American Petroleum Institute v. Roy Cooper, III ( 2013 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1078
AMERICAN PETROLEUM INSTITUTE; AMERICAN FUELS AND
PETROCHEMICAL MANUFACTURERS ASSOCIATION,
Plaintiffs − Appellants,
v.
ROY A. COOPER, III, Attorney General of the State of North
Carolina,
Defendant – Appellee,
NORTH CAROLINA PETROLEUM AND CONVENIENCE MARKETERS
ASSOCIATION,
Intervenor/Defendant – Appellee.
--------------------------
PETROLEUM MARKETERS ASSOCIATION OF AMERICA,
Amicus Supporting Appellees.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Louise W. Flanagan,
District Judge. (5:08-cv-00396-FL)
Argued: January 31, 2013 Decided: June 6, 2013
Before MOTZ, KING, and AGEE, Circuit Judges.
Affirmed in part, vacated in part, and remanded by published
opinion. Judge Agee wrote the opinion, in which Judge Motz and
Judge King joined.
ARGUED: Robert Allen Long, Jr., COVINGTON & BURLING, LLP,
Washington, D.C., for Appellants. Melissa Lou Trippe, NORTH
CAROLINA DEPARTMENT OF JUSTICE, Raleigh, North Carolina; Charles
Foster Marshall, III, BROOKS, PIERCE, MCLENDON, HUMPHREY &
LEONARD, Raleigh, North Carolina, for Appellees. ON BRIEF:
Thomas L. Cubbage III, Henry B. Liu, Kristen E. Eichensehr,
COVINGTON & BURLING, LLP, Washington, D.C., for Appellants.
Alexander McClure Peters, NORTH CAROLINA DEPARTMENT OF JUSTICE,
Raleigh, North Carolina, for Appellee Roy A. Cooper, III; Eric
M. David, Mary F. Peña, BROOKS, PIERCE, MCLENDON, HUMPHREY &
LEONARD, Raleigh, North Carolina, for Appellee North Carolina
Petroleum and Convenience Marketers Association. Alphonse M.
Alfano, BASSMAN, MITCHELL & ALFANO, CHARTERED, Washington, D.C.,
for Amicus Supporting Appellees.
2
AGEE, Circuit Judge:
Plaintiffs American Petroleum Institute (“API”) and
American Fuels and Petrochemical Manufacturers Association
(“AFPMA”) (collectively “Plaintiffs”) brought federal
preemption-based challenges in the district court seeking to
enjoin enforcement of North Carolina’s Ethanol Blending Statute
(“the Blending Statute”), N.C. Gen. Stat. § 75-90 (2008).
Concluding that the Blending Statute was not preempted under any
of the grounds advanced by Plaintiffs, the court granted summary
judgment in favor of the State of North Carolina and the
Intervenor-Defendant, the North Carolina Petroleum and
Convenience Marketers Association (“NCPCMA”) (collectively
“Defendants”). For the reasons set forth below, we affirm the
district court’s judgment in part, vacate it in part, and remand
for further proceedings consistent with this opinion. 1
1
The Plaintiffs in this action are two trade organizations
representing the natural gas and oil industry in the United
States, including manufacturers and refiners of oil and gasoline
who import gasoline into North Carolina. NCPCMA, the Defendant-
Intervenor is a statewide trade association, representing
businesses engaged in the marketing of petroleum and convenience
products. Over Plaintiffs’ objection, the district court
allowed the NCPCMA to intervene as a defendant.
3
I.
This appeal involves the complex interplay of federal and
state regulatory schemes concerning the distribution of
renewable fuels. We begin with an overview of the applicable
federal renewable fuel program and the state’s Blending Statute.
In an attempt to increase the quantity of renewable fuels
in the marketplace, Congress enacted a statutory regime that we
refer to generally as the “federal renewable fuel program.” See
Energy Policy Act of 2005 (“the Act”), Pub. L. No. 109-58
(codified at 42 U.S.C. § 7545(o)). In furtherance of the Act,
Congress authorized the Environmental Protection Agency (“EPA”)
to adopt regulations to mandate suppliers such as gasoline
importers and refiners (but not distributors or marketers) to
offer for sale renewable fuel, e.g., ethanol. 2 See 40 C.F.R.
§ 80.1406. The EPA is charged with determining, annually, how
much renewable fuel should enter the marketplace, and assigning
volume-based quotas to obligated entities in order to meet the
annual requirement.
To monitor compliance, each gallon of renewable fuel
produced or imported into the United States is assigned a unique
2
The Act defines “renewable fuel” as “fuel that is produced
from renewable biomass,” 42 U.S.C. § 7545(o)(1)(J), which
includes ethanol, biomass-based diesel, and cellulosic biofuel,
to name a few. Id. This appeal only concerns the practice of
blending ethanol with conventional gasoline.
4
renewable identification number (“RIN”). See 40 C.F.R.
§ 80.1128. These RINs are attached to the fuel, and transferred
along with the fuel to purchasers. The RINs are tracked by the
EPA, and if an obligated party fails to obtain an adequate
number of RINs, it may be subject to a significant monetary
penalty. See 40 C.F.R. §§ 80.1160, 80.1161, 80.1163. Once
renewable fuel is blended with traditional gasoline (most often
at a 1:9 ratio, creating the blended fuel “E-10” meaning 10
percent ethanol), the RIN separates from the renewable fuel,
becomes the property of the entity who blended the renewable
fuel with the gasoline, and may be traded on the open market.
Under this mechanism, obligated parties who do not themselves
blend renewable fuel with conventional gasoline may acquire RINs
and also meet the EPA mandate on the quantity of RINs. 3
At the heart of the issues in this case are the two common
methods employed to blend ethanol with conventional gasoline.
