Rivera et al v. Caribbean Petroleum Corporation, No. 3:2008cv01087 - Document 44 (D.P.R. 2009)

Court Description: OPINION AND ORDER GRANTING 21 MOTION for Summary Judgment filed by Caribbean Petroleum Corporation. We dismiss Plaintiffs' claims under the PMPA with prejudice. Signed by Chief Judge Jose A Fuste on 10/19/09.(mrj)

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1 2 3 4 5 6 7 8 9 10 11 UNITED STATES DISTRICT COURT DISTRICT OF PUERTO RICO ANTONIO RIVERA, et al., Plaintiffs, Civil No. 08-1087 (JAF) v. CARIBBEAN PETROLEUM CORPORATION, Defendant. OPINION AND ORDER 12 13 Plaintiffs, Antonio Rivera, Marta Garatón, and the conjugal 14 partnership between them, bring this action against 15 Caribbean Petroleum Corporation, alleging violations of the Petroleum 16 Marketing Practices Act ( PMPA ), 15 U.S.C. §§ 2801-2841. (Docket 17 Nos. 1; 2-3.) Defendant moves for summary judgment under Federal Rule 18 of Civil Procedure 56(c) (Docket No. 21); Plaintiffs oppose. (Docket 19 No. 32.) 20 I. 21 Defendant, Factual and Procedural Synopsis 22 We derive the following facts from the parties motions, 23 statements of uncontested material facts, and exhibits. (Docket 24 Nos. 21; 22; 23; 31; 32.) Plaintiffs are a husband and wife who 25 operate gasoline stations in Puerto Rico. Rivera has been working in 26 the industry for over thirty years as a franchisee for various 27 petroleum companies. (Docket No. 22-2.) Defendant is a petroleum Civil No. 08-1087 (JAF) -2- 1 corporation with its principal place of business in Bayamón, Puerto 2 Rico. Defendant markets petroleum under the GULF trademark and acts 3 as a franchisor. In 1998, Defendant entered into a fifteen-year lease 4 with Canóvanas Urban Development, Inc. ( CUDI ) for a plot of land in 5 Canóvanas, Puerto Rico. As a condition of the lease, Defendant agreed 6 to construct a gasoline service station on the property. (Docket 7 No. 22-5.) The lease established a graduated rental scheme whereby 8 Defendant would pay CUDI $10,0000 per month for the first five years, 9 $12,000 per month in the succeeding five years, and $14,000 in the 10 final five years. (Id.) 11 Defendant built the gas station as promised and then sublet the 12 station to a franchisee under a trial franchise agreement at a rent 13 of $6,000 per month. (Docket No. 22-5 at 4.) That franchisee did not 14 perform satisfactorily and, in 2000, Defendant began looking for 15 another franchisee to operate the station. 16 In October 2000, Defendant offered Plaintiffs the opportunity to 17 run the Canóvanas gas station rent-free. (Docket No. 22-5 at 4.) 18 Defendant concedes that it entered into an oral franchise agreement, 19 as defined by the PMPA, with Plaintiffs. (Docket No. 23 at 9.) 20 Plaintiffs agree that an oral contract governed their franchise 21 relationship. (Docket No. 22-3 at 55-56.) Plaintiffs took possession 22 of the Canóvanas gas station in October 2000 and have continued to 23 run the station through the present day. Civil No. 08-1087 (JAF) -3- 1 Defendant insists that it had been trying to renegotiate its 2 rental payments under its lease with CUDI since 2003. In 2006, having 3 recently completed a bankruptcy reorganization, Defendant decided 4 that 5 unsustainable. Defendant made its last rental payment in January 2006 6 and, in the words of its supervisor of retail sales, still hoped 7 that CUDI would then reconsider and lower the monthly payments. 8 (Docket No. 22-5 at 6.) 9 April 20, 2006. (Docket No. 22-5 at 3.) Defendant consented to a the rental payments for the Canóvanas station were Instead, CUDI began eviction proceedings on 10 judgment of eviction on May 24, 2006. (Docket No. 22-6 at 9.) On the 11 following day, Defendant notified Plaintiffs by mail of the loss of 12 the lease and gave Plaintiffs thirty days to vacate the property. 13 (Docket No. 22-7.) 14 Plaintiffs, however, remained on the property and eventually 15 purchased it from CUDI. On June 25, 2007, Plaintiffs filed a claim in 16 the 17 termination of the franchise under the PMPA. (Docket No. 2-3.) 18 Defendant removed the case to this court on January 18, 2008. 