Shukla v. BP Exploration & Oil

United States Court of Appeals,
Eleventh Circuit.
No. 95-3656.
Jeetendra L. SHUKLA, Individually, Plaintiff-Appellant,
v.
BP EXPLORATION & OIL, INC., a.k.a. BP Oil Company, Petro Distributing, Inc., Defendants-
Appellees.
June 20, 1997.
Appeals from the United States District Court for the Middle District of Florida. (No. 94-740-CIV-J-
16), John H. Moore, II, Judge.
Before TJOFLAT, DUBINA and CARNES, Circuit Judges.
DUBINA, Circuit Judge:
Plaintiff/Appellant Jeetendra Shukla ("Shukla") appeals (1) the district court's grant of
summary judgment in favor of Defendant/Appellant BP Exploration & Oil, Inc. ("BP") on Shukla's
claim for constructive termination of his franchise in violation of the Petroleum Marketing Practices
Act ("PMPA" or "the Act")1; and (2) the district court's grant of judgment as a matter of law in favor
of BP on Shukla's Florida law fraud claim. We conclude that Shukla's allegations fail to support a
constructive termination claim and that the PMPA preempts his fraud claim. Accordingly, we affirm
the judgment of the district court.
I. Background
This case arises from the refusal of Petro Distributing, Inc. ("Petro") to renew Shukla's
gasoline service station franchise agreement. Shukla entered into a Dealer Lease and Supply
Agreement ("DLSA") with BP in June, 1993, in which he agreed to lease a BP station in
Jacksonville, Florida, and sell BP products. Shukla's franchise was subject to a one-year trial period,
after which BP had the option to renew. Six months after Shukla signed the DLSA, BP sold all of
its Jacksonville-area service stations to Petro and assigned its franchise agreements—including
Shukla's DLSA—to Petro. Petro operated the Jacksonville stations as a jobber, continuing to use
1
15 U.S.C. § 2801, et seq.
BP's trade name and products. At the expiration of Shukla's one-year trial period, Petro refused to
renew the DLSA. Shukla filed suit against BP, alleging (1) that BP's assignment to Petro
constructively terminated his franchise agreement, in violation of the PMPA; and (2) that BP
fraudulently induced him to enter into the DLSA.2 The district court granted BP's motion for
summary judgment as to Shukla's PMPA claim and denied it as to Shukla's fraud claim. The court
then set the fraud claim for trial. During a pretrial conference, however, the district judge granted
BP's oral motion for judgment as a matter of law. The judge stated that, upon reconsideration, he
was "convinced ... that [Shukla did not have] a case for fraud in the inducement." R8-1, Transcript
of Pretrial Proceedings, at 19. Shukla then perfected this appeal.
II. Issues Presented
Shukla presents two issues on appeal: (1) whether BP's assignment to Petro constituted a
constructive termination of Shukla's franchise agreement, thereby triggering the protections of the
PMPA; and (2) whether Shukla's fraudulent inducement claim should have proceeded to trial.
III. Standard of Review
We review a district court's grant of summary judgment or judgment as a matter of law de
novo, applying the same legal standard used by the district court. Morisky v. Broward County, 80
F.3d 445 (11th Cir.1996) (summary judgment); United States Anchor Mfg., Inc. v. Rule Indus., Inc.,
7 F.3d 986, 993 (11th Cir.1993) (judgment as a matter of law). Summary judgment is appropriate
when there are no genuine issues of material fact and the movant is entitled to judgment as a matter
of law. Jaques v. Kendrick, 43 F.3d 628, 630 (11th Cir.1995). Judgment as a matter of law is
appropriate when, under the governing law and the evidence presented, there can be but one
reasonable conclusion as to the verdict. Vulcan Painters, Inc. v. MCI Constructors, Inc., 41 F.3d
1457, 1461 (11th Cir.1995).
IV. Discussion
A. PMPA Claim
2
Shukla also sued Petro for tortious interference and conversion. Those claims were resolved
in the district court and are not at issue in this appeal.
