Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-01874/USCOURTS-ca10-88-01874-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

BILL SANDLIN, 

Plaintiff-Appellee, 

FI LED 

United Statt~ Coi.m of Appeals · ·renth Circuit 

APR "6 1990 

ROBERT L. HOECKER 

Clerk 

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Nos. 88-1764 and 88-1874 

TEXACO REFINING AND MARKETING 

INC., 

Defendant-Appellant. 

Appeal from the United States District Court 

For the Western District of Oklahoma 

D.C. Nos. 86-0132-T, 86-0132-AR 

George D. Davis (Robert D. Tomlinson and David w. Kirk on the 

briefs) of McKinney, Stringer & Webster, P.C., Oklahoma City, 

Oklahoma, for Plaintiff-Appellee. 

G. Kenneth Handley of Texaco Inc., White Plains, New York, (Terri 

J. Frank of Texaco Inc., White Plains, New York; R. Steven Haught 

of Daugherty, Bradford, Fowler & Moss, Oklahoma City, Oklahoma; 

and Thomas J. Goodwin, Houston Texas, with him on the briefs) for 

Defendant-Appellant. 

Before MOORE, BRORBY, and EBEL, Circuit Judges. 

MOORE, Circuit Judge. 

Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 1 
Texaco Refining and Marketing Inc., (TRMI) appeals an adverse 

judgment entered for violation of the Petroleum Marketing 

Practices Act (PMPA) and for state breach of contract claims. 

TRMI contends the jury verdict is not supported by the evidence, 

and the trial court erred in denying its motions for directed 

verdict, judgment notwithstanding the verdict, and for a new 

trial. TRMI also appeals the trial court's award of attorney fees 

to the plaintiff. We reverse. 

The nonrenewal at issue here was spawned by the 1984 merger 

of Texaco Inc. and Getty Oil Company. As a result, TRMI acquired 

a service station bearing the Getty name across the street from 

its existing Texaco station which was operated by its franchisee, 

Mr. Bill Sandlin, under a three-year franchise agreement with 

TRMI. In reviewing the merger, the Federal Trade Commission 

required both Texaco and Getty to divest themselves of certain 

assets, including the use of the Getty name. (R. II, 164-69). 

Consequently, the Getty station was rebranded and began doing 

business under the Texaco name in July 1985. (R. II, 171). 

In January 1986, TRMI notified Mr. Sandlin under 

§ 2802(b)(3)(D)(i)(III) it would not renew the franchise because 

it decided to sell the leased premises "in good faith and in the 

normal course of business." Soon after, TRMI sent a written offer 

to sell the property for $216,000. 

At trial, Mr. Sandlin, alleging TRMI violated the PMPA and 

breached its duty of good faith and fair dealing implied in the 

contract, sought to prove that TRMI's substantive decision to 

nonrenew was not made in good faith and in the normal course of 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 2 
business, and its offer to sell the station was not bona fide. 

_Throughout, evidence probative of statutory "good faith" was 

intermingled with evidence of whether the offer of sale was bona 

fide and the contract was performed in good faith. However, when 

the evidence is properly aligned under the PMPA, there is neither 

factual nor inferential basis on which the jury could properly 

find a verdict for Mr. Sandlin on his claim that TRMI violated the 

PMPA. 

Resolution of the issues before this court brings into focus 

the purposes behind the statute with which we deal. The PMPA 

generally prohibits the arbitrary and discriminatory termination 

or nonrenewal of a franchise. It further enacts certain remedial 

provisions 

nonrenewal. 

to protect the franchisee from any harm resulting from 

Under the statutory scheme, nonrenewal is neither 

prohibited nor punished. Instead~ nonrenewal- is permitted if, 

after proper notification, the franchisor tethers the decision to 

one of the statutorily permitted grounds for termination. 15 

u.s.c. § 2802. Additionally, under 15 u.s.c. 

§ 2802(b)(3)(D)(i)(III), Congress imposed a duty on a franchisor, 

whose nonrenewal of the franchise relationship is grounded on the 

decision to sell the marketing premises, to make "a bona fide 

offer to sell to the franchisee such franchisor's interests 

in such premises. . " 15 u.s.c. § 2802(b) (3) (D) (iii) (I). To 

vitiate a claim under this subsection, TRMI has the "burden of 

going forward with evidence to establish as an affirmative defense 

that such termination or nonrenewal was permitted," 15 U.S.C. 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 3 
§ 2805(c), and satisfied its statutory duty to make a bona fide 

. offer to sell. 

