Opinion
Cause No. IP 98-1671-C-M/S.
June 27, 2000.
ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND MOTIONS TO STRIKE
Defendant, Marathon Ashland Petroleum LLC (misnamed in the complaint as Marathon Ashland Petroleum Company, "MAP"), seeks summary judgment on the claims brought against them by plaintiff, Beverly Masters ("Ms. Masters") pursuant to the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801-2841, and pursuant to state breach of contract law. Ms. Masters asserts that MAP violated the PMPA because it terminated her franchise relationship in bad faith, it did not suffer economic harm from continuing the relationship and it failed to present to Ms. Masters a bona fide offer to sell the property. MAP asserts that summary judgment is appropriate because it acted in good faith and it did make a bona fide offer to sell the relevant property to Ms. Masters. For the reasons discussed below, the Court GRANTS MAP's motion for summary judgment.
In addition to the summary judgment motion, MAP has moved to strike Ms. Masters' affidavit, in part, and Ms. Masters' Statement of Facts and Issues Which Preclude Summary Judgment, in its entirety. For the reasons set out briefly below, MAP's motion to strike Ms. Masters' affidavit is GRANTED in part and DENIED in part. Its motion to strike Ms. Masters' Statement of Facts and Issues Which Preclude Summary Judgment is GRANTED in part and DENIED in part.
I. PROCEDURAL BACKGROUND
Ms. Masters filed a complaint on December 7, 1998 alleging that MAP had violated the PMPA, had committed criminal deception and had breached the franchise agreement between herself and MAP. On February 4, 1999, MAP filed its answer to Count I and Count III. In addition, on the same date, the company filed a motion to dismiss Count II for failure to plead fraud with particularity. This Court granted MAP's motion to dismiss on April 16, 1999. Ms. Masters has not reasserted the criminal deception claim. The parties filed a fully briefed defendant's motion for summary judgment on November 15, 1999. MAP filed its motions to strike concurrently.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the opposing party.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A disputed fact is material only if it might affect the outcome of the suit in light of the substantive law. See id.
The moving party has the initial burden to show the absence of genuine issues of material fact. See Wollin v. Gondert, 192 F.3d 616, 620 (7th Cir. 1999); Schroeder v. Barth, 969 F.2d 421, 423 (7th Cir. 1992). This burden does not entail producing evidence to negate claims on which the opposing party has the burden of proof. See Green v. Whiteco Indus., Inc., 17 F.3d 199, 201 n. 3 (7th Cir. 1994). The party opposing a summary judgment motion bears an affirmative burden of presenting evidence that a disputed issue of material fact exists. See Wollin, 192 F.3d at 621; Gonzalez v. Ingersoll Milling Mach. Co., 133 F.3d 1025, 1031 (7th cir. 1998); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Scherer v. Rockwell Int'l Corp., 975 F.2d 356, 360 (7th Cir. 1992). The opposing party must "go beyond the pleadings" and set forth specific facts to show that a genuine issue exists. See Wollin, 192 F.3d at 621; Stop-N-Go of Madison, Inc. v. Uno-Ven Co., 184 F.3d 672, 677 (7th Cir. 1999); Hong v. Children's Mem. Hosp., 993 F.2d 1257, 1261 (7th Cir. 1993), cert. denied, 511 U.S. 1005 (1994). This burden cannot be met with conclusory statements or speculation, see Cliff v. Board of Sch. Comm'rs, 42 F.3d 403, 408 (7th Cir. 1994) (citingMcDonnell v. Cournia, 990 F.2d 963, 969 (7th Cir. 1993)); accord Chapple v. National Starch Chem. Co., 178 F.3d 501, 504 (7th Cir. 1999);Weihaupt v. American Med. Ass'n, 874 F.2d 419, 428 (7th Cir. 1989), but only with appropriate citations to relevant admissible evidence. See Local Rule 56.1; Brasic v. Heinemann's Inc., Bakeries, 121 F.3d 281, 286 (7th Cir. 1997); Foreman v. Richmond Police Dept., 104 F.3d 950, 957 (7th Cir. 1997); Waldridge v. American Hoechst Corp., 24 F.3d 918, 923-24 (7th Cir. 1994). Evidence sufficient to support every essential element of the claims on which the opposing party bears the burden of proof must be cited. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In considering a summary judgment motion, a court must draw all reasonable inferences "in the light most favorable" to the opposing party. Wollin, 192 F.3d at 621; Spraying Sys. Co. v. Delavan, Inc., 975 F.2d 387, 392 (7th Cir. 1992). If a reasonable fact finder could find for the opposing party, then summary judgment is inappropriate.Stop-N-Go, 184 F.3d at 677; Shields Enters., Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7th Cir. 1992). When the standard embraced in Rule 56(c) is met, summary judgment is mandatory. Celotex Corp., 477 U.S. at 322-23; Shields Enters., 975 F.2d at 1294.
In addition, pursuant to Southern District of Indiana Local Rule 56.1 ("L.R. 56.1"), the moving party is required to submit a Statement of Material Fact that complies with L.R. 56.1(f). L.R. 56.1(a)(1). Similarly, the non-moving party is required to provide a Response to Statement of Material Facts that complies with the same section. See L.R. 56.1(b)(1). In addition, any facts that the non-moving party wishes to add to the Statement of Material Fact must be filed as a separate Statement of Additional Material Fact, that must also comply with L.R. 56.1(f). L.R. 56.1(b)(1). Section (f) provides in pertinent part:
(f) Requirements for Factual Statements and Responses Thereto.
