Frank Shop Inc. v. Crown Central Petroleum
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1 2 3 4 5 6 7 8 9 10 11 12 13 Present: All the Justices 14 Court. 15 261 Va. 169, 540 S.E.2d 897 (2001) (Frank Shop I), we reversed a 16 judgment adverse to Frank Shop, Inc. (Frank Shop) and held that 17 because Crown Central Petroleum Corporation (Crown) had failed 18 to prove its entitlement to protection under the "grandfather 19 clause" of the Virginia Petroleum Products Franchise Act, Code 20 §§ 59.1-21.8 through -21.18:1 (the Act), it was in violation of 21 the Act for operating a refinery-owned gasoline service station 22 located less than one and one-half miles from a franchised 23 retail gasoline station operated by Frank Shop. 1 24 case "for determination of the relief to which Frank Shop may be 25 entitled." 26 27 FRANK SHOP, INC. v. Record No. 011562 OPINION BY CHIEF JUSTICE HARRY L. CARRICO June 7, 2002 CROWN CENTRAL PETROLEUM CORPORATION FROM THE CIRCUIT COURT OF HENRICO COUNTY George F. Tidey, Judge This is the second time this case has come before the In Frank Shop, Inc. v. Crown Central Petroleum Corp., We remanded the Id. at 177, 540 S.E.2d at 902. Our opinion in Frank Shop I was handed down January 12, 2001, and we refused Crown's petition for rehearing on March 2, 1 The one and one-half mile prohibition is found in Code § 59.1-21.16:2(A) and the "grandfather clause" is found in Code § 59.1-21.16:2(E). The "grandfather clause" states that "[t]he 1 2001. Thereafter, Crown continued with the operation of its 2 service station. 3 On May 11, 2001, Frank Shop filed in the trial court a 4 Motion for Entry of Permanent Injunction and Award of Attorney's 5 Fees, Costs, Liquidated Damages and Disgorgement of Profits 6 (Motion for Relief). 7 permanent injunction prohibiting Crown from further operation of 8 its service station, $2,500 in liquidated damages, and 9 attorney's fees, all as prescribed by Code § 59.1-21.12. 2 In the motion, Frank Shop sought a In 10 addition, noting the reference in Code § 59.1-21.12 to "such 11 other remedies, legal or equitable, . . . as may be available to 12 the party damaged," Frank Shop sought to have Crown required to 13 disgorge the profits it had derived from the "illegal operation" 14 of its service station since March 2, 2001, the date this Court 15 refused the petition for rehearing in Frank Shop I. 16 Crown responded by contending Frank Shop was not entitled 17 to a disgorgement of profits. Crown argued that because this 18 Court did not enjoin it from operating its service station and provisions of this section shall not be applicable to retail outlets operated by producers or refiners on July 1, 1979. 2 Code § 59.1-21.12(A) provides in pertinent part as follows: Any person who violates any provision of [the Act] shall be civilly liable for liquidated damages of $2,500 and reasonable attorney's fees, plus provable damages caused as a result of such violation, and be subject to such other 2 1 the trial court had not entered an injunction prohibiting the 2 operation, Crown was not illegally operating the station. 3 also argued that Frank Shop was not entitled to an injunction 4 but that, if the court awarded Frank Shop an injunction, Crown 5 "should be allowed 60-90 days to complete its search for, and 6 installation of, a franchise dealer to operate the retail 7 outlet." 8 9 Crown On June 4, 2001, the trial court heard argument on the parties' respective positions concerning the relief to which 10 Frank Shop was entitled. 11 day, the trial court allowed Frank Shop $52,500 in attorney's 12 fees, $2,500 in liquidated damages, and an injunction, but 13 delayed the effective date of the injunction until August 1, 14 2001. 15 of profits, stating that Crown "has acted properly pursuant to 16 the ruling of the Supreme Court of Virginia" and disgorgement 17 would not be "appropriate in this case." 18 June 19, 2001, embodied the trial court's rulings. 19 Frank Shop this appeal. In a letter opinion dated the next The court denied Frank Shop's request for a disgorgement A final decree entered We awarded 20 Frank Shop has assigned two errors, as follows: 21 22 23 A. The trial court erred in delaying the effective date of its permanent injunction to August 1, 2001. remedies, legal or equitable, including injunctive relief, as may be available to the party damaged by such violation. 