147 F. Supp.2d 9 (2001) | Cited 0 times | D. Massachusetts | May 30, 2001


Before the court are the plaintiffs' Emergency Motion forMandatory or Prohibitive Injunctive Relief and Interim EquitableRelief (Docket No. 2) and the defendants' Motion to Dismiss(Docket No. 6). On May 10, 2001, a hearing was held on themotions. For the reasons stated below, the plaintiffs' motion isdenied and the defendants' motion is allowed.


I will summarize the general background facts of the case,reserving other details for discussion with the issue raised. Theplaintiffs, Elie Karak and Russell and Elie Inc., sell motor fuelat a retail service station in Newton, Massachusetts. Theproperty is owned by Randolph Corporation, which is a whollyowned subsidiary of the defendant, Bursaw Oil Corp. ("Bursaw" orthe "defendant"). Bursaw is a wholesaler and distributor of motorfuel products. Commencing in 1989, the parties began a series ofagreements both to lease the property to the plaintiffs and tosupply the station with motor fuel products. The most recentagreement between the parties with respect to the sale of motorfuel products, the Gasoline Consignment Agreement (the"Agreement"), effective beginning July 1, 1997, sets forth thecurrent relationship of the parties. Details of the Agreement areset forth in the discussion section below.1

On or about February 20, 2001, the plaintiffs met withrepresentatives from Bursaw. The plaintiffs were informed thattheir lease would not be renewed becausethe Newton station had been sold to a third party. On March 28,2001, the plaintiffs received a thirty day notice to quit thepremises. On April 27, 2001, the plaintiffs filed an EmergencyMotion for Mandatory or Prohibitive Injunctive Relief and InterimEquitable Relief to prevent Bursaw from forcing them to quit thepremises. The motion was based upon an alleged violation of thePetroleum Marketing Practices Act ("PMPA" or the "Act"),15 U.S.C. § 2801-2841, which sets forth the permissible grounds fortermination or nonrenewal of franchise relationships respectingthe sale of motor fuels. The parties reached an interimagreement, holding in place the proceedings concerningtermination of the lease pending a ruling from this court on theemergency motion. On May 7, 2001, the defendants filed a motionto dismiss asserting that the court lacked subject matterjurisdiction of the plaintiffs' claims. On May 10, 2001, thecourt held a hearing on the motions. Following the hearing, bothparties submitted additional arguments and supporting materials.


The basis for the plaintiffs' motion for preliminary injunctionis that the defendants violated the PMPA when they terminated orfailed to renew the plaintiffs' lease. In opposition to theplaintiffs' motion, the defendants argue that PMPA does not applyto the relationship between the parties in this case; that theemergency motion therefore should be denied; and that count I ofthe amended complaint, which alleges a violation of the PMPA,should be dismissed for lack of subject matter jurisdiction.

