Sec. 2802(b)(2)(C) (incorporating Sec. 2802(c)(1)). A distributor may fail to renew because of numerous "bona fide customer complaints" about the franchisee's operations of the property, see Sec. 2802(b)(3)(B), or because of a franchisee's failure to operate a property "in a clean, safe, and healthful manner," see Sec. 2802(b)(3)(C).
To assure distributors' market flexibility, however, the Act also permits termination or nonrenewal because of certain distributor business decisions. So long as a franchisee has received or been offered at least a three year franchise agreement, a distributor may terminate or fail to renew a franchise agreement if it decides "in good faith and in the normal course of business" to withdraw from the relevant geographic market area. See Sec. 2802(b)(2)(E). 1
In addition, for three-year franchisees, a distributor may fail to renew the agreement of a franchisee who leases a property from the distributor if the distributor determines "in good faith and in the normal course of business:
Whenever a distributor terminates or fails to renew a franchise relationship for one of these business purposes, however, he must meet several other requirements. First, the distributor may not terminate or fail to renew in order to convert the property to direct management by its own employees or agents. See Sec. 2802(b)(2)(E)(ii), 2802(b)(3)(D)(ii). Second, the distributor must either make a "bona fide offer" to sell the property or, if applicable, provide the franchisee a right of first refusal on an offer made by another. See Secs. 2802(b)(2)(E)(iii)(I); 2802(b)(3)(D)(i). 2 The meaning of the "bona fide offer" requirement under the nonrenewal subsection, Sec. 2802(b)(3)(D)(i), is the principal issue in this case.
For several years, Slatky was an Amoco franchisee, leasing a gasoline station in York, Pennsylvania. In May, 1985, following a year in which Slatky's sales volume started to decline, Amoco determined not to renew Slatky's franchise on the ground that renewal would be uneconomical despite any reasonable changes or additions to the franchise relationship to which Slatky might agree. Amoco gave proper notice, and because it based its nonrenewal on Sec. 2802(b)(3)(D)(i)(IV), it proceeded, in a letter dated June 28, 1985, to offer to sell Slatky the station for $306,300.00 without the underground tanks and pumps. The testimony reveals that Amoco arrived at this price through a two-step process.
First, Amoco's employee Melvin O'Dell evaluated the land alone in early May, 1985. O'Dell based his appraisal on three allegedly comparable properties, which had been sold several years before. He testified, however, that he made no effort to verify his information about these "comparables" or to find other reports on other properties. O'Dell further testified that his best comparable was a property that he later found had been understated in land area by 40% and that was not suitable as a basis of comparison because of its location. 3 3] Based on this analysis, O'Dell appraised the value of the land at $155,000.
Following the land appraisal, another Amoco employee, Charles Bogdanowicz, performed an initial appraisal of the property improvements. Bogdanowicz had no formal appraisal experience but had built stations for Amoco in several parts of Pennsylvania. He estimated the replacement cost of the improvements, including tanks and lines, to be $121,300.
Based on these two estimates, Amoco's real estate manager, Eugene O'Brien, recommended a price of $276,300 to the district manager, Lemuel Warfield. Although he did not disagree with any of the conclusions used to come up with the appraisal, Warfield sent a note back to O'Brien stating, "costs as they are today and the improvements that we have on the property, I would believe the appraisal would be more reasonable at $350,000, less tanks and lines." Warfield asked O'Brien to review the figure, and O'Brien passed this request to O'Dell. 4
O'Dell then reviewed his appraisal and came up with a land value of $185,000, $30,000 higher than the first estimate. In a letter to Warfield, O'Brien stated that this new figure was "about as far as we think it should go." Warfield then offered to sell the station to Slatky for $306,300 ($185,000 for the land plus $121,300 for the improvements), explicitly stating that this figure did not cover the tanks and pumps. After Slatky filed his complaint in this case, Warfield sent Slatky a letter explaining that the exclusion of the tanks and pumps was mistaken and offering the property for $256,300 plus $50,000 for the tanks and pumps.
Slatky's suit seeks damages and an injunction ordering Amoco to sell the property to him at fair market value. He did not challenge the grounds for nonrenewal but claimed that Amoco's offer of $306,300 was not a bona fide offer because it was not at fair market value. Two certified appraisers hired by Slatky valued the property respectively at $158,200 (including pumps and tanks) and $145,000 (not including pumps and tanks). An independent appraisal eventually commissioned by Amoco for this litigation appraised the property at $221,000 also not including pumps and tanks.
After a bench trial, the district court held that Amoco had fulfilled its...
To continue reading
Request your trial
-
Kaplan v. Chertoff
...of a single enactment, or as is the case often times, by examining several legislative enactments side by side, Slatky v. Amoco Oil Co., 830 F.2d 476 (3d Cir.1987) (reviewing different statutes that together revealed Congress's intent in use of the phrase "bona fide"), or by examining a leg......
-
Glenside West Corp. v. Exxon Co., USA
...to gain an unfair advantage in contract disputes." O'Shea v. Amoco Oil Co., 886 F.2d 584, 587 (3d Cir.1989) (citing Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987)). The PMPA was intended to protect franchisees from exploitation by large petroleum companies. O'Shea, 886 F.2d at 587......
-
Bp West Coast Products LLC v. Greene
...indicates a recognition that the word value almost always involves a conjecture, a guess, a prediction, a prophecy. Slatky v. Amoco Oil Co., 830 F.2d 476, 485 (3d Cir.1987). "[T]here is no universally infallible index of fair market value." Id. 4. Because the court declines to exercise juri......
-
Glenside West Corp. v. Exxon Co., USA
...to gain an unfair advantage in contract disputes." O'Shea v. Amoco Oil Co., 886 F.2d 584, 587 (3d Cir.1989) (citing Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987)). The PMPA was intended to protect franchisees from exploitation by large petroleum companies. O'Shea, 886 F.2d at 587......