3 1 2 3 4 B. The trial court erred in failing to order Crown to disgorge its profits earned subsequent to March 2, 2001. Crown contends the first assignment of error is moot 5 because "[t]he trial court's permanent injunction is now 6 effective and, moreover, Crown Central complied with the 7 permanent injunction on July 19, 2001." 3 8 that the first assignment of error is not moot because the delay 9 in the effective date of the injunction is not only an issue 10 with respect to the first assignment of error but also to the 11 second. 12 the delay in the effective date of the injunction "essentially 13 'authorized' [Crown's] continuing conduct so that disgorgement 14 is not appropriate." 15 with Crown's contention, the contention itself demonstrates that 16 the delay in the effective date of the injunction is an issue 17 that permeates both assignments of error. 18 Frank Shop maintains According to Frank Shop, it is Crown's contention that Frank Shop says that while it disagrees We agree with Frank Shop that the first assignment of error 19 is not moot; the issues raised by the two assignments are 20 intertwined. As the parties have addressed the question of 3 The trial court's final decree provided that the retail outlet in question should not be operated under the Crown name after August 1, 2001, unless and until Crown gave counsel for Frank Shop notice in writing under oath by certified mail that the operator of the outlet was a franchised dealer. Crown states in its brief that it gave Frank Shop the required notice, certifying that a franchise dealer was operating the retail outlet as of July 19, 2001, but there is nothing in the record to support Crown's statement. 4 1 disgorgement, resolution of the question would depend, at least 2 in part, on whether delaying the effective date of the 3 injunction was proper or improper. 4 available to Frank Shop, if the delay was proper, Crown would 5 not be required to disgorge, at least for the period of delay; 6 if the delay was improper, Crown could be required to disgorge 7 for the period of delay as well. 8 9 Assuming disgorgement is With respect to the first assignment of error, Frank Shop argues that this Court's opinion in Frank Shop I "was clear and 10 unequivocal: Crown's continuing conduct was in violation of 11 Virginia law." 12 as this Court pronounced it, and "that meant ordering Crown to 13 stop its unlawful operation." 14 powers, a trial court cannot permit what this Court and the 15 General Assembly have said is unlawful. 16 action in this case can only be explained by its acceptance of 17 Crown's plea of hardship in finding a franchise dealer, and it 18 was an abuse of discretion for the court to accept the plea and 19 refuse to make the injunction effective immediately. 20 The trial court was duty bound to uphold the law In exercising its equitable The trial court's Responding, Crown argues that the issuance of an injunction 21 and the timing of its effective date were matters within the 22 sound discretion of the trial court. 23 showing what is involved in installing a franchise dealer, which 24 includes extensive searching for a person or entity willing to 5 Crown introduced evidence 1 invest $80,000 to $100,000, followed by equally extensive 2 training and education of the person in the operation of a 3 retail outlet. 4 consider and credit Crown's evidence and determine that, while a 5 permanent injunction was appropriate, it was equitable to allow 6 Crown a relatively short period of time to comply with the 7 injunction. 8 9 The trial court was within its discretion to We do not question the power of a court of equity, in the exercise of its discretion in an ordinary case, to fashion a 10 remedy that would eliminate or lessen the hardship imposed upon 11 a party by a particular decision. 12 case. 13 be in violation of the law, seeks judicial permission to 14 continue violating the law until it works itself out of the 15 supposed hardship in which it finds itself. 16 of facts involved in this case, it was a clear abuse of 17 discretion for the trial court to grant such permission. 4 But this is not an ordinary This is a situation where a party, held by this Court to 4 In the peculiar set The Crown argues that the trial court's decision to allow Crown time to comply with the injunction is in accord with a regulation adopted pursuant to the Act that allows a producer or refiner to operate temporarily a previously franchised dealeroperated retail outlet when the franchised dealer is lawfully terminated or not renewed, or if the franchised dealer becomes ill or injured. 