Source: https://law.justia.com/cases/federal/appellate-courts/F3/269/70/532842/
Timestamp: 2019-05-24 05:25:48
Document Index: 190564070

Matched Legal Cases: ['§ 2801', '§ 2801', '§ 2802', '§ 2802', '§ 2802', '§ 2801', '§ 2802', '§ 2802', '§ 2802', '§ 2802', '§ 2801', '§ 2', '§ 2802']

C.k. Smith & Co., Inc., Plaintiff, Appellant, v. Motiva Enterprises Llc, Defendant, Appellee, 269 F.3d 70 (1st Cir. 2001) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › First Circuit › 2001 › C.k. Smith & Co., Inc., Plaintiff, Appellant, v. Motiva Enterprises Llc, Defendant, Appellee
C.k. Smith & Co., Inc., Plaintiff, Appellant, v. Motiva Enterprises Llc, Defendant, Appellee, 269 F.3d 70 (1st Cir. 2001)
US Court of Appeals for the First Circuit - 269 F.3d 70 (1st Cir. 2001)
Submitted Sept. 12, 2001Decided October 25, 2001
In the first place, it should be understood that the PMPA makes a distinction between a "franchise" and a "franchise relationship." As used in the PMPA, the term "franchise" covers the essential contracts between a retailer and a supplier (e.g., lease of retail premises, provision of motor fuel, use of the supplier's trademark in connection with retail sales). 15 U.S.C. § 2801(1). The broader term "franchise relationship" encompasses "the respective motor fuel marketing or distribution obligations and responsibilities of a franchisor and a franchisee which result from the marketing of motor fuel under a franchise." Id. § 2801(2). Congress created the legal rubric of a franchise relationship to preclude oil companies from asserting that because a franchise no longer exists after it expires, there is nothing left to renew. See S. Rep. No. 95-731, at 30 (1978), reprinted in 1978 U.S.C.C.A.N. 873, 888; see also DuFrense's Auto Serv., Inc. v. Shell Oil Co., 992 F.2d 920, 926 n.4 (9th Cir. 1993). Thus, even if the underlying agreements expire, the PMPA protects the franchise relationship by obligating the franchisor to renew the franchise, 15 U.S.C. § 2802(a) (2), unless the franchisor satisfies the requirements set forth in 15 U.S.C. § 2802(b) (discussed infra).
The PMPA maintains this binary approach in addressing a franchisor's right to discontinue an extant business relationship with a franchisee, specifically limiting both the franchisor's ability to "terminate any franchise" and its "fail[ure] to renew any franchise relationship." Id. § 2802(a) (1)-(2). Inasmuch as the instant case revolves around an expired lease agreement, our analysis focuses on the PMPA provisions pertaining to a "failure to renew" -- a term of art that the PMPA defines as "a failure to reinstate, conclude, or extend the franchise relationship -- at the conclusion of the term, or on the expiration date, stated in the relevant franchise." Id. § 2801(14) (A).
(a) Except as provided in subsection (b) of this section . . ., no franchisor engaged in the sale, consignment, or distribution of motor fuel in commerce may--
Id. § 2802(a)-(b) (1). Refined to bare essence, these provisions prohibit a motor fuel franchisor from failing to renew a franchise unless the franchisor gives adequate notice to the franchisee3 and bases the failure to renew upon a ground sanctioned by the PMPA.
Id. § 2802(b) (3) (A) (i). The principal issue raised in this appeal is whether Motiva appropriately invoked section 2802(b) (3) (A) as its basis for failing to renew the franchise relationship with CKS.
First, CKS offhandedly suggests that Motiva cannot prevail because it failed to establish each and all of the grounds for nonrenewal set forth in 15 U.S.C. § 2802(b) (2) (A)-(B). This is sheer persiflage: the PMPA only requires a franchisor to establish a single ground for nonrenewal. See 15 U.S.C. § 2802(b) (1) (B) ("Any franchisor may . . . fail to renew any franchise relationship, if -- . . . such nonrenewal is based upon a ground described in paragraph (2) or (3).") (emphasis supplied).
Second, CKS asserts that section 2802(b) (3) (A) does not apply because its failure to execute the renewal lease by the expiration date did not constitute a "failure to agree" within the meaning of the PMPA. This assertion, which seeks to exploit the difference between a franchise and a franchise relationship, rests on the notion that the franchise expired on July 31, but the franchise relationship endured; accordingly, Judith Smith's August 4 letter effectively signaled CKS's acceptance of the terms presented in Motiva's renewal package and Motiva was obliged to renew the franchise relationship.
That ends the matter. We agree entirely with the district court that CKS's failure to give notice prior to July 31 of an intent to execute the renewal lease amounted to a "failure . . . to agree to changes or additions to the provisions of the franchise." C.K. Smith, 126 F. Supp. 2d at 39. That was a valid ground for nonrenewal under section 2802(b) (3) (A) of the PMPA.
CKS attempts to blunt the force of this conclusion by emphasizing the specialized meaning of "failure" in the context of section 2802(b) (3) (A). The word "failure," separately defined in the PMPA, expressly excludes "any failure which is only technical or unimportant to the franchise relationship." 15 U.S.C. § 2801(13). Building upon this PMPA-specific definition, CKS asseverates that its failure to execute the renewal lease qualifies as a "technical or unimportant" lapse (and, therefore, constituted an illegitimate basis for discontinuation of the franchise relationship). CKS casts this argument along the line that it substantially complied with the renewal request by acceding four days late to Motiva's requested terms, and that this is sufficient because PMPA provisions should not be strictly enforced.
CKS also makes the bare allegation that Motiva's decision not to renew was made in bad faith and outside the ordinary course of business. To this end, CKS suggests that Motiva's rejection of its belated entreaty to continue the franchise relationship was a fait accompli because Motiva already had decided, well in advance of July 31, 1998, to replace CKS with a contract-operated retail outlet (CORO).5 Switching from a franchisee to a CORO, CKS posits, would give Motiva the ability both to set the retail price of gasoline at the Randolph location and to extract windfall profits. For this reason, CKS says, Motiva's course of conduct contravened section 2802(b) (3) (D) (ii) of the PMPA.6
The fundamental difficulty with this suggestion is that the record does not support it. The only proof on the point is that prior to the expiration of CKS's lease, a third party, Dia George Salem, inquired about operating as a CORO at the Randolph location. The record is uncontradicted that Motiva advised Salem that the site would be available for that purpose only if CKS failed to renew the lease in a timely manner. There is not a shred of evidence that Motiva took any action to supplant CKS with a CORO until after July 31, 1998 (that is, until after CKS had left Motiva high and dry). As the district court concluded, the evidence here "is simply insufficient to establish that [Motiva] based its nonrenewal decision on the desire to replace C.K. Smith with a CORO." C.K. Smith, 126 F. Supp. 2d at 40. Consequently, we reject out of hand CKS's section 2802(b) (3) (D) (ii) claim.
CKS makes a last-ditch argument independent of the PMPA. This argument invites us to apply equitable principles and fashion relief to avoid a forfeiture. See 1 Dan B. Dobbs, Dobbs Law of Remedies § 2.3(4) (2d ed. 1993) (discussing the maxim that "equity abhors a forfeiture").
This section provides in substance that a franchisor may not fail to renew a franchise subject to the PMPA if the franchisor's underlying purpose in failing to renew is to "convert[] the leased marketing premises to operation by employees or agents of the franchisor for such franchisor's own account." 15 U.S.C. § 2802(b) (3) (D) (ii).