Sun Refining and Marketing Company, Formerly Sun Oil Company of Pennsylvania v. Pat J. Rago

741 F.2d 670, 1984 U.S. App. LEXIS 19239
CourtCourt of Appeals for the Third Circuit
DecidedAugust 23, 1984
Docket83-5844
StatusPublished
Cited by47 cases

This text of 741 F.2d 670 (Sun Refining and Marketing Company, Formerly Sun Oil Company of Pennsylvania v. Pat J. Rago) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sun Refining and Marketing Company, Formerly Sun Oil Company of Pennsylvania v. Pat J. Rago, 741 F.2d 670, 1984 U.S. App. LEXIS 19239 (3d Cir. 1984).

Opinion

*671 OPINION OF THE COURT

ADAMS, Circuit Judge.

This appeal arises from a declaratory judgment action by Sun Refining and Marketing Company (Sun) to terminate franchise agreement under which Pat Rago operated a Sunoco Station. The district court determined that defendant Rago had breached the agreement with Sun by violating a clause which incorporates the protections and duties of franchisees under Title I of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801 et seq. (1982). 1 For the reasons set forth herein, we affirm the judgment of the district court in favor of Sun.

I.

Rago operated a Sunoco station in Bell-mawr, New Jersey, for eight years, under a franchise agreement with Sun. The terms of the franchise were contained in two contracts, one covering Rago’s lease of the station premises and the other governing Rago’s use of the Sunoco trademark, products and equipment. Both contracts contained a provision incorporating by reference the grounds for termination or nonre-newal of the franchise set forth in the PMPA. The contracts were last renewed for the period of June 1, 1980 to May 31, 1983.

On June 19, 1981, two years before the stated expiration of the contracts, Sun sent Rago a certified letter informing him of its intent to terminate the franchise as of October 1, 1981. The letter asserted that Rago’s failure to operate the station for the period from April 11 to April 20, 1981, and Rago’s failure to pay rent and other sums due Sun in a timely manner were grounds for termination of the franchise under § 2802(b)(2)(C) of the PMPA. 2 When Rago refused to relinquish possession of the station premises, Sun filed suit in the federal district court in New Jersey seeking a declaratory judgment of its right under the PMPA to terminate the franchise. 3 Sun’s original complaint cast this *672 action as one arising under the PMPA and asserted the district court had jurisdiction pursuant to 15 U.S.C. § 2805. While that section grants a private cause of action to franchisees, it is silent as to the right of franchisors to bring suit. The district court assumed jurisdiction under § 2805, but later allowed Sun to file an amended complaint recasting its action as one brought under the court’s diversity jurisdiction, 28 U.S.C. § 1332 (1982), thus curing any jurisdictional defect in the original complaint.

Just prior to the date set for trial of this matter, Sun filed a motion for partial summary judgment. The district court granted Sun’s motion on the ground that either Rago’s delinquent payments or his closing of the station allowed Sun to terminate the franchise under § 2802(b)(2)(C) of the PMPA. Rago was then ordered to vacate the station premises. Sun subsequently agreed to dismiss its remaining claims for damages, and on October 24, 1983 the district court entered final judgment. Shortly thereafter Rago filed this appeal.

II.

A.

The PMPA was enacted in 1978 in recognition of “the disparity of bargaining power which exists between the franchisor and the franchisee” in the gasoline industry. S.Rep. No. 731, 95th Cong., 2d Sess. 17, U.S.Code Cong. & Admin.News 1978, pp. 873, 877. 4 The Act “establishes protection for franchisees from arbitrary or discriminatory termination or nonrenewal of their franchises,” id. at 15, by imposing two requirements on franchisors. First, the franchisor may terminate a franchise only for certain statutorily prescribed grounds. 15 U.S.C. § 2802. Second, the franchisee must be given adequate notice of the franchisor’s intent to terminate the franchise. Id. § 2804. The Act creates a private right of action for franchisees who have been subject to unlawful termination or nonre-newal of their franchise. Id. § 2805. In keeping with the Act’s acknowledgment of the inferior economic and bargaining position of the franchisee, the franchisor who wishes to terminate or not renew a franchise has the burden of proving compliance with all the statutory requirements of the PMPA. Id. § 2805(c). Additionally, the Act allows franchisees to obtain a preliminary injunction upon a lesser showing than is usually required. Id. § 2805(b). The effect of the PMPA thus is to create a presumption that any termination of a franchise is unlawful.

In granting Sun’s motion for partial summary judgment, the district court declared that the explanations offered by Rago for failing to keep the service station open in April, 1981 were irrelevant to determining whether Sun had complied with § 2802(c)(9)(A) in terminating Rago’s franchise. The district court also rejected Rago’s argument that Sun should not be allowed to rely on § 2802(c)(8) in terminating the franchise because its longstanding practice of accepting late payments meant that Sun had waived this particular ground for termination, or that requiring timely payment was not Sun’s standard marketing practice, or that late payment was not relevant to the franchise agreement and hence was not a reasonable ground for termination. Because § 2802(c) lists events which are “relevant to the franchise relationship and as a result of which termination of the franchise ... is reasonable,” the district court stated that “only events which are *673 not enumerated in [§ 2802(c)] must be scrutinized for reasonableness.” The effect of the district court’s ruling was. to make any late payment or any closing of a service station for more than seven days per se grounds for terminating the franchise, regardless of the franchisee’s reasons for these actions. We find such an implacable interpretation of §§ 2802(c)(8) and (9)(A) at odds both with other provisions of the PMPA and with the remedial legislative purpose of the Act.

Under 15 U.S.C. § 2801(13), the definition of “failure” under the PMPA specifically excludes “any failure which is only technical or unimportant to the franchise relationship,” or “any failure for a cause beyond the reasonable control of the franchisee.” These restrictions on what constitutes a “failure” within the context of the PMPA must necessarily inform a determination of whether a franchisee’s “failure” to make timely payments or “failure” to operate the marketing premises for seven consecutive days constitutes a valid ground for termination. That a default in complying with a contractual obligation has been deemed a reasonable ground for termination under the Act does not mean that compliance is always within the reasonable control of the franchisee.

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741 F.2d 670, 1984 U.S. App. LEXIS 19239, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sun-refining-and-marketing-company-formerly-sun-oil-company-of-ca3-1984.