It is essential to recall Congress did not intend to intrude 

courts into the marketplace by permitting "judicial secondguessing of the economic decisions of franchisors." Svela v. 

Union Oil Co. of Calif., 807 F.2d 1494, 1501 (9th Cir. 1987). 

While Congress intended the good faith test to prevent franchisors 

from shielding their decisions with artifice, the normal course of 

business element examines whether the franchisor made the choice 

through its usual decision-making process. "The legislative 

history of the PMPA indicates that courts should look to the 

franchisor's intent rather than to the effect of his actions, 

making (the good faith test] a subjective test." Svela, 807 F.2d 

at 1501 (citation omitted). However, we use an objective test to 

decide whether an offer is bona fide. See Slatky v. Amoco Oil 

Co., 830 F.2d 476 (3d Cir. 1987). 

The "good faith and normal course of business" 

requirement is essentially a procedural direction to the 

courts about how to judge whether the distributor has 

abided by the substantive restrictions and failed to 

renew only because of one of the statutorily permitted 

reasons. Thus, what the court decides in a challenge to 

a non-renewal is not whether the distributor determined 

not to renew according to some elusive notion of good 

faith but whether it sincerely made a decision to sell 

the property or to alter it or to accomplish some other 

business purpose permitted under the statute. 

Id. at 482. 

I. 

The first question presented is whether the totality of the 

evidence supports the verdict that TRMI's decision not to renew 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 4 
its franchise was not made in good faith and in the normal course 

of business.as. required by PMPA •. We also consider .whether the 

evidence supports the verdict that an offer by TRMI to sell its 

station to Mr. Sandlin was not bona fide. We find no evidence in 

support of either proposition. 

We arrive at this conclusion after undertaking an analysis of 

the two facets that comprise a claim for violation of the PMPA. 

The initial inquiry, whether the franchisor made the substantive 

decision in good faith and the normal course of business, tests 

the honest commercial judgment of the franchisor. In contrast, 

the second evaluates whether the franchisor fulfilled its remedial 

obligation to the franchisee by making a bona fide offer to sell 

the premises. Whether this subsequent offer is bona fide 

questions the fairness of the franchisor's treatment of the 

franchisee measured by an objective standard. "The bona fide 

offer provision therefore serves as a second, and distinct, layer 

of protection, assuring the franchisee an opportunity to continue 

to earn a livelihood from the property while permitting the 

distributor to end the franchise relationship." Id. at 484. 

Thus, two separate inquiries must flow from a PMPA test of a 

nonrenewal decision. Evidence of the first is not evidence of the 

second, not only because the two inquiries are temporally 

separated but also because the standards for judging both differ. 

TRMI presented evidence of management's procedure of 

reviewing its stations in general and these two competing stations 

in particular. In addition, TRMI set forth its procedure for 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 5 
appraising the property and the circumstances of the offer made to 

Mr. Sandlin. 

In contrast, Mr. Sandlin sought to prove that TRMI treated 

him unfairly and that its decision to acquire the Getty station 

was motivated by its desire to profit from his success in building 

up his business and good will in that location. 1 To that end, Mr. 

Sandlin related his expectations of remaining in business "if I 

did good," (R. II, 105), and various promises or proposed 

alternatives and commitments that TRMI agents made prior to the 

decision to sell and the formal notice of that decision. 

Intertwined in this testimony of TRMI's intent was evidence 

of TRMI's offer to sell. While a franchisor could make a bona 

fide offer to sell the premises, it is possible that the 

underlying decision to sell was not made in good faith and in the 

normal co~rse of business. Since the statute imposes two tests to 

support a valid nonrenewal, a bona fide offer alone is not 

sufficient to cure an otherwise arbitrary nonrenewal decision. 