2 VAC 5-460-10. However, there is a substantial difference between Crown's situation and that of a producer/refiner entitled to the benefit of the regulation. The regulation contemplates a previous legal operation of a retail outlet; Crown's operation was illegal. 6 1 trial court should have made the injunction effective 2 immediately. 3 This brings us to the question of disgorgement. With 4 respect to this question, Frank Shop argues that its entitlement 5 to disgorgement "is rooted in two principles: 6 not be permitted to profit from its wrongdoing, and (2) 'equity 7 will not suffer a wrong to be without a remedy.' 8 Hawkins, 247 Va. 32, 37, 439 S.E.2d 382, 385 (1994)." 9 Court explicitly held in Frank Shop I that Crown's operation of (1) Crown should Price v. This 10 its retail outlet was unlawful, yet Crown deliberately 11 repudiated that decision and continued the operation for months 12 until enjoined effective August 1, 2001. 13 sophisticated refining company, and it cannot contend that it 14 thought the lack of an injunction somehow made lawful or 15 otherwise authorized conduct this Court expressly said was 16 unlawful. 17 Crown is a large, Continuing, Frank Shop says that Crown's action subjects it 18 to a panoply of statutory remedies, including an injunction to 19 stop the violation, and other remedies to redress the violation, 20 including liquidated damages of $2,500. 21 "such other remedies, legal or equitable, . . . as may be 22 available to the party damaged by such violation," Code § 59.1- 23 21.12(A), and this expressly allows a court to fashion remedies 24 beyond, and in addition to, those enumerated. 7 The Act also provides Disgorgement of 1 profits is one such equitable remedy, particularly significant 2 for Crown's deliberate violation of the law. 3 limited to recovering liquidated damages of $2,500, then Crown 4 will have suffered no real consequences for its wrongdoing. 5 If Frank Shop is Countering, Crown maintains that it did not ignore this 6 Court's ruling. Immediately after this Court's reversal, and 7 before the denial of Crown's petition for rehearing, Crown 8 commenced its search for a franchise dealer who could operate 9 the retail outlet. When the trial court did impose a permanent 10 injunction, Crown complied with its terms. 11 franchise dealer in place and operating the outlet earlier than 12 the effective date of the injunction. 13 In fact, Crown had a Moreover, Crown continues, this Court did not enjoin its 14 operation of the retail outlet or make any other determination 15 concerning the appropriate relief, but instead left that 16 determination to the sound discretion of the trial court. 17 discretion would include a determination by the trial court 18 regarding if and when an injunction should issue and whether 19 Crown's profits should be disgorged. 20 a permanent injunction was appropriate, but that it was 21 reasonable to allow Crown time to install a franchise dealer. 22 For the same reasons, the court determined that Crown had not 8 Such The court determined that 1 acted in bad faith 5 and that the unusual remedy of disgorging 2 profits would not be appropriate. 3 determinations, Crown concludes, the trial court did not abuse 4 its discretion. In making these 5 We have not previously considered the question whether 6 disgorgement of profits is an appropriate remedy for a violation 7 of the Act. 8 Act are pertinent. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 In resolving the question, the provisions of the The purpose of the Act is set forth in Code § 59.1-21.9 as follows: The General Assembly finds and declares that since the distribution and sales through franchise arrangements of petroleum products in the Commonwealth of Virginia vitally affect the economy of the Commonwealth, the public interest, welfare, and transportation, and since the preservation of the rights, responsibilities, and independence of the small businesses in the Commonwealth is essential to economic vitality, it is necessary to define the relationships and responsibilities of the parties to certain agreements pertaining thereto. (Emphasis added.) Code § 59.1-21.16:2(A) contains the one and one-half mile 24 prohibition at issue in Frank Shop I. 25 in pertinent part as follows: 5 That Code section states What the trial court actually said was that Crown had "acted properly pursuant to the ruling of the Supreme Court of Virginia handed down on January 12, 2001 and the denial of the rehearing on March 2, 2001." It should not be necessary to observe that a party cannot be acting properly under a ruling when this Court has determined that the party's action is illegal. 