Jet, Incorporated v. Shell Oil Company , 381 F.3d 627 ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-4268
JET, INC., d/b/a GARFIELD SHELL, d/b/a
SHELL FOOD MART, TVA CORPORATION,
d/b/a ROBERT ROAD SHELL, et al.,
Plaintiffs-Appellants,
v.
SHELL OIL COMPANY, EQUILON ENTERPRISES,
d/b/a SHELL OIL PRODUCTS U.S. and EQUIVA
SERVICES,
Defendants-Appellees.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 02 C 2289—Matthew F. Kennelly, Judge.
____________
SUBMITTED MAY 24, 2004—DECIDED AUGUST 24, 2004
____________
Before RIPPLE, MANION, and EVANS, Circuit Judges.
MANION, Circuit Judge. Several independent franchisees
of Shell-branded filling stations (“the franchisees”) alleged
that Shell Oil Company, Equilon Enterprises, Incorporated,
and Equiva Services, LLC, violated 15 U.S.C. § 2805(f), a pro-
vision of the Petroleum Marketing Practices Act (“PMPA”),
by presenting them with a new set of franchise agreements
in a “take it or leave it manner” and thus committing wrongful
2 No. 03-4268
nonrenewal under the PMPA. The franchisees also alleged,
however, that they actually had renewed their franchise agree-
ments. The district court concluded that the PMPA does not
permit claims for constructive nonrenewal and therefore
dismissed the claim under Federal Rule of Civil Procedure
12(b)(6). We affirm.
I.
Because of this case’s procedural posture, we assume that
the complaint’s allegations are true. The relevant facts are
few. The franchisees originally had franchise agreements
with Shell. In 1998, Shell assigned those agreements to
Equilon. Shell and Equilon both use another entity, Equiva,
to provide administrative support. The franchisees allege
that all three companies are alter egos and have named all
three as defendants.
Equilon provided the franchisees with new franchise
agreements that, in the franchisees’ view, contained illegal
and unconscionable provisions, including “unlawful waivers,
forfeitures, penalties, limitations of liability, reductions of
the applicable statute of limitations . . . , unconscionable
penalties in the form of liquidated damages, commercially
unreasonable and excessive transfer fees and unreasonable
restraints on alienation of the franchisee’s interest in the
franchise in the form of a unilateral consent clause giving
Equilon or Equiva the unilateral right to approve or dis-
approve of a proposed sale or conveyance of the franchisee’s
interest in the franchises.” According to the franchisees,
Equilon’s ulterior (and unlawful) motive was to prevent
them from renewing their franchises.
The terms of the new agreements were not negotiable:
Equilon stated in the cover letter accompanying the new
agreements that, “[i]f you do not sign and return the Lease
No. 03-4268 3
and other enclosed documents in a timely manner, be ad-
vised that Equilon will issue without further warning a non-
rescindable notice of nonrenewal pursuant to the terms of
1
the Petroleum Marketing Practices Act.” The franchisees
signed the new franchise agreements “under protest,” thus
renewing their contracts, but nonetheless sued in the district
court under what they term a theory of “constructive non-
renewal.” Pursuant to Rule 12(b)(6), the district court
granted a motion to dismiss their claim, reasoning that a
claim for constructive nonrenewal may not lie under the
2
PMPA.
II.
We review de novo the district court’s grant of a motion
to dismiss under Rule 12(b)(6). E.g., Flannery v. Recording
Indus. Ass’n of Am., 354 F.3d 632, 637 (7th Cir. 2004). Ac-
cepting all well-pleaded allegations in the complaint as true
and drawing all reasonable inferences in favor of the
plaintiffs, we ask whether there is any possible interpreta-
tion of the complaint under which it could state a claim. Id.The PMPA prohibits a franchisor from discontinuing a
franchise relationship unless it does so on the basis of one of
several statutorily enumerated grounds and meets the
PMPA’s notification requirements. Dersch Energies, Inc. v.
1
As we discuss in detail below, a notice of nonrenewal gives the
franchisee a chance to seek injunctive relief and to avoid the
harmful effects of a wrongful nonrenewal.
2
There were other claims below, including a claim for wrongful
termination, which the district court eventually dismissed. Be-
cause the franchisees appeal only the dismissal of their claim for
constructive nonrenewal, however, our analysis is limited to that
issue.
4 No. 03-4268
Shell Oil Co., 314 F.3d 846, 856 (7th Cir. 2002). A franchisee
may bring an action for wrongful nonrenewal under the
PMPA provided, among other things, that it meets the
threshold requirement of showing that its franchise agree-
ment was not renewed within the meaning of 28 U.S.C.
§ 2805(c). Id.; Chestnut Hill Gulf v. Cumberland Farms, 940
3
F.2d 744, 748 (1st Cir. 1991).
In November 2002, the district court dismissed the fran-
chisees’ claim of wrongful nonrenewal on the ground that
it failed this threshold test. The court reasoned that, (1)
because the franchisees alleged that they had renewed their
franchise agreements (albeit “under protest”), they were assert-
ing a claim for constructive, as opposed to actual, nonrenewal,
and (2) relief under § 2805(f) could not be granted for a
claim of constructive nonrenewal. Thus did the district court
foreshadow our opinion one month later in Dersch, in which
the plaintiff had likewise signed a renewal agreement “un-
der protest” and in which we rejected the theory of con-
structive nonrenewal as “untenable.” Dersch, 314 F.3d at
860; accord Abrams v. Shell Oil Co., 343 F.3d 482, 489 (5th Cir.
