Title: Frank Shop Inc. v. Crown Central Petroleum
Citation: N/A
Docket Number: 011562
State: Virginia
Issuer: Virginia Supreme Court
Date: June 7, 2002

Present: All the Justices 
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FRANK SHOP, INC. 
 
 
 
OPINION BY 
v.  Record No. 011562 
CHIEF JUSTICE HARRY L. CARRICO 
 
 
 
June 7, 2002 
CROWN CENTRAL  
PETROLEUM CORPORATION 
 
FROM THE CIRCUIT COURT OF HENRICO COUNTY 
George F. Tidey, Judge 
 
 
This is the second time this case has come before the 
Court.  In Frank Shop, Inc. v. Crown Central Petroleum Corp., 
261 Va. 169, 540 S.E.2d 897 (2001) (
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Frank Shop I), we reversed a 
judgment adverse to Frank Shop, Inc. (Frank Shop) and held that 
because Crown Central Petroleum Corporation (Crown) had failed 
to prove its entitlement to protection under the "grandfather 
clause" of the Virginia Petroleum Products Franchise Act, Code 
§§ 59.1-21.8 through -21.18:1 (the Act), it was in violation of 
the Act for operating a refinery-owned gasoline service station 
located less than one and one-half miles from a franchised 
retail gasoline station operated by Frank Shop.
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1  We remanded the 
case "for determination of the relief to which Frank Shop may be 
entitled."  Id. at 177, 540 S.E.2d at 902. 
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Our opinion in Frank Shop I was handed down January 12, 
2001, and we refused Crown's petition for rehearing on March 2, 
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1 The one and one-half mile prohibition is found in Code 
§ 59.1-21.16:2(A) and the "grandfather clause" is found in Code 
§ 59.1-21.16:2(E).  The "grandfather clause" states that "[t]he 
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2001.  Thereafter, Crown continued with the operation of its 
service station. 
 
On May 11, 2001, Frank Shop filed in the trial court a 
Motion for Entry of Permanent Injunction and Award of Attorney's 
Fees, Costs, Liquidated Damages and Disgorgement of Profits 
(Motion for Relief).  In the motion, Frank Shop sought a 
permanent injunction prohibiting Crown from further operation of 
its service station, $2,500 in liquidated damages, and 
attorney's fees, all as prescribed by Code § 59.1-21.12.2  In 
addition, noting the reference in Code § 59.1-21.12 to "such 
other remedies, legal or equitable, . . . as may be available to 
the party damaged," Frank Shop sought to have Crown required to 
disgorge the profits it had derived from the "illegal operation" 
of its service station since March 2, 2001, the date this Court 
refused the petition for rehearing in Frank Shop I. 
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Crown responded by contending Frank Shop was not entitled 
to a disgorgement of profits.  Crown argued that because this 
Court did not enjoin it from operating its service station and 
 
provisions of this section shall not be applicable to retail 
outlets operated by producers or refiners on July 1, 1979. 
 
2 Code § 59.1-21.12(A) provides in pertinent part as 
follows: 
 
Any person who violates any provision of [the Act] shall be 
civilly liable for liquidated damages of $2,500 and 
reasonable attorney's fees, plus provable damages caused as 
a result of such violation, and be subject to such other 
 
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the trial court had not entered an injunction prohibiting the 
operation, Crown was not illegally operating the station.  Crown 
also argued that Frank Shop was not entitled to an injunction 
but that, if the court awarded Frank Shop an injunction, Crown  
"should be allowed 60-90 days to complete its search for, and 
installation of, a franchise dealer to operate the retail 
outlet." 
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On June 4, 2001, the trial court heard argument on the 
parties' respective positions concerning the relief to which 
Frank Shop was entitled.  In a letter opinion dated the next 
day, the trial court allowed Frank Shop $52,500 in attorney's 
fees, $2,500 in liquidated damages, and an injunction, but 
delayed the effective date of the injunction until August 1, 
2001.  The court denied Frank Shop's request for a disgorgement 
of profits, stating that Crown "has acted properly pursuant to 
the ruling of the Supreme Court of Virginia" and disgorgement 
would not be "appropriate in this case."  A final decree entered 
June 19, 2001, embodied the trial court's rulings.  We awarded 
Frank Shop this appeal. 
 
Frank Shop has assigned two errors, as follows: 
A.  The trial court erred in delaying the effective date of 
its permanent injunction to August 1, 2001. 
 
 
remedies, legal or equitable, including injunctive relief, 
as may be available to the party damaged by such violation. 
 