19 (Docket No. 1.) Commonwealth Court of First Instance alleging 20 II. 21 wrongful Summary Judgment under Rule 56(c) 22 We grant a motion for summary judgment if the pleadings, the 23 discovery and disclosure materials on file, and any affidavits show 24 that there is no genuine issue as to any material fact and the movant Civil No. 08-1087 (JAF) -4- 1 is entitled to judgment as a matter of law. 2 A factual dispute is genuine if it could be resolved in favor of 3 either party and material if it potentially affects the outcome of 4 the case. 5 Fed. R. Civ. P. 56(c). Calero-Cerezo v. DOJ, 355 F.3d 6, 19 (1st Cir. 2004). The movant carries the burden of establishing that there is no 6 genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 7 U.S. 317, 325 (1986). 8 we view the record in the light most favorable to the non-movant. 9 Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). Once the 10 moving party has made a preliminary showing that no genuine issue of 11 material fact exists, the nonmovant must produce specific facts, in 12 suitable evidentiary form, to establish the presence of a trialworthy 13 issue. 14 (quoting Triangle Trading Co. v. Robroy Indus., Inc., 200 F.3d 1, 2 15 (1st Cir. 1999)). The non-movant may not rely merely on allegations 16 or denials in its own pleading; rather, its response must . . . set 17 out specific facts showing a genuine issue for trial. 18 P. 56(e)(2). In evaluating a motion for summary judgment, Clifford v. Barnhart, 449 F.3d 276, 280 (1st Cir. 2006) 19 III. 20 Fed. R. Civ. Analysis 21 Plaintiffs argue that Defendant s eviction for nonpayment of 22 rent cannot be a valid lease expiration as contemplated by the 23 statute. 24 did not comply with provisions of the PMPA requiring it to include in (Docket No. 32 at 10.) Plaintiffs also aver that Defendant Civil No. 08-1087 (JAF) -5- 1 the termination notice offers to assign any purchase option for the 2 underlying land or rights to equipment and improvements on the land. 3 (Docket No. 2-3 at 15.) 4 Plaintiffs franchise was valid under the PMPA because its eviction 5 by CUDI was an expiration of the underlying lease for which 6 termination would be reasonable pursuant to 15 U.S.C. § 2802(c)(4). 7 (Docket No. 23 at 15-19.) With regard to the assignment offers, 8 Defendant first argues that its notice of termination was valid 9 because the PMPA does not require assignment offers to be contained the termination Defendant argues that its termination of 10 within notice. (Docket No. 23 at 20.) Second, 11 Defendant argues that it had no purchase option for the land and that 12 it never received a request from Plaintiffs, as mandated by the PMPA, 13 for the assignment of improvements and equipment on the land. 14 A. (Id.) Eviction as expiration 15 The issue before us appears to be one of first impression in 16 this circuit: whether a franchisor s eviction for nonpayment of rent 17 qualifies as a loss of the franchisor s right to grant possession of 18 the leased marketing premises through expiration of an underlying 19 lease. 20 of 21 premised upon one of five enumerated reasons. § 2802(a), (b)(2). One 22 of these reasons is the occurrence of an event which is relevant to 23 the franchise relationship and as a result of which termination of 24 the franchise relationship . . . is reasonable. § 2802(b)(2)(c). a 15 U.S.C. § 2802(c)(4). petroleum franchise The PMPA prohibits the termination agreement unless said termination is Civil No. 08-1087 (JAF) -6- 1 The PMPA then offers a list of situations that qualify as such events 2 relevant to the franchise relationship. § 2802(c). Any termination 3 that conforms to one of these situations is conclusively presumed to 4 be reasonable as a matter of law. Desfosses v. Wallace Energy, Inc., 5 836 F.2d 22, 26 (1st Cir. 1987). But the First Circuit, citing the 6 legislative history of the PMPA, cautions that this list is not 7 exclusive; 8 terminations that do not perfectly conform to an event enumerated in 9 § 2802 yet are nonetheless reasonable. 