Title: Crown Central Petroleum Corp. v. Hill

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
CROWN CENTRAL PETROLEUM  
CORPORATION, ET AL. 
 
v.   Record No. 962601 
OPINION BY JUSTICE ELIZABETH B. LACY 
                                   June 6, 1997 
FRANK G. HILL, T/A CEDAR 
ROAD AMOCO 
 
 
UPON A QUESTION OF LAW CERTIFIED BY THE UNITED STATES 
 
DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA 
 
 
Pursuant to our Rule 5:42, the United States District 
Court for the Eastern District of Virginia, Norfolk Division, 
certified to this Court a question of Virginia law involving 
the application of the Virginia Petroleum Products Franchise 
Act, Code §§ 59.1-21.8 through 59.1-21.18:1 (the Act).  The 
district court stated that the answer to the question will be 
determinative of a proceeding pending before it.  We accepted 
the certification by order entered January 15, 1997. 
 
The following facts are set forth in the district court's 
certification order.  Crown Central Petroleum Corporation 
(Crown) is a petroleum refiner.  It seeks to build a gasoline 
service station on property owned by its wholly-owned 
subsidiary, Fast Fare, Inc., and sell Crown gasoline at that 
station.  Frank G. Hill operates a gasoline service station 
under a lease and dealer supply agreement with Amoco Oil 
Company, another petroleum refiner.  Hill's station is located 
within one and one-half miles of Crown's proposed station. 
 
Section 59.1-21.16:2(A) of the Act provides, in pertinent 
part, that: 
 
no refiner of petroleum products shall operate any 
major brand, secondary brand, or unbranded retail 
outlet in the Commonwealth of Virginia with company 
personnel, a parent company, or under a contract with 
any person, firm, or corporation, managing a service 
station on a fee arrangement with the refiner; 
however, such refiner may operate such retail outlet 
with the aforesaid personnel, parent, person, firm, 
or corporation if such outlet is located not less 
than one and one-half miles . . . from the nearest 
retail outlet operated by any franchised dealer. 
 
Pursuant to 28 U.S.C. § 2201(a), Crown sought a declaratory 
judgment that this provision of the Act does not prevent Crown 
from building and operating the station on its property because 
the location prohibition applies only to retail outlets 
operated by a refiner within one and one-half miles of a retail 
outlet operated by a franchised dealer of that refiner.  To 
resolve this issue, the district court certified the following 
question to us: 
 
Whether the Virginia Petroleum Products Franchise 
Act, Va. Code § 59.1-21.16:2, was only intended to 
regulate intra brand competition, that is, 
competition among retailers of the same brand of 
products and representing the same company, or 
whether it was also intended to regulate interbrand 
competition, competition among retailers of different 
brands of products or representing different refiners 
as is contemplated by Crown's proposed use of its 
property. 
 
We conclude that § 59.1-21.16:2(A) regulates interbrand 
competition because it prohibits a refiner from operating a 
retail outlet unless that outlet is located one and one-half 
miles or more from a retail outlet operated by a franchised 
dealer, including franchised dealers that are not franchisees 
of the refiner. 
 
In construing statutes, courts are charged with 
ascertaining and giving effect to the intent of the 
legislature.  City of Winchester v. American Woodmark Corp., 
250 Va. 451, 457, 464 S.E.2d 148, 152 (1995).  That intention 
is initially found in the words of the statute itself, and if 
those words are clear and unambiguous, we do not rely on rules 
of statutory construction or parol evidence, unless a literal 
application would produce a meaningless or absurd result.  Id.; 
Allen v. Chapman, 242 Va. 94, 100, 406 S.E.2d 186, 189 (1991); 
Beach Robo, Inc. v. Crown Central Petroleum Corp., 236 Va. 131, 
134, 372 S.E.2d 144, 146 (1988).  The statutory language at 
issue here is clear on its face.  It prohibits a refiner from 
operating any retail outlet in Virginia unless the outlet is 
located one and one-half miles or more from a retail outlet 
operated by "any franchised dealer."  Nothing in the language 
used in the Act supports an interpretation that the franchised 
dealer must be a franchisee of the refiner.   
 
Crown argues, however, that this interpretation improperly 
ignores explicit legislative findings contained in § 59.1-21.9 
of the Act.  That section states: 
 
The General Assembly finds and declares that since 
the distribution and sales through franchise 
arrangements of petroleum products in the 
Commonwealth of Virginia vitally affect the economy 
of the Commonwealth, the public interest, welfare, 
and transportation, and since the preservation of the 
rights, responsibilities, and independence of the 
small businesses in the Commonwealth is essential to 
economic vitality, it is necessary to define the 
relationships and responsibilities of the parties to 
certain agreements pertaining thereto. 
 
Crown asserts that these findings demonstrate that the General 
Assembly passed the Act to address the relationships between 
parties to franchise agreements and, therefore, the location 
prohibition contained in § 59.1-21.16:2(A) applies only to a 
refiner and its franchised dealer, and not to refiners and 
franchised dealers unrelated by such an agreement.  To apply 
the location prohibition to such unrelated refiners and 
franchised dealers is, Crown concludes, inconsistent with the 
clearly expressed intent of the General Assembly.  We disagree. 
  