I do not view the controversy as one in fact aboutjurisdiction. Based on the well-pleaded facts in the plaintiffs'amended complaint and drawing all reasonable inferences in favorof the plaintiffs, I cannot determine that the plaintiffs havefailed to allege subject matter jurisdiction. See PejepscotIndus. Park, Inc. v. Maine Cent. R. Co., 215 F.3d 195, 197 (1stCir. 2000) ("For the purpose of determining whether the districtcourt has subject matter jurisdiction, we take the well-pleadedallegations in plaintiff's complaint as true"). Rather, thedefendants' motion and the gravamen of the dispute between theparties is best characterized as one testing whether theplaintiffs can establish an essential element of their claimunder the PMPA, namely whether a "franchise relationship" existsbetween the parties as the Act requires. Indeed, the parties haveargued the matter as one for summary judgment. They have reliedon matters outside of the pleadings, which they say are necessaryto decide defendant's motion to dismiss and, by notice of thecourt, they have submitted additional argument and materials onthe contested issue. See Maldonado v. Dominguez, 137 F.3d 1, 5(1st Cir. 1998) (the court may enter summary judgment suasponte only if it first gives the targeted party appropriatenotice and a chance to present its evidence on the essentialelements of the claim). Had the defendants' motion to dismiss forlack of subject matter jurisdiction been appropriate, treatmentof the motion as one for summary judgment would not have beennecessary. See Dynamic Image Technologies, Inc. v. UnitedStates, 221 F.3d 34, 37 (1st Cir. 2000) (On a motion to dismisspursuant to Fed.R.Civ.P. 12(b)(1), "[t]he court, withoutconversion, may consider extrinsic materials and, to the extentit engages in jurisdictional factfinding, is free to test thetruthfulness of the plaintiff's allegations"). Therefore, I willtreat the defendants' motion as one for summary judgment, raisingthe question of whether the plaintiff has a trialworthy claimunder the PMPA. See Higgins v. New Balance Athletic Shoe, Inc.,194 F.3d 252, 258 (1st Cir. 1999) ("Ifthe appellant did not frame a trialworthy issue as to [an]essential element of his claim, Fed.R.Civ.P. 56(c) authorized theentry of summary judgment").

The PMPA was enacted by Congress to govern exclusively the areaof termination and non-renewal of retail service stationfranchise relationships. See 15 U.S.C. § 2806(a). Section2806(a) preempts any state law, statutory or common, in the areaof termination or nonrenewal that is different than the PMPA.Section 2806(a) states:

To the extent that any provision of this subchapter applies to the termination . . . of any franchise, . . . 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 . . . of any such franchise . . . unless such provision of such law or regulation is the same as the applicable provision of this subchapter.

Congress specifically set forth the permissible grounds fortermination or nonrenewal of franchise relationships, andbestowed on federal courts jurisdiction to remedy violations ofthe PMPA. Generally, termination of a franchise relationship musthave as its basis one of the grounds set forth in §§ 2802(b)(2)and 2802(b)(3),2 and must be undertaken in compliance withthe procedural notice requirements of § 2804.3 At the hearingon this matter onMay 10, 2001, the defendants acknowledged that they have failedto comply with the requirements of the PMPA, but contend thatthey were not required to do so because the PMPA does not applyto this case. Specifically, the defendants contend that theparties' relationship does not meet the definition of a"franchise relationship," set forth in the PMPA.

The PMPA provides that a "franchise relationship" only canexist between a "refiner and a distributor," a "refiner andretailer," a "distributor and another distributor," or a"distributor and a retailer" of motor fuels. See 15 U.S.C. § 2801(1)(A)(i)-(iv). The defendants acknowledge that they fallwithin the definition of a "distributor." Therefore, the gist ofthe dispute between the parties is whether the plaintiffs fallwithin the statutory definition of "retailer."4 Absent ashowing by the plaintiffs that they are within the class Congressintended to protect, there is no coverage under the PMPA, generalcontract principles govern, and the plaintiffs' motion must bedenied.

The starting point for this analysis, of course, is the Actitself, which states in pertinent part: "The term `retailer'means any person who purchases motor fuel for sale to thegeneral public for ultimate consumption." 15 U.S.C. § 2801(7)(emphasis added). To determine whether the plaintiffs "purchase[]motor fuel," the court must look to the relationship between theparties as set forth in the Agreement.

Pursuant to the Agreement, the defendants undertake to use"reasonable efforts to keep in the underground storage tanks . .. a quantity of motor fuels sufficient to furnish [theplaintiffs] with such amounts thereof as [the plaintiffs] maydesire to purchase from [the defendants]." The defendants own andmaintain the underground tanks. The plaintiffs are licensed towithdraw from the tanks as much motor fuel as the plaintiffs maywish to purchase at the retail price, which is set by thedefendants, less nine cents per gallon. Title to the motor fuelstored within the tanks remains with the defendants until theplaintiffs withdraw the fuel from the tank. Withdrawal by theplaintiffs constitutes delivery to the plaintiffs of thequantities of motor fuel withdrawn, and title to that quantity offuel passes to the plaintiffs. The plaintiffs have no right toprepay for any quantities of motor fuel that the plaintiffs mayanticipate selling; nor do the plaintiffs have any rights orobligations with respect to the fuel stored in the undergroundtanks.

