Court Opinion

ID: 9474809
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:09:25.668623+00
Date Added: 2024-06-11T17:44:20.914506
License: Public Domain

POOLE, Circuit Judge
(dissenting):
I dissent. Under 15 U.S.C. § 2802(b)(3)(D), Mobil cannot materially alter the functioning and physical condition of the facility, over Valentine’s objection, without offering to sell its interest in the premises. Moreover, even if 15 U.S.C. § 2802(b)(3)(A) governs, so that Mobil could insist on material alterations at the time of franchise renewal, the Redevelopment Rider makes the franchise a contract of adhesion by requiring Valentine to waive whatever protections he has under the Act.
I.
The statutory scheme of the PMPA strikes a delicate balance between the interests of the participants in a petroleum marketing franchise relationship. Humboldt Oil Co. v. Exxon Co., U.S.A., 695 F.2d 386, 388 (9th Cir.1982); Brach v. Amoco Oil Co., 677 F.2d 1213, 1220 (7th Cir.1982). Congress designed the PMPA to allay three specific concerns: that franchisee independence might be undermined by the use of actual or threatened termination or nonrenewal to compel compliance with franchisor marketing policies; that gross disparity of bargaining power might result in contracts of adhesion; and that termination or nonrenewal might disrupt the reasonable expectations of the parties that the franchise relationship will be a continuing one. Id. at 1216; S.Rep. No. 731, 95th Cong., 2d Sess. 17-19, reprinted in 1978 U.S.Code Cong. & Ad.News 873, 875-77.
Our task is to interpret the PMPA in light of the purposes Congress sought to serve. See Chapman v. Houston Welfare Rights Organization, 441 U.S. 600, 608, 99 S.Ct. 1905, 1911, 60 L.Ed.2d 508 (1979). We are to be guided not by a single sentence, but must look to the provisions of the whole law, and to its object and policy. Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975). As remedial legislation, the PMPA must be given a liberal construction consistent with its goal of protecting the independence of franchisees. Humboldt Oil Co., 695 F.2d at 389; Brach, 677 F.2d at 1221.
The issue before this court is whether section 2802(b)(3)(A) or section 2802(b)(3)(D) governs when a franchisee objects to a franchisor’s decision to convert from a full service to a self service “pumper” station. I am persuaded that section 2802(b)(3)(D) controls because that section best balances the oil industry’s interest in responding to changing market conditions with the need *1394of franchisees for business continuity and stability. The franchisee’s interest is important for it is his labor and industry, as well as the franchisor’s name and material contributions, which make the facilities competitive and successful. If a franchisor desires to materially alter the premises, it may do so. However, if the franchisee objects, section 2802(b)(3)(D)(iii) requires that the franchisor offer to sell its interest in the facility, thereby giving the franchisee the opportunity to preserve his business.
Contrary to the majority’s assumption, a material alteration of the premises is not identical to a change or addition to the franchise »terms. The majority characterizes the Redevelopment Rider as merely a change in the franchise. However, the Redevelopment Rider would permit Mobil to make “a substantial redevelopment of the premises” at its sole discretion. Conversion to a self-service station constitutes a determination to materially alter both the physical premises and the nature of the business. Gardner v. Utah Oil, No. 84-402-RE, slip op. at 6 (D.Or. Oct. 12, 1984). Mobil cannot circumvent the offer of sale requirements of section 2802(b)(3)(D) by offering Valentine a franchise only to pump gas at materially altered premises. Gardner, slip op. at 7.
The majority reasons that the protections of section 2802(b)(3)(D) apply only where a franchisor wants to terminate the franchise relationship, and that section 2802(b)(3)(A) applies here because Mobil offered to renew. Majority Opinion at 1390. This conclusion is based on the district court’s opinion in Baldauf v. Amoco Oil Co., 553 F.Supp. 408, 414 (W.D.Mich.1981), aff'd, 700 F.2d 326 (6th Cir.1983). However, both subparagraphs (A) and (D) are modified by the language in section 2802(b)(3) that “the following are grounds for non-renewal of a franchise relationship.” The statute does not provide that subparagraph (A) governs where the franchisor offers to renew and that subparagraph (D) applies only where the franchisor decides not to renew.
According to the majority, the franchisor can materially change the premises as long as it continues marketing motor fuel, and only need offer to renew the franchise relationship to avoid the requirements of section 2802(b)(3)(D). In other words, if Mobil asks Valentine to operate the altered premises, Valentine has no right to object and purchase Mobil’s interest. But if Mobil does not want Valentine to operate the business after alterations are made, Mobil must offer to sell and Valentine has an opportunity to continue operating his business. This position is not only illogical, it ignores the fact that the PMPA requires franchisors to offer renewal of the franchise relationship in conjunction with plans to make material alterations. 15 U.S.C. § 2802(b)(3)(D)(ii) (franchisor cannot use decision to make material alterations as an excuse to change management of premises).
The distinction made by the majority between subparagraphs (A) and (D) vitiates the protections provided to franchisees by the PMPA and places the entire economic burden for the franchisor’s decision to respond to changing market conditions on the franchisee. The majority holds that as long as the franchisor offers to renew the franchise relationship, the premises can be altered in any way. The franchisor need only describe the planned changes in the contract, or include a “Redevelopment Rider” requiring the franchisee to give advance approval to any alterations the franchisor may desire. This interpretation, that section 2802(b)(3)(A) governs conversion to a self-service station, allows franchisors to circumvent the protections in a related section of the PMPA and should be rejected. See Brach, 677 F.2d at 1221.
