Opinion ID: 566843
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Decision to Withdraw was Made in Good Faith

Text: 33 The second prerequisite a franchisor must meet in order to terminate a franchise under the PMPA is for the decision to have been made in good faith and in the normal course of business.... 15 U.S.C. § 2802(b)(2)(E). In their appeal, plaintiffs raise only the issue of good faith. 34 The legislative history states the clear intent behind this statutory language. 35 This good faith test is meant to preclude sham determinations from being used as an artifice for termination or non-renewal. The second test is whether the determination was made in the normal course of business. Under this test, the determination must have been the result of the franchisor's normal decisionmaking process. These tests provide adequate protection of franchisees from arbitrary or discriminatory termination ... yet avoid judicial scrutiny of the business judgment itself. Thus, it is not necessary for the courts to determine whether a particular marketing strategy, such as a market withdrawal, ... is a wise business decision. 36 S.Rep. No. 731, 95th Cong., 2d Sess. 37, reprinted in 1978 U.S.Code Cong. & Admin.News 873, 896. The test for good faith is one of subjective intent. See Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1118-20 (D.Conn.1980); Brach v. Amoco Oil Co., 677 F.2d 1213, 1222-23 (7th Cir.1982). 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. Baldauf v. Amoco Oil Co., 553 F.Supp. 408, 412 (W.D.Mich.1981), aff'd, 700 F.2d 326 (6th Cir.1983). 37 In the present case, the magistrate concluded that Exxon indicated that its decision to withdraw resulted from sharp changes in the market environment (including a decreased product demand for petroleum products which began to become obvious at the end of 1981 and a loss of company oil concessions in the Middle East), which required Exxon to reduce the amount of oil it refined. The magistrate further concluded that Massey provided no evidence which would establish that Exxon's decision to withdraw was a sham or an artifice or was a deviation from its normal practice or procedures. In support of its good faith assertions Exxon submitted affidavits of its chairman of its board of directors and its retail business manager. Although plaintiffs concede the content of these affidavits, they assert that three additional factors indicate that the decision was not made in good faith. 38 Plaintiffs first urge us to consider affidavits purportedly offering evidence that, after the withdrawal, Exxon was still operating in the state. These include the use of Exxon signs and Exxon credit card imprints. The district court rejected this contention and we agree with that conclusion. The sales at issue were not made by Exxon itself, but by independent distributors of gasoline located in Tennessee. The statute governs only the withdrawal from the marketing of the sale of motor fuel through retail outlets. Absent any indication that Exxon was illicitly coordinating the continued sales of its gasoline, we find no evidence of bad faith. 39 Moreover, as the magistrate accurately concluded, even if it were demonstrated by these facts that Exxon had not yet withdrawn completely from the Kentucky market, it has made the 'determination ... to withdraw', [pursuant to] 15 U.S.C. § 2802(b)(2)(E).... It is simply not relevant that withdrawal has not been wholly effected. 40 Plaintiff also charges that Exxon did not act in good faith because, at the time it was allegedly considering the withdrawal from Kentucky, it was simultaneously inducing its franchisees to purchase from Exxon the land where the service stations were located. As a result, say plaintiffs, the land owners were left with greatly devalued holdings. 41 Defendants counter that these sales were the result of a company decision to stop distributing its product nationwide through company-wide bulk plants and that this decision was totally unrelated to the later decision to withdraw from the retail sale of gasoline in Kentucky and the five other states in 1982. In this regard, Exxon notes that during the same period that the Kentucky bulk plants were sold Exxon also sold bulk plants in Tennessee and Georgia, two states from which Exxon did not withdraw. We do not find plaintiffs' speculation that these sales related to the withdrawal to present a genuine issue of material fact. 42 Finally, plaintiffs suggest that the determination of when the decision to withdraw was actually made evidences defendant's lack of good faith. Plaintiffs offer an affidavit stating that Harold David, the Exxon representative, told R.E. Hawkins, an Exxon station operator in Kentucky, in the fall of 1981, that Exxon was leaving the State of Kentucky and would no longer be operating in Kentucky. Another affidavit states that Maxine Macy, the surviving widow of a bulk plant operator, was allegedly advised by Mr. Davis in December 1981 that she should not buy a certain piece of Kentucky real estate because Exxon would be withdrawing from the marketing of fuel in Kentucky. 43 Defendants urge this court to reject these affidavits, citing both their hearsay nature and their minimal probative value. The magistrate concluded that these inferences of bad faith on the part of plaintiffs are essentially drawn from facts which occurred after Massey's franchise was renewed. Therefore, it is concluded that Exxon's decision to withdraw was made after it renewed its franchise agreement with Massey. We agree. There was no evidence that the cancellation was made with evil intent, Marks v. Shell Oil Co., 643 F.Supp. 1050, 1055 (E.D.Mich.1986), vacated on other grounds, 830 F.2d 68 (1987), nor do plaintiffs present any evidence of pretext by Exxon which might explain why the company might not want to renew plaintiffs' franchises. 44 The party opposing a motion for summary judgment is required by Rule 56(e) to set forth specific facts showing that there is a genuine issue for trial, and may not rest on the mere allegations or denials of his pleadings. