Opinion ID: 416887
Heading Depth: 2
Heading Rank: 2

Heading: The PMPA Requirements

Text: 15 Hifai contends that Shell did not comply with the PMPA in two basic respects. First, Shell did not satisfy the statutory justification for nonrenewal specified in sections 2802(b)(2)(C) and 2802(c)(4) (Supp. IV 1980) in that it did not actually lose control of the premises under its master lease on November 4, 1979, and second, the notice of nonrenewal required under section 2804 (Supp. IV 1980) was defective in that Shell did not accurately state the reasons for nonrenewal in its notice to Hifai. Although Hifai asserts that factual issues exist as to each of the above contentions, the basic facts are not in dispute. Each of Hifai's contentions is groundless. 16
17 Section 2802(b)(2) of the PMPA provides several permissible grounds for termination or nonrenewal of a franchise. Shell relied on section 2802(b)(2)(C) as its statutory ground in not renewing the franchise agreements with Hifai. That section provides for nonrenewal upon 18 [t]he occurrence of an event which is relevant to the franchise relationship and as a result of which termination of the franchise or nonrenewal of the franchise relationship is reasonable .... 19 15 U.S.C. Sec. 2802(b)(2)(C). Section 2802(c)(4) provides that the term event as used in section 2802(b)(2)(C) includes loss of the franchisor's right to grant possession of the leased marketing premises through expiration of an underlying lease. 15 U.S.C. Sec. 2802(c)(4). 20 Hifai contends that Shell did not comply with sections 2802(b)(2)(C) and 2802(c)(4) of the PMPA because Shell did not actually lose control over the premises as stated in its notice of nonrenewal. At the very least, Hifai contends, the evidence discloses an issue of fact as to whether Shell lost control, necessitating a trial. Hifai points to: 1) the fact that the master lease was automatically extended unless terminated by written notice, 2) the fact that Shell's unlawful detainer action after November 4, 1979 implied the right to control the premises, and 3) the fact that Shell executed a letter agreement with Peery to extend the master lease. 21 Hifai's contentions are without merit. The record discloses that Shell notified Peery in writing as early as December 1977 of its intention to terminate the master lease on the premises. That the letter agreement was required to extend Shell's possession of the premises evidences a mutual understanding by Shell and Peery that the master lease expired in November 1979. 22 The district court reasoned that Shell technically did lose the right to grant possession of the premises after the expiration of the master lease on November 4, 1979. The subsequent letter agreement with Peery was not made until January 1980. Further, the terms of the letter agreement clearly indicate that the purpose of the extension was not to grant possession to another subtenant, but to give Shell time to regain possession from Hifai. The record contains no evidence that Shell ever had any other intention than to terminate the master lease on November 4, 1979. Finally, Shell's unlawful detainer action resulted from Hifai's own misconduct in refusing to vacate the premises. 23 Hifai asserts that the legislative history of the PMPA supports his argument that Shell must actually lose control of the premises to comply with the PMPA. Hifai quotes a portion of Senate Report No. 95-731: 24 [I]t is not intended that termination or non-renewal should be permitted based upon the expiration of a lease which does not evidence the existence of an arms length relationship between the parties and as a result of the expiration of which no substantive change in control of the premises results. 25 S.Rep. No. 731, 95th Cong., 2d Sess. 38, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 896. This quotation merely evidences an intent underlying the PMPA not to permit a franchisor to use section 2802(c)(4) as a means to end a franchise relationship with one operator while retaining control of the premises. No such situation is present in this case. Throughout, Shell acted in a manner which indicated a sincere intent to dispose of the premises and discontinue its use of the premises as a service station. 