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Dersch Energies, Inc. v. Shell Oil Company

December 26, 2002

DERSCH ENERGIES, INC., PLAINTIFF-APPELLANT,
v.
SHELL OIL COMPANY AND EQUILON ENTERPRISES, INC., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Southern District of Illinois. No. 99 C 4217--J. Phil Gilbert, Judge.

Before Flaum, Chief Judge, and Cudahy and Manion, Circuit Judges

The opinion of the court was delivered by: Manion, Circuit Judge

ARGUED NOVEMBER 30, 2001

Dersch Energies, Inc. purchases Shell Oil Company products and resells them to retail distributors. In December 1997, Dersch began negotiating with Shell the renewal of their franchise relationship, which was set to expire in the fall of 1998. Throughout the negotiation process, Dersch expressed concerns to Shell about several contract provisions that it deemed objectionable. After ten months of negotiations, Shell (now operating as Equilon Enterprises, L.L.C. due to a merger) informed Dersch that unless it signed the proposed franchise agreement within the next few days, Shell/Equilon would issue a formal notice of non-renewal of the parties' franchise relationship. Dersch signed the new franchise agreement "under protest," and, approximately one year later, filed an action for declaratory relief against Shell and Equilon, seeking a declaration of the corporation's rights under the agreement pursuant to the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801-2806. After some procedural wrangling, the parties filed cross-motions for summary judgment. The district court granted the defendants' motion, and Dersch filed a timely motion to alter or amend the judgment, which the court denied. Dersch appeals the district court's decisions granting the defendants' motion for summary judgment and denying its motions for summary judgment and to alter or amend the judgment. We affirm.

I.

Dersch Energies, Inc. ("Dersch") is a family-owned motor fuel reselling business that has purchased and sold Shellbranded motor fuels for over fifty years. In its role as middleman, Dersch sells Shell-branded motor fuels in portions of southeastern Illinois and southwestern Indiana. On average, Dersch purchases over ten million gallons of Shell-branded motor fuels annually, which it then sells to service stations and other agricultural, commercial, and industrial businesses. Since 1951, Dersch has purchased motor fuels from Shell Oil Co. ("Shell") pursuant to a series of supply or "jobber" contracts (drafted by Shell), the last of which became effective on January 1, 1982, and was to remain in effect until December 31, 1984 ("1982 Contract"). The 1982 Contract provided for year-to-year renewals at the expiration of the initial three-year term, unless terminated by either party within ninety days of the annual renewal date. The parties operated under these annual renewals until September 1998, when a new franchise agreement was entered into by the parties.

In 1997, to ensure national uniformity, Shell decided to revise its existing franchise agreements with jobbers and wholesalers. *fn1 In December 1997, Shell sent a new franchise agreement ("Renewal Agreement") for Dersch to sign. In the accompanying correspondence, Shell highlighted the differences between the Renewal Agreement and the 1982 Contract, and informed Dersch that the 1982 Contract was set to expire on March 31, 1998. Shell also advised Dersch that it had until December 22, 1997, to execute the Renewal Agreement.

On February 25, 1998, Ken Zumdome, Shell's area manager for Dersch's territory, sent a facsimile message to John Dersch, Dersch's president, and Thomas Dersch, John Dersch's son and Dersch's vice president, advising them that a "[n]ew jobber contract was sent to you before Christmas. You are the only jobber who has not returned [the contract]. Every jobber in the country has this new contract in effect. Please return ASAP." On March 4, 1998, John Dersch responded by advising Shell, in writing, that the 1982 Contract was not set to expire until December 1998. On May 29, 1998, Shell notified Dersch that "Shell wants all jobbers on their new contract. You are the only jobber not signed. Our legal [department] says you have the right to hold off signing until . . . December 31, 1998. If you do not return the contract prior to that, your contract with Shell will terminate."

