United States District Court, Central District of Illinois, Springfield Division
May 27, 1993
BECK OIL COMPANY, INC.; DARYL BECKER, D/B/A E.P. BECKER, INC.; V.W. BOWMAN OIL CO., INC.; WABASH INDEPENDENT OIL CO., INC.; WARFIELD OIL CO., INC., PLAINTIFFS,
TEXACO REFINING & MARKETING, INC., DEFENDANT.
The opinion of the court was delivered by: Richard Mills, District Judge:
We deal here with the Petroleum Marketing Practices Act.
And the issues are raised by cross-motions for summary
In early 1984, Texaco Inc. purchased Getty Oil Company which
had marketed gasoline and other petroleum products under the
"Getty" brand name. After the Getty acquisition, Texaco, Inc.
reorganized its corporate structure. This resulted in the
creation of Defendant Texaco Refining and Marketing, Inc., (TRMI)
as a wholly-owned subsidiary of Texaco Inc. to perform the
refining and marketing operations associated with the Texaco
brand of motor fuels, as well as other petroleum products, at
both the wholesale and retail levels.
Plaintiffs V.W. Bowman Oil Co., Inc., Warfield Oil CO. and Beck
Oil Co. were Texaco brand distributors who had franchises with
Texaco in 1984. Plaintiffs Wabash Independent Oil Co. and Becker
Inc. were Getty brand distributors under Getty distributor
agreements entered into in 1983. Each of the franchises were for
a period of three years. As a result of the merger and Texaco's
reorganization, each agreement was assigned to TRMI as of
December 31, 1984.
In January 1985, TRMI decided to withdraw from marketing motor
fuels at retail in a contiguous area located within the states of
Illinois, Wisconsin, Indiana, and Kentucky, and to consequently
terminate all franchise agreements whose marketing premises were
located in the withdrawal area, effective September 30, 1985.
Specifically, the withdrawal area was composed of 69 counties in
Illinois, 47 counties in Wisconsin, 88 counties in Kentucky, and
74 counties in Indiana. Initially, TRMI did not withdraw from the
five county Chicago metropolitan area because of its national
significance; however, when a long term reasonable and economical
means of supply for Chicago could not be located, TRMI withdrew
from the Chicago area in 1986.
Around March 11, 1985, TRMI sent written notices to the
Governors of the states within the withdrawal area notifying them
of it's plans. On March 27, 1985, TRMI sent written notices of
termination to all of the Texaco and Getty franchisees whose
marketing premises were located in the withdrawal area.
Plaintiffs originally filed this action in 1985 as case No.
85-3437 against Texaco, Inc. Thereafter, TRMI was voluntarily
substituted for Texaco Inc. as the real party in interest. By
agreement, the case was dismissed in 1989; however, Plaintiffs
were given six months in which to refile the action.
II. SUMMARY JUDGMENT
Under Fed.R.Civ.P. 56(c), summary judgment shall be granted if
the record shows that "there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law. Black v. Henry Pratt Co., 778 F.2d 1278,
1281 (7th Cir. 1985). The moving party has the burden of
providing proper documentary evidence to show the absence of a
genuine issue of material fact. Celotex Corp. v. Catrett,
477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue
of material fact exists when "there is sufficient evidence
favoring the nonmoving party for a jury to return a verdict for
that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Unquestionably,
in determining whether a genuine issue of material facts exists,
the evidence is to be taken in the light
most favorable to the non-moving party. Adickes v. S.H. Kress &
Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Once
the moving party has met its burden, the opposing party must come
forward with specific evidence, not mere allegations or denials
of the pleadings, which demonstrates that there is a genuine
issue for trial. Howland v. Kilquist, 833 F.2d 639 (7th Cir.
