The opinion of the court was delivered by: JAMES MORAN, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, terminated by defendant as a dealer, seeks a
preliminary injunction against that termination, contending that
it violates the Petroleum Marketing Practices Act (PMPA),
15 U.S.C. § 2801 et seq. The preliminary injunction is granted.
The facts are largely undisputed. Plaintiff's service station
is located near a high school in Chicago. One of plaintiff's
employees regularly sold marijuana to high school students
between 7:00 a.m. and 11:30 a.m., perhaps $500-$1,000 worth
daily. Usually 20 to 30 children congregated at the station each
morning, waiting for the station to open and sell drugs.
Plaintiff, who owns another station, generally got to this
station about 11:30 a.m. The employee did not sell drugs when the
plaintiff was present. There is virtually nothing to indicate
that plaintiff was aware of what was going on, although school
officials, teachers, and law enforcement were aware of it, and
the station was the subject of a police surveillance over an
eight-month period. None of those who were aware advised the
plaintiff of it, perhaps because it would have compromised the
investigation or because the authorities were uncertain whether
or not he was implicated.
After the arrest, the local alderman contacted the defendant
and threatened that he would press for the forfeiture of the station if the dealer
(plaintiff) was not removed (although the Chicago ordinance he
invoked probably would not have permitted such a sanction, absent
the implication of the plaintiff). Defendant then advised
plaintiff it intended to terminate the franchise and gave him a
letter doing just that. This lawsuit followed.
Congress, concerned by the unequal bargaining power between
franchisors and franchisees of service stations, enacted the
PMPA. It is up to the franchisor to produce evidence to establish
as an affirmative defense that termination is permitted by the
PMPA, PDV Midwest Refining, L.L.C. v. Armada Oil and Gas Co.,
305 F.3d 498 (6th Cir. 2002). A preliminary injunction should
issue if there are serious questions going to the merits to make
such questions fair ground for litigation and the balance of
hardships favors the franchisee, not a heavy burden. Moody v.
Amoco Oil Co., 734 F.2d 1200 (7th Cir. 1984). Here the
balance of hardship favors the franchisee he will be put out of
business if the injunction does not issue, and defendant cannot
be faulted if the dealer remains in business because that
continuation is the result of a court order despite the vigorous
opposition of the defendant.
That vigorous opposition is understandable. This is not an
attempt to appropriate hard-earned good will. See Thompson v.
Amoco Oil Co., 903 F.2d 1118 (7th Cir. 1990). Rather, it is
an effort to avoid ill will. Defendant has a justifiable and
reasonable interest in not being associated with drug-dealing to
children. It fears the publicity associated with any attempt to
forfeit the property, even if that attempt is doomed to failure.
But does that apprehension permit termination?
The PMPA permits termination for "failure by the franchisee to
comply with any provision of the franchise, which provision is
both reasonable and of material significance to the franchise
relationship. . . ." (§ 2802(b)(2)(A), or for the "occurrence of
an event which is relevant to the franchise relationship and as a result of which
termination of the franchise . . . is reasonable. . . . (§
2802(b)(2)(C)). Contending that the dealer failed to comply,
defendant points to paras. 10(b)(5), 19(d) and 19(g). Para.
10(b)(5) provides that the dealer "will not do or allow anything
to occur at the Facility which could detract from or disparage
the image or reputation of the Facility or the Lessor Trade
identities. In particular, without limiting the foregoing, Dealer
will not do or permit anyone else to do or allow at the Facility
any of the following: . . . (5) Store, sell or consume any
illegal drugs. . . ." But plaintiff, on the present record, did
not sell drugs and he did not permit or allow the employee to
sell drugs. We think there must be some showing of culpability by
the dealer, not necessarily actual knowledge, but at least gross
negligence that allowed the illegal conduct to occur. Defendant
suggests that is what happened because the dealer failed to
devote personal attention at the facility by not being personally
present there for reasonable periods of time during normal
business hours, in violation of para. 19(g) of the Agreement. But
this was a 24-hour, 7-day a week station, and plaintiff
apparently spent far more time there than the dealer in Thompson
v. Amoco Oil Co., supra.
In para. 19(d) of the Agreement, the franchisor is permitted to
terminate the franchise upon the commission "by Dealer or any of
Dealer's employees or agents of any deceptive, fraudulent,
illegal, immoral or other improper act relevant to the operation
of the business on the Facility which is detrimental to Lessor or
to any member of the public. . . ." Here, we believe, defendant
is on much firmer ground, but not firm enough. Plaintiff contends
that the specific illustrations of such conduct circumscribe the
prohibited conduct, and illegal drug sales are not covered by
that provision. We disagree. Such sales are more serious than the
illustrations listed. But the PMPA describes an event that is
relevant to the franchise relationship and as a result of which termination of the
franchise is reasonable, as including "fraud or criminal
misconduct by the franchisee relevant to the operation of the
marketing premises" (emphasis supplied). In light of that, we
cannot conclude that a provision that attributes every illegal or
other improper act by an employee to the dealer is a reasonable
basis for termination. Otherwise, a single random misconduct by
an employee would permit termination.
Here, of course, there was far more than a single random sale
of drugs, and clearly defendant would be justified in terminating
the franchise if the dealer was himself implicated in the sales,
or condoned them or even if he ignored indications of ongoing
criminal activity. But we believe there has to be some evidence
of franchisee culpability, and, on this record, that evidence is
lacking. Accordingly, we preliminarily enjoin the termination,
while recognizing that a more thoroughly developed record may
provide the necessary reasonable basis for termination.
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