Court Opinion

ID: 175337
Source: CourtListenerOpinion
Date Created: 2010-09-15 14:14:26+00
Date Added: 2024-06-11T17:25:34.640270
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                               File Name: 10a0613n.06

                                               Case No. 09-1514
                                                                                                       FILED
                               UNITED STATES COURT OF APPEALS                                      Sep 15, 2010
                                    FOR THE SIXTH CIRCUIT                                   LEONARD GREEN, Clerk

 FAIRLANE CAR WASH, INC., et al.,                              )
                                                               )
              Plaintiffs-Appellees,                            )
                                                               )        ON APPEAL FROM THE
                     v.                                        )        UNITED STATES DISTRICT
                                                               )        COURT FOR THE EASTERN
 KNIGHT ENTERPRISES, INC.,                                     )        DISTRICT OF MICHIGAN
                                                               )
              Defendant-Appellant.                             )
                                                               )
 _______________________________________                       )
                                                               )

BEFORE: BATCHELDER, Chief Judge; WHITE, Circuit Judge; and GREER*, District
Judge.

          ALICE M. BATCHELDER, Chief Judge. Defendant-Appellant Knight Enterprises, Inc.

(“Knight”) appeals the district court’s grant of attorney fees to Plaintiffs-Appellees Fairlane Car

Wash, Inc., PJJ Enterprises, LLC, John Masouras, and James Masouras (collectively “Plaintiffs” or

“Fairlane”) under the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801 et seq.. Because we

find that Knight Enterprises, Inc. waived this issue by not raising it before the district court, we

AFFIRM. Further, we award to Plaintiffs the attorney fees reasonably incurred in defending this

appeal.

          *
         The Honorable J. Ronnie Greer, United States District Judge for the Eastern District of Tennessee, sitting
by designation.
09-1514, Fairlane v. Knight

                                                  I.

          Fairlane Car Wash, Inc. is a combination gas station, car wash, and convenience store in

Dearborn, Michigan. The gas station lot is owned by PJJ Enterprises, LLC, which — when the

contract at issue in this litigation was entered into — was owned by brothers John and James

Masouras but is now wholly owned by John Masouras. Knight Enterprises, Inc. is a gasoline

distributor, known in the industry as a wholesale “jobber.” Fairlane and Knight entered into an

Agreement on July 3, 2003, whereby Knight would provide branded gas for Fairlane to sell, along

with pumps and other equipment. The contract provided for two pricing methods, and allowed each

side to change the pricing structure from one method to the other once. Under the first method, the

“Posted Rack Deal,” Fairlane would purchase the gas from Knight at a set margin over the local rate

with a rebate for sales over a certain threshold each month. Fairlane would then set its own price

and sell the gas. Under the second method, the “Five Cent Margin Deal,” Knight would pay Fairlane

five cents for each gallon sold, and Knight would retain title and set the price. From the outset, the

parties proceeded under the Five Cent Margin Deal, and neither side ever exercised the option to

change the pricing structure.

          The relationship between Knight and Fairlane, which Fairlane characterizes as

“experimental,” was not harmonious. In 2005, Knight sued Fairlane in Michigan state court to

recover credit-card fees. Knight won on summary disposition, but the case was subsequently

reversed in part and remanded by the Michigan Supreme Court. Knight Enters. v. Fairlane Car

Wash, Inc., 756 N.W.2d 88, 88 (Mich. 2008). On October 19, 2006, shortly after being granted

summary disposition in that state proceeding, Knight sent an auditor to Fairlane to demand

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09-1514, Fairlane v. Knight

immediate payment for the previous day’s sales. Fairlane cut three checks for the previous day’s

cash sales, and tendered $1,035 in cash for the current day’s sales. [Id.] Knight had previously

accepted checks, but on this occasion it directed the auditor to reject the checks and demand cash

or cashier’s checks instead. Fairlane could not comply, but did deposit the checks in Knight’s

account. The checks cleared the next day.

          Fairlane ran out of gas the following day, October 20, and requested delivery. Knight

refused, claiming a breach of its credit policies. The parties exchanged a series of letters and

accusations, and Fairlane eventually rebranded the station and obtained gas elsewhere.

          Fairlane filed this suit on January 9, 2007, alleging breach of contract and violation of the

Petroleum Marketing Practices Act (“PMPA”), 15 U.S.C. §§ 2801 et seq. Fairlane requested, among

other remedies, attorney fees as authorized by the PMPA. Knight counterclaimed for breach of

contract. The district court granted summary judgment to Fairlane on both claims, finding the

questions “inextricably linked.” The court held that Fairlane had not breached the contract, but that

Knight had both breached the contract and violated the PMPA. The case proceeded to a jury trial

on the question of whether Knight’s breach and violation of the PMPA proximately caused

Fairlane’s damages, and the jury found for Fairlane and John Masouras in the amount of $11,800.