26 The trial court reasoned in the alternative, that even assuming arguendo that Shell did not technically lose the right to grant possession of the premises, Shell nonetheless complied with the requirements of section 2802(b)(2)(C). Section 2802(c) sets forth a number of examples of events by which nonrenewals are considered to be reasonable. The plain words of the statute indicate that the list of events in subsection (c) is not an exclusive list. Further, the legislative history states in that regard that, 27 The enumerated list is not exclusive. Other events satisfying the statutory standards set forth in section [2802](b)(2)(C), but not enumerated in the list set forth in subsection (c) of section [2802], may nevertheless serve as a ground for termination or nonrenewal under section [2802](b)(2)(C).... Thus, a judicial determination may be made that an event, other than one enumerated in the list, or an event similar but not identical to one enumerated in the list, constitutes an event which is relevant to the franchise relationship as a result of which termination or nonrenewal is reasonable. 28 S.Rep. No. 731, 95th Cong., 2d Sess. 38, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 896. The present case differs from the ideal case under section 2802(c)(4) only in that Hifai's misconduct required Shell to extend its agreement with Peery. The trial court properly found that on the facts of the present case there occurred an event similar but not identical to one enumerated in section 2802(c)(4) which rendered Shell's nonrenewal of the franchise reasonable. 29 Hifai argues that its actions do not justify the trial court's finding that Shell's nonrenewal was reasonable. Hifai argues that it was not guilty of misconduct. Hifai cites California law to the effect that Shell, as a tenant with only constructive possession, need not regain possession to surrender to the owner. See Markham v. Fralick, 2 Cal.2d 221, 223-24, 39 P.2d 804, 806 (1934); Briggs v. Electronic Memories & Magnetic Corp., 53 Cal.App.3d 900, 906, 126 Cal.Rptr. 34, 37 (1975). This argument ignores Shell's real interest in recovering possession of the premises. 1 30 Shell had a substantial investment in improvements on the premises. Under the terms of the master lease, Shell had a sixty day right of removal with respect to improvements placed on the premises by Shell running from the expiration of the master lease. If Shell failed to exercise its right of removal, it would forfeit the improvements. Thus Shell would have lost the right to dispose of those improvements if it had returned control of the premises to Peery without first regaining possession from Hifai, as Hifai asserts Shell should have done. 31 Hifai further contends that Shell was legally responsible for Hifai's conduct because of inconsistent and misleading statements. Nothing in the record supports Hifai's argument. The evidence in the record shows nothing but straightforward dealings on the part of Shell. 32
33 Section 2804 of the PMPA requires that prior to nonrenewal of any franchise, the franchisor must provide notice of nonrenewal to the franchisee. The notice must contain, inter alia, a statement of intention to terminate the franchise or not to renew the franchise relationship, together with the reasons therefor. 15 U.S.C. Sec. 2804(c)(3)(A) (Supp. IV 1980). 34 Hifai contends that Shell failed to comply with this section in that the notice to Hifai did not accurately state the reasons for Shell's refusal to renew the franchise. Again, Hifai's contention rests on Shell's alleged failure to actually terminate its master lease with Peery and the letter agreement extending Shell's right to control the premises. 35 Hifai's position has no merit. The record clearly shows that Shell properly notified Hifai on numerous occasions of its intention to let the master lease with Peery expire and its intention not to renew the franchise. Further, the trial court found that the master lease did in fact expire on November 4, 1979 and that Shell lost the right to grant possession of the premises to Hifai on that date. 36 Hifai argues that the notice requirements must be strictly enforced because only through proper notice will a franchisee be able to determine if the grounds for refusal to renew a franchise relationship are legitimate. As we stated above, the facts of the present case indicate that Shell had adequate justification as required by the PMPA for nonrenewal. There is no evidence in the record to cast doubt on the veracity of Shell's reasons for refusing to renew the franchise agreement. 37 Hifai attempts to restate its argument concerning the grounds for nonrenewal by framing Shell's alleged failure to lose control of the premises as a defect in the PMPA notification requirement. Hifai's notice argument must fail for the same reasons that its section 2802(b)(2)(C) argument must fail. We hold that Shell properly gave notice of its intention to and reasons for not renewing the franchise agreement. 2