Opinion
Civil No. 03-3268 (DWF/SRN)
December 17, 2003
Randy V. Thompson, Esq., Robert J. Leighton, Jr., Esq., Nolan MacGregor Thompson Leighton, St. Paul, MN, counsel for Plaintiffs.
David L. Doyle, Esq., Jon P. McCarty, Esq., Randall M. Lending, Esq., Vedder Price Kaufman Kammholz, PC, PC, Chicago, IL, counsel for Defendant.
Michael J. Steinlage, Esq., Larson King, St. Paul, counsel for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on October 31, 2003, pursuant to Defendant Sinclair Oil Corporation's motion for partial summary judgment. For the reasons set forth below, Defendant's motion is denied in part and granted in part.
Background
Plaintiffs are a group of nine Sinclair dealers who lease ten service stations under express written "Station Leases" and "Dealer Contracts" with Sinclair. Sinclair is a Wyoming corporation with its principal place of business in Salt Lake City, Utah. Sinclair sells Sinclair-branded gasoline and other petroleum products to service station dealers, including Plaintiffs, in Minnesota and elsewhere in the United States. Each of the Plaintiff-dealers is an independent entity that manages and operates its own service station. The Plaintiffs sell Sinclair-branded gasoline to the motoring public. Plaintiffs' claims arise from their contractual relationship with Sinclair.
1. The Written Agreements
Two written agreements set out the rights and obligations between the parties in their franchise relationships. First, the Dealer Contracts provide that Sinclair would provide storage tanks, pumps, dispensers, light fixtures, and other equipment "for the business of handling petroleum products" to Plaintiffs at the Dealer locations. ( See Dealer Contract at ¶ 14(A).) Under this portion of the Dealer Contract, Sinclair reserved the right, in its sole discretion, to substitute equipment delivered to a Dealer. ( Id.)
In addition, the Dealer Contracts provide that Sinclair sets the prices for the gasoline and petroleum products that it sells to Plaintiffs. Specifically, the Dealer Contracts provide: 5. PRICES
(A) For each delivery of gasoline, Dealer shall pay Seller's official established Dealer price (without any discount or deduction) in effect at the location serving the Marketing Premises at the time delivery is made. For any product other than gasoline, Dealer shall pay Dealer price prevailing at the time of delivery as shown in the Dealer price schedules then in effect at the location from or at which delivery shall be made.
( See Dealer Contract at ¶ 5 (emphasis in original).) Sinclair asserts that the "price in effect," also known as the "Dealer Tank Wagon" or "DTW" price, at which Sinclair offers to sell its gasoline to Plaintiffs, is calculated by a uniform formula, specifically at 3¢ over Sinclair's wholesale "rack price" plus 1.5¢ transportation. Plaintiffs, however, assert that this price is not competitive, has not been calculated in a consistent manner, and has been increased by other factors. Plaintiffs further allege that the price is higher than the Plaintiffs would pay for gasoline if they could buy it from Sinclair jobbers. Finally, Plaintiffs assert that Sinclair sells its products at company-operated stations at a price near or below the price Sinclair dealers pay for the gasoline, thus creating a situation where the Plaintiffs cannot effectively compete.
Here, a jobber refers to a gasoline wholesaler and/or retailer who purchases Sinclair gasoline and in turn sells it either to stations run by the jobber or to stations run by other persons in a contractual relationship with the jobber. ( See Complaint at ¶ 23(d).)
In addition to the Dealer Contracts, the Plaintiffs entered into Station Leases with Sinclair that each ran for a three-year term. Pursuant to the Station Leases, Sinclair owns the property on which the Plaintiffs do business and acts as the Plaintiffs' landlord. The amount of rent for each property is set forth in each dealer's Station Lease. ( See Station Lease at ¶ 3.) Sinclair contends that there were no express or implied obligations or agreements between the parties as to the rental amount. However, Sinclair asserts that it calculates the rental amounts under the Station Leases pursuant to a standard formula, specifically at 1% of the appraised property value for each location, plus the monthly property taxes assessed. Plaintiffs dispute this. Specifically, Plaintiffs assert that Sinclair makes annual adjustments to rental prices without conducting new appraisals, increases rents based upon gasoline volume, uses inconsistent formulas to calculate individual Plaintiffs' rents, and uses erroneous appraisal factors in calculating the rental amounts.
The Station Leases also provide a specific means by which the relationship between the parties may be terminated, including the following provisions:
(A) Either party may terminate or cancel this Lease upon breach or default of the other in its performance hereunder in accordance with applicable law, including the "Petroleum Marketing Practices Act" (Public Law 95-297, 15 U.S.C. § 2801 et seq.) (hereinafter the "PMPA"), the provisions of which are incorporated herein by reference.