At a subsequent bench trial, the court found no exemplary damages due under the PMPA. The

district court then denied Knight’s motions for return of property and relief from judgment and

granted Fairlane’s motion for attorney fees under the PMPA in the amount of $79,545.

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09-1514, Fairlane v. Knight

          Knight timely appealed. While Knight’s Notice of Appeal was more extensive, in its briefs

on appeal, Knight argues only that the PMPA is inapplicable and the attorney fees should, therefore,

not have been awarded.

                                                    II.

          A.         Subject-matter Jurisdiction

          Knight’s “Statement of Subject Matter Jurisdiction and Appellate Jurisdiction” at the outset

of its opening brief explicitly claims that the district court had jurisdiction because the action

“pertained to an alleged violation of the Petroleum Marketing Practices Act.” Knight argues at the

close of its reply brief, however, that the district court lacked subject-matter jurisdiction because

Fairlane “all but conced[ed]” that the PMPA applies only if its terms are incorporated into the

contract. Although Knight challenges subject-matter jurisdiction for the first time on appeal,

objections to subject-matter jurisdiction cannot be waived and must be addressed by a federal court

at every stage of proceeding. See, e.g., Sinochem Int’l. Co. v. Malaysia Int’l Shipping Corp., 549

U.S. 422, 430–31 (2007) (“[A] federal court generally may not rule on the merits of a case without

first determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction)

and the parties . . . .”); Andrus v. Charlestone Stone Prods. Co., 436 U.S. 604, 607 n.6 (1978)

(“Although the question of the District Court’s subject-matter jurisdiction was not raised in this

Court or apparently in either court below, we have an obligation to consider the question sua

sponte.”). Because the parties are all Michigan citizens, there is no diversity jurisdiction. The

PMPA, therefore, would be the only source of federal jurisdiction.

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09-1514, Fairlane v. Knight

          The PMPA provides for federal jurisdiction “[i]f a franchisor fails to comply with the

requirements of section 2802, 2803, or 2807 of this title.” 15 U.S.C. § 2805(a). The Supreme Court

has held that subject-matter jurisdiction

          ‘is not defeated . . . by the possibility that the averments might fail to state a cause of
          action on which petitioners could actually recover.’ Rather, the district court has
          jurisdiction if ‘the right of the petitioners to recover under their complaint will be
          sustained if the Constitution and laws of the United States are given one construction
          and will be defeated if they are given another,’ unless the claim ‘clearly appears to
          be immaterial and made solely for the purpose of obtaining jurisdiction or where such
          a claim is wholly insubstantial and frivolous.’

Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998) (quoting Bell v. Hood, 327 U.S. 678,

682–83, 685 (1946)) (omission in original) (internal citations omitted). Fairlane’s complaint alleges

that Knight violated 15 U.S.C. § 2802. Knight does not point to any on-point United States Supreme

Court or Sixth Circuit case that would render the claims of a plaintiff in Fairlane’s position “wholly

insubstantial and frivolous.” Instead, “the right of [Plaintiffs] to recover under their complaint will

be sustained if the [PMPA is] given one construction and will be defeated if [it is] given another.”

See Steel Co., 523 U.S. at 89. Furthermore, it is not clear that Fairlane made any concession

regarding the applicability of the PMPA. The district court was correct in exercising subject-matter

jurisdiction over the case.

          B.         Mootness

          Fairlane argues that this appeal is moot because Knight appealed only the district court’s

PMPA holding and did not appeal the breach of contract holding. Because the court did not

differentiate between the two bases for the judgment, Fairlane contends, “Knight will still owe

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09-1514, Fairlane v. Knight

Fairlane the exact same amount of money” regardless of our ruling on appeal. Knight does not

dispute this as to the jury award. Instead, Knight points to the nearly $80,000 in attorneys’ fees

awarded to Fairlane after trial, arguing that these fees were awarded pursuant to the PMPA, and

therefore a favorable outcome before this court will nullify that award.

          Article III restricts the jurisdiction of federal courts to actual cases and controversies. An

active controversy must continue through each stage of the proceedings. Davis v. Fed. Election

Comm’n, _ U.S. _, 128 S. Ct. 2759, 2768 (2008) (“To qualify as a case fit for federal-court

adjudication, an actual controversy must be extant at all stages of review, not merely at the time the

complaint is filed.” (internal quotation marks and citation omitted)).