On July 15, 1998, representatives from both parties met to discuss the terms and conditions of the proposed Renewal Agreement. During the course of the meeting, Thomas Dersch voiced concerns over the Renewal Agreement's: (1) indemnification provisions; (2) release of claims provisions; (3) assignment provisions; (4) pricing provision; and (5) description of Dersch's new defined territory. He also told the Shell representatives that he considered the corresponding security and personal guaranty agreements--that Shell was seeking to require Dersch to execute in conjunction with the Renewal Agreement--to be "onerous." Two days after the meeting, Dersch received a facsimile from Zumdome advising that Shell would not require Dersch to execute the new security or personal guaranty agreements, but noting that the Renewal Agreement would now require an addendum reflecting the fact that Shell had joined with Texaco, Inc. ("Texaco") to form Equilon Enterprises, L.L.C. ("Equilon") and acknowledging that Equilon would be Dersch's new supplier-franchisor under the Renewal Agreement. *fn2

In mid-August 1998, Dersch received a slightly revised version of the Renewal Agreement from Shell, along with a letter that, after mistakenly asserting that the 1982 Contract had expired on August 3, 1998, advised Dersch that "the appropriate documents must be executed and returned to Shell not later than August 3, 1998." According to Dersch, it did not respond to this letter because it believed, based on Shell's prior correspondence, that it had until December 31, 1998, to execute the Renewal Agreement.

On or about September 29, 1998, John Dersch received a telephone call from Zumdome, informing him that if Dersch did not sign and forward the Renewal Agreement to Shell/Equilon in the next two to three days, he was under instructions to issue an official notice of non-renewal of Dersch's franchise relationship on October 1, 1998, to be effective January 1, 1999. *fn3 Zumdome advised Dersch that the non-renewal would not be rescinded, and read excerpts from the notice that had already been prepared by the companies' attorneys. Thomas Dersch then requested that Zumdome send him a copy of the proposed notice of non-renewal via facsimile. Zumdome complied with this request, faxing Dersch a copy of the proposed notice that same day. After reviewing the proposed notice of non-renewal, Dersch executed the Renewal Agreement "under protest," and typed the following underneath each of his signatures or initials: "[d]espite my objections to this agreement, I have been threatened with the loss of my franchise if I do not sign it at this time. Accordingly, I am signing it under protest and reserve all rights to challenge it." Equilon signed the Renewal Agreement the next day on September 30, 1998.

On September 21, 1999, after operating under the Renewal Agreement for almost one year, Dersch filed an action for declaratory relief, pursuant to 15 U.S.C. § 2805(e) and 28 U.S.C. § 2201, requesting a declaration of its rights under the Renewal Agreement pursuant to the Petroleum Marketing Practices Act ("PMPA"). Specifically, Dersch sought a declaration that Shell and Equilon (collectively "Equilon" or the defendants) violated 15 U.S.C. § 2805(f)(1) by conditioning the renewal of the parties' franchise relationship on Dersch releasing claims and waiving rights that it had under both federal and state law.

In its complaint, Dersch alleged that the defendants, by threatening to discontinue the parties' franchise relationship, forced it to release or waive six state law rights, three of which are at issue on appeal. First, Dersch claimed that the indemnity provision of the Renewal Agreement, i.e., Article 11.1, required it to waive its right to contribution from joint tortfeasors in violation of 735 ILCS § 5/21117(a). *fn4 Second, Dersch averred that the change of delivery provisions, i.e., Articles 5.1 and 5.4, violated Ind. Code § 23-2-2.7-1(3) because they allowed the defendants to "change the delivery point for product sold to Dersch from the point of origin (i.e., the fuel terminal) to the destination, and back, at its option." *fn5 Third, Dersch maintained that the joint and several liability provision and the personal obligations and provisions clause, i.e., Articles 21.2 and 21.3 respectively, subverted the limitations on personal liability for corporate officers and directors under both the laws of Illinois and Indiana. See, e.g., Davis v. Hass & Hass, Inc., 694 N.E.2d 588, 590 (Ill. App. Ct. 1998) (holding that "[a] corporation is a legal entity which exists separate and distinct from its shareholders, directors and officers. Accordingly, shareholders, directors and officers are generally not liable for a corporation's obligations.") (internal citations omitted); State of Indiana, Civil Rights Comm'n v. County Line Park, Inc., 718 N.E.2d 768, 772 (Ind. Ct. App. 1999) (same). These contract provisions will hereinafter be referred to collectively as the "Disputed Provisions."