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B.  The trial court erred in failing to order Crown to 
disgorge its profits earned subsequent to March 2, 2001. 
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Crown contends the first assignment of error is moot 
because "[t]he trial court's permanent injunction is now 
effective and, moreover, Crown Central complied with the 
permanent injunction on July 19, 2001."3  Frank Shop maintains 
that the first assignment of error is not moot because the delay 
in the effective date of the injunction is not only an issue 
with respect to the first assignment of error but also to the 
second.  According to Frank Shop, it is Crown's contention that 
the delay in the effective date of the injunction "essentially 
'authorized' [Crown's] continuing conduct so that disgorgement 
is not appropriate."  Frank Shop says that while it disagrees 
with Crown's contention, the contention itself demonstrates that 
the delay in the effective date of the injunction is an issue 
that permeates both assignments of error. 
 
We agree with Frank Shop that the first assignment of error 
is not moot; the issues raised by the two assignments are 
intertwined.  As the parties have addressed the question of 
 
 
3 The trial court's final decree provided that the retail 
outlet in question should not be operated under the Crown name 
after August 1, 2001, unless and until Crown gave counsel for 
Frank Shop notice in writing under oath by certified mail that 
the operator of the outlet was a franchised dealer.  Crown 
states in its brief that it gave Frank Shop the required notice, 
certifying that a franchise dealer was operating the retail 
outlet as of July 19, 2001, but there is nothing in the record 
to support Crown's statement. 
 
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disgorgement, resolution of the question would depend, at least 
in part, on whether delaying the effective date of the 
injunction was proper or improper.  Assuming disgorgement is 
available to Frank Shop, if the delay was proper, Crown would 
not be required to disgorge, at least for the period of delay; 
if the delay was improper, Crown could be required to disgorge 
for the period of delay as well. 
 
With respect to the first assignment of error, Frank Shop 
argues that this Court's opinion in Frank Shop I "was clear and 
unequivocal: Crown's continuing conduct was in violation of 
Virginia law."  The trial court was duty bound to uphold the law 
as this Court pronounced it, and "that meant ordering Crown to 
stop its unlawful operation."  In exercising its equitable 
powers, a trial court cannot permit what this Court and the 
General Assembly have said is unlawful.  The trial court's 
action in this case can only be explained by its acceptance of 
Crown's plea of hardship in finding a franchise dealer, and it 
was an abuse of discretion for the court to accept the plea and 
refuse to make the injunction effective immediately. 
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Responding, Crown argues that the issuance of an injunction 
and the timing of its effective date were matters within the 
sound discretion of the trial court.  Crown introduced evidence 
showing what is involved in installing a franchise dealer, which 
includes extensive searching for a person or entity willing to 
 
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invest $80,000 to $100,000, followed by equally extensive 
training and education of the person in the operation of a 
retail outlet.  The trial court was within its discretion to 
consider and credit Crown's evidence and determine that, while a 
permanent injunction was appropriate, it was equitable to allow 
Crown a relatively short period of time to comply with the 
injunction. 
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We do not question the power of a court of equity, in the 
exercise of its discretion in an ordinary case, to fashion a 
remedy that would eliminate or lessen the hardship imposed upon 
a party by a particular decision.  But this is not an ordinary 
case.  This is a situation where a party, held by this Court to 
be in violation of the law, seeks judicial permission to 
continue violating the law until it works itself out of the 
supposed hardship in which it finds itself.  In the peculiar set 
of facts involved in this case, it was a clear abuse of 
discretion for the trial court to grant such permission.4  The 
 
 
4 Crown argues that the trial court's decision to allow 
Crown time to comply with the injunction is in accord with a 
regulation adopted pursuant to the Act that allows a producer or 
refiner to operate temporarily a previously franchised dealer-
operated retail outlet when the franchised dealer is lawfully 
terminated or not renewed, or if the franchised dealer becomes 
ill or injured.  2 VAC 5-460-10.  However, there is a 
substantial difference between Crown's situation and that of a 
producer/refiner entitled to the benefit of the regulation.  The 
regulation contemplates a previous legal operation of a retail 
outlet; Crown's operation was illegal. 
 
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trial court should have made the injunction effective 
immediately. 
 
This brings us to the question of disgorgement.  With 
respect to this question, Frank Shop argues that its entitlement 
to disgorgement "is rooted in two principles:  (1) Crown should 
not be permitted to profit from its wrongdoing, and (2) 'equity 
will not suffer a wrong to be without a remedy.'  Price v. 
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Hawkins, 247 Va. 32, 37, 439 S.E.2d 382, 385 (1994)."  This 
Court explicitly held in 
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Frank Shop I that Crown's operation of 
its retail outlet was unlawful, yet Crown deliberately 
repudiated that decision and continued the operation for months 
until enjoined effective August 1, 2001.  Crown is a large, 
sophisticated refining company, and it cannot contend that it 
thought the lack of an injunction somehow made lawful or 
otherwise authorized conduct this Court expressly said was 
unlawful. 
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Continuing, Frank Shop says that Crown's action subjects it 
to a panoply of statutory remedies, including an injunction to 
stop the violation, and other remedies to redress the violation, 
including liquidated damages of $2,500.  The Act also provides  
"such other remedies, legal or equitable, . . . as may be 
available to the party damaged by such violation," Code § 59.1-
21.12(A), and this expressly allows a court to fashion remedies 
beyond, and in addition to, those enumerated.  Disgorgement of 
 
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profits is one such equitable remedy, particularly significant 
for Crown's deliberate violation of the law.  If Frank Shop is 
limited to recovering liquidated damages of $2,500, then Crown 
will have suffered no real consequences for its wrongdoing. 
 
