Valentine v. Mobil Oil Corp., CIV 83-1651 PHX EHC.

• Citation: 614 F. Supp. 33
• Decision Date: 09 November 1984
• Docket Number: No. CIV 83-1651 PHX EHC.,CIV 83-1651 PHX EHC.
• Parties: David P. VALENTINE, Plaintiff/Counterdefendant, v. MOBIL OIL CORPORATION, a New York corporation, Defendant/Counterclaimant.
• Court: U.S. District Court — District of Arizona

614 F. Supp. 33

David P. VALENTINE, Plaintiff/Counterdefendant, v. MOBIL OIL CORPORATION, a New York corporation, Defendant/Counterclaimant.

No. CIV 83-1651 PHX EHC.

United States District Court, D. Arizona, Sixth Division.

November 9, 1984.

Ronald W. Meyer, Phoenix, Ariz., for plaintiff/counterdefendant.

N. Warner Lee, Ryley, Carlock & Applewhite, Phoenix, Ariz., for defendant/counterclaimant.

ORDER

CARROLL, District Judge.

On August 22, 1983, Plaintiff David P. Valentine (Valentine) commenced this action seeking a prohibitory and mandatory injunction against Defendant Mobil Oil Corporation (Mobil). Valentine seeks a preliminary injunction against Mobil enjoining it from nonrenewing or terminating Valentine's franchise, (including service station facilities leased from Mobil) and from commencing demolition of the service station facilities. He also seeks a declaratory judgment that the terms of a Redevelopment Rider (rider) attached to Mobil's 1983 renewal agreement is a provision which materially alters the leased premises thereby requiring Mobil to make a bona fide offer to Valentine for him to purchase such premises pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (PMPA).

At issue here is Mobil's Motion for Summary Judgment argued November 28, 1983. The Court took the motion under advisement and heard further argument on Mobil's Motion to Reconsider and For In Camera Inspection on February 3, 1984. Pursuant to the Court's order, Mobil has submitted, and the Court has considered, numerous documents in camera. Additional Mobil documents have been submitted to Valentine under protective orders as to disclosure. Valentine has not sought leave to utilize any of these materials in opposition to the summary judgment motion. The primary issue before the Court is whether Mobil complied with the requirements of the PMPA in the nonrenewal of its franchise relationship with Valentine. For reasons discussed more fully below, Mobil's Motion for Summary Judgment is granted.

Factual Background

Valentine has been a dealer of Mobil's branded products for approximately 10 years. On May 30, 1980, Mobil entered into a two-part agreement with Valentine: (1) a service station lease, and (2) a retaildealer contract (franchise agreement). The terms of both agreements ran from September 1, 1980 through August 31, 1983. Prior to September 1, 1983, a franchise relationship within the meaning of and as defined by the PMPA, existed between Valentine and Mobil.

On April 22, 1983, Mobil submitted a renewal franchise agreement to Valentine which included changes or additions regarding (1), rental (2) hours of operation, and (3) a Redevelopment Rider authorizing possible alteration of the physical structure and functions of the service station. The provisions of the rider would allow Mobil to add a "sales room profit center" (snack area) and to restructure the station to a pump only station (pumper). A pumper has only self-serve gas islands and no other service bay areas. Mobil later advised Valentine that it had no present intention to convert Valentine's station to a pumper (Exhibit E, Motion for Summary Judgment). Nevertheless, the rider remains a part of the new franchise agreement. The pertinent language of the rider is as follows:

Tenant understands that Landlord contemplates making a substantial redevelopment of the premises which may include a change in configuration, and may include the elimination of the service bays. Tenant agrees and understands ... it is solely within the discretion of Landlord whether any such redevelopment will be made, as well as the nature and extent of any redevelopment.

(Exhibit C, Motion for Summary Judgment).

On April 27, 1983, Valentine rejected the above offer, disagreeing with all three items. Valentine has submitted an affidavit with his response to the Motion for Summary Judgment which states that he would have signed the renewal but for the rider. Mobil and Valentine failed to agree to the changes and additions to the provisions of the existing franchise. On May 25, 1983, Mobil sent a Notice of Nonrenewal of Franchise Relationship by certified mail, return receipt requested, to Valentine, which complied with the notice requirements under the PMPA, 15 U.S.C. § 2804.

The parties agree that Valentine has developed goodwill in his business by performing automotive service and repair work.