The first, “inline” blending, is conducted by suppliers and
takes place at the terminal where distributors and retailers
3
Related to the federal renewable fuel program is the
Volumetric Ethanol Excise Tax Credit (“VEETC”), 26 U.S.C.
§ 6426. The VEETC grants a tax credit of fifty-one cents per
gallon to an entity that blends ethanol with conventional
gasoline. Congress allowed the VEETC to expire at the end of
2011. However, earlier this year, Congress renewed the VEETC
through the end of 2013. See American Taxpayer Relief Act of
2012, Pub. L. No. 112-240 § 412(a).
5
purchase the gasoline product from the suppliers. 4 The inline
blending process consists of unblended (“pure”) gasoline at the
terminal being transferred to a holding container denominated as
a “terminal rack.” A computer measures and pumps ethanol from a
separate tank (along with the supplier’s brand-specific
additives) into the pure gasoline. The blended gasoline is then
transferred from the terminal rack to a transport vehicle for
delivery to the retailer.
The second blending method, “splash blending,” 5 describes a
process by which a retailer purchases unblended gasoline from a
supplier at the supplier’s terminal. The retailer adds ethanol,
purchased separately from an ethanol distributor, to the
unblended gasoline in the transport vehicle by pumping the
ethanol into that vehicle’s tank. The ethanol is blended with
4
For purposes of this opinion we will use the terms
“supplier” and “retailer” to describe the relevant parties on
either end of the ethanol transactions at issue as those terms
are used in the Blending Statute. A supplier may include
parties also denominated as “refiners” or “manufacturers,” but
are the entities bringing pure gasoline for sale to “retailers”
in North Carolina. “Retailers” may include parties also
denominated as “marketers” or “distributors” but are the parties
delivering ethanol for sale either to the ultimate consumer or
final market vendor.
5
“Splash blending” is sometimes referred to in the record
as “below the line” or “below the rack” blending. The terms are
used interchangeably, however, and we simply refer to the
practice as “splash blending.”
6
the “pure” gasoline by the vehicle’s movement, i.e., “splash”
blending.
The Plaintiffs contended before the district court, and on
appeal, that splash blending is more subject to error than
inline blending and thereby inhibits their ability to preserve
and verify the quality of their trademarked goods. In other
words, they assert splash blending is more likely than inline
blending to produce a blended gasoline product with an incorrect
ethanol to gasoline ratio, which, among other things, could
adversely affect motor vehicle performance. According to
suppliers, they have tried to prevent these errors by
transitioning away from splash blending and installing inline
blending equipment at their terminals in North Carolina.
Against this backdrop the North Carolina General Assembly
enacted the Blending Statute in 2008, which provides, in
pertinent part:
(b) A supplier that imports gasoline into the State
shall offer gasoline for sale to a distributor or
retailer that is not preblended with fuel alcohol and
that is suitable for subsequent blending with fuel
alcohol.
(c) The General Assembly finds that use of blended
fuels reduces dependence on imported oil and is
therefore in the public interest. The General
Assembly further finds that gasoline may be blended
with fuel alcohol below the terminal rack by
distributors and retailers as well as above the
terminal rack by suppliers and that there is no reason
to restrict or prevent blending by suppliers,
distributors, or retailers. Therefore, any provision
7
of any contract that would restrict or prevent a
distributor or retailer from blending gasoline with
fuel alcohol or from qualifying for any federal or
State tax credit due to blenders is contrary to public
policy and is void. This subsection does not impair
the obligation of existing contracts, but does apply
if such contract is modified, amended, or renewed.
N.C. Gen. Stat. § 75-90. The Blending Statute thus requires
those entities importing gasoline into North Carolina (i.e., the
suppliers) to offer unblended gasoline for sale to retailers and
prevents suppliers from contractually restricting retailers from
splash blending, i.e., blending ethanol with gasoline
themselves.
In 2008, Plaintiffs filed a complaint against the State of
North Carolina (“the State”) in the U.S. District Court for the
Eastern District of North Carolina, seeking to enjoin the State
from enforcing the Blending Statute. The Plaintiffs alleged
that the Blending Statute was preempted by (1) the Petroleum
Marketing Practices Act (“PMPA”), 15 U.S.C. §§ 2801-2841; (2)
the federal renewable fuel program; and (3) the Lanham Act, 15
U.S.C. §§ 1051-1113. 6 In 2010, the parties made certain factual
6
Plaintiffs also raised a challenge to the Blending Statute
based on the Constitution’s Commerce Clause. The district court
twice granted summary judgment in favor of Defendants on that
claim, and Plaintiffs have not challenged the disposition of
that claim on appeal. Thus, this claim has been abandoned by
Plaintiffs. See United States v. Brooks, 524 F.3d 549, 556 n.11
(4th Cir. 2008) (issue not raised in opening brief is
abandoned).
8
stipulations and filed cross-motions for summary judgment
relating to Plaintiffs’ facial challenges to the Blending
Statute.
The district court granted summary judgment in favor of
Defendants on Plaintiffs’ facial challenges, and correspondingly
denied Plaintiffs’ motion for summary judgment (hereinafter the
“Facial Summary Judgment Order”). See Am. Petroleum Inst. v.
Cooper, 681 F. Supp. 2d 635 (E.D.N.C. 2010). In doing so, the
court held that the Blending Statute was consistent with
articulated Congressional goals in the context of the federal
renewable fuel program. Relying heavily on this Court’s opinion
in Mobil Oil Corp. v. Virginia Gasoline Marketers & Automobile
Repair Association, 34 F.3d 220 (4th Cir. 1994), the district
court also rejected Plaintiffs’ claims that either the Lanham
Act or the PMPA preempted the Blending Statute.