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Plaintiffs cite the language of Consumers Petroleum Co. v. Texaco, Inc., 804 F.2d 907, 914 (6th Cir.1986), in which the court reversed a summary judgment in a PMPA case, stating: We can not conclude from reviewing the record that Consumers could not have developed facts to support its assertion that Texaco's decision not to renew the five-year agreement was made in accordance with the requirements of section 2802(b)(2)(E) to create an interim franchise. However, the reason for the court's reversal of summary judgment in Consumers Petroleum was the district court's decision not to allow plaintiffs to amend their complaint and its failure even to consider the merits of plaintiffs' amended complaint before denying the motion. No similar abuse of discretion is evident here. Viewing the evidence and drawing all inferences in the light most favorable to the opponent of the moving party we find no material factual dispute. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Marks, 643 F.Supp. at 1055. 45 C. Whether Exxon's Determination to Withdraw from Kentucky was Made After the Date of the Franchise Agreements 46 Finally, plaintiffs contest the validity of the termination of the franchise agreement on the grounds that the determination was not made after the date such franchise was entered into and based upon the occurrence of changes in relevant facts and circumstances after such date. This argument largely overlaps the good faith argument, since it would be clear evidence of Exxon's bad faith if the company entered into new franchise agreements knowing it was doing so simply so it could immediately cancel those agreements. 47 Exxon's decision to close its operations in Kentucky and the five other states was predicated upon the changed market conditions in those areas. This was clearly demonstrated by the documents Exxon presented during discovery and in its motion for summary judgment. Contrary to plaintiffs' contentions, the actual decision was made only after evaluating the relevant data in August 1982. Their assertion that Exxon used old data from 1972 through 1980 is a specious one. Indeed, figures from those years were for comparison purposes; a perfectly legitimate usage. 2 However, as Exxon's CEO testified, the changes in market conditions did not become evident until late 1981 when the new studies were done. The franchises were renewed in May 1981, a clear indication that the decision to withdraw did not predate the franchise agreement. D. The Release Signed by Lyons 48 The final issue before us is whether the district court properly granted summary judgment for Exxon against Lyons on the issue of the release contained in the real estate agreement signed by Lyons on August 10, 1982. That agreement, which was a purchase agreement for the real estate and related equipment at an Exxon Service Station in Grayson County, Kentucky, stated: 49 As partial consideration for this transfer, Purchaser by the acceptance of this Bill of Sale releases, indemnifies and agrees to hold harmless Seller from and against any and all existing or future claims and liability, as well as causes of action at law or in equity, for loss, damage, or injury (including death), whether known or unknown, to any persons and property (including but not by way of limitation, Purchaser and the agents, servants, employees and representatives of Purchaser and the property of any of them) whosoever, and from whatsoever cause or source, and whenever arising or occurring, whether past, present or future, and whether from the acquisition or use of said equipment or otherwise, with the exception, however, of the aforesaid defense of the sale of the equipment. Purchaser intends and understands that the foresaid agreement to release, indemnify and hold harmless Seller is to be inclusive of but not limited to, any claims based upon any theory of strict liability, negligence (excluding only Seller's negligence), or any other theory of liability. 50 Two weeks after Lyons signed this document, Exxon announced that it would be withdrawing from the retail marketing of gasoline in Kentucky. Subsequently, in October, the closing of the service station took place. Lyons attempted to operate the station and made improvements in it. His efforts were unsuccessful, however, and he eventually sold the station at a loss. 51 Lyons now asserts that the release he signed did not affect his rights as to the franchisor-franchisee relationship, and that he is not barred from asserting his rights under the PMPA to recover his losses because (a) there was no consideration in the release for that exchange, (b) Lyons had insufficient knowledge or means of knowledge to be adequately apprised of the rights he was waiving under the PMPA, and (c) because the release must be interpreted under the law of Kentucky which bars its enforcement. We agree. To apply the release language of this contract concerning the sale of a single gas station to the entire panoply of legal claims and defenses an oil franchisee may have under the broad statutory scheme designed to protect his interests, involves extensive impermissible overreaching. 52 Exxon had just sold a service station it had previously owned. In order to cut off any liability resulting from its prior ownership of the premises and to protect against future inchoate claims, it used broad release language. This language must be read in the context of a sales agreement, however, and we are unable to construe it as intended to have any effect on the separate and continuing contractual relationship of franchisor and franchisee that existed. We note, however, that because Lyons' claim under the PMPA is virtually identical to Massey's, the same analysis would apply. Accordingly, we affirm the summary judgment as to Lyons, but do so upon the basis of the reasoning applied to Massey's claim. 53 AFFIRMED.