9 1 2 3 4 5 6 7 8 9 10 11 12 [N]o refiner of petroleum products shall operate any major brand, secondary brand, or unbranded retail outlet in the Commonwealth of Virginia with company personnel, a parent company, or under a contract with any person, firm, or corporation, managing a service station on a fee arrangement with the refiner; however, such refiner may operate such retail outlet with the aforesaid personnel, parent, person, firm, or corporation if such outlet is located not less than one and one-half miles . . . from the nearest retail outlet operated by any franchised dealer. These statutory provisions were considered in Crown Central 13 Petroleum Corp. v. Hill, 254 Va. 88, 488 S.E.2d 345 (1997). 14 There, we stated as follows: The specific location prohibition at issue is completely consistent . . . with the expressed legislative intent, to preserve "the rights, responsibilities, and independence of the small businesses in the Commonwealth." § 59.1-21.9. A refiner operating a retail outlet is an integrated business entity which produces its product and sells that product at both the wholesale and retail level. Thus, the refiner has the ability to allocate availability of its product and subsidize the price of its product sold at its retail outlets. . . . It is the refiner's integration and access to the product that puts the retail franchised dealer at a potentially competitive disadvantage. Therefore, to protect the rights of franchised dealers in avoiding such a potentially unfair price structure and thus preserve the independence of dealers, the General Assembly chose to require a minimum distance of one and one-half miles between a refinery-owned-and-operated retail station and a retail station operated by a franchised dealer. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Id. at 92-93, 488 S.E.2d at 347 (emphasis added). 35 mind the emphasis on the purpose of the Act to preserve the 36 rights and independence of small businesses, i.e., franchise 37 dealers, we now turn to the remedies the General Assembly has 38 provided for a violation of the Act. 10 Keeping in 1 As noted previously, Code § 59.1-21.12 provides that any 2 person who violates the Act "shall be civilly liable for 3 liquidated damages of $2,500 and reasonable attorney's fees, 4 plus provable damages caused as a result of such violation, and 5 be subject to such other remedies, legal or equitable, including 6 injunctive relief, as may be available to the party damaged by 7 such violation." 8 is not liquidated damages or attorney's fees or provable damages 9 or such other remedies, legal or equitable, including injunctive It will be observed that the remedy provided 10 relief, as may be available to the party damaged by such 11 violation. 12 and attorney's fees and provable damages and such other 13 remedies, legal or equitable, including injunctive relief, as 14 may be available to the party damaged by such violation. Rather, the remedies provided are liquidated damages 15 In other words, the General Assembly intended not only to 16 provide remedies in the form of liquidated damages, attorney's 17 fees, proven damages, and injunctive relief but also, in the 18 broadest of terms, to provide other remedies appropriate to a 19 particular violation of the Act. 20 cannot be read to exclude the remedy of disgorgement of profits. 21 Indeed, considering that the remedies provided are intended to 22 carry out the purpose of the Act to preserve the rights and 23 independence of franchised dealers, we are of opinion that 24 disgorgement of profits fits logically within the framework of 11 And the language employed 1 "other remedies, legal or equitable, . . . as may be available 2 to the party damaged by such violation." 3 opinion, however, that the remedy of disgorgement should only be 4 available for a willful violation of the Act, and not for some 5 innocent or unintended violation. 6 We are further of There can be no dispute that Frank Shop is a party within 7 the class protected by the Act. Nor can there be any dispute 8 that Crown's violation was willful. 