At first blush, it seems that the plaintiffs do "purchase"motor fuel from the defendants. Indeed, the Agreement statesseveral times that the plaintiffs "purchase" the motor fuel fromthe defendants. Moreover, title to the motor fuel passes from thedefendants to the plaintiffs immediately upon its withdrawal fromthe underground storage tanks. The parties agree that titlepasses a second time, this time from the plaintiffs to theultimatecustomer, once the fuel is pumped into the customer's automobile.Thus, under the plain language of the Agreement, title to themotor fuel is held by the plaintiffs for the brief periodbeginning when the fuel leaves the underground storage tanks,during the time it travels through the fuel pump and ending uponplacement in the customer's fuel tank. The defendants argue thatthe use of the word "purchase" in the Agreement and the ephemeralpassage of title to the fuel to the plaintiffs is insufficient toestablish that the plaintiffs actually "purchased" the motor fuelas intended by the Act. By contrast, the plaintiffs suggest thatthe language of the Agreement and that passage of title,regardless of duration, is enough to establish the plaintiffs as"purchasers" of motor fuels under the Act.

The parties have not cited, and the court has not discovered,any authority in this circuit on point. Moreover, none of thecases from other circuits cited by the parties, confronts thesituation presented in this case: an agreement between theparties which states explicitly that the station operator"purchases" the motor fuel and "title thereto shall then pass" tothe operator. See Farm Stores, Inc. v. Texaco, Inc.,763 F.2d 1335, 1337 (11th Cir. 1985) (title to the gasoline remains withdistributor until sold to customers); Dunlap v. Schrader OilCo., 758 F. Supp. 633, 634 (D.Co. 1991) (same); Miller v. W.H.Bristow, Inc., 739 F. Supp. 1044, 1048 (D.S.C. 1990) (same);Sigmon v. Widenhouse Service, Inc., 638 F. Supp. 808, 809(M.D.N.C. 1986) (same); Automatic Comfort, Corp. v. D & RService, Inc., 620 F. Supp. 1349, 1354 (D.Conn. 1985) (same).See also, Sanna v. Friendly Service Stations, Inc., 593 F. Supp. 493(D.Conn. 1983) (issue of title not mentioned); Johnson v.Mobil Oil Corp., 553 F. Supp. 195 (S.D.N.Y. 1982) (same). Thesecases identify "factors" for a court to examine in determiningwhether a particular station operator "purchases motor fuel" andthereby meets the statutory definition of "retailer," "beyond thelabel the parties attach[] to the relationship." Sanna,593 F. Supp. at 498. For example, in Farm Stores, the EleventhCircuit in deciding that the station operator there was not aretailer, considered the facts that the station operator did not(1) pay for the motor fuel inventory until it was sold; (2) payad valorem taxes on the motor fuel inventory; (3) bear the riskof loss of the motor fuel; (4) retain any funds from the sale ofmotor fuel to motorists; (5) set the price or assume the marketrisk in fluctuations in motor fuel prices; or (6) hold a gasolineretailers business license. See Farm Stores, 763 F.2d at 1340.The Eleventh Circuit also considered the fact that the stationoperator did not "take title" to the motor fuel. Id. Othercases have adopted these criteria and also have identifiedadditional, although related, factors. See Sigmon, 638 F. Supp.at 811 (station owner did not determine what type of motor fuelpurchased); Automatic Comfort, Corp., 620 F. Supp. at 1354(station operator did not pay fixed price for motor fuel orinsure gasoline inventory).

