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SIECKO v. AMERADA HESS CORP.

August 29, 1983

JOSEPH S. SIECKO and DARRYL BILLEMEYER
v.
AMERADA HESS CORPORATION



The opinion of the court was delivered by: BECHTLE

 BECHTLE, J.

 This is an action brought by Darryl Billemeyer, a franchisee-lessee gasoline dealer, against Amerada Hess Corporation ("Hess"), his franchisor-lessor, under the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq. ("PMPA"). Billemeyer also asserts a state law claim for breach of fiduciary duty. The complaint is based upon a new Dealer Agreement which Hess required Billemeyer to execute in August, 1981, resulting in an increase in Billemeyer's rent on his gasoline station. Presently before the Court is Hess' motion for summary judgment. For the reasons that follow, the motion will be granted. *fn1"

 FACTS

 Hess, a refiner and marketer of petroleum products, sells gasoline at retail stations in 14 eastern and southern states, including Pennsylvania. Some of these stations are operated and managed by Hess itself with its own employees. The rest are dealer-operated stations, in which dealers lease the underlying land, station, and improvements from Hess under Dealer Agreements. Hess pays for all capital improvements at its station sites. Its dealers make no capital improvements in the station properties. In each instance Hess constructs the service station building and outfits the property with pumps, tanks, lighting, piping and landscaping. Thereafter Hess maintains the station improvements. Hess also pays all property taxes on the stations. Thus, under the terms of the Dealer Agreement, Hess franchisees incur no expenses with respect to the underlying land or the improvements thereon, nor do the franchisees pay any franchise fee to Hess.

 Plaintiff Billemeyer has been a Hess franchisee since April, 1971, at Hess station #38219 located at Routes #202 and #309 in Montgomeryville, Pennsylvania. From 1971 until December 1, 1981, he operated pursuant to a Dealer Franchise and Sales Agreement and a Dealer Lease under which his rent to Hess for the station was determined by the volume of gasoline Hess sold to the station. The monthly rental equaled 1 cent per gallon for the first 60,000 gallons delivered, 1-1/2 cents per gallon from 60,000 to 150,000 gallons, 1-3/4 cents from 150,000 to 200,000 gallons, and 2 cents per gallon for each gallon in excess of 200,000 gallons.

 In the Spring of 1981, Hess adopted a new dealer rental program as a result of the recommendation of Norman Goldberg, the Senior Vice President of Marketing for Hess. The recommendation was based upon statistics which documented Hess' escalating ownership and maintenance costs in the face of a steady decline in rental income from the dealer properties. The economic circumstances which led to the restructure of the rental formula, as well as the details of Hess' two phase program to implement the change, are set out at length in Meyer v. Amerada Hess Corp., 541 F. Supp. 321, 323-326 (D. N.J. 1982), and need not be repeated here.

 As distinguished from the old cents-per-gallon rent calculation, the most salient characteristic of the new rent calculation was its introduction of a flat fee. The amount of the fee was individually set for each station according to the same standardized formula. The formula took the market value of the land and the replacement cost of the improvements, added them together, and multiplied the sum by 8%. The resulting figure as to any particular station equaled the annual rent on that station which, when divided by 12, yielded the station's monthly rent.

 In order to apply the formula to the individual station sites Hess hired an experienced independent real estate appraiser, Britton Appraisal Associates, Inc., to determine the market value of the land, as if unimproved, at all of the stations at their highest and best use. With the assistance of local appraisers working under Britton's supervision, a written evaluation was prepared for each station property based on sales of comparable properties. Hess did not inform Britton why it wanted the appraisals, and Britton did not learn that the appraisals were part of an overall restructuring of dealer rentals until after the reports were completed. To determine the value of the improvements at each station, Hess selected a replacement cost standard. Actual replacement cost was then derived after the results of an on-site inspection and inventory of improvements were applied to the figures from a construction manual containing geographical adjustments for factors such as labor rates.

 In July, 1981, Hess presented plaintiff and 140 of its other dealers whose leases were about to expire with new Dealer Agreements containing a flat monthly rental based on uniform application of the above rental formula. Under the agreement given to plaintiff, his new monthly rental was $2,264.00. This, when compared to an average monthly rental for 1981 of $946.75, represented an increase of over 130%. Plaintiff subsequently learned that the new rental was based on an appraised land value for his station of $194,000.00 and an asserted replacement value for the improvements thereon of $145,615.00. (($194,000 $145,615) X.08 = $27,169 divided by 12 = $2,264). Plaintiff signed the new Dealer Agreement in August, 1981, and it became effective on December 1, 1981, as did the new Dealer Agreements for all other Hess dealers.

 Plaintiff paid his new rent from December 1, 1981, through March, 1982, when Hess implemented a 20% temporary voluntary rent adjustment ("TVRA") retroactive to March 1, 1982, for all its dealers operating under the new Dealer Agreement. Hess' asserted reason for the TVRA was the unanticipated severe decline in the retail gasoline market which developed in 1982. Under the TVRA plaintiff's monthly rental was reduced to $1,812.20. The March, 1982 TVRA, and consequently plaintiff's reduced rental rate, continues in effect today.

 DISCUSSION

 In filing the present suit plaintiff contended that the rent charges demanded by Hess under the new Dealer Agreements were designed to force him and other franchisees like him out of their stations in contravention of the PMPA. In opposing Hess' motion for summary judgment, however, plaintiff appears to have modified his position. Now, plaintiff expressly states that he does not question the right of Hess under the PMPA to adopt a new rental program for its dealers, so long as it is adopted in good faith and in the normal course of business. Plaintiff claims, however, that Hess' expert committed several errors in valuing his particular station, and that these errors support a finding that, or at least create an issue of fact as to whether, Hess acted arbitrarily and discriminatorily in violation of the PMPA by not applying its rental formula in a uniform and accurate manner.

 In support of his claim of errors by Hess, plaintiff engaged his own appraiser, William D. Pugliese, to prepare an appraisal report to cover the value of the land at plaintiff's station and to determine the replacement cost of the improvements thereon. Nor surprisingly, plaintiff's expert appraisal resulted in land value and replacement cost figures which were significantly lower than those of Hess' expert. In view of plaintiff's position as supported by his expert's opinion, it cannot be said that there are no issues of fact on this aspect of the dispute. Nonetheless, given that the accepted test for violation of the PMPA by a franchisor is whether changes or additions in the franchise agreement were made by the franchisor in good ...


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