1Reappearing in this testimony is the alleged but denied 

statement, "to hell with Sandlin," made by a top TRMI management 

official responsible for the decision to sell. Even if the 

statement· referred to TRMI's decision to sell, which is 

questionable, it is difficult to see how that decision, under all 

the circumstances of this case, is premised on the franchisor's 

spite. Indeed, the purported statement is irrelevant to the 

inquiry of whether the decision is grounded in TRMI's honest 

commercial judgment. When faced with the FTC ruling, TRMI clearly 

had to dispose of one of the two stations. The remaining 

question, then, is whether the choice of the Sandlin station was 

grounded in commercial judgment or predicated upon an 

impermissible ground. Given the evidence which established the 

"Superior profitability of the former Getty station, TRMI 

established a sound commercial reason for the decision not to 

renew. The alleged statement simply did not controvert this 

reason. 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 6 
Care must be taken not to use the evidence relevant to one test as 

evidence applicable to the other. 

When the record is viewed with that distinction in mind, 

there is no evidence to be found from which the jury could 

conclude that TRMI's written offer to sell the premises for 

$216,000 was not bona fide. First, plaintiff's Exhibit 6 details 

appraisals of the property ranging from $200,000 to 2 $233,535. 

Second, the $216,000 price included the tanks, lines, and 

equipment; $200,000 for the land, $16,000 for the additions. 3 

Finally, after Mr. Sandlin refused the offer, TRMI received an 

offer of $260,000 from another entity, which subsequently lapsed 

when the offeror was itself sold. Thereafter, TRMI listed the 

property for $260,000, and that listing was in effect at the time 

of trial. 

·No matter ·how the evidence is viewed, the· $216 ,.000 offer 

remains objectively reasonable as a reflection of fair market 

2A suggestion abounds that appraisals ranged from $97,000 to 

$233,000. Plaintiff's Exhibit 6, a copy of TRMI's internal real 

estate analysis, lists outside appraisals of $200,000 (12/84) and 

$210,000 (8/84) without the tanks and equipment; and $223,535 (12/ 

84) and $233,535 (8/84) with the tanks and equipment. The $97,422 

figure in Exhibit 6 represents "cost less reserves (6/85)." That 

figure cannot be an appraisal of value because, in the absence of 

explanatory evidence, the statement "cost less reserves" must be 

taken at face value. Thus, the figure of $97,422 cannot represent 

an appraised value of the station. 

3An oral offer or "proposal" to sell the premises made to Mr. 

Sandlin in May 1985 for $269,000 would not qualify as an offer to 

sell under the PMPA because it predated formal notice. That 

offer, according to then existing company policy, did not include 

the underground tanks and lines although the company offered to 

decrease the price by half of the cost of installing new equipment 

if the existing equipment was defective. (R. II, 277). However, 

a TRMI witness testified that company policy changed, permitting 

Mr. Sandlin to purchase the equipment if· it passed leakage and 

tightness tests. (R. II, 278). · 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 7 
value. "That, by definition, is the highest price a willing buyer 

would pay, and an offer at fair market · va1ue protects the 

franchisee's reasonable expectation of being able to make a living 

with the franchise property." Slatky, 830 F.2d at 484. Congress 

intended no more. "Congress treated the bona fide offer· 

requirement not as a statutory recognition of a business judgment 

but as a form of compensation to the franchisee for the harm 

resulting from the distributor's valid business judgment." Id. at 

481-82. 

Similarly, Mr. Sandlin's self-serving testimony that he 

expected to stay in business for ten years, cannot substitute for 

the PMPA's provisions for the nonrenewal decision. (See R. II, 

107). The PMPA does not protect that kind of hope or speculation. 

Instead, the PMPA attempts to balance the franchisee's "reasonable 

expectations" with the franchisor's legitimate· business reasons. 

Id. at 484. That the nonrenewal at issue has the effect of 

altering those expectations alone cannot taint TRMI's action. 4 

"So long as the franchisor does not have a discriminatory motive 

or use the altered terms as a· pretext to avoid renewal, the 

franchisor has met the burden required by the PMPA for determining • 

good faith." Valentine v. Mobil Oil Corp., 789 F.2d 1388, 1392 

(9th Cir. 1986) (PMPA does not entitle franchisee to buy station 

4For example, the Ninth Circuit affirmed a judgment for the 

franchisor whose nonrenewal was based on the decision to convert 

the station from a full-service to a fast-service facility. The 

court upheld the nonrenewal under the PMPA, observing "the fact 

that Union's proposed changes might make it difficult for Svela to 

remain in business and earn a profit is irrelevant to a finding of 

good faith." Svela, 807 F.2d 1494, 1501 (9th Cir. 1987) (citation 

omitted). 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 8 
if franchisor proposes material alteration of the premises which 

franchisee opposes). Recognizing_ .the_ standard of review which 

guides the court's analysis, 5 we must conclude no evidence or 

reasonable inferences from the evidence can shore up the jury's 

verdict. 