          Although their original brief was not explicit on the matter, Knight’s Notice of Appeal did

include the judgment for attorneys’ fees. In fact, it appears that these fees are what this appeal is all

about. The district court’s award of fees was based wholly on the statutory mandate passed by

Congress in the PMPA, which states that the prevailing franchisee “shall be entitled” to reasonable

attorney fees unless the court exercises its discretion otherwise. 15 U.S.C. § 2805(d)(1). The district

court did not exercise that discretion, and awarded Fairlane $79,545 in fees. Because the attorney

fees were awarded entirely under the PMPA, if Knight were to prevail in this appeal that award

would be vacated. Therefore there is an actual controversy, this matter is not moot and we retain

jurisdiction over it.

          C.         Waiver

          Fairlane argues that Knight has waived its challenge to the PMPA’s applicability because it

failed to raise the issue before the district court. For the reasons stated below, we agree.

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09-1514, Fairlane v. Knight

          “In general, issues not presented to the district court but raised for the first time on appeal

are not properly before the court.” Foster v. Barilow, 6 F.3d 405, 407 (6th Cir. 1993) (internal

quotation marks, alteration and citation omitted). Three policies underlie this rule. The first is to

ease appellate review “‘by having the district court first consider the matter.’” Scottsdale Ins. Co.

v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008) (quoting Foster, 6 F.3d at 409). The second is to

“ensure[] fairness to litigants by preventing surprise issues from appearing on appeal.” Scottsdale,

513 F.3d at 552. And the third is to promote “‘judicial economy and the finality of judgments.’”

Taft Broad. Co. v. United States, 929 F.2d 240, 244 (6th Cir. 1991) (quoting Sigmon Fuel Co. v.

Tenn. Valley Auth., 754 F.2d 162, 164 (6th Cir. 1985)).

          We have recognized exceptions to this general rule in “exceptional cases or particular

circumstances or when the rule would produce a plain miscarriage of justice.” Scottsdale, 513 F.3d

at 552 (internal quotation marks and citation omitted). Discretion to hear the issue rests with the

court, and the exercise of that discretion is guided by such factors as:

          ‘1) whether the issue newly raised on appeal is a question of law, or whether it
          requires or necessitates a determination of facts; 2) whether the proper resolution of
          the new issue is clear beyond doubt; 3) whether failure to take up the issue for the
          first time on appeal will result in a miscarriage of justice or a denial of substantial
          justice; and 4) the parties’ right under our judicial system to have the issues in their
          suit considered by both a district judge and an appellate court.’

Id. (quoting Friendly Farms v. Reliance Ins. Co., 79 F.3d 541, 545 (6th Cir. 1996)). Stated another

way, this Court may reach an issue that is “‘presented with sufficient clarity and completeness’” for

the court to decide the issue. Foster, 6 F.3d at 407 (quoting Pinney Dock & Transp. Co. v. Penn

Cent. Corp., 838 F.2d 1445, 1461 (6th Cir. 1988)). This usually applies “where the issue is one of

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09-1514, Fairlane v. Knight

law, and further development of the record is unnecessary.” Id. Finally, this Court “may hear an

issue for the first time on appeal if doing so would serve an overarching purpose other than simply

reaching the correct result in this case.” In re Morris, 260 F.3d 654, 664 (6th Cir. 2001). “Such an

over-arching purpose may exist where the state of the law is uncertain.” Foster, 6 F.3d at 408.

          These exceptions, however, are “narrow,” and we have rarely exercised such discretion. Id.

at 407; Scottsdale, 513 F.3d at 552. “Instead, we have generally focused on whether the issue was

properly raised before the district court.” Scottsdale, 513 F.3d at 553.

          In Foster, the plaintiffs sued their landlord for housing discrimination under the Fair Housing

Act. Foster, 6 F.3d at 406. The landlords prevailed at trial and moved for attorney fees and

expenses pursuant to 42 U.S.C. § 3613(c)(2). Id. at 406–07. The plaintiffs did not reply, and the

district court granted the motion sua sponte. Id. at 407. Plaintiffs appealed, arguing that the district

court erred by awarding attorneys fees and costs without making the required finding that the

plaintiff’s case was frivolous, groundless or unreasonable. We affirmed the district court’s award,

finding the issue waived. The issue was “not developed with sufficient clarity and completeness in

the district court . . . [and] further development of the record would be necessary” to decide the issue.

Id. (internal quotation marks omitted). We noted that in the type of case where the issue was never

brought before the district court, “the [defendants] had no reason to buttress their motion” to rebut

the new argument. Id. at 408.

