FOUR S SHELL LIMITED LIABILITY COMPANY v. PMG LIMITED LIABILITY COMPANY

Filing 67

MEMORANDUM and ORDER granting in part and denying in part 47 Motion for Summary Judgment. It is ORDERED that the motion is denied as to Count I and the motion is granted on the remaining counts. Signed by Judge Peter G. Sheridan on 7/10/2019. (km)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Four S Shell, LLC,
Civil Action No.
3: 16-cv-5701 (PGS) (TJB)

Plaintiff,
v.

MEMORANDUM
AND ORDER

PMG, LLC,
Defendant.

SHERIDAN, U.S.D.J.
This matter comes before the Court on a motion by Defendant for summary judgment. This
Court has federal question jurisdiction, 28 U.S.C.
Act (PMPA), 15 U.S.C.
relationship. Plaintiff

—

§ 1331, under the Petroleum Marketing Practices

§ 2802, which regulates a franchisor’s termination of a franchise

having been denied injunctive relief

—

seeks compensatory damages,

consequential damages, and attorney fees and expenses.’ Because Defendant bears the burden of
proof in actions under the PMPA; the bulk of defendant’s evidence is testimonial and thus subject
to credibility determinations; and there remain disputes as to material facts, the Court finds
summary judgment inappropriate with respect to Plaintiff’s PMPA claim. However, Plaintiff’s
state law claims are preempted and therefore are dismissed.

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In addition, a demand for a permanent injunction technically remains in the complaint. It is,
however, unclear how such an injunction can reasonably be enforced given that the franchise
agreement has long since been terminated. Therefore, if Plaintiff is entitled to relief, it is likely
that only monetary damages would be appropriate.

I.
Plaintiff, Four S Shell, LLC, is a New Jersey limited liability company, that formerly
operated a motor fuel service station (the “station”) located on Route 1 South in North Brunswick,
New Jersey (the “Property”). (Defendant’s Statement of Undisputed Material Facts (“DSUMF”),
ECF No 48-1 at ¶91 1, 2). Shilpa Sathu is its owner and principal. (Declaration of Bruce Rosen
(“Rosen Deci.”), Ex. 6, Deposition of Shilpa Sathu (“Sathu Dep.”) at 13:3 to 11). Defendant PMG
is a Virginia limited liability company with its principal offices in Woodbridge, Virginia. (DSUMF
at ¶ 3). Defendant PMG is in the business of, inter alia, distributing branded motor fuels (including
Shell branded fuels) to fuel service stations for retail sale. (DSUMF at ¶

4)2

Some of the stations

to which PMG distributes branded fuels are operated as franchises, with PMG serving as the
franchisor and a station operator serving as the franchisee. (Id.; see Rosen Deci., Ex. 13, Deposition
of James Deakin at 7:22 to 8:10).
PMG owns or leases approximately 60 to 80 fuel stations in New Jersey. (DSUMF at ¶ 5;
Rosen Decl., Ex. 1, October 24, 2016 Transcript (“October24 Transcript”) at 10:14 to 19). There
are also more than a hundred other stations in New Jersey to which PMG supplies fuel but does
not own or lease. (Id.). Overall, PMG conducts business at sites from Delaware to Maine. (DSUMF
at ¶ 5; Deakin Dep. at 7:11 to 12). The majority of the stations owned or leased by PMG in New
Jersey are operated by franchisees. (DSUMF at ¶ 6; Plaintiff’s Counter Statement of Undisputed
Material Facts (“PCSUMF”) at ¶ 6). Approximately only 20 to 25 stations in New Jersey are
operated by a commission agent. (October 24 Transcript at 11:11-11:13). Here, PMG is the owner

2

Plaintiff avers that the allegations of this paragraph are not compliant with R. 56.1(a) as they do
not cite to the record in support thereof. (Plaintiff’s Response ¶4). However, Plaintiff raises no
substantive objection and asserted this fact in its complaint. (Complaint, ECF No. 1 at ¶ 9).

of the property. (DSUMF at ¶ 7). Plaintiff leases the property from PMG and operates the station
as PMG’s franchisee pursuant to the franchise agreement between them. (Id.).
II.
Plaintiff filed its Verified Complaint on September 19, 2016, (ECF No. 1), and an
accompanying Ex Parte Order to Show Cause, (ECF No. 4). The same day the Verified Complaint
was filed, the Court entered an order scheduling a preliminary injunction hearing. (ECF No. 7).
The parties appeared before this Court on September 29, 2016. In addition to argument,
the Court heard testimony from Sathu and Kamalpreet Singh (Plaintiff’s employee). (ECF No. 16).
After the hearing, the Court entered an Order: (1) granting temporary restraints maintaining the
status quo; (2) enjoining termination of the franchise agreement between Plaintiff and PMG at
least until October 24, 2016; and (3) scheduling a second hearing for October 24, 2016. (ECF Doe.
No. 15).
The parties returned to Court for a second hearing before Judge Sheridan on October 24,
2016. The Court heard testimony from Deakin and McGee. At the conclusion of the hearing, the
Court concluded there was “really no dispute, but that PMG has acted in good faith and has
complied with the requirements of the statute.” (id. at 152:13-15 (emphasis added)). It is Plaintiff’s
position that the observations as set forth in this Transcript were made without the benefit of full
discovery and are no longer supported. (See PSOF at ¶ 19).
Plaintiff alleges that the rent amounts included in the renewal terms were excessively high
and that PMG proposed the changed rent amounts in bad faith as part of an effort to retake
possession of the station. (Id. at