II. 

Mr. Sandlin also recovered a judgment on state claims under 

theories of breach of contract. TRMI argued in the trial court 

that the state claims were preempted by PMPA, but that argument 

has not been asserted on appeal. 6 

Except for some self-serving speculation by Mr. Sandlin,7 we 

find no evidence in the record indicating TRMI breached the 

franchise agreement by bad faith or unfair dealing. In support of 

his claim that TRMI breached the good falth covenant inherent in 

every contract, see Hall v. Farmers Ins. Exch., 713 P.2d 1027, 

1029-31 (Okla. 1985): Christian v. American Home Assurance Co., 

5we judge whether a motion for judgment n.o.v. should have been 

granted upon a de novo review of the record to determine whether a 

jury could properly find for the prevailing party. In performing 

this task, we do not weigh the evidence or pass upon the 

credibility of the witnesses, and we view the evidence in a light 

most favorable to the appellee. Anderson v. Phillips Petroleum 

Co., 861 F.2d 631 (10th Cir. 1988): Brown v. McGraw-Edison Co., 

736 F.2d 609 (10th Cir. 1984). 

6on the issue of preemption, see Cason v. Texaco Inc., 621 

F. Supp. 1518 (M.D. La. 1985): Siecko v. Amerada Hess Corp., 569 

F. Supp. 768 (E.D. Pa. 1983). 

7For example, Mr. Sandlin stated on "certain days and certain 

times" he saw posted prices at TRMI's. neighboring station that 

were lower than his purchase price. Without more, this is not 

evidence that TRMI set those prices intentionally to harm Mr. 

Sandlin or that the pri?es were set in an effort to take an unfair 

advantage of him. 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 9 
577 P.2d 899, 904 (Okla~ 1977), Mr. Sandlin refers to the 

"testimony .. of one witness who stat.ea .the rebranding of the Getty 

station took place earlier than necessary. He also contends TRMI 

marketed its gas at less than it charged him and that it took an 

"unconscientious" advantage of him through a "technicality" in the 

law. Unfortunately for Mr. Sandlin's cause, this "evidence'' fails 

to rise above mere speculation. 

The events Mr. Sandlin perceived as harmful to him were 

nothing more than the consequence of the Getty-Texaco merger which 

ultimately put TRMI in the posture of competition with its own 

franchisee. That competition is not the substance of a state 

breach of contract claim, even if such a claim is not preempted by 

PMPA, because Mr. Sandlin was unable to present evidence to the 

jury which suggests TRMI competed in bad faith. 

The judgment of the district court is REVERSED and REMANDED 

with instructions to enter judgment in favor of TRMI on all 

claims. 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 10 
No. 88-1764 Sandlin v. Texaco Refining and Marketing, Inc. 

BRORBY, Circuit Judge, dissenting. 

The standards that govern our review of a jury verdict are 

strict. We "may not weigh the evidence, pass upon the credibility 

of witnesses, or substitute [our] judgment for that of the jury," 

Brown v. McGraw-Edison Co., 736 F.2d 609, 612-13 (10th Cir. 1984). 

We may not reverse the denial of a directed verdict or JNOV motion 

unless the evidence "is susceptible to no reasonable inferences 

which may sustain the position of the party" opposing the motion. 

Anderson v. Phillips Petroleum Co., 861 F.2d 631, 634 (10th Cir. 

1988). Nor may we reverse a trial court's denial of a new trial 

unless the verdict is "clearly, decidedly, or overwhelmingly 

against the weight of the evidence." Brown, 736 F.2d at 616. 

Judged by these tests, .. I cannot say the jury's verdict on either 

of Sandlin's claims is erroneous. Thus, I must respectfully 

dissent from the majority's opinion. 