          We also declined to address the issue under the “over-arching purpose” exception. Id. at

408–09. Although plaintiffs argued that this Circuit had never construed the meaning of “prevailing

party” in the Fair Housing Act, the Court found that there was not “much uncertainty in the state of

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09-1514, Fairlane v. Knight

the law” on that issue. Id. at 408. Given Congress’ directives and a recent Supreme Court case on

the decision, the state of the law was “reasonably certain.” Id. The plaintiffs’ case, therefore, did

not fall within that exception.

          The issue before us is in the same mold. Fairlane alleged violations of the PMPA and in its

complaint expressly requested attorney fees under that act. Surprisingly, Knight never raised the

PMPA’s applicability before the district court, despite the obvious defensive force of the argument.

Therefore, this case falls squarely within the general rule. To avoid the general rule’s effect, Knight

argues that this issue falls into our recognized exceptions. First, Knight claims this is an

“exceptional circumstance” because the district court granted summary judgment on the PMPA issue

sua sponte, and this is the first time Knight could present this issue. Second, Knight argues that the

issue is “a narrow legal question that requires no further factual development.” Finally, Knight

argues that resolution of this issue would serve the overarching purpose of preventing bad precedent

from going uncorrected. [Id.]

          This issue does not fall into the narrow and rarely-exercised exceptions. First, despite its

protestations to the contrary, Knight could have raised this issue before the district court. Knight,

having been served with Fairlane’s complaint, which specifically relies on the applicability of the

PMPA, had every incentive to make this argument in its answer and statement of defenses and its

motion for summary judgment, to name only two opportunities. Instead, Knight, the drafter of the

contract that included the PMPA language, never gave the district court a reason to doubt its

applicability. Characterizing the district court’s ruling as sua sponte does not alter these facts.

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09-1514, Fairlane v. Knight

          Second, it is not clear that this is purely a legal issue that would not require further fact-

finding. To rule on the merits, we would have to consider a section of the PMPA we have not

construed before, rule on the possible effect of the contract’s alternate payment options on the

statute’s applicability, and decide the open question of whether the parties incorporated the statute

into the contract. Deciding these difficult questions, particularly the third, would require further

factual development. See Foster, 6 F.3d at 408 (noting that “the [defendants] had no reason to

buttress their motion” to rebut plaintiffs unraised argument).

          Finally, resolving this issue would not serve any overarching purpose beyond the resolution

of this particular case. The district court’s opinions do not decide whether or not Fairlane is a

franchisee because neither party contested the PMPA’s applicability before that court. There is no

language in the orders that could lead other district courts astray. Knight does not argue that this

instance is distinguishable from the circumstances in Foster, where the Court found the language of

the statute sufficiently clear despite this Circuit’s never having construed it.

          In short, resolution of this issue would “require . . . a determination of facts,” and is not “clear

beyond doubt”; failure to take the issue up would not “result in a miscarriage of justice or a denial

of substantial justice”; finally, our resolution of the issue would not vindicate the parties’ right under

our judicial system to have their issues “considered by both a district judge and an appellate court.”

Knight waived this issue, the only issue on appeal, and therefore we need not address Fairlane’s

estoppel argument or the merits of the PMPA question. There being no remaining challenge to the

district court’s judgment, we affirm.

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09-1514, Fairlane v. Knight

          D.         Attorney Fees

          Because Knight has entirely waived its right to challenge the applicability of the PMPA to

the relationship between the parties, Fairlane is the prevailing party here, and is entitled to attorneys

fees under 15 U.S.C. § 2805(d)(1) unless we exercise our discretion to award only nominal fees:

          If the franchisee prevails in any action . . . , such franchisee shall be entitled . . . (C)
          to reasonable attorney . . . fees to be paid by the franchisor, unless the court
          determines that only nominal damages are to be awarded to such franchisee, in which
          case the court, in its discretion, need not direct that such fees be paid by the
          franchisor.

15 U.S.C. § 2805(d)(1).

          Fairlane’s appellate brief requests attorney fees for the defense of this appeal. Knight has not

provided any reason why we should exercise our discretion to deny an award of fees, and we find

none. We therefore find that pursuant to 15 U.S.C. § 2805(d)(1), Plaintiffs shall be awarded

reasonable attorney fees for defending this appeal.

                                                      III.

          For the foregoing reasons, we AFFIRM the district court’s judgment and award of attorney

fees, and we hold that Plaintiffs are entitled to attorney fees for the defense of this appeal.

Accordingly, Plaintiffs are directed to submit to this Court within 10 days of entry of this order a

statement detailing the reasonable fees incurred in this appeal supported by the necessary

documentation.

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