¶ 99). PMG maintains that: (1) the rent amounts included in the

proposed renewal terms were not excessively high and instead simply reflect actual market value;
(2) the rent amounts were determined according to the same rent calculation process that PMG

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employs while setting renewal terms for all of its properties; (3) the rent amounts provided in the
expiring franchise agreement were set artificially low in response to severe mismanagement of the
station and damage to its value by a previous franchisee; and (4) that PMG specifically advised
Plaintiff before it assumed the franchise agreement that the rent at that time was artificially low
and would be increased substantially at the expiration of the franchise term.
III.
Summary judgment is appropriate under Federal Rule of Civil Procedure 56(c) when the
moving party demonstrates that there is no genuine issue of material fact and the evidence
establishes the moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986). A factual dispute is genuine ifa reasonable jury could return a verdict
for the non-movant, and it is material if, under the substantive law, it would affect the outcome of
the suit. Anderson v. Liberty Lobby, Inc.. 477 U.S. 242, 248 (1986). In considering a motion for
summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party’s evidence “is to be believed and all
justifiable inferences are to be drawn in [her] favor.” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v. Lacey
Twp., 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for summary judgment
cannot rest on mere allegations and instead must present actual evidence that creates a genuine
issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v. Carrier
Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations.

.

.

and pleadings

are insufficient to repel summary judgment.” Schoch v. First Fidelity Bancorp., 912 F.2d 654, 657

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(3d Cir. 1990); see also Fed. R. Civ. P. 56(e) (requiring nonmoving party to “set forth specific
facts showing that there is a genuine issue for trial”). Moreover, only disputes over facts that might
affect the outcome of the lawsuit under governing law will preclude the entry of summary
judgment. Anderson, 477 U.S. at 247-48. If a court determines, “after drawing all inferences in
favor of [the non-moving party], and making all credibility determinations in [her] favor” that no
reasonable jury could find for [her], summary judgment is appropriate. Alevras v. Tacopina, 226
Fed. App’x 222, 227 (3d Cir. 2007).
“The [PMPA] limits the circumstances in which franchisors may ‘terminate’ a servicestation franchise or ‘fail to renew’ a franchise relationship.” Mac’s Shell Service v. Shell Oil
Products Co., 559 U.S. 175, 177 (2010). “[A] franchisee may bring suit in federal court against
any franchisor that fails to comply with the [PMPA’sj restrictions on terminations and
nonrenewals. Successful franchisees can benefit from a wide range of remedies, including
compensatory damages, reasonable attorney’s fees and expert costs, and equitable relief.” Mac’s
Shell Service, 559 U.S. at 179 (citing 15 U.S.C.

§ 2805).

The PMPA “authorizes franchisors to decline to renew a franchise relationship if the
franchisee refuses to accept changes or additions that are proposed ‘in good faith and in the normal
course of business’ and that are not designed to convert the service station to direct operation by
the franchisor.” Mac’s Shell Service, 559 U.S. at 192 (quoting 15 U.S.C.

§ 2802(b)(3)(A)). “The

test is whether the ‘franchisor had acted in subjective good faith in requesting the changes, and not
whether the demanded changes were the result of reasonable business judgments.” Esso Standard
Oil Co. v. Monroig-Zayas, 445 F.3d 13, 19 (1st Cir. 2006) (citation omitted). The test “provide[s]
adequate protection of franchisees from arbitrary or discriminatory termination or nonrenewal, yet
avoid[s] judicial scrutiny of the business judgment itself. Thus, it is not necessary for the courts to

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determine whether a particular marketing strategy is a wise business decision.” Brach v. Amoco
Oil Co., 677 F.2d 1213, 1222-23 (7th Cir. 1982) (citation omitted). “{T]he ‘good faith requirement
requires merely that a franchisor not act with evil motive or discriminate selectively against
franchisees.” Id. (citation omitted).
The Court shall deny summary judgment here because of the following disputes of material
fact:
(1) The existence of a formula for calculating increases in rent at Defendant’s franchises.
(See DSUMF at ¶ 93; PCSUMF at ¶91 93, 95-97). Although Defendant contends such a
policy exists, it cites oral deposition, in-court testimony, or affidavits, uncorroborated
by any written policy. (See, e.g., DSUMF at ¶ 102-103; October 24 Transcript at 60:1325; 6 1:12-25; Deakin Dep. at 4 1:17-42:16). Defendant has admitted that it did not have
a written policy or formula for evaluating rental values until recently. (See PSUMF at