* * *
(D) Except as expressly provided to the contrary herein or unless otherwise prescribed by applicable law, Lessor will have the right to terminate this Lease by delivering to Lessee written notice of termination by personal delivery or prepaid registered or certified mail at least ninety (90) days prior to the date of termination. Such written notice will contain: (1) a statement of Lessor's intention to terminate this Lease together with the reasons therefor; (2) the date on which such termination will take effect; and (3) a summary of the responsibilities, remedies and relief available to the parties hereto under the PMPA as prepared by the Secretary of Energy and published in the Federal Register. Lessor will give Lessee at least one hundred eighty (180) days prior written notice of termination of this Lease for the grounds established in paragraph 17(D)(6) of the Dealer Contract.
( See Complaint at Ex. A ("Station Lease"), ¶ 7.) The Dealer Contracts provided similar termination provisions. ( See Complaint at Ex. B ("Dealer Contract"), ¶ 17(A), (E).)
2. The Renewals
In Spring 2002, some of the Plaintiffs' Dealer Contracts and Station Leases came up for renewal. According to Plaintiffs, Sinclair initially allowed the renewal date to pass without offering new agreements, and then attempted to allow the dealers 12 days to review the written agreements. However, Plaintiffs allege that Sinclair granted the Renewing Plaintiffs additional time after conferring with Plaintiffs' counsel. Sinclair's offers for renewal admittedly came with higher rental amounts than the previous agreements, although Sinclair asserts that these amounts were calculated according to the standard rental formula. In addition to raising concerns about the rental amounts at the time of the renewals, it appears that Plaintiffs raised issues regarding the pricing of gasoline and the maintenance, repair, and modernization of the Plaintiffs' dealer locations. Apparently after some negotiation over these matters, the Renewing Plaintiffs signed the renewals "under protest."
The following Plaintiffs were up for renewal in Spring 2002: Affords, DLG, Bloomington Sinclair's Bloomington Station, Ivan's, Johnson, Nippoldt, and J Mar (collectively, the "Renewing Plaintiffs").
3. The Complaint
Approximately one year after the Renewing Plaintiffs signed the renewals under protest, Plaintiffs brought their Complaint against Sinclair. In their Complaint, Plaintiffs brought the following six claims against Sinclair: Count I: Breach of Contract (Open Price Term); Count II: Breach of Contract (Modernizing Equipment); Count III: Breach of Contract (Failure to Maintain and Repair); Count IV: Violation of Minn. Stat. § 80C.13, subd. 2 (Minnesota Franchise Act); Count V: Violation of Minn. Stat. § 80C.14/Unfair Practices; Count VII[sic]: Individual Claims for Breach of Contract. In the claims relative to this motion, Plaintiffs allege as follows: (1) Sinclair has violated the open price term requirements of the Uniform Commercial Code ("UCC") by not setting the price for Sinclair-branded gasoline in good faith or in a commercially reasonable manner; (2) Sinclair has violated its obligations under the UCC by failing to substitute equipment and otherwise maintain and modernize its stations in good faith and a commercially reasonable manner; (3) Sinclair has breached its Dealer Contracts and Station Leases with the Plaintiffs by failing to maintain and repair the Dealer stations to the mutual advantage of the parties; (4) Sinclair has violated Minn. Stat. § 890C.13, subd. 2, by making making misleading statements or omissions related to the Dealer Contracts and Station Leases; and (5) Sinclair has violated Minn. Stat. § 80C.14 by requiring Plaintiffs to post a letter of credit as a security deposit. ( See Complaint at ¶ 51, 55; 60; 65-69; 74.)
Sinclair has moved for partial summary judgment on Counts I, II, III, IV, and V of Plaintiffs' Complaint. Primarily, Sinclair asserts that because the first four counts of Plaintiffs' Complaint are, in effect, claims for termination, non-renewal, or constructive termination, these claims are preempted by the Petroleum Marketing Practices Act, 15 U.S.C. § 1801, et seq. ("PMPA"). Second, Sinclair asserts that even if these claims are not preempted by the PMPA, the Non-Renewing Plaintiffs' claims are barred by the PMPA's one-year statute of limitations or by the doctrine of ripeness. Finally, Sinclair contends that Count V of Plaintiffs' Complaint fails to state a claim as a matter of law.