(1) Format and Numbering. The Statement of Material Facts shall consist of numbered sentences. The Response to Statement of Material Facts must be numbered to correspond with the sentence numbers of the Statement of Material Facts, preferably with each respective factual statement repeated therein. Any Statement of Additional Material Facts must consist of numbered sentences and start with the next number after the last numbered sentence in the Statement of Material Facts. . . .
(2) Format of Factual Assertions. Each material fact set forth in a Statement of Material Facts, Response to Statement of Material Facts, Statement of Additional Material Facts must consist of concise, numbered sentences with the contents of each sentence limited as far as practicable to a single factual proposition. Each stated material fact shall be substantiated by specific citation to record evidence. . . .
(3) Format of Objections to Asserted Material Facts or Cited Evidence. Objections to material facts and/or cited evidence shall (to the extent practicable) set forth the grounds for the objection in a concise, single sentence, with citation to appropriate authorities.
L.R. 56.1(f)(1)-(3). Finally, the rule also provides that "[i]n determining the motion for summary judgment, the Court will assume that the facts as claimed and supported by admissible evidence by the moving party are admitted to exist without controversy, except to the extent that such facts are specifically controverted or objected to in compliance with L.R. 56.1(f)." L.R. 56.1(g).
The Court may use its discretion in deciding how strictly to enforce compliance with L.R. 56.1. See L.R. 56.1(k); see also Bradley v. Work, 154 F.3d 704, 708 (7th Cir. 1998) (finding that the district court in that case "was within its discretion to insist on compliance with [L.R.] 56.1").
III. DISCUSSION A. FACTUAL BACKGROUND
The parties submitted a Joint Statement of Undisputed Facts prior to filing briefs on this motion for summary judgment. The majority of the facts set out herein are taken from that joint statement. MAP also submitted forty-four individual statements of material fact as an appendix to its brief on the current motion. See App. to Def. MAP Ashland Petroleum LCC's Br. in Supp. of Its Mot. for Summ. J.: Statement of Material Facts ("Def.'s Statement of Mat'l Facts"). Ms. Masters, however, failed to respond to MAP's statements by admitting, denying or objecting by individual paragraph as required by L.R. 56.1. Instead, Ms. Masters incorporated the Joint Statement of Undisputed Facts and offered additional statements of relevant fact without numbering individual factual propositions and, in large part, without citation to relevant evidence. In addition, Ms. Masters submitted a document entitled "Statement of Facts and Issues Which Preclude Summary Judgment" that contains numbered paragraphs without any citation to relevant evidence. Ms. Masters clearly did not follow the dictates of L.R. 56.1, although her "Statement of Facts and Issues Which Preclude Summary Judgment" does show some attempt to comply with the spirit of the rule.
As stated by the Seventh Circuit, L.R. 56.1 "serve[s] to notify the parties of the factual support for their opponent's arguments, but more importantly inform the court of the evidence and arguments in an organized way — thus facilitating its judgment of the necessity for trial." Little v. Cox's Supermarkets, 71 F.3d 637, 641 (7th Cir. 1995). Furthermore, "a party contesting summary judgment has a responsibility under [rules such as L.R. 56.1] to `highlight which factual averments are in conflict as well as what record evidence there is to confirm the dispute.'" Id. (quoting Waldridge v. American Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994)).
By not following the requirements of L.R. 56.1, Ms. Masters has made it difficult for the Court to determine whether there are issues of material fact in dispute. Such a situation does not favor Ms. Masters because, as the non-movant, she bears the burden of coming "forward with evidence that would reasonably permit the finder of fact to find in [her] favor on a material question" and if the Court cannot easily find such evidence, MAP may win easily. Waldridge, 24 F.3d at 920. Accord Liu v. T H Machine, Inc., 191 F.3d 790, 796 (7th Cir. 1999); Alder v. Glickman, 87 F.3d 956, 958 (7th Cir. 1996).
In addition, under L.R. 56.1, Ms. Masters is required to make an "effort to identify with specificity what factual issues were disputed, . . . [and] supply the requisite citations to the evidentiary record."Waldridge, 24 F.3d at 922. Here, Ms. Masters failed to "identify with specificity" the facts in dispute, depending instead upon the Court to sift through her version of the facts to determine where factual disputes lie. Moreover, Ms. Masters has not provided citation to relevant evidence such that the Court can easily find corroboration for Ms. Master's averments. Instead of providing the Court with a roadmap of her factual offerings, Ms. Masters has left it up to the Court to comb through the various pleadings to find any factual support for her arguments. However, the Court notes that Ms. Masters' primary supporting evidence is her own affidavit, therefore, the amount of searching the Court must do is limited.
As a result of Ms. Masters' failure to comply with L.R. 56.1, the Court will accept as true the facts set out in the Joint Statement of Undisputed Fact and other facts offered by MAP in its Appendix entitled "Statement of Material Fact" unless Ms. Masters has provided a fact in her pleadings with citation to relevant, admissible evidence that contradicts those offered by MAP. Facts submitted by Ms. Masters without citation to relevant evidence are stricken. This ruling gives Ms. Masters some benefit for her attempt to comply with the spirit of L.R. 56.1, however, limits the difficulty for the Court in sifting through all of the factual averments. Accordingly, the facts of this case in the light most favorable to Ms. Masters follow.