Applying the Farm Stores and other factors to this case, Iconclude that a large number weigh in favor of the defendants'position. The plaintiffs do not pay for the motor fuel before itis sold. The plaintiffs do not control the retail price and donot assume the substantial risk of market fluctuations in retailmotor fuel prices. Instead, the plaintiffs collect the moniespaid by customers and withhold a $.09 per gallon commission,regardless of the retail price at which the motor fuel issold.5 Theplaintiffs do not hold a license to sell motor fuel at the Newtonlocation. They do not determine what motor fuel to purchase. Theplaintiffs bear no risk of the loss of any motor fuel stored inthe underground tanks. The plaintiffs do not pay a fixed pricefor the motor fuel. The amount owed to the defendants is based onvolume of motor fuel sold, not volume delivered. The plaintiffsdo not insure the motor fuel inventory or pay ad valorem taxes onthat inventory.

On the other hand, the plaintiffs do take title to the motorfuel as it passes through the pump and hold title until the fuelis deposited in the customers car. As a result, the plaintiffsare financially accountable for bad checks, customers who driveaway without paying, accidentally spilled motor fuel and creditcard chargebacks.

Had the Agreement between the parties not transferred title tothe motor fuel from the defendants to the plaintiffs, this casecould easily be resolved in favor of the defendants. The factthat title does pass to the plaintiffs, albeit briefly, gives mepause. While other jurisdictions identify the passage of title asonly one of many factors to be considered when determiningwhether a station operator "purchases motor fuels," the partiesrightly acknowledge that the transfer of title weighs heavily inthe calculus. Close examination of the circumstances in this casemakes clear that title passes to the plaintiffs substantially inname only, without most of the true incidences of title. Forexample, the plaintiffs are not free to "resell" the motor fuelto the customer at any price, but must sell the fuel at the pricedictated by the defendants. Nor do the plaintiffs pay taxes onthe fuel or hold a license to sell the fuel at the Newtonstation. The fact that the plaintiffs do bear some limited riskof loss does not persuade me that title passes to the plaintiffsto a sufficient degree to tip the balance in the plaintiffs'favor, particularly in view of the other factors noted above thatweigh against characterization of the plaintiffs as retailers.Thus, having heard the parties' arguments on this issue, andafter reviewing the papers submitted in favor of and inopposition to the motion, and the cases cited by the parties, Iconclude that the plaintiffs have failed to establish that they"purchase motor fuel." Therefore, the plaintiffs do not fallwithin the category of persons protected by the PMPA.


Because the plaintiffs have failed to establish their status asfranchisees, their Emergency Motion for Mandatory or ProhibitiveInjunctive Relief and Interim Equitable Relief (Docket No. 2) isdenied. The defendants have moved for the dismissal of count I ofthe amended complaint, which alleges a violation of the PMPA, andall other counts of the complaint, which allege violations ofstate law, for lack of subject matter jurisdiction. As notedabove, the parties have treated the defendants' motion as one forsummary judgment and so has the court. Based on the reasoningabove, defendants' motion for summary judgment is granted withrespect to count I of the amended complaint.

Because the plaintiffs do not assert any other federal claimsor make any allegation of diversity of citizenship, this court'sjurisdiction lies in this court's power to hear pendent state lawclaims. 28 U.S.C. § 1367(c)(3) ("The district courtsmay decline to exercise supplemental jurisdiction over a claim. . . if — (3) the district court has dismissed all claims overwhich it has original jurisdiction") (emphasis added). See also,United Mine Workers of America v. Gibbs, 383 U.S. 715, 725-726,86 S.Ct. 1130, 16 L.Ed.2d 218 (1966) ("It has consistently beenrecognized that pendent jurisdiction is a doctrine of discretion,not plaintiff's right"). Considering the fact that the case is inits early stages, as a matter of my discretion I will decline toexercise supplemental jurisdiction over the state causes ofaction. See Rodriguez v. Doral Mortg. Corp., 57 F.3d 1168, 1177(1st Cir. 1995) ("As a general principle, the unfavorabledisposition of a plaintiff's federal claims at the early stagesof a suit, well before the commencement of trial, will triggerthe dismissal without prejudice of any supplemental state-lawclaims");

Accordingly, the court orders the following.