Countering, Crown maintains that it did not ignore this 
Court's ruling.  Immediately after this Court's reversal, and 
before the denial of Crown's petition for rehearing, Crown 
commenced its search for a franchise dealer who could operate 
the retail outlet.  When the trial court did impose a permanent 
injunction, Crown complied with its terms.  In fact, Crown had a 
franchise dealer in place and operating the outlet earlier than 
the effective date of the injunction. 
 
Moreover, Crown continues, this Court did not enjoin its 
operation of the retail outlet or make any other determination 
concerning the appropriate relief, but instead left that 
determination to the sound discretion of the trial court.  Such 
discretion would include a determination by the trial court 
regarding if and when an injunction should issue and whether 
Crown's profits should be disgorged.  The court determined that 
a permanent injunction was appropriate, but that it was 
reasonable to allow Crown time to install a franchise dealer.  
For the same reasons, the court determined that Crown had not 
 
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acted in bad faith5 and that the unusual remedy of disgorging 
profits would not be appropriate.  In making these 
determinations, Crown concludes, the trial court did not abuse 
its discretion. 
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We have not previously considered the question whether 
disgorgement of profits is an appropriate remedy for a violation 
of the Act.  In resolving the question, the provisions of the 
Act are pertinent. 
 
The purpose of the Act is set forth in Code § 59.1-21.9 as 
follows: 
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 
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preservation of the rights, responsibilities, and 
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independence of the small businesses in the Commonwealth is 
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essential to economic vitality, it is necessary to define 
the relationships and responsibilities of the parties to 
certain agreements pertaining thereto. 
 
(Emphasis added.) 
 
Code § 59.1-21.16:2(A) contains the one and one-half mile 
prohibition at issue in Frank Shop I.  That Code section states 
in pertinent part as follows: 
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5 What the trial court actually said was that Crown had 
"acted properly pursuant to the ruling of the Supreme Court of 
Virginia handed down on January 12, 2001 and the denial of the 
rehearing on March 2, 2001."  It should not be necessary to 
observe that a party cannot be acting properly under a ruling 
when this Court has determined that the party's action is 
illegal. 
 
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[N]o 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. 
 
 
These statutory provisions were considered in Crown Central 
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Petroleum Corp. v. Hill, 254 Va. 88, 488 S.E.2d 345 (1997).  
There, we stated as follows: 
The specific location prohibition at issue is completely 
consistent . . . 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. . . .  It is the refiner's integration and access 
to the product that puts the retail franchised dealer at a 
potentially competitive disadvantage.  Therefore, to 
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protect the rights of franchised dealers in avoiding such a 
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potentially unfair price structure and thus preserve the 
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independence of dealers, the General Assembly chose to 
require a minimum distance of one and one-half miles 
between a refinery-owned-and-operated retail station and a 
retail station operated by a franchised dealer. 
 
Id. at 92-93, 488 S.E.2d at 347 (emphasis added).  Keeping in 
mind the emphasis on the purpose of the Act to preserve the 
rights and independence of small businesses, 
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i.e., franchise 
dealers, we now turn to the remedies the General Assembly has 
provided for a violation of the Act. 
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As noted previously, Code § 59.1-21.12 provides that any 
person who violates the Act "shall be civilly liable for 
liquidated damages of $2,500 and reasonable attorney's fees, 
plus provable damages caused as a result of such violation, and 
be subject to such other remedies, legal or equitable, including 
injunctive relief, as may be available to the party damaged by 
such violation."  It will be observed that the remedy provided 
is not liquidated damages 
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or attorney's fees or provable damages 
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or such other remedies, legal or equitable, including injunctive 
relief, as may be available to the party damaged by such 
violation.  Rather, the remedies provided are liquidated damages 
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and attorney's fees and provable damages and such other 
remedies, legal or equitable, including injunctive relief, as 
may be available to the party damaged by such violation. 
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In other words, the General Assembly intended not only to 
provide remedies in the form of liquidated damages, attorney's 
fees, proven damages, and injunctive relief but also, in the 
broadest of terms, to provide other remedies appropriate to a 
particular violation of the Act.  And the language employed 
cannot be read to exclude the remedy of disgorgement of profits.  
Indeed, considering that the remedies provided are intended to 
carry out the purpose of the Act to preserve the rights and 
independence of franchised dealers, we are of opinion that 
disgorgement of profits fits logically within the framework of 
 
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"other remedies, legal or equitable, . . . as may be available 
to the party damaged by such violation."  We are further of 
opinion, however, that the remedy of disgorgement should only be 
available for a willful violation of the Act, and not for some 
innocent or unintended violation. 
 