In 1995, Ms. Masters purchased a Marathon gasoline station business from David Thompson ("Thompson"). Masters Dep. at 6-7. The station was located at 6500 Kilgore Avenue, Muncie, Indiana, on the northwest corner of the intersection of Kilgore Avenue and Nebo Road. Id. at 10-11; id. Exh. 7, Service Station Lease, July 31, 1997. That station was identified in MAP's records as station number 2219 ("Station 2219"). Id. at 10. Originally, Ms. Masters intended to purchase the station for her sons, Tim Masters ("Tim") and Sean Masters ("Sean"), because Sean was interested in providing mechanical services to car owners. Id. at 7-8.
Prior to purchasing the station, Ms. Masters obtained demographic information from a California company from which she concluded that if the property were managed and maintained properly, the gasoline station could be profitable. Id. at 10-13. In addition, Ms. Masters had her accountant perform a financial analysis of the business based on the fuel industry. Id. at 13-14. Based in part on that analysis, Ms. Masters knew that there had been some unprofitable times during Thompson's approximately five years as operator of Station 2219. Id. at 14, 11. In addition, Thompson informed Ms. Masters that the underground storage tanks at the site needed to be replaced before December 1998 pursuant to federal law. Id. at 14-15. Nevertheless, Ms. Masters eventually purchased Thompson's business for $65,0000.00, which consisted of approximately $30,000.00 worth of inventory, $25,000.00 worth of equipment and $10,000.00 worth of goodwill. Id. at 25; id. Exh. 23, Masters Marathon Bus. Plan, at 22.
Ms. Masters' purchase of Thompson's business notwithstanding, before MAP would issue either Tim and Sean or Ms. Masters a lease for the station site, the company required that they attend a station management course. Id. at 20-24. Ms. Masters sons attended first, however, MAP refused to offer them a lease. Id. at 11. Therefore, Ms. Masters attended the program, at the end of which she presented MAP with a business plan for Masters Marathon. Id. at 22-24. MAP offered Ms. Masters a Service Station Lease some time after she completed the management course. Id. at 22.
According to Ms. Masters' business plan, she intended that the business would have average fuel sales of 60,000 gallons per month to start, which she based upon the average monthly fuel sales in 1994, with projected volume increases of 8% to 9% per year. Id. at 23; id. Exh. 23, Masters Marathon Bus. Plan at 1-3, 23. Ms. Masters' projections for increased business were based upon her plan to develop the service aspect of the gasoline station to "capture more of the available market." Id. Exh. 23, Masters Marathon Bus. Plan at 4.
MAP's marketing representative during the time period that Ms. Masters was considering this venture was Scott K. Larkey ("Larkey"). Larkey Aff. ¶ 2. Based upon Ms. Masters' business plan, and his knowledge of the station and its location, Larkey determined that Station 2219 should perform at the 75,000 to 85,000 gallon per month level, if run correctly. Id. ¶ 7. Larkey recommended that MAP offer Ms. Masters a one-year trial franchise at Station 2219. Id. ¶ 7. In addition, he told Ms. Masters that improvements to the station could be made if she was successful in increasing the volume at the station as suggested by her business plan. Id. ¶¶ 9 10. Those improvements would have included replacement of the USTs at MAP's expense. Id. ¶ 9.
According to MAP's uncontroverted evidence, it is MAP's standard practice to spread the cost of replacing USTs across all of its leased stations. Mansfield Aff. ¶ 9 ("Certain capital expeditures by MAP, such as for underground storage tanks ("USTs") and piping replacement, are among the types of capital expenditures which are allocated on a system wide basis. That is, by way of example, MAP totals its total costs fro UST and piping replacement and divides that by the number of leased stations and allocates an equal share to each location ("tank surcharge") such that all locations bear the expense, regardless at what location(s) the capital expenditures were or are to be actually made."). Other capital expenditures, including canopies, remodeling and improvements for convenience stores are allocated on a lesee-dealer specific basis, each dealer is charged back for these expenditures at his or her own location through rent increases. Id. ¶ 10.
Based in part upon Larkey's recommendation, MAP offered Ms. Masters a Service Station Lease for a one-year term, which started on September 1, 1995. Masters Dep. at 27-28; id. Exh. 1, Serv. Station Lease, Sept. 1, 1995 ("1995 Lease"). Ms. Masters understood that either party could terminate that lease after the one-year term because it was "a trial run of the franchise." Id. at 28. Prior to the expiration date of the Sept. 1995 Lease, MAP offered to renew Ms. Masters' lease for either a one-year or a three-year term; Ms. Masters chose a one-year term lease.Id. at 33-34. The new lease was dated August 27, 1996 for an effective term of one year starting on September 1, 1996. Id. Exh. 3, Serv. Station Lease, Aug. 27, 1996 ("1996 Lease"). Similarly, MAP offered Ms. Masters another lease renewal of either a one-year or a three-year term prior to expiration of the Aug. 1996 Lease. Id. Exh. 4, Letter, From R. Millican, Div. Coordinating Mgr. to Ms. Beverly Masters, Mar. 5, 1997 ("1997 Renewal Letter"). Again, Ms. Masters selected the one-year lease term and the parties entered into a Service Station Lease accordingly that expired on August 31, 1998. Id. Exh. 7, Marathon Oil Co., Serv. Station Lease, July 31, 1997 ("1997 Lease").