Congress enacted the PMPA in 1978 to protect motor fuel franchisees from arbitrary or
discriminatory termination or nonrenewal of their franchise agreements. Jones v. Crew Distributing
Co., 984 F.2d 405, 407-08 (11th Cir.1993); Farm Stores, Inc. v. Texaco, Inc., 763 F.2d 1335, 1339
(11th Cir.1985). The PMPA "sets forth the circumstances under which a supplier may terminate or
decide not to renew a franchise and imposes certain notice requirements." Freeman v. BP Oil, Inc.,
Gulf Products Division, 855 F.2d 801, 802 (11th Cir.1988). In general, franchises may only be
nonrenewed for one of several enumerated statutory reasons. See 15 U.S.C. § 2802(b). However,
trial franchises3 like Shukla's may be nonrenewed without cause, so long as the supplier satisfies the
notice requirements set forth in § 2804 of the PMPA. See 15 U.S.C. § 2803(a)(1), (c)(1). Section
2804 provides that, in the absence of extenuating circumstances, the franchisor must provide the
franchisee with written notice of its intention not to renew at least 90 days prior to the effective date
of termination of the franchise. See 15 U.S.C. § 2804.
Shukla contends that BP's assignment of his franchise agreement to Petro constructively
terminated the agreement in December of 1993 and that BP failed to give notice of the termination
under § 2804. Shukla acknowledges that Petro sent him a termination letter in February of 1994
which conformed to § 2804. However, he maintains that this termination notice was ineffective.
He argues that because the assignment was invalid, Petro never became the franchisor and Petro
could not have delivered the requisite notice. BP argues that the assignment to Petro was valid and
did not constitute a constructive termination. We agree with BP.
The PMPA does not prohibit the assignment of franchises if assignment is "authorized by
the provisions of such franchise or by any applicable provision of state law which permits such
transfer or assignment without regard to any provision of the franchise." 15 U.S.C. § 2806(b).
Although we have not yet addressed the validity of an assignment under the PMPA, several of our
sister circuits have done so. These courts have concluded that assignment does not automatically
constitute constructive termination of a franchise agreement, thereby implicating the PMPA;
3
A "trial franchise" is a franchise for a term of one year or less which specifies in writing that
it is a trial franchise and that the franchisor may elect not to renew it without cause by giving the
franchisee proper statutory notice. See 15 U.S.C. § 2803(b).
however, assignment may result in constructive termination, depending on the circumstances. See
Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc., 940 F.2d 744, 750-51 (1st Cir.1991); Cedar
Brook Service Station, Inc. v. Chevron U.S.A., Inc., 930 F.2d 908 (2d Cir.1991), aff'g without op.
746 F.Supp. 278 (E.D.N.Y.1990), cert. denied, 502 U.S. 819, 112 S.Ct. 77, 116 L.Ed.2d 50 (1991);
Ackley v. Gulf Oil Corp., 889 F.2d 1280, 1281 (2d Cir.1989) (affirming district court opinion, 726
F.Supp. 353 (D.Conn.1989), "substantially for the reasons given in that opinion"); May-Som Gulf,
Inc. v. Chevron U.S.A., Inc., 869 F.2d 917, 922-25 (6th Cir.1989); Barnes v. Gulf Oil Corp., 795
F.2d 358 (4th Cir.1986) ("Barnes I "), on appeal after remand, 824 F.2d 300 (4th Cir.1987) ("Barnes
II"). Cf. April Marketing & Distributing Corp. v. Diamond Shamrock Refining and Marketing Co.,
103 F.3d 28 (5th Cir.1997) (declining to decide, in case not involving assignment, whether PMPA
permits claims for constructive termination); Little Oil Co., Inc. v. Atlantic Richfield Co., 852 F.2d
441, 444-45 (9th Cir.1988) (same).
The Sixth Circuit's well-reasoned opinion in May-Som Gulf is instructive. In that case,
twelve Ohio service station franchisees alleged that defendant Chevron, U.S.A., Inc.'s ("Chevron")
sale of its Ohio assets to Cumberland Farms, Inc. ("Cumberland") constructively terminated their
franchises in violation of the PMPA. The court first noted that the PMPA defines a franchise in
terms of three elements: "a contract to use the refiner's trademark, a contract for the supply of motor
fuel to be sold under the trademark, and a lease of the premises at which motor fuel is sold." May-
Som Gulf, 869 F.2d at 917 (quoting Barnes I, 795 F.2d at 360); see 15 U.S.C. § 2801(1). The court
reasoned that a constructive termination could occur if an assignment resulted in a breach of one of
the three statutory components of the franchise agreement. May-Som Gulf, 869 F.2d at 922. Noting
that state law governs the validity of a franchise assignment, the court reasoned that a constructive
termination could also occur if the assignment violated state law. Id. at 923. Thus, the court held
that
to sustain a claim, under the PMPA, that a franchisor assigned and thereby constructively
terminated a franchise agreement, the franchisee must prove either: (1) that by making the
assignment, the franchisor breached one of the three statutory components of the franchise
agreement ...; or (2) that the franchisor made the assignment in violation of state law and
thus, the PMPA was invoked.