2003). But see Pro Sales, Inc. v. Texaco, U.S.A., 792 F.2d 1394,
1399 (9th Cir. 1986). We stated that,
[w]hile it is true that § 2805(f)(1) was enacted to address
the disparity of bargaining power existing between fran-
chisors and franchise[es] outside the termination/non-
renewal context, i.e., during the negotiation process
for entering into or renewing a franchise relationship,
there is nothing in the PMPA suggesting that Congress
3
As we discuss below, a franchisee also has a remedy available
before there ever is a nonrenewal. It may seek a preliminary in-
junction under the PMPA after receiving a notice of nonrenewal,
thus forestalling the harmful effects of a wrongful nonrenewal. 15
U.S.C. § 2805(b); Dersch, 314 F.3d at 862.
No. 03-4268 5
intended for franchisees to sue franchisors under the
Act’s remedial provisions for violations of § 2805(f)(1)
when a termination or nonrenewal is not at issue.
Dersch, 314 F.3d at 860-611.
On appeal, the franchisees first ask us to reconsider our
holding in Dersch. They encourage us to follow the reason-
ing of Pro Sales, which we expressly rejected in Dersch. The
franchisees do not, however, present any developed argu-
ment in favor of the Pro Sales approach, and they present no
argument at all that we have not already rejected. Because
the franchisees have done nothing to undermine our
confidence in the detailed analysis upon which we decided
Dersch, we decline to revisit the holding of that case.
The franchisees next attempt to distinguish Dersch, argu-
ing that this case is somehow different because, here, Equilon
expressed in writing an intent not to renew unless the fran-
chisees signed the new franchise agreements. In so arguing,
the franchisees rely on footnote 20 of Dersch, in which we
stated that a formal expression of the intent not to renew, or
an actual nonrenewal, could justify a claim for wrongful
nonrenewal. See Dersch, 314 F.3d at 866 n.20.
The franchisees misplace their reliance on Dersch. To ex-
plain why, we must first examine the purpose of a notice of
the intent not to renew. Before a franchisor may elect not to
renew a franchise contract, § 2804 of the PMPA mandates
that it must issue a notice of nonrenewal to the franchisee 90
days in advance. Id. at 862. The function of this requirement
is to give the franchisee a chance to seek injunctive relief
under the PMPA and to avoid the harmful effects of a
wrongful nonrenewal. Id. at 862-63, 865. In Dersch, we made
clear that, where the franchisor jumps the gun and actually
causes nonrenewal without notice, a harmed franchisee would
not, perversely, be precluded from bringing suit by the
franchisor’s procedural miscue. We put it thus:
6 No. 03-4268
if the actions of a franchisor indirectly result in a termi-
nation or nonrenewal (e.g., an assignment of the fran-
chise), and no notice is issued in conjunction with that
action, the franchisee is clearly not precluded from
filing suit under the PMPA, even in the absence of such
notice. . . . The central inquiry in both instances is
whether the franchisor has terminated the franchisee’s
statutory franchise or failed to renew the parties’ fran-
chise relationship, or formally expressed its intent to do
so.
Id. at 866 n.20.
In other words, in Dersch we acknowledged a claim for
wrongful nonrenewal where there is either (1) actual nonre-
newal or (2) formal notice under § 2804. We did not suggest
that a claim for wrongful nonrenewal may proceed where,
4
as here, neither condition is met.
We also observe that the franchisees here are not in a ma-
terially different position than was the plaintiff in Dersch. In
each case, the plaintiff(s) faced Equilon’s expression of the
intent not to renew—if the franchisees did not accept the
changes they were protesting. Thus the intent not to renew
was contingent on the rejection of Equilon’s proposed
renewal agreement. An offer to “take it or leave it” can be
labeled a conditional intent not to form a contract. (So, for
that matter, can it be labeled the conditional intent to form
a contract.) Yet that is precisely what occurred in Dersch,
4
As discussed above, there was no actual nonrenewal in this case.
There also was no formal notice of nonrenewal pursuant to § 2804,
as the franchisees admit in their opening brief. Instead, when
confronted with a threat of nonrenewal, the franchisees renewed
“under protest.” This eliminated the need to issue the formal 90
day notice of nonrenewal.
No. 03-4268 7
where we held that the offer of a franchise renewal on a take-
it-or-leave-it basis (i.e., the expression of the conditional
intent not to renew) did not give rise to a claim for wrongful
nonrenewal under the PMPA. See id. at 860. The franchisees
here encountered the same choice as did Dersch: either sign
the proposed renewal agreement as written or refuse to sign
it and employ the provisions of § 2805 upon service of the
notice of nonrenewal.
III.
Because the franchisees renewed their franchise agreements
with Equilon, they have failed to state claim for wrongful
nonrenewal under the PMPA.
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-24-04