In addition to the renewal issues raised above, Valentine has made claims against Mobil for breach of lease, negligence and for failure to make timely repairs to his service station in violation of the PMPA. Valentine has also sought damages, exemplary damages, reasonable attorneys' fees, and costs and expenses.

Further, Mobil has counterclaimed against Valentine seeking a declaratory judgment stating that Mobil has complied with the requirements of all applicable laws in its franchise and all relationships between them are terminated. Mobil also seeks judgment against Valentine requiring him to immediately vacate the service station premises and return all of Mobil's property to Mobil. Mobil seeks reasonable attorneys' fees and costs.

Contentions of the Parties

The parties dispute the grounds and motivation upon which the nonrenewal of the franchise relationship is based. Mobil contends that 15 U.S.C. § 2803(b)(3)(A) governs. It concedes that the rider to the new lease package offered to Valentine contains changes or additions to the provisions of the franchise but that nonrenewal was based upon the failure of the parties to agree to these changes as provided by § 2802(b)(3)(A). The issue therefore is whether the elements of that section have been met. Specifically, grounds for the nonrenewal of the franchise relationship under this section include:

1. Whether, in the renewal agreement, proposed changes or additions to provisions of the franchise were made by Mobil in "good faith", and

2. Whether such changes or additions were made "in the normal course of business", and

3. Whether a failure to agree to renewal is the result of Mobil's insistence upon such changes or additions for the purpose of preventing the renewal of the franchise relationship, i.e., mere pretext or sham.

Mobil argues that the proposed altered terms are not evidence of either a discriminatory motive or a sham or pretext to avoid renewal. It contends the rider has not discriminatorily singled out Valentine, but us uniformly included in all its renewals and, therefore, is in the normal course of business and offered in good faith.

Mobil asserts that its decision to incorporate the rider into the new franchise agreement was based on its policies — permissible under Congressional intent of the PMPA— to allow Mobil's management flexibility to adjust to changing market conditions and is critical to permit it to remain competitive. It is Mobil's policy to require a rider to every new and renewed franchise or lease, other than for stations targeted for divestiture. Mobil presently has selected seven stations in the Phoenix Key Market area for conversion to pumper stations, but maintains that Valentine's station is not one of those at this time. His station is one of 26 stations selected for a partial self-serve conversion to add a salesroom profit center without elimination of full-service pumps or backroom work capabilities.

Even though Mobil does not now intend to convert Valentine's station into a pumper, it reserves the right to do so by the language of the rider which it still requires Valentine to sign. The affidavit of M.D. DiMezza, resale marketing manager, Western region of Mobil, states that when and if Valentine's station is converted to a pumper "depends upon changing economic conditions and customer preferences." (Affid. at page 4). Mobil further contends that its policy of requiring the rider predates the Marketing Analysis and Planning System (MAPS) study which has been identified by Valentine as a key document to proving Mobil's good faith under the PMPA requirements. It is an in-depth survey of 57 key market areas, including the Phoenix Market area. This study details various data described by Mobil as highly "sensitive" given it includes investment strategies, methods of pricing, profitability, estimates of competitor's profit margins and other information. The Court has reviewed various documents in camera and Valentine has received portions of MAPS and other information pursuant to a detailed protective order stipulated to by the parties.

Valentine contends that § 2802(b)(3)(D) is applicable here. This section permits franchise nonrenewal involving leased marketing premises by the franchisor, if such decision is made in good faith and in the normal course of business. It also requires that the franchisee be afforded the opportunity to purchase the property where the franchisor elected not to offer a renewal franchise because the franchisor had determined:

to materially alter, add to, or replace such premises, or

that renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonable changes or additions to the provisions of the franchise which may be acceptable to the franchisee.

A further requirement under this section is that the franchisor cannot have made either of the foregoing determinations for the purpose of converting the premises to operation by employees or agents of the franchisor for such franchisor's own account.

Valentine argues that Mobil's decision not to renew the lease was (a) not made in good faith, and (b) the prospective change to a pumper is to "materially alter, add to, or replace such premises." Ergo, since Valentine was not afforded the opportunity to buy the premises, the franchise agreement could not be terminated.

Essentially, Valentine's position is that Mobil knew when it offered the renewal that Valentine could not survive financially under the terms in the rider and would therefore be forced to reject...