Id. at 922; see also Chestnut Hill Gulf, 940 F.2d at 750-51 (quoting May-Som Gulf ).
Shukla charges that after the assignment, Petro engaged in direct price competition with
Shukla by selling gasoline at a nearby Petro company station at retail prices lower than Shukla could
afford to charge. Shukla alleges that his business dropped off as a result of Petro's underselling.
Moreover, Petro discontinued BP's supply pricing structure, which had protected BP's franchised
dealers from being undersold by BP company stations or other major brand gasoline retailers in the
same market area. Finally, according to Shukla, Petro implemented a less favorable system of
crediting Shukla for credit card sales. Shukla contends that the assignment increased his burdens
under the franchise agreement and was therefore invalid under Florida law.4 Alternatively, he argues
that Petro's pricing practices constituted a breach of the supply component of his franchise
agreement, resulting in a termination of the franchise. We are persuaded that BP's assignment to
Petro did not constructively terminate Shukla's franchise under either theory.
First, the assignment did not increase Shukla's contractual burdens. For the purpose of the
PMPA, Shukla's price competition allegation boils down to a complaint that Petro charged Shukla
too much for gasoline, so that Shukla was unable to compete effectively with Petro's company
station.5 However, the prices Petro charged Shukla for gasoline could not have increased Shukla's
contractual burdens because the DLSA did not fix a price for gasoline. Rather, the DLSA provided
that prices for all BP products purchased by Shukla "shall be BP's price in effect at the time and
place of delivery for franchise dealers. Prices for all products shall be subject to change without
notice to Dealer." R1-22, Exh. A, ¶ 14. BP was free to raise the price of gasoline; its assignee,
Petro, was therefore free to do the same. Construing a similar open price term, the Sixth Circuit held
that "the plaintiff's price increase allegations could not constitute a contractual burden." May-Som
Gulf, 869 F.2d at 924. See also Ackley, 726 F.Supp. at 363-64 (franchisee could not claim increased
4
Florida law provides that contractual rights may be assigned "except where the assignment
would materially change the duty of the other party, or increase the burden or risk imposed on
him by his contract, or impair materially his chance of obtaining return performance."
Fla.Stat.Ann. § 672.210 (1993).
5
We note that Shukla does not allege that Petro charged Shukla more for gasoline than Petro
charged other independent dealers or its company stores.
burden based on gasoline price increase where franchise agreement contained open price term);
Cedar Brook Service Station, 746 F.Supp. at 283 (same); Clark v. BP Oil Co., 930 F.Supp. 1196,
1207-08 (E.D.Tenn.1996) (same, construing identical contractual language); cf. Barnes II, 824 F.2d
at 302 ("In Barnes I ... we ruled that the assignment of a franchise that increases a retailer's gasoline
cost over the stipulated franchise price furnishes a cause of action against the refiner under the
PMPA.") (emphasis added).
Nor did Petro's suspension of BP's price supports or credit card payment system increase
Shukla's contractual burdens because those features were not part of the franchise agreement. Courts
have consistently rejected the argument that the discontinuation of extra-contractual, informal
arrangements transforms a franchise assignment into a termination under the PMPA. See May-Som
Gulf, 869 F.2d at 924-25; Barnes I, 795 F.2d at 364; Clark, 930 F.Supp. at 1207-08; Cedar Brook
Service Station, 746 F.Supp. at 278 ("Changes made by Cumberland that were within Chevron's
prerogative to make are likewise insufficient to show a burden or impairment flowing from the
assignment at issue."). Indeed, the district court in Ackley rejected a claim nearly identical to the
one Shukla makes here. Ackley, 726 F.Supp. at 364 ("[T]he fact that Cumberland's
company-operated locations purchased gasoline at lower prices [than plaintiffs] does not support a
finding of ... "increased burden or risk' ..."). Under his contract with BP, Shukla always faced the
possibility that BP would raise its prices without notice, alter its price support system, or modify its
credit card arrangements. In sum, we conclude that Shukla has failed to show that BP's assignment
to Petro increased his contractual burdens.