¶9[ 8-9; Defendant’s Counter Statement of Material Facts (DCSUMF) at ¶91 8-9). While
the Court declines to accept Plaintiff’s rigid position that Defendant must have a
mathematical formula, the absence of a written policy indicates, as Defendant has
admitted, that Deakin alone considers the factors and makes an ultimate determination.
Thus the enforcement of the policy rests in Deakin’s credibility and Plaintiff is entitled
to cross-examine him before a trier of fact about this purported policy.
(2) Whether Deakin and McGee warned Plaintiff that rental values would increase when
they initially met. (See October24 Transcript at 26: 17-27:13, 104: 15-21; Sathu Decl.
at ¶91 3-4).

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(3) Whether Deakin and McGee suggested, during that initial meeting, that Plaintiff could
operate a truck stop at the property. (See Sathu Deci. at ¶ 5; PSOF 9191 27-33; PCSUMF
at9[69).
(4) Whether Defendant failed to provide her with training; whether Plaintiff’s need for
training was apparent; and whether Defendant had a training program that was
available. (Sathu Decl. at ¶ 2; DLSA at ¶ 13; DSUMF at ¶ 30; PCSUMF at 91 32).
(5) Whether Defendant placed Plaintiff’s account on COD status in retaliation for her
request to operate the station as a commission. (See PSOF at ¶ 41; PCSUMF at ¶ 163,
224; Goldman Decl., Ex. 31, September 13, 2016 email exchange between Plaintiff,
McGee, and Deakin).
(6) Whether Defendant had a motive not to renew the agreement, as shown by the strained
relationship between Sathu, Deakin, and McGee. (See, e.g., DSUMF at ¶ 143; October
24 Transcript at 37:9-38:15, 106:4-23; Rosen Dccl., Ex. 11, August 25, 2015 email
exchange). Plaintiff also notes that Defendant received an offer from Tim Horton’s to
open a franchise at the location. (See October 24 Transcript at 55:20-22). The fact that
the Tim Horton’s deal fell through and the property remained vacant for some time is
not conclusive evidence that defendant negotiated in good faith.
The Court also notes the substantial increase in rent, which is not conclusive of bad faith
on the part of Defendant but is nonetheless relevant. See Esso Standard Oil Co.

i’.

Dept. of

Consumer Affairs, 793 F.2d 431 (1st Cir. 1986).
Moreover, the Court notes that Defendants bear the burden of proof here. See Carter v.
Exxon Co. USA, 177 F.3d 197, 202 (3d Cir. 1999). This further bolsters the Court’s decision that
summary judgment is inappropriate on this count.

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Plaintiff’s State Law Claims
In addition to the claims set forth under the PMPA, Plaintiff sets forth several state law
claims: breach of contract and breach of good faith and fair dealing (Count II); breach of the
covenants of good faith and fair dealing (Count III); fraudulent inducement to enter into contract
(Count IV); violation of the New Jersey Franchise Practices Act, N.J. Stat. Ann.

§ 56:10-5 (Count

V); tortious interference with present and prospective economic advantage (Count VI); conversion
(Count VII); and unjust enrichment (Count VIII). (See Complaint at ¶J[ 10 1-125).
The PMPA creates “a uniform national system of petroleum franchise terminations.”
O’Shea

ij’.

Amoco Oil Co., 886 F.2d 584, 588 (3d Cir. 1989). Accordingly, the act explicitly

provides, with respect to termination of a franchise relationship:
[Nb state may adopt, enforce, or continue in effect any provision of
any law or regulation
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). As such, “when state law claims are ‘intimately intertwined’ with the

termination or nonrenewal of a franchise they are preempted by the PMPA.” Kehm Oil Co. v.
Texaco, Inc., 537 F.3d 290, 299 (3d Cir. 2008).
In this case, Plaintiff’s contract claims are inextricably intertwined with the termination or
nonrenewal of Plaintiff’s franchise relationship. Moreover, Plaintiff has not set forth any
opposition to Defendant’s preemption argument and thus waives same. Therefore, the Court shall
grant summary judgment with respect to Plaintiff’s state law contract claims.
ORDER

This matter comes before the Court on a motion filed by Defendant for summary judgment.
The Court held oral argument on December 17, 2018. The Court has considered the written
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submissions of the parties and the oral arguments set forth on the record. Accordingly, for the
reasons stated herein and for good cause shown;
IT IS on this

day of July, 2019,

ORDERED that Defendant’s motion for summary judgment (ECF No. 47) is granted in
part and denied in part as follows:
(a) Defendant’s motion for summary judgment on Count I

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bought under the PMPA

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is

denied;
(b) Defendant’s motion for summary judgment on the remaining counts
state law

—

—

brought undei

is granted.

PETER G. SHERIDAN, U.S.D.J.

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