Discussion
1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
2. The PMPA
Undisputedly, the franchise relationships between Plaintiffs and Sinclair are governed, in part, by the PMPA. The PMPA governs the termination or nonrenewal of franchise relationships between petroleum product distributors and the retailers who sell these products to the public. See Continental Enter., Inc. v. American Oil Co., 808 F.2d 24, 26 (8th Cir. 1986) (citing S.Rep. No. 95-731, 95th Cong., 2d Sess. 18-19, reprinted in 1978 U.S. Code Cong. Admin. News, 873, 877). The purpose of the PMPA is to protect "franchisees from arbitrary or discriminatory terminations and nonrenewals of their franchises." S. Rep. No. 95-731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S. Code Cong. Admin. News at 874.
The PMPA provides guidelines, specifically as to proper grounds and notice, for a franchisor to follow when terminating or non-renewing a franchise. Under the PMPA, if a franchisor does not comply with statutory termination or non-renewal procedures, the franchisee may bring a civil action under 15 U.S.C. § 2805(a) and/or § 2805(b). The Franchisee may bring a civil action within one year of either the date of termination or nonrenewal, or the date that the franchisor fails to comply with the PMPA requirements. See 15 U.S.C. § 2805(a). In addition, the PMPA also allows for a franchisee to seek a preliminary injunction prior to the expiration of the franchise agreement. See 15 U.S.C. § 2805(b)(2)(A-B). In order to state a claim under the PMPA, the plaintiff bears the burden of proving "the termination of a franchise or the non-renewal of the franchise relationship." 15 U.S.C. § 2805(c).
The PMPA contains a specific preemption provision. The PMPA preempts state law claims that arise out of the franchisor's termination or nonrenewal of a franchise agreement. See Continental Enter., Inc., 808 F.2d at 28. Expressly, the PMPA provides:
To the extent that any provision of this subchapter applies to the termination (or the furnishing of notification with respect thereto) of any franchise, or to the nonrenewal (or the furnishing of notification with respect thereto) of any franchise relationship, no State or any political subdivision thereof may adopt, enforce, or continue in effect any provision of any law or regulation (including any remedy or penalty applicable to any violation thereof) with respect to termination (or the furnishing of notification with respect thereto) of any such franchise or to the nonrenewal (or the furnishing of notification with respect thereto) of any such franchise relationship unless such provision of such law or regulation is the same as the applicable provision of this subchapter.15 U.S.C. § 2806(a).
3. Preemption
Sinclair argues that Counts I-IV of Plaintiffs' claims are preempted by the PMPA. Sinclair asserts that Counts I-III arise out of or are incident to termination or nonrenewal of the franchise because they raise issues related to "Sinclair's attempted termination or non-renewal of Plaintiffs' franchises when it raised rentals for the Renewing Plaintiffs in 2002." See Defendant Sinclair Oil Corporation's Memorandum of Law in Support of its Motion for Partial Summary Judgment at 15. Sinclair also asserts that these claims are preempted by the PMPA because the claims conflict with the purpose of the PMPA. Finally, Sinclair contends that Count IV of Plaintiffs' Complaint is preempted because it is intimately intertwined with termination or nonrenewal and because this claim conflicts with the PMPA's notice provisions.
Arguably, Sinclair may have had the right under the PMPA to terminate or nonrenew a dealer who refused to execute its lease. See 15 U.S.C. § 2802(b)(2)(A), (b)(2)(C), (b)(3)(A), and (b)(3)(D). However, neither party asserts that Sinclair explicitly terminated or nonrenewed the written agreements. Instead, Plaintiffs allege an attempt by Sinclair to force Plaintiffs out of business, eliminate franchise dealers, and undermine Plaintiffs' ability to compete. Plaintiffs do not allege that their franchise agreements have been terminated or non-renewed, constructively or otherwise. In fact, Plaintiffs continue to do business as Sinclair dealers, selling Sinclair-branded gasoline, pursuant to their written agreements with Sinclair.
Sinclair has not provided this Court with a case in which a court implied constructive termination when it was not alleged. And notably, the cases cited by Sinclair in support of its preemption argument involve factual scenarios different from the case at issue here. Specifically, in the cases cited by Sinclair, the plaintiff-dealers actually plead termination or constructive termination, thereby triggering PMPA preemption of state law claims. See, e.g., Continental Enter., 808 F.2d 24 (8th Cir. 1986); Dean v. Kerr-McGee Ref. Corp., 714 F. Supp. 1155 (W.D. Okla. 1988); Clark v. BP Oil Co., 137 F.3d 386 (6th Cir. 1998); Simmons v. Mobil Oil Corp., 29 F.3d 505 (9th Cir. 1994); Shukla v. BP Exploration Oil, Inc., 115 F.3d 849 (11th Cir. 1997). Here, Plaintiffs do not contend that they were terminated, or nonrenewed, but rather that they have been damaged during the course of their business with Sinclair. Thus, the cases cited by Sinclair are not on point.