Following the district court’s Facial Summary Judgment
Order, the parties engaged in further discovery on Plaintiffs’
claims that the Blending Statue was preempted as applied to
them. The parties again filed cross-motions for summary
judgment, and the district court again granted summary judgment
in favor of the Defendants, and correspondingly denied the
Plaintiffs’ motion for summary judgment (“As-Applied Summary
Judgment Order”). See Am. Petroleum Inst. v. Cooper, 835 F.
Supp. 2d 63 (E.D.N.C. 2011).
9
On the federal renewable fuel program preemption issue, the
court concluded that suppliers were essentially seeking the
ability to exclude retailers from the selling or trading of
RINs, and held that the federal renewable fuel program did not
contemplate such a monopoly. In rejecting Plaintiffs’ as-
applied Lanham Act challenge, the court largely reiterated many
of the conclusions set forth in the Facial Summary Judgment
Order, including its holding that the Blending Statute does not
affect the ability of suppliers to engage in quality control of
their trademarked products. Lastly, the court rejected
Plaintiffs’ claim that, as applied to them, the Blending Statue
prohibited them from terminating a franchise relationship for
“willful adulteration” of suppliers’ products, in violation of
the PMPA.
The district court then entered a final judgment in favor
of Defendants on all of Plaintiffs’ claims. Plaintiffs’ noted a
timely appeal of that judgment, and we have jurisdiction
pursuant to 28 U.S.C. § 1291. 7
7
Defendants assert that we lack jurisdiction to consider
issues on appeal pertaining to Plaintiffs’ facial challenge to
the Blending Statute under the PMPA because Plaintiffs failed to
timely appeal the district court’s Facial Summary Judgment
Order.
This argument lacks merit. The Facial Summary Judgment
Order was not an appealable final judgment because it did not
dispose of all of Plaintiffs’ claims. See Fox v. Baltimore
Police Dep’t, 201 F.3d 526, 530 (4th Cir. 2000) (“[A] district
(Continued)
10
II.
We review the district court’s summary judgment ruling de
novo, applying the same standard applied by the district court.
See Henry v. Purnell, 652 F.3d 524, 531 (4th Cir.) (en banc),
cert. denied, 132 S. Ct. 781 (2011). We “view all facts and
reasonable inferences therefrom in the light most favorable to
the nonmoving party,” T–Mobile Ne., LLC v. City Council of
Newport News, Va., 674 F.3d 380, 385 (4th Cir.) (internal
quotation marks omitted), cert. denied, 133 S. Ct. 264 (2012),
here, the Plaintiffs. Summary judgment should be granted “if
the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a).
III.
Plaintiffs contend that the district court erred in
concluding that the Blending Statute was not preempted on the
basis of the Lanham Act, the PMPA, or the federal renewable fuel
program. Defendants’ argue, as a threshold matter, that there
court order is not ‘final’ until it has resolved all claims as
to all parties.”). The judgment ultimately entered by the
district court explicitly referenced both of its summary
judgment orders, and Plaintiffs have taken a proper appeal from
that judgment. We thus have subject matter jurisdiction as to
all the issues now raised by Plaintiffs on appeal.
11
is no preemption because suppliers can opt out of the
requirements of the Blending Statute. Before addressing these
specific contentions, we review certain fundamental principles
in the consideration of a preemption claim.
A. Preemption Doctrine
Under the Constitution’s Supremacy Clause, U.S. Const. art.
VI, cl. 2, state laws that conflict with applicable federal law
are preempted. Cox v. Shalala, 112 F.3d 151, 154 (4th Cir.
1997) (citation omitted). When conducting a preemption
analysis, we are guided first and foremost by the maxim that
“the purpose of Congress is the ultimate touchstone in every
pre-emption case.” Wyeth v. Levine, 555 U.S. 555, 565 (2009).
That said, when determining the interplay of the federal and
state statutes at issue, we are obliged to attempt to harmonize
those statutes if reasonably possible. See Anderson v. Babb,
632 F.2d 300, 308 (4th Cir. 1980) (“a court should avoid, if
possible, that construction of a statute that would result in
its constitutional invalidation.”). We recognize and apply a
rebuttable presumption that Congress, by enacting a federal
statute, did not intend to preempt state law. Columbia Venture,
LLC v. Dewberry & Davis, LLC, 604 F.3d 824, 830 (4th Cir. 2010).
Nonetheless, Congress may evince an intent to preempt state
law in three ways. First, federal law may preempt state law by
expressly declaring Congress’ intent to do so (“express
12
preemption”). Cox, 112 F.3d at 154. Second, Congress can
“occupy the field by regulating so pervasively that there is no
room left for the states to supplement federal law” (“field
preemption”). Id. And third, a state law is preempted “to the
extent it actually conflicts with federal law” (“conflict
preemption”). Id. Conflict preemption “includes cases where
compliance with both federal and state regulations is a physical
impossibility, and those instances where the challenged state
law stands as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress.” Arizona v.
United States, 567 U.S. ---, ---, 132 S. Ct. 2492, 2501 (2012)
(internal quotation marks and citations omitted). Plaintiffs do
not contend that Congress has “occupied the field” with respect
to ethanol blending, but do argue conflict and express
preemption apply to the Blending Statute.
We now turn to the specific issues of preemption on appeal.
B. Opt Out
Defendants first argue that the Blending Statute is not
preempted under any theory advanced by Plaintiffs because
suppliers are able to opt out of the Blending Statute.
Specifically, the Defendants observe that although the Blending
Statute requires suppliers who import gasoline to offer
unblended gasoline for sale, the Blending Statute does not
specify the amount of unblended gasoline that must be sold, the
13
minimum number of terminals at which unblended gasoline must be
sold, or the grades of unblended gasoline that must be sold.