Each time MAP offered Ms. Masters a new lease term, the rental amount increased. See id. at 19, 38; id. Exhs. 1, 1995 Lease (showing monthly rent at $2,299.00); 3, 1996 Lease (showing monthly rent at $2,559.00); 7, 1997 Lease (showing monthly rent at $2,894.00). The increases, in part, were due to MAP's policy to increase rental fees a minimum of 4% per year. Mansfield Aff. ¶ 14. However, "an increase in the proposed rental amount in excess of the minimum increase generally reflects a decrease in volume performance at the station[,]" because MAP uses a standard formula for calculating rent that relies in part on the average quantity of gasoline sold at a site. Id. ¶¶ 15, 7; Masters Dep. at 19. Ms. Masters' station lost money in each of the three years she ran Station 2219, however, she never missed a lease payment to MAP. Masters Dep. at 44, 64. In addition, MAP's figures indicate that in August 1995, prior to Ms. Masters' assuming operation of the station, Station 2219 sold an average of approximately 52,100 gallons per month. Mansfield Aff. ¶ 18; id. Exh. 2, Rental Calculation Rep., Station #2219, Aug. 1, 1995. During Ms. Masters' management, however, the station averaged 51,631 gallons per month in February 1996, 46,142 gallons per month in February 1997, and 39,290 gallons per month in February 1998. Id. ¶¶ 19, 20, 23; id. Exhs. 3, Rental Calculation Rep., Station #2219, Feb. 1, 1996; 4, Rental Calculation Rep., Station #2219, Feb. 1, 1997; 7, Rental Calculation Rep., Station #2219, Feb. 1, 1998. At those volume levels and the corresponding rental amounts, MAP never attained its standard return on investment ("ROI") goal of 17.5% at Station 2219 during Ms. Masters' management of it. Markel Aff. ¶ 5; Webb Aff. ¶¶ 17-19, 22, 25; Mansfield Aff. ¶¶ 18-22, 25.
By letter dated March 18, 1998, MAP informed Ms. Masters that it would not renew the 1997 Lease. Id. Exh. 9, Letter, From E.S. Markel, Mgr. Brand Marketing to Ms. Beverly Masters, RE: Serv. Station Lease dated July 31, 1997, Mar. 18, 1998 ("MAP Non-renewal Letter"). MAP's Non-renewal Letter stated that
The Court notes that the parties' Joint Statement of Undisputed Facts dated this letter March 17, 199 7. The exhibit itself dates the letter March 17, 199 8. The Court will rely upon the actual evidence, not the parties' statements regarding the content of the evidence.
[t]he reason for the non-renewal of [Ms. Masters'] Service Station Lease and [the] franchise relationship [was] that MAP ha[d] made a determination in good faith and in the normal course of business that the renewal of the Service Station Lease and the franchise relationship between [the parties was] likely to be uneconomical to MAP despite any reasonable changes or reasonable additions to the Service Station lease which may be acceptable to [Ms. Masters], the franchisee.
Briefly, the 1998 Underground Storage Tank ("UST") Regulations, specifically 40 C.F.R. § 280.20, et seq., go into effect on December 22, 1998. The USTs on the marketing premises do not meet the standards set out therein for storage of motor fuel which will take effect from and after that date. MAP, as owner of the marketing premises, [have been] required to bring the USTs into compliance with those standards if motor fuel marketing operations were to continue on the marketing premises after December 21, 1998.
The required outlay for the costs and expenses to bring the USTs on the marketing premises into compliance with those standards, which essentially means their replacement, when taken together with the other circumstances of [Ms. Masters'] operation, [was] sufficiently substantial to render the Service Station Lease uneconomical to MAP which could not be remedied by adjustments to the rent which would be acceptable to [Ms. Masters].Id. ¶¶ 2-4. The letter also told Ms. Masters that MAP would make an offer to sell the property to her within thirty days. Id. ¶ 5. In addition, the letter informed Ms. Masters that if she chose not to accept its offer to sell the property to her, she could extend her lease until November 31, 1998 with the current terms and conditions. Id. ¶ 6.
William J. Webb ("Webb"), MAP District Sales Manager during the relevant time period, was responsible for recommending that MAP not renew Ms. Masters' lease. Webb Aff. ¶ 23. Webb based his decision on the following factors:
! low volume and negative volume trend during Ms. Masters' management, id. ¶ 22;
! rental calculations at Station 2219's volume in February 1998 would have increased rent to either $3,623 per month for a one-year term lease or $4,167 per month for a three-year term lease, which represented an approximate 25% increase in rent versus the prior year, id.;
! new competition in the area made Station 2219 less attractive given the investment MAP would need to make in new USTs at the site, id. ¶ 28; and
! MAP would have to expend money to improve the USTs at the site regardless of the new lease term Ms. Masters' selected, however, according to the lease terms, Ms. Masters could cancel the lease in sixty days if she decided she was losing too much money to stay in the business (this was a risk because of the negative volume trend for the station under Ms. Masters' management combined with the substantial increase in rent Ms. Masters faced as a result of the poor volume performance of the station). Id. ¶¶ 23, 20-22.
