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RODGERS v. SUN REF. & MKTG. CO.

January 23, 1985

JOHN RODGERS
v.
SUN REFINING AND MARKETING COMPANY



The opinion of the court was delivered by: BECHTLE

 BECHTLE, J.

 John Rodgers, plaintiff, instituted these proceedings under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801, et seq., on May 18, 1984, seeking injunctive relief to prevent the defendant, Sun Refining and Marketing Company ("Sun") from terminating his dealer franchise contract. The termination was sought because of plaintiff's repeated practice of running out of product due to faulty re-ordering practices. The subject of the franchise relationship is a Sunoco gasoline service station located at Swedesford and Morehall Roads, Malvern, Pennsylvania, in the Eastern District of Pennsylvania. *fn1" The court held hearings on the prayer for injunctive relief on November 2, 5, 13, and 14 and December 3, 1984. On November 14, 1984, following completion of testimony and argument, the court rendered a bench ruling denying the relief plaintiff sought. However, since the franchise contract entered into on November 10, 1981, had run its three year term during the court proceedings, the court's Order denying plaintiff relief also allowed plaintiff, until November 28, 1984, to submit to Sun a satisfactory proposal respecting a means to remedy the precise dispute at issue, in order to allow the plaintiff to seek renewal of the franchise relationship for an additional term, which he asked for. *fn2" The plaintiff has complied with the conditional Order by submitting to Sun a written plan for a renewal period that plaintiff asserts will satisfy the complaints of Sun, which assertion the court concludes is justified. *fn3" Sun has refused to accept, reject, or even consider the proposal on the merits, relying entirely upon its belief that the claimed and proven failure to comply with the franchise requirements in the past (during the previous but now expired franchise term) justifies, without more, a refusal by Sun to renew the franchise for an additional period. *fn4" What must be understood here is that the court did not rule that the plaintiff's failures resulted in a termination of the franchise contract because that question was rendered moot by reason of the expiration of the contract term.

 The legislative history of the statute governing this case, S.Rep. No. 95-731, 95th Cong., 2d Sess. 3, reprinted in 1978 U.S. Code Cong. & Ad. News 873, 874, fairly read, tells us that the provisions pertinent to this proceeding establish protection for franchisees from arbitrary or discriminatory termination or nonrenewal of their franchises. It is intended to preclude the termination of a franchise contract or the refusal to renew a franchise at the expiration of a franchise term unless the termination or nonrenewal is based on a ground provided for in the legislation and is executed in accordance with certain notice provisions.

 At the heart of the dispute between the plaintiff and Sun is a relatively finite factual circumstance as follows. Under the arrangement between the plaintiff and Sun, the plaintiff was to order fuel forty-eight hours in advance from the local terminal. Thereafter, the local terminal had that notice period, plus the twelve hour shift following the notice period to deliver the fuel. The plaintiff has three 6,000 gallon underground tanks at the station. One of these tanks is for leaded fuel and the other two tanks hold 6,000 gallons of "economy" unleaded fuel and 6,000 gallons of "ultra" unleaded fuel respectively. *fn5" During the original franchise term that has now expired, plaintiff, apparently experiencing financial difficulties, would wait until the levels of his underground tanks would drop to levels at or below 1500 gallons for the unleaded fuel and 800 gallons or below with respect to leaded fuel. This waiting was necessary because, presumably, plaintiff needed the receipts from the sales of fuel sold to these levels in order to have enough money to pay the driver the price of the 8500 gallons of delivered fuel that had been ordered. This was plainly too close a tolerance with the consequence that the plaintiff would run out of fuel before the delivery arrived. The evidence at the trial demonstrated that on numerous occasions, clearly in excess of twenty and probably more, plaintiff ran out of various types of these fuels and had to post "out of gas" signs on his fuel tanks. Indeed, some fuel levels measured as low as 514 gallons (P-14), 806 gallons (P-5), 506 gallons and 320 gallons (P-8). In one instance the gallonage were as low as 79 gallons (P-9). Plaintiff's need to post "out of gas" signs on his tanks was found by the court to be a proper concern of Sun. Indeed, there is correspondence prior to the time the parties entered into the franchise contract on November 10, 1981, that suggests Sun had this concern prior to entering into the contract; *fn6" however, no particular gallonage requirement or level requirement for reordering was ever added into the franchise contract to protect Sun during the contract period. *fn7"

 Sun sought termination based upon these episodes of running out of product. The defendant has no other complaints against this franchisee. *fn8" A fact of major significance concerning plaintiff's proposal to cure fuel outages is Sun's insistence to deliver only a full truck load of fuel (8500 gallons) and the accompanying insistence that the plaintiff accept the entire load. Sun, for economic reasons important only to itself, will not deliver less than 8500 gallons of fuel. With these facts facing this plaintiff seeking renewal and in response to the court's requirement to submit a proposal for a contract provision to remedy the circumstance of running out of product, plaintiff filed with the court his proposal on December 3, 1984. Plaintiff is willing to be contractually bound to substantially raise the levels of his "ultra" and "leaded" fuel storage tanks to the highest levels that will still allow enough room in the tanks to comply with the defendant's insistence that he accept 8500 gallons and no less. *fn9" This was a dramatic change from the plaintiff's previous ordering practice that resulted in outages. Plaintiff, under the new proposal, would maintain 3,000 gallons in each of the two tanks that contain unleaded product and 2,000 gallons in the leaded tank, as opposed to the previous level of 1500 gallons or less in the unleaded tanks and 800 gallons or less in the leaded tank. *fn10"

 This proposed franchise change was proffered by the plaintiff and is represented to be a workable requirement to avoid running out of product. It is clear that for causes beyond the plaintiff's control (weather, truck breakdowns, strikes, etc.), the plaintiff cannot be held responsible under the Petroleum Marketing Practices Act if such events cause a failure in the franchisee's obligations to the franchisor. See 15 U.S.C. § 2801(13)(B).

 I. Burden of Proof

 A franchisor, such as Sun in this case, who wishes to refuse renewal of a franchise has the burden of proving compliance with all the statutory requirements of PMPA. 15 U.S.C. § 2805(c). Under that section, the franchisee, such as plaintiff here, has the burden of proving the non-renewal of the franchise relationship, which he has done. Thereafter, the franchisor bears the burden of going forward with evidence to establish an affirmative defense that such non-renewal was permitted under § 2802(b).

 Under § 2802(b) there are two groups of grounds upon which a franchisor can rely in establishing a right to non-renew. The first group found in § 2802(b)(2) includes five subjects and applies to terminations and non-renewals. The second group, subsection (3) of § 2802(b), contains four subjects and applies only to non-renewals.

 II. As to § 2802(b)(2)

 Of the five subjects covered in this section, only three are pertinent to this case. They are §§ 2802(b)(2)(A), (B), and (C) as follows:

 
(2) For purposes of this subsection, the following are grounds for termination of a franchise or nonrenewal of a franchise relationship:
 
(A) A failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship, if the franchisor first acquired actual or constructive knowledge of such failure --
 
(i) not more than 120 days prior to the date on which notification of termination or nonrenewal is given, if notification is given pursuant ...

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