Second, Shukla's allegations about Petro's pricing practices, if true, do not support a claim
that the assignment breached the supply element of Shukla's franchise agreement. Insofar as Shukla
has not alleged that Petro refused to supply him with gasoline, we question whether Petro's alleged
conduct even implicates the supply component of the agreement. See May-Som Gulf, 869 F.2d at
923 (no breach of supply component where assignee had secured supply of fuel for dealer, albeit at
increased price). Assuming the supply component is implicated, there has been no breach. The
DLSA specifically provides that the franchisor may change prices without notice to Shukla. The
price support system and credit card policies are not even mentioned in the DLSA. Thus, Petro's
abandonment of those arrangements could not constitute a breach of the franchise agreement.
Shukla argues that the DLSA must be construed by reference to Florida's law of sales, which
requires that a seller fix prices in good faith when the contract leaves the price term open. See
Fla.Stat.Ann. § 672.305 (1993). Further, Florida sales law allows open price terms to be explained
or supplemented by reference to the parties' course of dealing or usage of trade. Fla.Stat.Ann. §
672.202. Shukla contends that, under these principles, the DLSA must be read to include BP's price
support and credit card arrangements, and that Petro's failure to continue BP's practices breached
the DLSA's implied covenant of good faith and fair dealing. However, PMPA termination claims
must be based upon the breach of one of the three elements of the franchise agreement—use of the
trademark license, lease of real property, or contract for the supply of fuel. Barnes, 795 F.2d at 364.
The PMPA is not concerned with "other contractual arrangements which may exist between a
franchisor and a franchisee, e.g., credit card arrangements, contracts relating to financing of
equipment, or contracts for purchase and sale of tires, batteries, or automotive accessories." Id.
(quoting S.Rep. No. 731, 95th Cong., 2d Sess. 17, 29, reprinted in 1978 U.S.C.C.A.N. 873, 876,
888). Thus, even if Petro did breach Florida's implied covenant of good faith and fair dealing by
discontinuing BP's pricing and credit card arrangements (a question we need not and do not decide)
Petro's actions do not support a PMPA termination claim against BP. If we were to conclude
otherwise, then, as BP points out in its brief, "any subsequent breach of contract by an assignee
would invalidate the assignment and, theoretically, relieve the assignee of any liability under the
franchise agreement." Br. of Appellee at 26.
In sum, Shukla failed to show that BP's assignment to Petro constructively terminated his
franchise agreement, either by increasing his burdens under the agreement or by breaching one of
the statutory components of his franchise. Thus, the district court properly granted summary
judgment in favor of BP on Shukla's PMPA claim.
B. Fraud Claim
Shukla's fraud claim is based upon BP's alleged failure to disclose, prior to the signing of the
DLSA, that it intended to sell its Jacksonville-area service stations to Petro. Shukla alleges that
while he was negotiating the purchase of his franchise in 1993, BP was actively seeking a buyer for
its Jacksonville stations. Shukla expressed reservations about entering into a trial franchise which
BP could nonrenew without cause. However, according to Shukla, a BP representative assured him
that BP's de facto policy was to renew trial franchises in the absence of serious dealer misconduct.
Neither this representative nor any other BP personnel informed Shukla that BP planned to sell the
station and that BP's assignee, not BP, would be making the decision whether to renew Shukla's trial
franchise. Shukla alleges that BP had a duty to disclose its intention to sell the station and that he
would not have entered into the DLSA had he known of the intended sale.
BP sought summary judgment on Shukla's fraud claim on a number of grounds. We address
only one: PMPA preemption.6 The PMPA provides as follows:
[N]o 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 (or the furnishing of notification with respect
thereto) of any such franchise or to the nonrenewal (or the furnishing of notification with
respect thereto) of any such franchise relationship unless such provision of such law or
regulation is the same as the applicable provision of this subchapter.