In 1998, at least two other operators in Indiana whose sites needed new USTs were not offered lease renewals based on the same factor analysis used in Ms. Masters' case. Markel Aff. ¶¶ 8-14; Webb Aff. ¶¶ 4, 5, 7-9, 14, 23-24, 27, 31. Ms. Masters' alleges, however, that MAP's reason for not renewing her lease were false because MAP started selling gasoline through a relationship with Village Pantry at a site across the street from Station 2219 immediately after her 1997 Lease term expired. Masters Dep. at 41, 66-67.
During her deposition, Ms. Masters testified that MAP did not start selling gasoline at the Village Pantry across the street from Station 2219 until after the expiration of the 1997 Lease. Masters Dep. at 67. However, Ms. Masters' affidavit states that:
12. During the time period that the final lease agreement was in effect, from August, 1997 through August, 1998, MAP successfully concluded negotiations with the Village Pantries in the Muncie area so that the Village Pantries would begin carrying Marathon products.
13. The Village Pantry immediately across the street from my Marathon station began carrying Marathon products in early 1998.
Masters Aff. ¶¶ 12-13. It is unclear from Ms. Masters' affidavit, how she would know from personal knowledge when Marathon would have negotiated with Village Pantry and what those negotiations entailed. To the extent the statement is conclusory, it cannot be used to support Ms. Masters' assertion that Marathon terminated the lease in violation of the PMPA. In addition, Ms. Masters' statement in paragraph thirteen of her affidavit, contradicts her deposition testimony on the same subject. The Court may not consider statements in affidavits that directly conflict with prior sworn testimony. See Piscione, v. Ernst Young, L.L.P., 171 F.3d 527, 532-33 (7th Cir. 1999) (discussing the "well-settled rule" that a court will reject proffers of affidavits to create conflicting facts in order to defeat summary judgment).
MAP offered to sell the property to Ms. Masters on April 15, 1998.See id. Exh. 12, Offer to Sell, Apr. 15, 1998 ("Offer to Sell"). Ms. Masters could buy the property and the existing building, absent the motor fuel storage tanks and piping, for $238,000.00. Id. MAP would replace the storage tanks and piping at an additional cost to Ms. Masters. Id. MAP determined its offer price using the company's standard appraisal procedure. Cramer Aff. ¶ 5, 12. The procedure used information about the market value of comparable commercial property in the area, the square footage of the property (including the amount of frontage), the possible alternative commercial uses for the property, and the prospects for long-term growth in the area, plus information about the building including the building type, the number of service bays, and the condition of the building. Cramer Aff. ¶¶ 5, 7-9; id. Exhs. 1, MAP Appraisal Form for Station #2219, Mar. 11, 1998; 2, MAP Appraisal Form for Station #2492; 3, MAP Appraisal Form for Station #2193.
Apparently evaluating her options, Ms. Masters obtained a quote from a local company on the cost to replace the gasoline tanks at the site. Masters Dep. at 42-43. The quote was approximately $150,000.00. Id. at 43.
Ms. Masters declined to exercise MAP's offer to sell and the station closed at the expiration of the 1997 Lease on August 31, 1998. Id. at 45. MAP has removed the USTs and piping from the site and plans to sell it. Cramer Aff. ¶ 14. The property is listed for $225,000.00.Id.
B. ANALYSIS
Ms. Masters has asserted two claims against MAP based on its decision not to renew the 1997 Lease: breach of contract and violation of the Petroleum Marketing Practices Act ("PMPA"). Essentially, Ms. Masters argues that MAP did not renew her franchise because it had made arrangements to sell Marathon brand gasoline at the Village Pantry across the street from Station 2219. This decision, Ms. Masters avers, violates the PMPA because it was not a decision in good faith or in the ordinary course of business. In addition, Ms. Masters argues that MAP's offer to sell her the property that comprised Station 2219 was not bone fide because it failed to take into consideration the cost of replacement tanks or environmental contamination. Further, the nonrenewal decision is a breach of the terms of the 1997 Lease itself because MAP established a preferred Marathon brand station in competition with Station 2219.
MAP argues that summary judgment is appropriate on both counts because the PMPA preempts Ms. Masters' state law breach of contract claim and there is no question of material fact on the issue of whether MAP's decision to not renew the 1997 Lease was made in good faith and in the ordinary course of business pursuant to 15 U.S.C. § 2802(b)(3)(D). Furthermore, its offer to sell was bona fide because it was based on established appraisal guidelines. A brief review of the PMPA is in order.
1. The Petroleum Marketing Practices Act ("PMPA")
Generally, the PMPA was enacted to protect franchisees in the gasoline industry "`from arbitrary or discriminatory termination or nonrenewal of their franchises.'" Brach v. Amoco Oil Co., 677 F.2d 1213 (7th Cir. 1982) (quoting S. Rep. No. 95-731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.C.C.A.N. 873, 874 (Senate Rep.)). Accord Duff v. Marathon Petroleum Co., 51 F.3d 741, 743-44 (7th Cir. 1995); Massey v. Exxon Corp., 942, F.2d 340, 342 (6th Cir. 1991); Roberts v. Amoco Oil co., 740 F.2d 702 (8th Cir. 1984), reh'g reh'g en banc denied; Van Diest v. Conoco, Inc., 851 F. Supp. 1415, 1417 (D.Neb. 1994). More specifically, the PMPA prohibits either the termination or nonrenewal of any franchise relationship except under the enumerated grounds listed in the statute.See 15 U.S.C. § 2802(a), (b)(1), (b)(3). In addition, the PMPA specifically describes the notice requirements a franchisor must follow when it either terminates or nonrenews a franchise relationship. Id. § 2804. In the case of nonrenewal, once the plaintiff has established the nonrenewal of a franchise, the franchisor bears the burden of proving, as an affirmative defense, that the nonrenewal was permitted under 15 U.S.C. § 2802 (b) or § 2803. See 15 U.S.C. § 2805(c); Duff, 51 F.3d at 744.