10 rather, Section the 2802(c)(4) where allows sanctions franchisor courts to franchise Id. at 27. termination the a possession of the leased marketing premises through expiration of an 13 underlying lease. The First Circuit broadly interprets the term 14 expiration to encompass losses of the lease that are voluntary or 15 involuntary. Veracka v. Shell Oil Co., 655 F.2d 445, 447-48 (1st Cir. 16 1981). In Veracka, the First Circuit rejected the argument that 17 § 2802(c)(4) applied only where the expiration of the underlying 18 lease was outside of the franchisor s control. Id. The Veracka court 19 analyzed the legislative history and found that while the purpose of 20 the PMPA was to correct a disparity in bargaining power between 21 franchisors 22 reflecting an intent to allow reasonable business judgments by the 23 franchisor. Id.; accord Desfosses, 836 F.2d at 25 ( Congress was 24 also aware of the franchisors need for adequate flexibility to exceptions right petroleum 12 the lost of franchise franchisees, has uphold 11 and the PMPA are to also grant broad, Civil No. 08-1087 (JAF) -7- 1 respond to changing market conditions and consumer preferences ). 2 The Veracka court found that Congress chief concern was with a 3 franchisor terminating the franchise relationship solely to take 4 control of the franchise itself, appropriating the benefit of the 5 goodwill that the franchisee had developed. 6 the First Circuit held that the voluntary loss of a lease was an 7 expiration under § 2802(c)(4) where there was an arm s length 8 relationship 9 substantive change in control of the premises. 10 The between Veracka lessee decision and has lessor 655 F.2d at 449. and influenced where there Thus, was a Id. the interpretation of 11 expiration under § 2802(c)(4) in several other circuits. See 12 Mustang Mktg., Inc. v. Chevron Prod. Co., 406 F.3d 600, 608 (9th Cir. 13 2005) 14 underlying lease and instead scrutinizing franchisor s subjective 15 intent, its continuing control over the marketing premises, and its 16 actual or eventual right to continued possession ); PDV Midwest 17 Refining, L.L.C. v. Armada Oil & Gas Co., 305 F.3d 498 (6th Cir. 18 2002) (holding that voluntary loss of a lease is reasonable grounds 19 for terminating a franchise agreement); Hutchens v. Eli Roberts Oil 20 Co., 838 F.2d 1138, 1142 (11th Cir. 1988) (voluntary cancellation of 21 an 22 § 2802(c)(4) because the cause of the lease s termination is not 23 important . . . . 24 represents (rejecting underlying an literal lease in interpretation mid-term was of an expiration expiration of the under Rather, we must be satisfied that the termination arms length transaction in which the franchisor Civil No. 08-1087 (JAF) -8- 1 actually gives up control of the premises. ); Russo v. Texaco, Inc., 2 808 F.2d 221 (2d Cir. 1986) (applying the Veracka court s voluntary 3 loss of an underlying lease to the PMPA s loss of franchisor s 4 right to grant the use of a trademark under § 2802(c)(6)). 5 Plaintiffs primary argument is that an eviction for non-payment 6 of rent is not an expiration of the underlying lease for purposes 7 of § 2802(c)(4). (Docket No. 32.) 8 the First Circuit addressing whether a franchisor s eviction is an 9 appropriate loss of the We are unaware of any precedent in right to grant possession under 10 § 2802(c)(4). 11 a voluntary loss where there was an arm s length relationship 12 between the parties to the lease and where the franchisor truly ceded 13 control of the premises. That Defendant was evicted because it 14 stopped paying rent does not affect our analysis. 15 nor the cases interpreting it places any importance on the actual 16 cause of the underlying lease s expiration. Instead, just as in 17 Veracka, 18 relationship 19 franchise. 20 evidence 21 anything but at arm s length. 22 franchisor lost the lease only to be rid of the franchisee and take 23 the property for itself. In fact, Plaintiffs never left the premises 24 and eventually bought the property from the lessor, CUDI. we Following Veracka and its progeny, we find no error in evaluate the and franchisor s the nature 655 F.3d at 449. that the of the intent Neither the PMPA lessor in and lessee s terminating the In the case before us, there is no relationship between Defendant and CUDI was This was not a situation in which the Civil No. 08-1087 (JAF) -9- 1 Furthermore, Defendant s strategic breach of its lease with CUDI 2 was the sort of reasonable business decision that could justify a 3 franchise termination under the PMPA. 4 Desfosses, 836 F.2d at 25. 5 bankruptcy, was paying an exorbitant rent on a property for which it 6 received no monthly rent from the franchisee. 