On December 9, 1999, the defendants moved to dismiss Dersch's complaint, arguing that there was no actual, justiciable controversy that would permit the district court to exercise subject matter jurisdiction, and claiming that the litigation was not ripe because Dersch's complaint only raised potential, not actual, violations of § 2805(f)(1). As such, the defendants asserted that the district court was being asked to improperly render an advisory opinion. The district court denied the defendants' motion to dismiss, concluding that Dersch's complaint alleged an actual controversy because "a fair reading of the complaint reveals that the controversy involves the question of whether Shell/Equilon's conduct of conditioning the franchise renewal on Dersch's assent to the waiver of rights provision violated [the PMPA]." In ruling on the defendants' motion to dismiss, the district court also noted that Dersch's complaint was "not proceeding on diversity grounds" and that:

To the extent that Dersch is relying on § 2805(f)(1) as an independent source of jurisdiction, Dersch's reliance is misplaced. Section 2805(f)(1) does not provide an independent basis for relief. Instead, § 2805(a) is the PMPA section that grants a district court jurisdiction . . . [and it] extends only to situations where there has been a termination or non-renewal, actual or constructive . . . . So to secure relief for a violation of § 2805(f)(1), the franchisee must couch [its] relief in terms of a violation of §§ 2802-03.

Dersch subsequently amended its complaint to address the jurisdictional concerns raised in the district court's order, alleging that the defendants' coerced renewal violated both § 2802 and § 2805(f)(1). Thereafter, the parties filed cross-motions for summary judgment. Dersch offered two separate and distinct legal theories in support of its PMPA claim. Dersch's primary argument was that the state law waivers resulted in a constructive non-renewal of the parties' franchise relationship. In the alternative, Dersch contended that even if the waivers did not constitute a constructive non-renewal of its franchise relationship, it was still authorized to sue the defendants under the PMPA because § 2805(f)(1) provides franchisees with an implied private right of action to enforce the statute's provisions. The defendants responded by asserting that even if Dersch could meet the PMPA's threshold burden of demonstrating a non-renewal of its franchise relationship, see 15 U.S.C. § 2805(c), it could not prevail on its claim because the Disputed Provisions were offered in good faith and in the normal course of business pursuant to 15 U.S.C. § 2802(b) (3)(A). The defendants also argued that the Disputed Provisions did not, in any event, require Dersch to waive any rights that it had under federal or state law. Finally, the defendants noted their agreement with the district court's conclusion--in its motion to dismiss order--that § 2805(f)(1) was "not an independent source of jurisdiction for relief under the PMPA."

On March 8, 2001, the district court granted the defendants' motion for summary judgment, and rendered its judgment that same day. In analyzing Dersch's claim under a constructive non-renewal theory, the court noted that:

Because this case deals entirely with specific provisions of the [Renewal] Contract, to successfully show a constructive non-renewal, it appears that Dersch would have to show (1) that the Defendants failed to reinstate, continue, or extend the respective motor and [sic] fuel marketing or distribution obligations and responsibilities of itself and its franchisee under the prior franchise contract adversely affecting the franchisee and (2) that, if the complained-of contract provision is substantially new and not previously agreed-upon, it must adversely affect Dersch's obligations and responsibilities under the franchise . . . . If the franchisee can make its showing, there is one additional step. Under certain circumstances, a franchisor may be justified in nonrenewing a franchise relationship. A franchisor may non-renew the franchise if the franchisor and franchisee fail to agree to additions to the existing franchise agreement, provided the franchisor proposes those additions in good faith, in the normal course of business, and not to prevent the renewal of the relationship.

The district court then evaluated each of the Disputed Provisions using this analytical framework. With respect to the Renewal Agreement's indemnity and change of delivery provisions, the district court found that: (1) the provisions were substantively the same as the provisions on the same subject matter contained in the 1982 Contract; and (2) even if these provisions were considered new terms, they did not run afoul of the PMPA because "[p]roposing an already-agreed-upon provision of the existing franchise agreement would fulfill Defendants' showing of good faith [under § 2802(b)(3)(A)], *fn6 and there is no contrary evidence." For these reasons, the district court held that Dersch could not demonstrate the constructive non-renewal of its franchise relationship vis-a-vis these contract provisions.