Therefore, in the case at bar, the Court must focus on the affirmative defense offered by MAP under 15 U.S.C. § 2802 (b)(3)(D). That section states in relevant part:
[T]he following [is a] ground for nonrenewal of a franchise relationship:
* * *
(D) . . . [I]n the case of any franchise entered into or renewed on or after [June 19, 1978] (the term of which was 3 years or longer, or with respect to which the franchisee was offered a term of 3 years or longer), a determination made by the franchisor in good faith and in the normal course of business, if —
(i) such determination is —
* * *
(IV) that renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonable changes or reasonable additions to the provisions of the franchise which may be acceptable to the franchisee;
(ii) with respect to a determination referred to in subclause (II) or (IV), such determination is not made for the purpose of converting the leased marketing premises to operation by employees or agents of the franchisor for such franchisor's own account; and
(iii) in the case of leased marketing premises such franchisor, during the 90-day period after notification was given pursuant to section 2804 of this title, —
(I) made a bona fide offer to sell, transfer, or assign to the franchisee such franchisor's interests in such premises;. . . .15 U.S.C. § 2802(b)(3)(D). Simply then, MAP bears the burden of proving there are no genuine issues of material fact on whether MAP made its decision to not renew Ms. Masters' lease in good faith and in the ordinary course of business because nonrenewal would be uneconomical to MAP, despite any reasonable changes or additions to the lease that may have been acceptable to Ms. Masters.
Although the PMPA does not define the terms "good faith" and "in the normal course of business," several courts that have construed these terms rely upon the legislative history for insight. Specifically, "[t]he `good faith' prong is intended `to preclude sham determinations from being used as an artifice for termination or nonrenewal.'" Roberts, 740 F.2d at 606 (quoting S. Rep. No. 95-731, 95th Cong., 2d Sess. 37,reprinted in 1978 U.S.C.C.A.N. 873, 895-896). Accord Duff, 51 F.3d at 744. The test is one of subjective intent. See Duff, 51 F.3d at 744;Massey, 942 F.2d at 345 (citing Brach, 677 F.2d at 1222-23; Munno v. Amoco Oil Co., 488 F. Supp. 1114, 1118-20 (D.Conn. 1980)). Discriminatory motive or pretext are the touchstones when determining whether a defendant acted in good faith under the PMPA. See Massey, 942 F.2d at 345 (citing Baldauf v. Amoco Oil Co., 553 F. Supp. 408, 412 (W.D.Mich. 1981), aff'd, 700 F.2d 326 (6th Cir. 1983)). The second test, "in the normal course of business," asks whether the determination to not renew was "`the result of the franchisor's normal decisionmaking [sic] process.'" Id. (quoting S. Rep. No. 731, 95th Cong., 2d Sess. 37,reprinted in 1978 U.S.C.C.A.N. 873, 896). Accord Duff, 51 F.3d at 744. It is unnecessary in either inquiry to assess whether the franchisor's decision was a wise one, although some analysis may be required to determine if the decision was no more than pretext. See Duff, 51 F.3d at 744; Massey, 942 F.2d at 345; Brach, 677 F.2d at 1223.
Finally, the PMPA specifically defines the scope of state and local laws that regulate termination and nonrenewal of a petroleum franchise. The relevant provision states in part:
To the extent that any provision of this subchapter applies to . . . the nonrenewal (or the furnishing of notification with respect thereto) of any franchise relationship, no State or any political subdivision thereof may adopt, enforce, or continue in effect any provision of any law or regulation (including any remedy or penalty applicable to any violation thereof) with respect 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.Id. § 2806(a)(1). Therefore, "the PMPA preempts a state law action when the action arises out of the franchise termination or is an incident of the termination." Continental Enters., Inc. v. American Oil Co., 808 F.2d 24, 27 (8th Cir. 1986). Accord Shell Oil Co. v. Babalis, No. 93 C 6352, 1994 WL 411733, at *3 (N.D.Ill. Aug. 4, 1994). Given these standards, the Court will now assess the parties' arguments and evidence in support thereof.
2. Count III: Breach of the Franchise Agreement
MAP argues that Ms. Masters' claim that it breached the franchise agreement between them by not renewing the 1997 Lease or by establishing a competing Marathon franchise at a location across the street is preempted by the PMPA. Specifically, either theory of liability relates to or arises out of the nonrenewal of the franchise relationship, therefore, pursuant to 15 U.S.C. § 2806, the PMPA controls. Ms. Masters offers no argument in response.
Clearly Ms. Masters' claim that MAP breached the franchise agreement by not renewing the 1997 Lease is preempted because the PMPA is the exclusive remedy for harm arising from nonrenewal of a petroleum franchise relationship. See 15 U.S.C. § 2806. It is not as clear whether Ms. Masters' claim that MAP breached the franchise agreement by establishing a Marathon station across the street from Station 2219 is also preempted.