The relevant inquiry in distinguishing the applicability of subparagraphs (A) and (D) is not whether the franchisor makes an offer of renewal, but whether the franchisor proposes to modify typical franchise terms or to materially alter the condition of the premises. If the parties cannot agree on reasonable changes to the terms of the franchise, such as the rent or hours of operation, the franchisor has grounds for *1395nonrenewal under subparagraph (A) and need not offer to sell its interest.1 However, if the franchisor desires to convert to a self-service station by making material alterations to the premises, this triggers subparagraph (D), including the offer of sale requirements.
The majority concludes that Congress did not give franchisees more elaborate protections under the PMPA because of concern that this might unduly interfere with the franchisors’ property rights. Majority Opinion at 1391-1392.2 However, franchisor property rights are fully protected by the offer of sale requirements of section 2802(b)(3)(D). If the parties cannot agree on material alterations and the franchisor is required to make an offer of sale, the franchisor will be fully compensated for its interest in the premises if the franchisee elects to purchase. The franchisor can develop a new facility elsewhere, incorporating the desired material alterations, while the franchisee’s existing business interest is preserved.
II.
The Redevelopment Rider requires Valentine to give Mobil, at the time of franchise renewal, discretionary power to substantially alter the premises. In effect, the Rider forces Valentine to waive whatever protections are provided to franchisees by the PMPA. Thus, the Redevelopment Rider makes the franchise a contract of adhesion and cannot be a change in the franchise proposed in good faith.
If section 2802(b)(3)(D) applies when a franchisor proposes conversion to a self-service station, the Redevelopment Rider requires Valentine to waive the offer of sale protections because he will not have the opportunity to purchase Mobil’s interest if he objects to alterations implemented during the franchise term. But even under the majority’s interpretation of the PMPA, the Redevelopment Rider requires Valentine to waive the protections of section 2802(b)(3)(A).
Assuming that Mobil has the right to materially alter the premises at the time of franchise renewal, the majority opinion holds that failure to agree on such changes is grounds for nonrenewal under section 2802(b)(3)(A). Majority Opinion at 1391. However, here Mobil wants to continue the existing operation at the time of renewal, while getting Valentine’s consent to allow it to make changes later. Once Mobil decides to implement material alterations, Valentine would have no power to disagree, even if it meant Mobil will not elect renewal and he will be out of business. The Redevelopment Rider forces Valentine to operate whatever facility Mobil desires. Because Valentine will be locked into the franchise relationship despite any objections he may have to changes made by Mobil, the Redevelopment Rider makes the franchise a contract of adhesion.
Congress was concerned with contracts of adhesion unilaterally imposed on reluctant dealers by distributors, Baldauf, 553 F.Supp. at 409, and enacted the PMPA to increase the bargaining strength of individual franchisees. Halder v. Standard Oil Co., 642 F.2d 107, 109-110 (5th Cir.1981). However, the Redevelopment Rider gives *1396Mobil total discretion and eliminates whatever bargaining power Valentine might have to negotiate proposed alterations at the time of franchise renewal. This result is contrary to the intent of the PMPA to correct what Congress “perceived as an inequality in bargaining power between distributors of petroleum products and their franchisees.” Majority Opinion at 1390.
Section 2802(b)(3)(A) requires that the franchisor propose changes or additions to the franchise in good faith. The majority concludes that Mobil has satisfied the good faith requirement because the Redevelopment Rider is included in all its franchise agreements and is intended to help Mobil respond to changing consumer preferences. Majority Opinion at 1393. However, a franchisor cannot in good faith compel a franchisee to give up rights under the PMPA. Therefore, even if Mobil could insist on material alterations at the time of franchise renewal, the open-ended Redevelopment Rider does not meet the good faith requirements of section 2802(b)(3)(A).
Valentine has operated a full-service station at the same location for ten years, and his business has generated substantial goodwill in the community. He has invested over $50,000 in a “back room” operation which accounts for approximately one-half of his income. If the PMPA grants franchisees any protection from overbearing franchisors, it is inconceivable that Valentine can be required to sign a franchise agreement that grants Mobil an unfettered right to substantially redevelop the premises.
I cannot accept the majority’s casting of the franchise relationship and hence enter this dissent.

. It is instructive to note that if the franchise relationship will likely be "uneconomical to the franchisor despite any reasonable changes or reasonable additions to the provisions of the franchise which may be acceptable to the franchisee,” the franchisor must offer to sell its interest in the premises to have grounds for nonrenewal. 15 U.S.C. § 2802(b)(3)(D)(i)(IV). This provision mirrors the language in section 2802(b)(3)(A) concerning "changes or additions" to the franchise and shows that "material altercation of the premises” is a distinct concept.

. The legislative history cited by the majority to support the proposition that Congress allowed franchisors wide latitude to alter the terms of a franchise is taken from a discussion which is totally irrelevant to Valentine’s situation. The language in the Senate Report, Majority Opinion at 1391-1392, concerns the potential “takings” problem if the "termination” provisions of the PMPA were applied to existing franchises. Congress may have protected franchisors by applying the broader “nonrenewal” provisions where an existing franchise contained termination rights, but the flexibility given to franchisors in this context does not relate to the issue before this court.