1987). "A scintilla of evidence in support of the non-movant's
position is insufficient to successfully oppose summary judgment;
`there must be evidence on which the jury could reasonably find
for the [nonmoving party].'" Brownell v. Figel, 950 F.2d 1285
(7th Cir. 1991) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202
The parties have stipulated that the sole issues to be resolved
1. Whether Defendant's determination to withdraw was
made in good faith and in the normal course of
business, as required by 2802(b)(2)(E) of the
Petroleum Marketing Practices Act (PMPA); and
2. Whether the area withdrawn from by Defendant was a
relevant geographic marketing area in which
Plaintiffs' marketing premises were located, as
required by 2802(b)(2)(E) of the PMPA.
Plaintiff asserts that Defendant's termination of their
respective franchises were in violation of the PMPA because the
terminations were not made in good faith and in the normal course
of business, nor were the withdrawals made from a relevant
Defendant contends that it is entitled to summary judgment
because: 1) its determination to withdraw was made in good faith
and in the normal course of its business; 2) the area Defendant
withdrew from was a relevant geographic marketing area; and 3)
Plaintiffs' marketing premises were located within the relevant
geographic marketing area withdrawn from by Defendant. Defendant
states that the decision to terminate was based on three factors:
1) the closing of Defendant's Lawrenceville, Illinois, refinery;
2) the inability of Defendant to economically supply the
withdrawal area; and 3) the unreasonable and uneconomical Getty
supply system in the withdrawal area. The Lawrenceville refinery
was technologically outdated and by late 1984, the cost of
finished gasoline produced there resulted in a $2.00 per barrel
loss for each barrel of oil refined. In addition, Defendant did
not have another refinery in the location with an efficient means
of transporting Defendant's products to the withdrawal area.
The Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801
et seq., governs the termination of motor fuel product
franchises. Under the PMPA, the following are grounds for
termination of any franchise:
In the case of any franchise entered into prior to
June 19, 1978, and in the case of any franchise
entered into or renewed on or after such date (the
term of which is 3 years or longer, or with respect
to which the franchisee was offered a term of 3 years
or longer), a determination made by the franchisor in
good faith and in the normal course of business to
withdraw from the marketing of motor fuel through
retail outlets in the relevant geographic market area
in which the marketing premises are located, if —
(i) such determination —
(I) was made after the date such franchise was
entered into or renewed, and
(II) was based upon the occurrence of changes in
relevant facts and circumstances after such date;
(ii) the termination or nonrenewal is not for the
purpose of converting the premises, which are the
subject of the franchise, to operation by employees
or agents of the franchisor for such franchisor's own
account; . . .
15 U.S.C. § 2802(b)(2)(E).
The PMPA was enacted due to Congress' concern with attempts by
franchisors to discriminate against a particular franchisee or to
extract an unfair concession based upon the franchisor's superior
bargaining power. Winks v. Feeney Oil Co., 731 F. Supp. 322
(C.D.Ill. 1990). Congress intended to be sensitive to the
legitimate needs of both franchisors and franchisees. Baldauf v.
Amoco Oil Co., 553 F. Supp. 408 (W.D.Mich. 1981). The PMPA's
legislative history illustrates
Congress' intent concerning the meaning of "good faith" and in
the "normal course of business." That history says:
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 decision making process. These
tests provide adequate protection of franchisees from
arbitrary and discriminatory termination or
non-renewal, 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 market withdrawal, or the
conversion of leased marketing premises to a use
other than the sale or distribution of motor fuel, is
a wise business decision.
S.Rep. No. 731, 95th Cong., 2d Sess. 37, reprinted in 1978
U.S.Code Cong. & Ad. News 873, 896; Southern Nevada Shell
Dealers Ass'n v. Shell Oil Co., 634 F. Supp. 65 (D.Nev. 1985).
Moreover, Congress also recognized "the importance of providing
adequate flexibility so that franchisors may initiate changes in
their marketing activities to respond to changing market
conditions and consumer preferences." S.Rep. at 19, reprinted
in 1978 U.S.Code Cong. & Ad.News at 877; King Service, Inc. v.