The Defendants assert that, as a matter of record, some
suppliers are already attempting to mitigate the effects of the
Blending Statute by, for example, selling unblended gasoline
only at a single terminal in North Carolina, or offering only a
single grade of unblended gasoline that, when mixed with
ethanol, only produces a more expensive, premium gasoline
product. Defendants also posit that the Blending Statute could
potentially be avoided by suppliers choosing to import only
conventional blendstock for oxygenate blending (“blendstock”), a
sub-octane gasoline product that only reaches a standard 87-
octane when mixed with ethanol.
The district court did not accept Defendants’ opt-out
argument and neither do we. Defendants (including the State)
have not conceded before the district court or this Court that
the suppliers’ actions in attempting to remove themselves (i.e.,
opt-out) from the ambit of the Blending Statute are permitted
under North Carolina or federal law. This fact alone gives us
considerable pause as to the validity of Defendants’ opt-out
contentions. More to the point, however, the mere fact that
suppliers may be able to take certain steps to limit the reach
of the Blending Statute does not equate to an ability to “opt
out” of the Blending Statute for preemption purposes. Indeed,
14
Defendants cite no case, and we identify none, in support of
their argument that an otherwise-preempted state law survives
preemption merely because those subject to it can alter their
conduct in order to avoid some part of its ambit. Defendants’
argument thus lacks merit.
C. PMPA Preemption
In Mobil Oil, we explained that
The [PMPA] governs the relationships between petroleum
refiners and their retail franchisees. The PMPA's
primary purpose is to protect petroleum franchisees
from arbitrary or discriminatory terminations and
nonrenewals. S.Rep. No. 731, 95th Cong., 2d Sess. 15,
reprinted in 1978 U.S.C.C.A.N. 873, 874. [The PMPA]
also serves two secondary purposes: to provide
uniformity in the law governing petroleum franchise
termination and nonrenewal, and to allow franchisors
flexibility in dealing with franchisee misconduct or
changes in market conditions. 1978 U.S.C.C.A.N. at
877. It expressly preempts state law governing
termination or nonrenewal which differs from its
provisions. 15 U.S.C.A. § 2806(a).
34 F.3d at 223. We also observed that “Congress used very broad
language to define the PMPA’s preemptive scope. The [PMPA]
preempts any state law ‘with respect to’ termination or
nonrenewal which differs from the PMPA.” Id. at 225.
The Mobil Oil court noted that the state law at issue there
narrows the grounds for termination available to
franchisors operating in Virginia. Under the PMPA, if
contractual terms are reasonable and material, a
franchisee's failure to comply with them is legitimate
grounds for termination. Unless the terms prohibited
by [the state law] would in all circumstances be
unreasonable and immaterial—a finding we are unwilling
15
to make—[the state law] eliminates grounds for
termination that would be available under the PMPA.
Id. at 224 (internal citations omitted). Thus, the express
preemption previsions of the PMPA preempted the Virginia statute
at issue in Mobil Oil.
In 1994, however, just months after the Mobil Oil decision,
Congress passed certain amendments to the PMPA that are relevant
here. First, Congress amended the PMPA such that a franchisor
could no longer terminate or nonrenew a franchise agreement for
failure to comply with a reasonable franchise agreement
provision, if that provision is “illegal or unenforceable” under
otherwise applicable state law. See 15 U.S.C. §§ 2802(b)(2)(A);
2801(13)(C) (“the following are grounds for termination of a
franchise . . . : A failure by the franchisee to comply with any
provision of the franchise,” but “the term ‘failure’ does not
include . . . any failure based on a provision of the franchise
which is illegal or unenforceable under the law of any State.”).
Second, Congress narrowed the grounds for preemption by
prohibiting a franchisor from conditioning a new franchise or
renewal upon an agreement “to release or waive . . . any right
that the franchisee may have under any valid or applicable State
law.” 15 U.S.C. § 2805(f)(1)(B).
In the absence of the 1994 amendments, Plaintiffs would
have a strong argument supporting their PMPA preemption claim.
16
We agree with the district court, however, that the 1994
amendments to the PMPA significantly narrowed the prior
statute’s preemptive scope so that the current version of the
PMPA does not preempt the Blending Statute. The district court
properly held that the 1994 amendments give states “the
authority to pass substantive laws making certain franchise
provisions illegal or unenforceable.” (J.A. 95). To read the
1994 amendments otherwise would render those portions of the
PMPA a nullity. It is axiomatic that when interpreting a
statute, this Court should strive to “avoid any interpretation
that may render statutory terms meaningless or superfluous.”
Discover Bank v. Vaden, 396 F.3d 366, 369 (4th Cir. 2005).
Thus, for PMPA purposes only, the 1994 amendments render the
Blending Statute immune from Plaintiffs’ preemption claim.
As an alternative argument, Plaintiffs contend that the
Blending Statute conflicts with certain provisions of the PMPA
that allow a franchisor to terminate a franchise agreement for
“willful adulteration” of a petroleum product by the franchisee.
The PMPA provides that a franchisor may terminate a franchise
relationship on the basis of “[t]he occurrence of an event which
is relevant to the franchise relationship and as a result of
which termination of the franchise or nonrenewal . . . is
reasonable.” 15 U.S.C. § 2802(b)(2)(C). As relevant here, “an
event which is relevant to the franchise relationship, [etc.]”
17
includes “willful adulteration, mislabeling or misbranding of
motor fuels or other trademark violations.” § 2802(c)(10)
We do not agree with Plaintiffs that splash blending
constitutes the sort of “willful adulteration” contemplated by
Congress in § 2802. First, the language of the PMPA strongly
suggests that “adulteration” is similar to “misbranding,” or
“other trademark violations.” 15 U.S.C. § 2802(c)(10) (emphasis
added). This is consistent with the holdings of those cases
(cited by the district court) that have interpreted
“adulteration” to mean some form of mislabeling or misbranding.
See Wisser Co. v. Mobil Oil Corp., 730 F.2d 54, 60 (2d Cir.