9 2001, when this Court refused Crown's petition for rehearing, At least from March 2, 10 Crown was on notice it was in violation of the Act. 11 took the position in response to Frank Shop's Motion for Relief 12 that, because this Court did not enjoin it from operating its 13 retail outlet and the trial court had not entered an injunction 14 prohibiting the operation, it was not illegally operating the 15 station. 16 until someone made it stop by way of an injunction. 17 Yet, it And it apparently thought it could keep on operating But an injunction was not needed to make the operation 18 illegal. 19 petition for rehearing made clear that the operation was 20 illegal. 21 decision it made thereafter to continue operating even at the 22 peril of becoming subject to the remedies provided by the Act. 23 24 Our opinion in Frank Shop I and the refusal of Crown's Crown's willfulness was evidenced by the deliberate Crown's willfulness was displayed in another way. When faced with the entry of an injunction, its immediate reaction 12 1 was to ask for a delayed effective date. 2 Crown's operation legal, but Crown deliberately took advantage 3 of the delay to continue its illegal operation. 4 The delay did not make What makes disgorgement such an appropriate remedy in this 5 situation is that it was Crown's obvious purpose to continue 6 operating, although illegally, until a franchise dealer was in 7 place so there would be no break in its receipt of profits from 8 each day's operation. 9 under these circumstances would run counter to the principles To permit Crown to retain the profits 10 that one should not be permitted to profit from his own 11 wrongdoing and that equity will not suffer a wrong to be without 12 a remedy. 13 those principles well. 14 To require disgorgement in this case would serve But, Crown argues, Frank Shop's disgorgement theory is an 15 unwarranted attempt to obtain punitive damages, and in the 16 absence of a statutory provision, Frank Shop is not entitled to 17 seek punitive damages under any guise. 18 for punitive damages, so Frank Shop is not entitled to any such 19 exemplary damages no matter how it frames the recovery. 20 We disagree with Crown. The Act does not provide Punitive damages are not allowed 21 as compensation for plaintiff's loss but as a warning to others 22 and punishment to the wrongdoer. 23 Pigg, 207 Va. 679, 685, 152 S.E.2d 271, 277 (1967). 24 Disgorgement on the other hand is "[t]he act of giving up 13 Giant of Virginia, Inc. v. 1 something (such as profits illegally obtained) on demand or by 2 legal compulsion," 3 with the amount disgorged awarded to the party damaged by the 4 illegal act. 5 Black's Law Dictionary 480 (7th ed. 1999), Crown also argues that Frank Shop waived any claim for 6 disgorgement because it did not request that relief in its 7 original bill of complaint or at the original trial and did not 8 raise the claim until after the remand of Frank Shop I. 9 Frank Shop points out, it could not have foreseen that after But, as 10 this Court announced Crown's operation was unlawful, Crown would 11 continue the unlawful operation. 12 disgorgement did not mature until after the remand. 13 Hence, the claim for Finally, Crown argues that Frank Shop's equitable theory of 14 disgorgement is barred by the doctrine of unclean hands because 15 Frank Shop failed to disclose pertinent, responsive materials 16 during the discovery phase of Frank Shop I, and the trial court 17 was within its discretion to consider this failure in denying 18 Frank Shop's request for relief. 19 the trial court stated that Frank Shop's motion for disgorgement 20 was denied for the reasons set forth in the court's letter 21 opinion. 22 listed as one of the reasons set forth in the letter opinion, so 23 the trial court apparently did not consider the failure a However, in the final decree, Frank Shop's alleged failure to disclose was not 14 1 sufficient reason to deny disgorgement. 2 with the trial court on this point. 3 We would not disagree For the reasons assigned, we will reverse the judgment of 4 the trial court and remand the case with direction to determine 5 the date on which Crown ceased operating the retail outlet, to 6 determine and make an award to Frank Shop of the profits earned 7 by Crown from its unlawful operation of the retail outlet from 8 March 2, 2001 to the date Crown ceased such operation, and to 9 determine and make an award to Frank Shop of reasonable 10 attorney's fees and costs incurred subsequent to the trial 11 court's June 4, 2001 hearing, including those incurred in this 12 appeal. 13 Reversed and remanded. 15
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