The Eighth Circuit has not addressed the issue of constructive termination or constructive nonrenewal of a petroleum franchise in conjunction with the PMPA. Other courts have recognized that in order to establish a constructive nonrenewal, the plaintiff-dealer would have to demonstrate a breach of at least one of the three statutory components of a franchise agreement. See Shukla, 115 F.3d at 853; Dersch Energies, Inc. v. Shell Oil Co., 314 F.3d 846, 860 (7th Cir. 2002). These three elements include a contract to use the refiner's trademark, a contract for motor fuel supply, and a lease of the dealer premises. See Dersch, 314 F.3d at 860. Without a breach of one of these elements, a plaintiff-dealer could not sustain a claim under the PMPA. The Court finds Dersch and Shukla persuasive. Plaintiffs here do not allege that Sinclair's actions have resulted in a discontinuation of any of these three components of the franchise agreement. As noted, the Plaintiffs continue to do business as Sinclair dealers. Without a termination or nonrenewal, constructive or otherwise, Plaintiffs could not maintain a claim under the PMPA. Thus, the preemption provisions of the PMPA do not apply.
The Court's decision does not conflict with the purpose of the PMPA. The PMPA is not an expansive law that covers every aspect of petroleum franchise agreements. See Dersch, 314 F.3d at 861-62 ( citing O'Shea v. Amoco Oil Co., 886 F.2d 584, 593 (3d Cir. 1989)). Rather, the PMPA was designed to govern terminations and nonrenewals, claims of which were not alleged or implied here. Id. As aptly noted by Plaintiffs, if Sinclair's preemption analysis were correct, each contract issue that arose between a franchisor and a franchisee would be a federal question because it could potentially be construed as related to "the endgame" of termination or nonrenewal and thus preempted by the PMPA. See Plaintiffs' Memorandum of Law in Opposition to Sinclair Oil Corporation's Motion for Partial Summary Judgment at 19. Finally, Sinclair raises several issues regarding the purpose of the PMPA in light of whether Sinclair could have terminated or nonrenewed the franchises in question within the bounds of the PMPA. Because Sinclair did not terminate or nonrenew, the Court need not address these issues.
As a result of the Court's finding that preemption has not occurred due to the nature of Plaintiffs' claims and because these claims do not arise out of termination or nonrenewal of the franchise, Sinclair's arguments that the Non-Renewing Plaintiffs' claims fail because of the PMPA statute of limitations, or alternatively because of lack of ripeness, need not be addressed. Because the Court finds that Plaintiffs could not have brought a PMPA claim for termination or nonrenewal, the PMPA statute of limitations cannot apply to Plaintiffs' claims. Thus, the claims of both the Renewing and Non-Renewing Plaintiffs should be evaluated under the appropriate statute of limitations for each individual claim. The parties have not briefed the statute of limitations issue in relation to the appropriate statute of limitations for the state law claims; therefore, the Court need not address this issue any further.
4. Count V
Finally, Sinclair asserts that Count V of Plaintiffs' Complaint fails to state a claim as a matter of law. In Count V, Plaintiffs assert that Sinclair violated Minnesota Rule 2860.5400 J by requiring Plaintiffs to post a letter of credit as a security deposit. Minn. Rule 2860.5400 J provides:
A security deposit shall not be required except for the purpose of securing against loss of or damage to real or personal property. Any security deposit required of the dealer may be satisfied by the deposit of cash or a pledge of a savings account or its equivalent in a Minnesota banking institution.
The Court will treat this motion consistent with the rest of Sinclair's motion — that is, as a motion for summary judgment. Reviewing the arguments in that light, the Court agrees with Sinclair that Plaintiffs have produced no evidence, in the form of an affidavit or otherwise, to suggest that Sinclair has required Plaintiffs to secure their payment obligations with a letter of credit. Even if Plaintiffs had provided any such evidence, the Court finds that a letter of credit would satisfy "an equivalent" of a security deposit for purposes of this Rule. See Minn. Rule 2860.5400. Thus, Sinclair's motion for partial summary judgment is granted on Count V of Plaintiffs' Complaint.
For the reasons stated, IT IS HEREBY ORDERED:
1. Defendant's Motion for Partial Summary Judgment (Doc. No. 14) is DENIED as to Counts I-IV of Plaintiffs' Complaint.
2. Defendant's Motion for Partial Summary Judgment (Doc. No. 14) is GRANTED as to Count V of Plaintiffs' Complaint. Count V is DISMISSED WITH PREJUDICE.