1984) (equating “misbranding” of gasoline with adulteration
provision of PMPA); Little Tor Auto Ctr. v. Exxon Co. USA, 830
F. Supp. 792, 795 (S.D.N.Y. 1993) (same); Shell Oil Co. v.
Wentworth, 822 F. Supp. 878, 882 (D. Conn. 1993) (same); Shell
Oil Co. v. Avar Corp., No. 97 C 4479, 1998 WL 312119, at *3
(N.D. Ill. June 5, 1998) (“commingling” of fuel a violation of
adulteration provision of PMPA); Aoude v. Mobil Oil Corp., Civ.
No. 92-10495 RGS, 1994 WL 548061, at *1–3 (D. Mass. Sept. 2,
1994) (mixing two suppliers’ gasoline products constitutes
adulteration).
The statute itself lists “willful adulteration” seriatim
with “mislabeling, misbranding of other motor fuels or other
trademark violations,” suggesting that “willful adulteration”
18
must be understood in the same frame of references as
mislabeling or applying a nongenuine or altered mark. Moreover,
within the context of this case, the district court correctly
reasoned that “blending fuel with renewable fuel is an accepted
industry practice that Congress has recognized and mandated
through federal law.” (J.A. 526.) It is difficult to imagine
that when Congress stated that a franchise agreement could be
terminated for willful adulteration, it meant to include ethanol
blending, a practice which Congress not only mandates but also
incentivizes through tax credits. In sum, there is no merit to
Plaintiffs’ claim that splash blending would constitute “willful
adulteration” as that term is understood in statute and case law
for PMPA purposes so as to bring about a conflict between it and
the Blending Statute.
Accordingly, we agree with the district court that the PMPA
does not preempt the Blending Statute, either expressly or by
way of conflict preemption. The district court did not err in
granting summary judgment to Defendants as to this issue.
D. Federal Renewable Fuel Program Preemption
Plaintiffs also argue that the Blending Statute is
preempted by the federal renewable fuel program. We conclude
that the district court correctly held that it is not.
19
At the outset, we note our agreement with what the district
court described as the “uncontested purpose” of the federal
renewable fuel program:
“to ensure jobs . . . [through] secure, affordable,
and reliable energy” and “to move the United States
toward greater energy independence and security” by
“increas[ing] the production of clean, renewable fuels
. . . .” Energy Policy Act of 2005, Pub. L. No. 109-
58, 119 Stat. 594 (establishing renewable fuel
program); Energy Independence and Security Act of
2007, Pub. L. No. 110-140, 121 Stat. 1492 (amending
renewable fuel program). To that end, Congress
created annual goals for renewable fuel usage, and
directed the Environmental Protection Agency (“EPA”)
to create regulations that would “ensure that gasoline
sold or introduced into commerce in the United States
. . . contains the applicable volume of renewable fuel
determined [by that table].” 42 U.S.C.
§ 7545(o)(2)(A)(I), (B).
(J.A. 502-03.) In promulgating final rules for the creation of
the RIN trading system under the federal renewable fuel program,
the EPA described its objectives as follows:
[The RIN system] was developed in light of the
somewhat unique aspects of the [renewable fuel]
program. . . . [U]nder this program the refiners and
importers of gasoline are the parties obligated to
comply with the renewable fuel requirements. At the
same time, refiners and importers do not generally
produce or blend renewable fuels at their facilities
and so are dependent on the actions of others for the
means of compliance. Unlike EPA’s other fuel
programs, the actions needed for compliance largely
center on the production, distribution, and use of a
product by parties other than refiners and importers.
In this context, we believe that the RIN transfer
mechanism should focus primarily on facilitating
compliance by refiners and importers and doing so in a
way that imposes minimum burden on other parties and
minimum disruption of current mechanisms for
distribution of renewable fuels.
20
Our final program does this by relying on the current
market structure for ethanol distribution and use and
avoiding the need for creation of new mechanisms for
RIN distribution that are separate and apart from this
current structure. Our program basically requires
RINs to be transferred with renewable fuel until the
point at which the renewable fuel is purchased by an
obligated party or is blended into gasoline or diesel
fuel by a blender. This approach allows the RIN to be
incorporated into the current market structure for
sale and distribution of renewable fuel, and avoids
requiring refiners to develop and use wholly new
market mechanisms. While the development of new
market mechanisms to distribute RINs is not precluded
under our program, it is also not required.
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard
Program, 72 Fed. Reg. 23,900, 23,937 (May 1, 2007) (emphases
added). The EPA’s statements are instructive insofar as they
recognize that, generally speaking, retailers would be the
parties who carried out the blending of ethanol with
conventional gasoline.
This determination by the agency charged with carrying out
the renewable fuel program counsels a finding that the federal
renewable fuel program does not preempt the Blending Statute.
The EPA anticipated that suppliers (i.e., refiners and
importers) would often not be carrying out the blending
themselves, but rather, would sell unblended gasoline to
distributors who would then blend the gasoline with ethanol.
That the suppliers may find themselves having to purchase RINs
was fully anticipated by the agency charged with implementing
21
the renewable fuel program and militates in favor of a finding
for the Defendants on this issue.
Moreover, we reiterate the presumption that Congress did
not intent to preempt state law. Cf. Columbia Venture, 604 F.3d
at 830. And Plaintiffs have identified no component of the
federal renewable fuel program that is impeded by the Blending
Statute. Plaintiffs’ chief complaint is that the Blending
Statute impedes the flexibility that Congress and the EPA
intended to grant suppliers in determining how to meet their
obligations under the federal renewable fuel program. But as
the district court correctly observed, suppliers are essentially
seeking to exclude retailers from participating in the process
of ethanol blending, therefore creating a monopoly of RINs. As
recounted above, the EPA clearly did not contemplate the RIN
market developing in such a manner. Indeed, to the extent that
the federal renewable fuel program is concerned with creating
flexible systems for production of blended gasoline, the
Blending Statute contributes to those ends by requiring
suppliers to allow retailers to blend ethanol with conventional
gasoline.