In the ordinary case, to determine whether the breach claim is preempted the Court would look at whether Ms. Masters' claim for breach could stand alone, without reference to MAP's decision to not renew. However, here, Ms. Masters offers no argument or evidence either way. In fact, her brief never discusses her breach of the franchise count at all. Nevertheless, the Court can discern whether the lease agreement between the parties contains a provision that would make establishment of a Marathon franchise across the street from Ms. Masters' station a breach. A review of the contract reveals there is no such clause. Further, Ms. Masters' complaint suggests that Ms. Masters views MAP's violation of the PMPA and its breach of the franchise agreement as arising out of the same acts. Essentially Ms. Masters' argues under either theory that MAP did not renew her lease because it had decided to sell Marathon brand gasoline through the Village Pantry across the street from Station 2219, not for the reasons MAP stated in its nonrenewal letter.
Ms. Masters' claim that MAP breached the franchise agreement when it failed to renew the 1997 Lease because it had decided to brand the Village Pantry across from Ms. Masters' location is preempted by the PMPA because she fails to provide evidence of a breach independent from MAP's nonrenewal decision. Accordingly, there is no genuine issue of material fact on this claim and MAP's motion for summary judgment on Count III is GRANTED.
3. Count I: Violation of the PMPA
Ms. Masters asserts that there is a genuine issue of material fact on the issue of whether MAP acted in good faith when it did not renew her lease in light of its decision to enter into a supply agreement with the Village Pantry directly across the street from Station 2219. Further, Ms. Masters argues that there is a genuine issue of material fact on the issue of whether MAP's offer to sell was bona fide because the offer failed to account for the fact that tank replacement would cost approximately $150,000.00. The Court will address each of Ms. Masters' arguments in turn.
Ms. Masters also asserts that MAP failed to show economic harm, therefore, it has not established a prima facie defense pursuant to the PMPA. However, the PMPA does not require that a franchisor show economic harm to establish a defense under § 2802(b)(3)(D)(i)(IV). All that this defense requires is a showing that MAP made its decision to not renew Ms. Masters' franchise relationship in good faith and in the normal course of business. MAP's reasoning for the nonrenewal that continuing the relationship would be uneconomical does not change the analysis. The issue in focus is whether MAP's finding that renewal would be uneconomical, despite reasonable changes or additions that would be acceptable to Ms. Masters, was made in good faith using MAP's usual decision-making process. It remains undisputed by Ms. Masters that MAP used its usual lease renewal procedure when it evaluated the viability of continuing its franchise relationship with her. Furthermore, the Court will not question the "reasonableness" or "wiseness" of MAP's ROI requirement or its decision to offer Ms. Masters a lease renewal in prior years even though the station did not meet the company's ROI requirement in those years. Ms. Masters' argument that MAP must show economic harm to make a prima facie defense is groundless.
a.) Good Faith
First, Ms. Masters asserts that MAP's decision to not renew could not have been made in good faith because it was secretly negotiating with Village Pantry during the time it was evaluating her station's performance. Therefore, Ms. Masters concludes, MAP's proffered economic reason for nonrenewal of her lease is pretext for MAP's discriminatory intent to favor the Village Pantry outlet over her station.
However, beyond conclusory allegations in her affidavit and her brief, Ms. Masters points to no evidence that MAP negotiated an agreement to supply the Village Pantry across the street from Station 2219 with Marathon brand gasoline before it made the decision to terminate her lease. MAP offers evidence that the opportunity to rebrand the Village Pantry across the street actually arose after MAP's offer to sell the site to Ms. Masters had expired. Webb Aff. ¶ 29; Markel Aff. ¶ 15. Moreover, Ms. Masters' allegation that MAP negotiated a supply agreement with Village Pantry during the period of her lease does not controvert the evidence that MAP made a detailed business analysis of the risks of continuing to lease Station 2219 to Ms. Masters and found the risks outweighed the rewards. Ms. Masters offers no evidence that MAP's business analysis was flawed in any way.
Ms. Masters also argues that MAP's offer to renew her leases in the prior two years (notwithstanding the poor volume performance at the site during those years) evidences MAP's bad faith in not renewing the lease in 1998. Ms. Masters misses the point of the PMPA's requirement of good faith: preclusion of sham determinations or discriminatory motive. Ms. Masters' allegations do not call into question MAP's business decision to minimize its losses at her site by not renewing her lease in 1998. MAP proffers evidence that it set the standards for further investment at Station 2219 in 1994, before Ms. Masters was even involved with the station. See Webb Aff. ¶ 9; id. Exh.1, Analysis of Brand or Emro Operating Unit 2219, Jan. 12, 1994. In January 1994, using its standard formula for rent calculation, MAP determined that it would be economical to invest in new storage tanks at Station 2219 if the station were selling 70,000 gallons of gasoline per month. Id. Exh. 1, Analysis of Brand or Emro Operating Unit 2219, Jan. 12, 1994. Although originally convinced that Ms. Masters could achieve this target based in large part on Ms. Masters' business plan as well as its own assessment of the location's potential performance, the station's actual performance under Ms. Masters' management proved otherwise. Webb Aff. ¶¶ 14, 18, 20, 22, 23. Faced with a decision to either offer Ms. Masters a renewed lease at a substantially higher rent, which would also force MAP to invest in new tanks at the site, or not renewing the lease, MAP's choice to not renew the lease was one that would minimize its losses, not one that would arbitrarily disenfranchise Ms. Masters. In addition, MAP decided not to renew leases at two other stations under similar circumstances further negating any inference of discriminatory intent.