The effect of the majority's opinion--of its recapitulation 

of the evidence and its formulation of the issues and the law to 

be applied--is to place a disproportionate evidentiary burden on 

the appellee Bill Sandlin. For example, the majority state that 

the "first question presented is whether the totality of the 

evidence supports the verdict." Opinion at 4 (emphasis added). I 

view this as an over-generalization of the applicable standards of 

review, which I have laid out above. It is reminiscent of a 

"total~ty of the circumstances'' test, which is inappropriate here, 

Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 11 
and it suggests the majority are reweighing the evidence--a job 

reserved to the jury. 

The majority's formulation of the federal statutory 

requirements also serves to place an unintended hurdle in the path 

of a plaintiff franchisee. As the majority correctly point out, 

"Congress [in the PMPA] did not intend to intrude courts into the 

marketplace." Opinion at 4. In fact, Congress considered 

"reasonable business judgments" as a ground for nonrenewal of a 

franchise, but rejected it in favor of the good faith and normal 

course of business tests, which would "avoid judicial scrutiny of 

the business judgment itself." S. Rep. No. 731, 95th Cong., 2d 

Sess., at 37, reprinted in 1978 U.S. Code Cong. & Admin. News 873, 

895-96. In spite of this history, the majority interpret the two 

statutory inqui-r ies as "test [ ing] the honest commercial -judgment 

of the franchisor." Opinion at 5. I cannot distinguish between 

the majority's "honest commercial judgment" standard and the 

"reasonable business judgment'' test clearly rejected by Congress. 

Thus, in my view the majority have burdened franchisees--and the 

courts--with an inquiry Congress meant to avoid. 

The majority also disregard certain evidence offered by 

Sandlin and characterize other evidence in such a way as to reduce 

its weight in his favor. Two examples suffice to demonstrate this 

problem. First, I do not view Mr. Sandlin's expectation of 

staying in business for ten years as simply "hope or speculation," 

Opinion at 8, if viewed in light of other evidence--evidence of 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 12 
Sandlin's increasingly profitable business, TRMI's satisfaction 

. with him "flS a .franchisee, and commitments and .. assurances made to 

him by agents of TRMI. From this and other evidence, the jury 

could have concluded Sandlin's expectation of remaining in 

business for several years was reasonable and thus protected by 

the PMPA. See S. Rep. No. 731, 95th Cong., 2d Sess., at 18 

(''essential" that federal legislation not "prevent fulfillment of 

the reasonable renewal expectations of franchisees"). Second, the 

majority label as "self-serving speculation'' Sandlin's testimony 

that TRMI's retail price at the Getty station was occasionally 

less than TRMI's wholesale price to Sandlin. Opinion at 9. TRMI 

did not specifically refute or deny this testimony. I do not view 

this testimony as "speculation" when Sandlin certainly possessed 

personal knowledge of both the price he paid TRMI for gas and the 

posted price· at the station across the street.· Belittling the 

significance of this testimony has a dual impact on Sandlin's 

case, because it is relevant to both his federal and state law 

claims. 

Moreover, although the majority seem willing to disparage 

Sandlin's evidence, they offer no comment on certain evidence 

offered by TRMI that could, as easily, be disparaged. For 

instance, in attempting to establish the date by which rebranding 

was required, a TRMI witness testified that his only knowledge of 

the pertinent FTC order came from reading about it in the Wall 

Street Journal and being advised about it by unnamed "members of 

management." Tr. at 185-86. Premature rebranding of the Getty 

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Appellate Case: 88-1874 Document: 01019569675 Date Filed: 04/06/1990 Page: 13 
station during the term of Sandlin's franchise could have been 

decisive on. the .. issue .. of .TRMI 's ,.breach of the-implied covenant of 

good faith and fair dealing, yet TRMI was unable to offer any more 

authoritative evidence of the FTC's order. The majority 

acknowledge "the· testimony of one witness who stated the 

rebranding of the Getty station took place earlier than 

necessary,'' but discard it as "self-serving speculation." Opinion 

at 9-10. They similarly reject other testimony by Sandlin. In my 

opinion, this characterization of the evidence amounts to 

reweighing testimony and judging its credibility--exercises that 

lie within the exclusive province of the jury. 

Because I am convinced there was evidence, albeit very thin, 

upon which a jury could reasonably have based verdicts for Sandlin 

on both of his claims, and tpat we may not upset those verdicts 

without reweighing the evidence or speculating as to the jury's 

deliberations, I would affirm. 

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