We therefore conclude that the Plaintiffs’ contention that
the federal renewable fuel program preempts the Blending Statute
lacks merit. The district court did not err in granting summary
judgment to the Defendants as to this issue.
22
E. Lanham Act Preemption
Plaintiffs’ final argument for preemption is that the
Blending Statute interferes with suppliers’ ability to control
the quality of the products bearing their trademarks. Such
quality control by the mark holder, the Plaintiffs represent, is
a fundamental premise of the Lanham Act and provides the basis
for their preemption argument on the Blending Statute. The
Plaintiffs do not contend that Congress, via the Lanham Act, has
expressly preempted the Blending Statute. Rather, the
Plaintiffs rely on “conflict preemption;” that is, whether the
Blending Statute “actually conflicts with federal law,” Cox, 112
F.3d at 154, or “stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress,”
Arizona, --- U.S. at ---, 132 S. Ct. at 2501.
As one court has explained, “the Lanham Act expresses a
Congressional design to legislate so that the public can buy
with confidence, and the trademark holder will not be pirated.”
Mariniello v. Shell Oil Co., 511 F.2d 853, 858 (3d Cir. 1975).
In Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104
(4th Cir. 1991), we observed that “the Lanham . . . Act affords
the trademark holder the right to control the quality of the
goods manufactured and sold under its trademark. The actual
quality of the goods is irrelevant; it is the control of the
quality that a trademark holder is entitled to maintain.” Id.
23
at 107 (internal quotation marks, alteration, and citation
omitted).
In addition, one of the Lanham Act’s purposes is “to
establish uniform regulation of trademarks thereby eliminating
the possibility that remedies would vary from state to state.”
Rickard v. Auto Publisher, Inc., 735 F.2d 450, 457 (11th Cir.
1984). The Lanham Act is intended to, inter alia, “protect
registered marks used in [interstate] commerce from interference
by State . . . legislation.” 15 U.S.C. § 1127.
Two cases from this Court are particularly instructive in
determining the application of the Lanham Act in the case at
bar. Shell Oil, a trademark infringement case, informs our
preemption analysis because it articulates the rights of a
trademark owner to regulate the quality control of the petroleum
products bearing its mark. In Shell Oil, a wholesaler of bulk
oil (who was not authorized to sell Shell oil) bought Shell-
brand oil from an authorized distributor and then resold it
under the Shell trademark. 928 F.2d at 106. The wholesaler
argued it was entitled to do so because the Lanham Act does not
apply to the sale of genuine goods bearing genuine marks. Id.
at 107. We disagreed, emphasizing that a trademarked good is
only “genuine” if it is manufactured and distributed under
quality controls established by that good’s manufacturer.
“Without Shell’s enforcement of its quality controls, the bulk
24
oil sold by [the wholesaler] was not ‘genuine.’” Id.
Importantly, we underscored that the existence of quality
controls on the part of the resaler were immaterial. “[I]n
order to maintain the genuineness of the bulk oil, the quality
standards must be controlled by Shell.” Id. (emphasis added).
Furthermore, the Shell Oil court observed that, in the
absence of quality controls as established by Shell, consumer
confusion was likely, and the Lanham Act violated. “The use of
the Shell mark implies that the product has been delivered
according to all quality control guidelines enforced by the
manufacturer.” Id. at 108. “[P]roof of actual confusion is
unnecessary; the likelihood of confusion is the determinative
factor.” Id. (quoting Soweco, Inc. v. Shell Oil Co., 617 F.2d
1178, 1185-86 (5th Cir. 1980). 8
8
Shell Oil’s holding is consistent with that in United
States v. Farmer, 370 F.3d 435 (4th Cir. 2004), a criminal
trademark counterfeiting case. In Farmer, we upheld the
criminal trademark conviction of a defendant accused of
purchasing shirts manufactured for (but rejected by) mark
holders, affixing the registered mark, and selling the shirts as
genuine. We reasoned that, even if the quality of the shirts
sold by the defendant was identical to the quality of “genuine”
Nike shirts, “[o]ne of the rights that a trademark confers upon
its owner is the right to control the quality of the goods
manufactured and sold under that trademark.” Id. at 441
(internal quotation marks omitted). Accordingly, “the actual
quality of the goods is irrelevant; it is the control of quality
that a trademark holder is entitled to maintain.” Id. (internal
quotation marks omitted).
25
Mobil Oil directly involved a claim of Lanham Act
preemption as Mobil challenged Virginia laws regulating the
maximum number of stations a retailer could operate, sales
quotas for those stations, and minimum hours of operation. We
acknowledged the settled principle that “[t]he Lanham Act gives
a mark owner the right to control the quality of goods
associated with his mark,” 34 F.3d at 226, but held that the
regulations at issue did not run afoul of the Lanham Act, id. at
226-27, under the facts of that case. Significantly, the
challenged restrictions in Mobil Oil were entirely unrelated to
the manufacture or preparation of the actual trademarked
product, Mobil-branded gasoline.
With respect to the Virginia regulation that suppliers
could not require retailers to be open twenty-four consecutive
hours per day, we held that the provision “does not adversely
affect the quality of services provided by Mobil service
stations” because “the inability to require 24-hour operation
does not detract from [Mobil’s] trademark image.” Id. at 226.
We also held that the Virginia law prohibiting suppliers from
limiting the number of stations a retailer could operate was not
preempted because it “[did] not have a significant negative
impact on Mobil’s quality control efforts. This provision does
not alter the franchisee’s obligations to uphold Mobil’s
standards as set forth in the franchise agreement[.]” Id.