Gulf Oil Corp., 834 F.2d 290, 294 (2d Cir. 1987). In fact, the
courts have recognized that in an era of increased corporate
competition, the major petroleum companies must maintain the
freedom to seek greater economic efficiency through corporate
acquisitions, mergers, and reorganizations. May-som Gulf, Inc.
v. Chevron U.S.A., Inc., 869 F.2d 917 (6th Cir. 1989); Russo v.
Texaco, Inc., 630 F. Supp. 682 (E.D.N.Y. 1986).
In essence, the legislative history indicates that courts have
been directed to look at the franchisor's intent rather than the
effect of its actions. Munno v. Amoco Oil Co., 488 F. Supp. 1114
(D.Conn. 1980). Accordingly, the legislative history reveals that
a two-fold test must be utilized when determining whether a
market withdrawal violates the PMPA. Munno, 488 F. Supp. at
1119. One test is whether the franchisor's decision to terminate
was made in good faith. Munno, 488 F. Supp. at 1119. Good faith
is determined subjectively from objective evidence, such as
affidavits or studies. Baldauf, 553 F. Supp. at 411; Brach v.
Amoco Oil Co., 677 F.2d 1213, 1223 (7th Cir. 1982). The second
test is whether the termination was the result of the
franchisor's normal decision making process. Munno, 488 F. Supp.
In this case, after the Getty acquisition, Texaco reorganized
and reevaluated its operations to determine their efficiency and
profitability. The affidavits submitted by TRMI demonstrate
concerns about uneconomical distribution methods in the area
served by the Lawrenceville refinery. Accordingly, the Court must
conclude that TRMI's decision to withdraw was made in good faith
and was part of the normal decision making process once TRMI
began examining its operations after the Getty acquisition. See
Baldauf, 553 F. Supp. at 415; Massey v. Exxon Corp.,
942 F.2d 340 (6th Cir. 1991).
Likewise, the Court finds that TRMI withdrew from a relevant
geographic marketing area as required by the PMPA. Under the Act,
the term "`relevant geographic market area' includes a State or a
standard metropolitan statistical area [SMSA] as periodically
established by the Office of Management and Budget."
15 U.S.C. § 2801(16). The act does not state that a relevant marketing area
is one of these and nothing else. Lindner v. Mobil Oil Corp.,
974 F.2d 1342 (9th Cir. 1992). In fact, the legislative history
As a matter of law, it is provided that withdrawal
from the entirety of a state or the entirety of a
standard metropolitan statistical area will
constitute withdrawal from a relevant geographic
market area. Withdrawals from less than an entire
state or from less than an entire standard
metropolitan statistical area may, in view of the
marketing operations and size of the franchisor,
constitute a withdrawal from a relevant geographic
market area for purposes of the title. The purpose of
the definition is, therefore, to preclude judicial
construction which would require a franchisor to
withdraw from a multi-state region
or from more than a standard metropolitan statistical
area prior to satisfying the market withdrawal
criteria of the title.
S.Rep. No. 95-731, at 891. Moreover, as one court has noted, the
term "relevant" is not to be narrowly construed; rather it must
be interpreted in light of Congress' intent to protect
franchisees from arbitrary and discriminatory treatment and in
conjunction with the two-fold test previously discussed. King
Service, Inc., 834 F.2d at 294.
The Court concludes that the withdrawal area in this case was a
relevant geographic market area because the counties withdrawn
from were supplied by the Lawrenceville refinery, and could not
be supplied from exchange agreements with competitors'
refineries, or did not otherwise have access to pipelines from
TRMI's other refineries. Accordingly, the Court finds nothing
arbitrary or discriminatory in TRMI's determination of the
relevant geographic market area from which it withdrew.
Ergo, Defendant's motion for summary judgment is ALLOWED.
Plaintiffs' motion for partial summary judgment is DENIED.
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