15 U.S.C. § 2806(a)(1) (1994). This provision explicitly preempts state law actions which relate to
the "grounds for, procedures for, and notification requirements with respect to" the termination or
nonrenewal of a franchise. Bellmore v. Mobil Oil Corp., 783 F.2d 300, 304 (2d Cir.1986); see also
Consumers Petroleum Co. v. Texaco, Inc., 804 F.2d 907, 915 (6th Cir.1986) (citing Bellmore ).
Although the PMPA does not preempt every state law related to petroleum industry franchise
agreements, Congress "clearly intended to provide uniform minimum standards for the termination
and nonrenewal of franchises and to bar state regulation of this area." Continental Enterprises, Inc.
v. American Oil Co., 808 F.2d 24, 27 (8th Cir.1986).
BP argues that Shukla's fraud claim is directly related to the nonrenewal of his franchise and,
accordingly, is preempted by the PMPA. Shukla contends that the claim is based not upon
6
BP raised preemption in a motion to dismiss, as well as in its motion for summary judgment.
The district court rejected BP's arguments both times. The district court's oral grant of judgment
as a matter of law on the fraud claim rested not upon preemption, but upon a generalized
conclusion that Shukla did not have a fraud claim. See R8, Transcript of Pretrial Proceedings.
nonrenewal, but upon BP's failure to disclose the fact that it intended to sell Shukla's station and
assign the DLSA. The problem with Shukla's argument is that BP's alleged failure to disclose is
material only because the new franchisor, Petro, refused to renew Shukla's franchise.7 Shukla makes
this clear in his Second Amended Complaint, which, after detailing the facts relating to BP's alleged
nondisclosure, states as follows:
On February 14, 1994, Petro sent a letter to Shukla purporting to give Shukla formal notice
that the trial franchise agreement would be canceled as of June 19, 1994. Shukla responded
to Petro's notice letter by May 11, 1994. Nevertheless, representatives from Petro purporting
to act as franchisor, entered on the franchise on or about June 22, 1994 and ordered Shukla
to leave the franchise site. As a result, Shukla has lost the value of his investment, and/or
the net value of the business and/or the net value of future profits (as the station would have
operated without Petro's violations of applicable State law).
R1-22, Second Amended Complaint, WW 44-47 (numbering and reference to exhibits omitted)
(emphasis added). The damages Shukla allegedly suffered as a result of the fraud flowed directly
from Petro's failure to renew his franchise. Moreover, the factual allegations supporting Shukla's
fraud claim are nearly identical to the allegations supporting his PMPA constructive termination
claim. See generally id., Counts I and II; see also Esquivel v. Exxon Co., U.S.A., 700 F.Supp. 890,
897 (W.D.Tex.1988) (PMPA preempted state law fraud claim where fraud allegations were identical
to PMPA wrongful termination allegations). Thus, Shukla's fraud claim is intimately bound up with
the nonrenewal of his franchise. The PMPA provides exclusive remedies for disputes relating to the
nonrenewal of franchises and preempts state law claims based on nonrenewal, no matter how such
claims are characterized.
Shukla relies upon Pride v. Exxon Corp., 911 F.2d 251 (9th Cir.1990), in which the Ninth
Circuit concluded that the PMPA did not preempt a state law claim for fraudulent inducement.
Pride is distinguishable because the franchisee plaintiff in that case (Pride) was not challenging the
validity of a termination or nonrenewal. Pride alleged that his franchise agreement with Exxon
Corporation ("Exxon") was void because, prior to the signing of the agreement, "Exxon failed to
disclose all the matters material to the consideration of the purchase." Pride, 911 F.2d at 257.
7
One of the elements of a claim for fraudulent inducement under Florida law is the
misrepresentation or nondisclosure of a material fact. Mettler, Inc. v. Ellen Tracy, Inc., 648
So.2d 253, 255 (Fla.Dist.Ct.App.1994).