26
Lastly, we reasoned that the Virginia provision prohibiting
gasoline purchase or sales quotas in franchise agreements was
not preempted because the provision “[did] not prevent Mobil
from maintaining the quality of its products and services. . . .
[a]ll gasoline sold under the Mobile mark must comply with
Mobil’s quality standards.” Id.
Although we did not find Lanham Act preemption applied in
Mobil Oil, the basis of our decision was that the challenged
restrictions did not have a “significant negative impact on”
Mobil’s ability to control the quality of its trademarked good,
Mobil gasoline. See id. Read together, Mobil Oil and Shell Oil
stand for the proposition that, under the Lanham Act, the mark
holder has a right to maintain the quality of the goods bearing
its mark, and when a state statute does not significantly
interfere with that right, there is no preemption.
Applying that framework to the case at bar, we conclude
that the district court erred by granting summary judgment in
favor of Defendants because genuine issues of material fact
remain in dispute. Specific to this case, the Plaintiffs’ as-
applied preemption challenge under the Lanham Act goes to the
effect of splash blending by retailers on the Plaintiffs’
trademark rights; i.e., the quality of the gasoline product sold
under those trademarks when it is produced by the splash
blending process. Plaintiffs contended before the district
27
court that splash blending is unreliable as compared to inline
blending because of the potential for human error in the
measuring, delivery, and mixing of the ethanol as part of that
process. By contrast, they note that inline blending is
computer-operated, and when errors do occur, they are quickly
detected and the blended gasoline is not released for sale.
Because of the difference in the production methods, Plaintiffs
assert that splash blended gasoline that is improperly blended
is more difficult to detect, and more costly to correct, and has
a greater potential to harm the customer’s vehicle; all to the
potential detriment of the suppliers’ marks.
In addition to tendering affidavits in support of these
claims, Plaintiffs submitted anecdotal documentation of
trademarked blended gasoline, sold as E-10, but being comprised
of more or less than 10 percent ethanol. In sum, Plaintiffs
presented competent evidence that splash blending could result
in an inferior quality product that could harm vehicle engines
or performance thereby denigrating the value of the trademarked
goods and fostering consumer confusion. In response, the
Defendants presented evidence contradicting some of the
Plaintiffs’ evidence.
The district court, however, did not view the factual
dispute regarding the relative quality of blending practices to
be a material one for summary judgment purposes. In awarding
28
summary judgment to the Defendants, the district court rejected
Plaintiffs’ arguments “that splash blending prevents them from
effective quality control” because “the undisputed facts do not
support that contention.” (J.A. 519.) The district court
concluded that the Blending Statute “as applied does not prevent
suppliers from engaging in quality control of their trademarked
branded products,” (J.A. 518), and therefore “a dispute over the
best blending practice does not create an issue of material fact
to withstand summary judgment,” (J.A. 520.)
Citing to several of the parties stipulations (¶¶ 86-121),
the district court held that because problems can arise from
both inline and splash blending, “blending is an imperfect
process,” and therefore, no genuine issue of material fact
exists. (J.A. 519-20). The court relied heavily on ¶ 74 of the
stipulations, which stated that:
Suppliers have asked Marketers in North Carolina to
sign splash blending agreements if those marketers
wish to splash blend a Supplier’s branded gasoline
product with ethanol. In some cases, the splash
blending agreements impose quality control measures
for splash blending and statements that seek to limit
the Supplier’s liability for blending errors.
(J.A. 117.) This stipulation, however, does not establish as
undisputed fact that splash blended gasoline sufficiently meets
the quality control that suppliers require for the trademarked
goods: the blended gasoline. There is no explanation in the
record whether the “quality control measures” imposed by the
29
splash blending agreements are sufficient in fact to maintain
the quality reasonably required by the trademark owner, or
whether they are merely an effort to mitigate the effects of the
Blending Statute by requiring that splash blending be conducted
in the best way possible absent preemption. Further findings of
fact are necessary to determine whether the quality controls,
imposed at the insistence of suppliers, are sufficient to
actually protect the quality of the trademarked gasoline.
The court was correct that problems may arise from both
inline and splash blending. But the fact that the trademark
owner’s preferred method of quality control is imperfect does
not mean that other, perhaps more flawed, quality control
measures are sufficient to protect the trademark owners’
interests in maintaining the quality of their marks and avoiding
consumer confusion. If, as a factual matter, inline blending is
generally more accurate, or less likely to result in sub-quality
blended gasoline, suppliers may have a legitimate Lanham Act
claim that the Blending Statute forces them to authorize
retailers to downgrade their trademarked products in the splash
blending process that results in fuel that is below the quality
desired by the holder of the mark. Whether they in fact have
such a claim depends on the answer to factual questions that
were not resolved prior to the award of summary judgment.
30
The district court, however, concluded that the Blending
Statute could be construed to avoid a conflict with Lanham Act
principles. In the district court’s view, suppliers could “set
forth specific guidelines for blending and require random
testing of the resulting blended gasoline.” (J.A. 518.) And to
deal with retailers who are unwilling to “follow [suppliers’]
quality control procedures, suppliers may forbid the use of the
trademarked name as to the subsequent sale of the blended
gasoline and bring suit under the Lanham Act where such
unauthorized use occurs.” (J.A. 519.)
In reaching these conclusions, however, the district court
failed to view the record evidence under the correct summary
judgment standard, “taking the evidence and all reasonable
inferences drawn therefrom in the light most favorable to the
nonmoving party.” Durham v. Horner, 690 F.3d 183, 188 (4th Cir.
2012). Construing the record evidence in favor of the
nonmovant, the Plaintiffs, the evidence does present a genuine
disputed issue of material fact that does not permit the award
of summary judgment in the current posture of the case.