There can be no dispute that Frank Shop is a party within 
the class protected by the Act.  Nor can there be any dispute 
that Crown's violation was willful.  At least from March 2, 
2001, when this Court refused Crown's petition for rehearing, 
Crown was on notice it was in violation of the Act.  Yet, it 
took the position in response to Frank Shop's Motion for Relief 
that, because this Court did not enjoin it from operating its 
retail outlet and the trial court had not entered an injunction 
prohibiting the operation, it was not illegally operating the 
station.  And it apparently thought it could keep on operating 
until someone made it stop by way of an injunction. 
 
But an injunction was not needed to make the operation 
illegal.  Our opinion in Frank Shop I and the refusal of Crown's 
petition for rehearing made clear that the operation was 
illegal.  Crown's willfulness was evidenced by the deliberate 
decision it made thereafter to continue operating even at the 
peril of becoming subject to the remedies provided by the Act. 
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Crown's willfulness was displayed in another way.  When 
faced with the entry of an injunction, its immediate reaction 
 
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was to ask for a delayed effective date.  The delay did not make 
Crown's operation legal, but Crown deliberately took advantage 
of the delay to continue its illegal operation. 
 
What makes disgorgement such an appropriate remedy in this 
situation is that it was Crown's obvious purpose to continue 
operating, although illegally, until a franchise dealer was in 
place so there would be no break in its receipt of profits from 
each day's operation.  To permit Crown to retain the profits 
under these circumstances would run counter to the principles 
that one should not be permitted to profit from his own 
wrongdoing and that equity will not suffer a wrong to be without 
a remedy.  To require disgorgement in this case would serve 
those principles well. 
 
But, Crown argues, Frank Shop's disgorgement theory is an 
unwarranted attempt to obtain punitive damages, and in the 
absence of a statutory provision, Frank Shop is not entitled to 
seek punitive damages under any guise.  The Act does not provide 
for punitive damages, so Frank Shop is not entitled to any such 
exemplary damages no matter how it frames the recovery. 
 
We disagree with Crown.  Punitive damages are not allowed 
as compensation for plaintiff's loss but as a warning to others 
and punishment to the wrongdoer.  Giant of Virginia, Inc. v. 
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Pigg, 207 Va. 679, 685, 152 S.E.2d 271, 277 (1967).  
Disgorgement on the other hand is "[t]he act of giving up 
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something (such as profits illegally obtained) on demand or by 
legal compulsion,"  
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Black's Law Dictionary 480 (7th ed. 1999), 
with the amount disgorged awarded to the party damaged by the 
illegal act. 
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Crown also argues that Frank Shop waived any claim for 
disgorgement because it did not request that relief in its 
original bill of complaint or at the original trial and did not 
raise the claim until after the remand of Frank Shop I.  But, as 
Frank Shop points out, it could not have foreseen that after 
this Court announced Crown's operation was unlawful, Crown would 
continue the unlawful operation.  Hence, the claim for 
disgorgement did not mature until after the remand. 
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Finally, Crown argues that Frank Shop's equitable theory of 
disgorgement is barred by the doctrine of unclean hands because 
Frank Shop failed to disclose pertinent, responsive materials 
during the discovery phase of Frank Shop I, and the trial court 
was within its discretion to consider this failure in denying 
Frank Shop's request for relief.  However, in the final decree, 
the trial court stated that Frank Shop's motion for disgorgement 
was denied for the reasons set forth in the court's letter 
opinion.  Frank Shop's alleged failure to disclose was not 
listed as one of the reasons set forth in the letter opinion, so 
the trial court apparently did not consider the failure a 
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sufficient reason to deny disgorgement.  We would not disagree 
with the trial court on this point. 
 
For the reasons assigned, we will reverse the judgment of 
the trial court and remand the case with direction to determine 
the date on which Crown ceased operating the retail outlet, to 
determine and make an award to Frank Shop of the profits earned 
by Crown from its unlawful operation of the retail outlet from 
March 2, 2001 to the date Crown ceased such operation, and to 
determine and make an award to Frank Shop of reasonable 
attorney's fees and costs incurred subsequent to the trial 
court's June 4, 2001 hearing, including those incurred in this 
appeal. 
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Reversed and remanded. 
 
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