The district court also concluded that the defendants' insistence on Dersch agreeing to the Renewal Agreement's joint and several liability provision and personal obligations and provisions clause did not constitute a constructive non-renewal of the parties' franchise relationship. These contract provisions are contained in Article 21 of the Renewal Agreement and provide as follows:

21. BUSINESS ENTITY OR JOINT BUYER

21.1 General. This article shall apply if Buyer is a business entity or composed of more than one person (i.e., any combination of individuals and business entities).

21.2 Joint and Several Liability. If Buyer is composed of more than one person, the obligations imposed hereunder shall be joint and several as to each such person, and all such obligations shall be deemed to apply to each person with the same effect as though that person were the sole Buyer.

21.3 Personal Obligations and Provisions. If Buyer is a business entity, all obligations and provisions hereof of a personal nature shall apply as if such business entity were an individual, and shall also apply insofar as is legally possible and reasonably practicable to those individual persons who have or exercise management responsibility for such business entity, including without limitation, officers, directors or agents of corporations and partners of partnerships. The business entity shall manage its affairs with respect to the personal obligations and provisions in a manner so as to give full force and effect to same. R61, 19.

Dersch argued that Articles 21.2 and 21.3 violated § 2805(f)(1), thus constituting a constructive non-renewal of its franchise relationship, because the provisions could be used by the defendants to impose personal liability on John Dersch and other managers, officers, and directors of the corporation. The district court rejected this argument, however, concluding that neither provision could serve as a basis for Dersch's constructive non-renewal theory because: (1) Article 21.2 only applied if the "Buyer" was comprised of more than "one person," and the only "Buyer" to the Renewal Agreement was Dersch, a corporation; and (2) by its very terms (i.e., "insofar as is legally possible"), Article 21.3 was rendered inapplicable if any purported waiver contained in that provision violated § 2805(f)(1).

The district court also rejected Dersch's argument that § 2805(f)(1) provided it with an implied private right of action to enforce the statute's provisions, noting "[t]his Court previously concluded that § 2805(f)(1) only creates duties under the PMPA and is not an independent source of jurisdiction . . . . There [is] no indication that Congress intended to create an implied federal cause of action in enacting § 2805(f)." The court then held that "if § 2805(f)(1) does not create an implied cause of action . . . Dersch [can] only maintain a cause of action under the general PMPA provision conferring federal question jurisdiction onto federal courts."

Dersch filed a timely motion to alter or amend the district court's judgment, pursuant to Fed. R. Civ. P. 59(e), which the court denied. Dersch appeals the district court's decisions granting the defendants' motion for summary judgment, and denying its motions for summary judgment and to alter or amend the judgment.

II.

This court reviews the district court's grant of summary judgment de novo, construing all facts in favor of Dersch, the nonmoving party. Commercial Underwriters Ins. Co. v. Aires Envtl. Services, Ltd., 259 F.3d 792, 795 (7th Cir. 2001). Summary judgment is proper when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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." Fed. R. Civ. P. 56(c). Thus, "[s]ummary judgment is appropriate if, on the record as a whole, a rational trier of fact could not find for the non-moving party." Commercial Underwriters, 259 F.3d at 795. We will reverse the denial of a Rule 59(e) motion to alter or amend a judgment only for an abuse of discretion. Britton v. Swift Transp. Co., Inc., 127 F.3d 616, 618 (7th Cir. 1997).

On appeal, Dersch argues that the district court erred in granting the defendants' motion for summary judgment because the analysis used by the court failed to give any consideration whatsoever to the substantive requirements of 15 U.S.C. § 2805(f)(1), *fn7 which provides that:

No franchisor shall require, as a condition of entering into or renewing the franchise relationship, a franchisee to release or waive--(A) any right that the franchisee has under this subchapter or other Federal law; or (B) any right that the ...


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