Exxon sold its area stations, including Pride's, to Texaco Corporation ("Texaco"), and Pride entered
into a new franchise agreement with Texaco. Pride alleged that Exxon had fraudulently induced him
to enter into his initial franchise agreement by misrepresenting its intention to withdraw from the
market. The Ninth Circuit concluded that Pride's fraud claim involved the actions of the parties in
forming the franchise agreement. The claim could not involve the grounds for, procedures for, or
notification requirements with respect to a termination or nonrenewal "because the relationship that
the Act governs ha[d] not been formed at that stage." Id. at 258. The critical distinction between
Pride and this case is that the materiality of the alleged nondisclosure in Pride was not based upon
a termination or nonrenewal.8 Indeed, Pride's franchise agreement with Texaco was intact and he
was still operating his station when he filed suit.
The Pride court relied upon O'Shea v. Amoco Oil Co., 886 F.2d 584 (3rd Cir.1989), in which
the Third Circuit ruled that a fraudulent inducement claim was not preempted. O'Shea is likewise
inapposite. The preemption issue in O'Shea arose in an unusual context. O'Shea's franchisor,
Amoco Oil Company ("Amoco"), terminated the parties' franchise agreement because O'Shea failed
to comply with a provision in the agreement requiring him to operate his service station 24 hours
a day. Prior to the termination, O'Shea sued in state court to enjoin Amoco from enforcing the 24-
hour requirement. One of O'Shea's claims was that Amoco had fraudulently induced him to enter
into the franchise agreement by promising him that it would modify the 24-hour provision. O'Shea
lost the state case, after which Amoco terminated the franchise. O'Shea then brought suit in federal
court, alleging violation of a New Jersey statute which prohibited the imposition of unreasonable
standards of performance upon a franchisee. The Third Circuit held that this claim was barred by
New Jersey's claim preclusion doctrine because it was intimately related to the claims O'Shea had
brought in his state court action. O'Shea countered that the state court action could not have had a
preclusive effect because the state court lacked jurisdiction to hear the claims brought in that suit,
as those claims were preempted by the PMPA. The Third Circuit rejected this argument, concluding
8
It is not clear from the opinion why Pride claimed Exxon's failure to disclose was material,
but Pride's complaint apparently centered upon the fact that some of Texaco's policies differed
from Exxon's.
that the PMPA had not preempted O'Shea's fraudulent inducement claim. Thus, when O'Shea
brought his fraud claim in state court, he was challenging the enforcement of a provision in the
franchise agreement, not the termination or nonrenewal of that agreement. Amoco had not
terminated the agreement at that time.
This case differs from Pride and O'Shea because a critical element of Shukla's fraud
claim—materiality of the nondisclosure—is the nonrenewal of his franchise.9 Courts have
repeatedly found that the PMPA preempts state law fraud claims which are intimately intertwined
with the termination or nonrenewal of a franchise. See, e.g., Consumers Petroleum, 804 F.2d at 915-
16 (franchisee's fraud claim based upon franchisor's alleged failure to disclose its intention to sell
station was preempted because allowing claim to proceed would effectively require provision of
earlier notice of nonrenewal than PMPA required); Continental Enterprises, 808 F.2d at 26
(franchisee's fraud claim, "no matter how worded, [was] based on a wrongful nonrenewal of the
contract" and was therefore preempted by PMPA); Arbabian v. BP America, 898 F.Supp. 703, 709-
11 (N.D.Cal.1995) (PMPA preempted franchisees' claim that franchisor fraudulently misrepresented
that it would sell station to franchisees because finding for franchisees would effectively impose
different termination procedure upon franchisor than provided for in PMPA); Huth v. BP Oil, Inc.,
555 F.Supp. 191, 192 (D.Md.1983) (fraud claim which asserted that "defendant deliberately induced
Mr. Huth to write a post-dated check so that defendant could present the check before the designated
date for use of consequent dishonoring as a pretext for terminating the [franchise] agreement" was
preempted by PMPA). Thus, the district court's entry of judgment in favor of BP on Shukla's fraud
claim was proper. Because the PMPA preempts Shukla's state law fraud claim, we do not reach the
other arguments advanced by BP.
V. Conclusion
Shukla's PMPA claim fails because the facts, taken in the light most favorable to Shukla, do
not support a constructive termination claim. Moreover, Shukla's fraud claim is preempted by the
9
To the extent that Pride and O'Shea can be read to indicate that all fraudulent inducement
claims are immune from the PMPA's preemption clause, we disagree with those opinions.
PMPA. Accordingly, we affirm the district court's entry of judgment in favor of BP and against
Shukla.
AFFIRMED.