7 that Defendant had a very bad deal . . . . [b]ecause that was an 8 exaggerated amount of rent. (Docket No. 22-3 at 4.) In such a 9 situation, it may be more reasonable for Defendant to breach the 10 lease and risk liability for any resulting damages than to add 11 another shovel-load to a deepening money pit. 12 B. See Veracka, 655 F.2d at 448; Defendant, having recently emerged from Rivera even concedes 13 Notice Violations Plaintiffs claim that notification of their franchise s 14 termination was faulty in that it neither contained nor made any 15 mention 16 [Defendant] could have to the Plaintiff. 17 Defendant argues that the PMPA did not require it to mention any 18 transfer of property rights in its termination notice (Docket No. 23 19 at 20). In addition, Defendant states that it did not possess any 20 property 21 improvements thereon were not properly requested by Plaintiffs. 22 (Id.) 23 24 of the right Plaintiffs possible to assign vague transfer in the pleading of any land, could property right that (Docket No. 2-3 at 15.) and refer any to rights either to of the two different notice provisions in the PMPA. One, § 2802(c)(4)(B), Civil No. 08-1087 (JAF) -10- 1 requires the franchisor to offer to assign to the franchisee any 2 option held by the franchisor to extend the underlying lease or to 3 buy the property. 4 notice of termination, but must make it within ninety days following 5 the notice. 6 requires the franchisor to make a bona-fide offer to sell any 7 improvements or equipment left on the land, following a written 8 request 9 termination. from Id. the The franchisor need not make this offer in the The second provision is § 2802(c)(4)(C), which franchisee within thirty days notice of 10 Defendant first argues that, despite the wording of Plaintiffs 11 complaint, neither of these assignment offers must be made as part of 12 the termination notice; instead, both provisions require franchisor s 13 action during a set period subsequent to the termination notice. 14 (Docket No. 23 at 20.); See § 2802(c)(4)(B), (c)(4)(C). Second, 15 Defendant argues that there was no purchase option in the underlying 16 lease that could be assigned to Plaintiffs. (Docket No. 23 at 20.) 17 In support, Defendant submits its original lease with CUDI, which 18 contains no mention of a purchase option. 19 Finally, Defendant states that Plaintiffs never sent it a written 20 request, 21 equipment or improvements left on the land by Defendant. (Docket 22 No. 23 at 20.) Plaintiffs have failed to respond to any of the above 23 arguments; nor have they set out specific facts showing a genuine 24 issue for trial as required by Rule 56(e)(2). (Docket No. 32.) as required by the § (Docket No. 22-5 at 9-41.) 2802(c)(4)(C), to purchase any Civil No. 08-1087 (JAF) -11- 1 Lacking any challenge to Defendant s arguments that would give rise 2 to a genuine issue of material fact, we find, as a matter of law, 3 that Defendant has not violated either of these PMPA provisions.1 4 IV. 5 Conclusion 6 For the aforementioned reasons, we hereby GRANT Defendant s We DISMISS Plaintiffs 7 motion for summary judgment (Docket No. 21). 8 claims under the PMPA (Docket No. 2-3) WITH PREJUDICE. 9 10 11 12 13 14 IT IS SO ORDERED. San Juan, Puerto Rico, this 19th day of October, 2009. s/José Antonio Fusté JOSE ANTONIO FUSTE Chief U.S. District Judge 1 Although Plaintiffs failed to include it in their complaint, they reference an additional claim in their opposition to summary judgment. (Docket No. 32 at 7.) Plaintiffs appear to argue improper notice under § 2802(b)(2)(C), which limits the time frame in which a franchisor could have actual or constructive knowledge of the event that leads to its terminating the franchise. (Id.) Generally, courts cannot entertain claims on summary judgment which never appeared in the complaint. RuízRivera v. Pfizer Pharms., LLC, 521 F.3d 76, 84 (1st Cir. 2008). The fundamental purpose of our pleadings rules is to protect a defendant s inalienable right to know in advance the nature of the cause of action being asserted against him. Id. (internal quotations omitted) (affirming summary judgment where claim was not sufficiently pleaded in amended complaint). Plaintiffs claim was improperly pleaded and, therefore, we shall not consider it.

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