(1) The plaintiffs' Emergency Motion for Mandatory or Prohibitive Injunctive Relief and Interim Equitable Relief, dated May 2, 2001, is DENIED. (Docket No. 2).

(2) The defendants' Motion to Dismiss count I of the amended complaint, dated May 7, 2001, is treated as one for summary judgment and GRANTED. (Docket No. 6).

(3) The plaintiffs' second through fifth claims are dismissed without prejudice to their refiling in the state court, to the extent state law and procedure permit.

(4) The Clerk shall enter an order of dismissal of this action

So ordered.

1. All factual matters on which I will rely are undisputed.

2. Sections 2802(b)(2) and (b)(3) set forth nine grounds fortermination or nonrenewal of a franchise relationship. Forpurposes of this action, Section 2802(b)(3)(D) states, inpertinent part:

"(b) Precondition and grounds for termination or nonrenewal

(3)(D) In the case of any franchise entered into prior to June 19, 1978, (the unexpired term of which, on such date, is 3 years or longer) and, in the case of any franchise entered into or renewed on or after such date (the term of which was 3 years or longer, or with respect to which the franchise 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, if —

(i) such determination is —

(I) to convert the leased marketing premises to a use other than the sale or distribution of motor fuel,

(II) to materially alter, add to, or replace such premises,

(III) to sell such premises, or

(IV) that renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonable changes or reasonable additions to the provisions of the franchise which may be acceptable to the franchisee;

(ii) with respect to a determination referred to in subclause (II) or (IV), such determination is not made for the purpose of converting the leased marketing premises to operation by employees or agents of the franchisor for such franchisor's own account; and

(iii) in the case of leased marketing premises such franchisor, during the 90-day period after notification was given pursuant to section 2804 of this title, either —

(I) made a bona fide offer to sell, transfer, or assign to the franchisee such franchisor's interests in such premises; or

(II) if applicable, offered the franchisee a right of first refusal of at least 45-days duration of an offer, made by another, to purchase such franchisor's interest in such premises."

3. Section 2804 states, in pertinent part:

"(a) General requirements applicable to franchisor

Prior to termination of any franchise or nonrenewal of any franchise relationship, the franchisor shall furnish notification of such termination or such nonrenewal to the franchisee who is a party to such franchise or such franchise relationship —

(1) in the manner described in subsection (c) of this section; and

(2) except as provided in subsection (b) of this section, not less than 90 days prior to the date on which such termination or nonrenewal takes effect.


(c) Manner and form of notification

Notification under this section —

(1) shall be in writing;

(2) shall be posted by certified mail or personally delivered to the franchisee; and

(3) shall contain —

(A) a statement of intention to terminate the franchise or not to renew the franchise relationship, together with the reasons therefor;

(B) the date on which such termination or nonrenewal takes effect; and

(C) the summary statement prepared under subsection (d) of this section."

4. The plaintiffs do not argue that they could properly beconsidered either a "refiner" or a "distributor." See Johnson v.Mobil Oil Corp., 553 F. Supp. 195, 198 (S.D.N.Y. 1982) ("thelegislative history makes clear that in defining a `distributor'. . . Congress had in mind an independent middleman acting as ajobber, not a dealer selling to the public at retail").

5. Of course, a per gallon payment arrangement is notcompletely insulated from market fluctuations. Increased pricesmay lower sales volume, and thereby lower revenue derived by theplaintiffs from the sale of motor fuel. However, the plaintiffscollect $.09 regardless of the market price, and their risk withrespect to motor fuel sales is limited to the decline in salesoverall, as opposed to a decline in the retail price of motorfuel.

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