If the Plaintiffs’ evidence is proven at trial, there is a
reasonable possibility that splash blending could have a
“significant negative impact” on the gasoline product sold to
the consumer. That effect, if significantly deleterious, could
negatively affect the quality of the marked goods in a way that
31
after the fact quality control measures would be insufficient to
safeguard and maintain the quality of the “trademarked, branded
products.” Further, if the Plaintiffs prevailed on this factual
issue of scientific proof, then their Lanham Act rights may
extend beyond the partial quality control measures articulated
by the district court and may not be sufficiently protected by
post hoc remedies after the inferior trademarked goods have been
placed in the consumer market by virtue of a conflicting state
statute.
If the Blending Statute effectively operates to authorize
Lanham Act violations with a “significant negative impact” on
the quality of the trademarked good, the fact that suppliers
have a right of action against retailers in those circumstances
may be insufficient to save the Blending Statute from
preemption. See Cox, 112 F.3d at 154 (state law is preempted
“to the extent that it actually conflicts with federal law”).
Unlike the mark holder’s requirements in Mobil Oil, the
Plaintiffs’ trademark complaints here go directly to the
manufacture of the marked product, the blended gasoline, which
goes directly to a consumer market. Without finding as a fact
the effect of splash blending, the district court could only
speculate as to whether splash blending had a “significant
negative impact” and whether that impact would be, in fact,
sufficiently eliminated by a realistic set of after-the-fact
32
quality control measures. Consequently, the district court
could not have determined, without a factual resolution of the
effect of splash blending, whether the mark holders’ rights to
quality control of the marked product were protected from
“significant negative impact” and the likelihood of consumer
confusion prevented.
Under the Shell Oil/Mobil Oil formulation, it is not enough
to say, as the district court did, that some measure of quality
control is available to suppliers. Rather, the court must make
factual findings establishing whether or not the quality of
gasoline that is splash blended by retailers meets the trademark
holders’ (the Plaintiffs) quality standards to be blended in the
manner specified by the owner of the mark. If the splash-
blended fuel is not to a quality as specified by the trademark
owner then the district court should make further findings of
fact whether, and to what extent, the suppliers could reasonably
impose quality controls on splash blended gasoline, and the
efficacy of those quality control measures to protect their
trademarked goods and prevent consumer confusion. If the
suppliers are, as a factual matter, able to demand that
marketers take certain ameliorative steps that effectively
mitigate material risks to quality that the district court finds
are associated with splash blending, then the Blending Statute
may not “have a significant negative impact on [suppliers’]
33
quality control efforts.” Mobil Oil, 34 F.3d at 226. In that
circumstance, particularly in view of the presumption against
preemption, a finding of preemption may not lie.
Defendants rejoin on appeal that the Blending Statute does
not conflict with the objects of the Lanham Act because there is
no evidence in the record of consumer confusion. Defendants may
be correct as a matter of record, but the lack of evidence of
actual existing consumer confusion is beside the point. As we
observed above, “proof of actual confusion is unnecessary.”
Shell Oil, 928 F.2d at 108 (internal quotation marks and
alteration omitted). The key question is whether consumer
confusion is likely. See id. If the Plaintiffs’ factual claims
on inline blending versus splash blending are correct and other
quality control measures are not sufficiently effective, then
the district court must further weigh whether the sale of the
potentially inferior product will be likely to cause consumer
confusion. The suppliers’ trademarks suggest to the consumer
that the blended gasoline has been manufactured to a level of
quality specified by the trademark holder. And if that is not
so, the Lanham Act may be transgressed. 9
9
Plaintiffs also contend that the Blending Statute is
contrary to the goals of the Lanham Act because it allows for a
sort of “soft piracy” by permitting retailers to sell blended
gasoline bearing suppliers’ marks, when, in actuality, retailers
have only purchased a percentage of the final product from
(Continued)
34
Accordingly, we vacate the district court’s grant of
summary judgment to the Defendants on the Lanham Act preemption
claim. We remand the case to the district court to consider
upon further fact finding whether the Blending Statute, by
preventing suppliers from restricting the ability of retailers
to splash blend, has a “significant negative impact” on the
suppliers’ ability to ensure that blended gasoline bearing the
suppliers’ mark is at the level of quality suppliers reasonably
demand to safeguard their trademark rights and prevent consumer
confusion. In doing so, the court should be mindful both of the
weighty presumption against preemption of state law, and also of
the maxim that “the purpose of Congress is the ultimate
touchstone in every pre-emption case.” Wyeth, 555 U.S. at 565.
Finally, we note that should the district court conclude
suppliers cannot adequately ensure the quality of splash-blended
gasoline, the Lanham Act would not preempt the Blending Statute
in its entirety. Rather, any preemption under the Lanham Act
would go to limiting North Carolina from requiring suppliers to
suppliers (ninety percent in the case of E-10 gasoline, for
example). This argument lacks merit. As the district court
recognized, suppliers set the price of ethanol, and can require
retailers to disclose in advance of sale whether they intend to
blend unblended gasoline with ethanol. Nothing in the Blending
Statute prevents suppliers from adjusting their prices in order
to ensure that they are compensated for the goodwill associated
with the products bearing their trademarks.
35
permit the sale of splash-blended gasoline under their
trademarks. See Dalton v. Little Rock Family Planning Servs.,
516 U.S. 474, 476 (1996) (“[S]tate law is displaced only to the
extent that it actually conflicts with federal law.”) (internal
quotation marks omitted).
IV.
Although we are in agreement with the district court
insofar as it rejected Plaintiffs’ PMPA and federal renewable
fuel program preemption challenges, we hold that genuine issues
of material fact remain unresolved as to Plaintiffs’ Lanham Act
preemption challenge to the Blending Statute. As a consequence,
the district court erred in awarding summary judgment to the
Defendants on the Lanham Act claim. We therefore affirm the
judgment of the district court in part, vacate it in part, and
remand for further proceedings consistent with this opinion.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
36