A number of sections in the Act do address the franchise 
relationship, such as those prescribing certain terms of the 
agreement, requiring disclosure of information prior to the 
execution of the agreement, and setting conditions regarding 
its termination.
1  See §§ 59.1-21.11, -21.14, -21.15.  The 
legislative findings, however, do not, as Crown suggests, 
compel an interpretation of the Act which restricts all 
economic regulation imposed by the Act to circumstances 
involving a refiner and its own franchisees. 
 
Section 59.1-21.16:2, the section which includes the 
location restriction at issue, contains provisions that clearly 
regulate the conduct of refiners, irrespective of any franchise 
relationship.  For example, the second paragraph of § 59.1-
21.16:2(A) imposed a blanket prohibition on refiners 
constructing and operating retail outlets, from July 1, 1990 
through June 30, 1991, unless the outlets were purchased, or 
under option to purchase, by March 1, 1990.  This prohibition 
was not conditioned on a franchise relationship.  Similarly, 
                     
    
1     
1 We note that if the General Assembly had intended 
only to restrict a refiner/franchisor from locating near its 
own franchisee, it could have easily required that the 
franchise agreement include a provision requiring the 
refiner/franchisor to agree not to locate its retail outlet 
within the proscribed distance from the franchisee's outlet. 
subsection (B) requires refiners to apportion gasoline "among 
their purchasers" in times of shortages.  Again, this 
requirement is not based on the existence of a franchise 
relationship between the refiner and purchaser.  Indeed, 
"purchasers" include all parties buying product from the 
refiner, not just the refiner's franchisees.  These provisions 
of § 59.1-21.16:2 simply cannot reasonably be construed to 
limit their application to circumstances involving a 
refiner/franchisor and its franchised dealer, the construction 
Crown argues is required by the legislative findings contained 
in § 59.1-21.9. 
 
The specific location prohibition at issue is completely 
consistent, not only with other provisions of § 59.1-21.16:2, 
but also with the expressed legislative intent, to preserve 
"the rights, responsibilities, and independence of the small 
businesses in the Commonwealth."  § 59.1-21.9.  A refiner 
operating a retail outlet is an integrated business entity 
which produces its product and sells that product at both the 
wholesale and retail level.  Thus, the refiner has the ability 
to allocate availability of its product and subsidize the price 
of its product sold at its retail outlets.  Such control could 
injure a franchised dealer regardless of whether the refiner is 
the franchisor of the dealer.  It is the refiner's integration 
and access to the product that puts the retail franchised 
dealer at a potentially competitive disadvantage.  Therefore, 
to protect the rights of franchised dealers in avoiding such a 
potentially unfair price structure and thus preserve the 
independence of dealers, the General Assembly chose to require 
a minimum distance of one and one-half miles between a refiner-
owned-and-operated retail station and a retail station operated 
by a franchised dealer.
2
 
Finally, our construction of § 59.21-16:2(A) is not 
inconsistent with the regulations adopted by the Commissioner 
of Agriculture and Consumer Services, as Crown asserts.  Crown 
cites to language in a regulation adopted by the Commissioner 
which allows a refiner to relocate its retail outlet "at least 
1 1/2 miles from any other franchised retail outlet of the same 
brand."  2 Virginia Administrative Code § 5-460-20(A), at 516 
(1996).  This regulation, Crown argues, shows that the agency 
charged with enforcing the statute considers the prohibition to 
apply only to refiners and their franchised dealers.  Crown's 
position, however, fails to consider the regulation in its full 
context. 
 
Subsection (E) of § 59.1-21.16:2 is a grandfather clause 
which allows refiners to continue operating nonconforming 
retail outlets if they were operating the outlets on July 1, 
1979.  Rather than simply requiring a nonconforming outlet to 
comply with the location prohibition in the event the outlet 
had to be relocated, the General Assembly instructed the 
Commissioner to adopt regulations "providing for" relocation of 
                     
    
2      
2Other states adopted similar protective legislation, 
often broader in scope, prohibiting petroleum refiners from 
operating any retail outlets based, inter alia, on evidence 
that refiners favored company-operated stations in allocating 
gasoline.  Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 
124 (1978). 
such outlets.  § 59.1-21.16:2(D).  The regulation adopted by 
the Commissioner limited relocations to instances in which the 
original site was lost through involuntary condemnation, non-
renewal by the owner of the property lease, or denial of a 
building permit or prohibited zoning.  The relocation had to be 
within a 10-mile radius of the original site and, rather than 
imposing the full prohibition against locating within one and 
one-half miles of "any franchised dealer," the relocated, 
grandfathered retail outlet was only precluded from relocating 
within one and one-half miles of "any other franchised retail 
outlet of the same brand." 
 
This regulation was not an interpretation or application 
of the statutory location prohibition, but a response to the 
legislative directive to provide for circumstances in which a 
nonconforming but legal retail outlet was forced to relocate 
through no fault of its own.  In that response, the 
Commissioner struck a balance between strictly applying the 
statutory location prohibition and allowing the grandfathered 
retail outlet some relief as a result of a forced relocation.  
Nothing in the regulations promulgated by the Commissioner is 
inconsistent with the plain meaning of the statute. 
 
Accordingly, because § 59.1-21.16:2(A) regulates 
interbrand competition, the certified question is answered in 
the negative. 
 
Certified Question Answered in the Negative.