In summary, Ms. Masters has not provided evidence that MAP's decision to not renew was made with a discriminatory motive or as pretext for such motive. Therefore, her argument that MAP made the nonrenewal decision in bad faith and in violation of the PMPA fails as a matter of law.
b.) Bona Fide Offer to Sell
Ms. Masters also argues that MAP's offer to sell was not bone fide. She offers as reasons the fact that there was no offset in the $238,000.00 offer for: (1) replacement of the USTs; (2) reimbursement of Ms. Masters' $65,000 investment in acquiring Thompson's business; (3) Marathon's decision to not provide products to the station; and (4) the potential that the property could no longer be used as a gasoline station. However, Ms. Masters offers no authority for the proposition that a bone fide offer must make such offsets.
The PMPA specifically requires a franchisor to make a bone fide offer to sell leased premises to its franchisee upon nonrenewal. 15 U.S.C. § 2802(b)(3)(D)(iii)(I). However, the act does not define what constitutes a bona fide offer. Although the Seventh Circuit has not addressed the issue, other circuits that have addressed the issue appear to agree that a bona fide offer to sell must meet both a subjective and an objective standard. Ellis v. Mobil Oil, 969 F.2d 784, 787 (9th Cir. 1992); LCA Corp. v. Shell Oil Co, 916 F.2d 434, 437 (8th Cir. 1990);Slatky v. Amoco Oil Co., 830 F.2d 476, 485 (3d Cir. 1987); Tobias v. Shell Oil Co., 782 F.2d 1172, 1174 (4th Cir. 1986). The subjective component questions whether the franchisor made the offer in the normal course of business. See LCA, 916 F.2d at 437; Tobias, 782 F.2d at 1174. The objective component asks whether the offer approaches the fair market value for the property. See LCA, 916 F.2d at 437; Slatky, 830 F.2d at 485; Tobias, 782 F.2d at 1174; Roberts, 740 F.2d at 607. Generally, the courts also agree that a bona fide offer must include all the real and personal property that comprises the premises leased by the franchisee from the franchisor. Ellis, 969 F.2d at 787; LCA, 916 F.2d at 438;Tobias, 782 f.2d at 1174; Roberts, 740 F.2d at 607. But, whether the offer must include the USTs at the site appears to depend upon the circumstances of the case, in particular, a review of the offer in light of the environmental factors associated with USTs. Compare Tobias, 782 F.2d at 1175 (stating that the particular tanks in place on the premises need not be included with the offer to sell so long as some offer to replace them is made with a corresponding price for replacement), with Roberts, 740 F.2d at 606 (stating that an offer to sell that excludes tanks cannot be considered bona fide). Apparently, however, an offer that does not include existing tanks but makes an offer to replace them, may make the offer to replace them at the franchisee's expense and still be considered bona fide. See LCA, 916 F.2d at 438; Tobias, 782 F.2d at 1174. In addition, an offer to sell the property without the tanks must exclude the value of the USTs from the offer price, but make alternative arrangements for the franchisee to get tanks if the franchisee wants help. See LCA, 916 F.2d at 438; Tobias, 782 F.2d at 1174. Further, at least one court has held that a bona fide offer would not include the cost of the franchisee's own goodwill. Ellis, 969 F.2d at 788.
Applying these standards to the case at bar, the Court finds that MAP made a bona fide offer to sell the leased premises of Station 2219 to Ms. Masters. First, to meet the subjective test, MAP offered evidence that it determined the offer using its standard appraisal procedures on or about March 11, 1998, which involved assigning value to three types of assets: building, land and equipment. See Cramer Aff. ¶ 5. Values for buildings are assigned by MAP according to building type, then adjusted for the condition of the building. Id. ¶ 6. The value for the building at Ms. Masters site was assigned a value of $45, 000.00 and adjusted neither up nor down based on its condition. Id. This value was for either petroleum or non-petroleum use. Id.
Values for land require a more subjective appraisal, which at MAP consists of evaluating the following factors: the square footage of the property, with particular reference to the amount of frontage; possible alternative commercial uses of the property; prospects for short-term and long-term growth in the area; and the value of comparable property in the area. Id. ¶ 7. In his appraisal of Ms. Masters' site the appraiser started with the value of comparable property in the area; he determined through a broker that a one acre lot across the intersection from Station 2219 was sold in 1996 for approximately $250,000.00 or approximately $5.74 per square foot. Id. Adjusting for the general notion that land value appreciates, the appraiser used $5.75 per square foot multiplied by the square footage of land at the site to arrive at $179,400.00 for the land value. Id. The appraiser did no other adjustments based on the frontage at the site on both Nebo Road and Kilgore Avenue, or any other factors. Id.
The appraiser also accounted for the dispensers, the canopy, the underground storage tanks, piping and other fixtures associated with petroleum use in arriving at MAP's offer price. Id. ¶ 9. The appraiser knew that the underground storage tanks would need replaced by December 1998, therefore, he included a dollar value of $0.00 for the tanks. Id. The appraiser added $3,600.00 for the nine dispensers and $10,000.00 for the canopy at the site after viewing the items and noting their approximate cost new, their useful life and their replacement cost. Id. Thus, MAP's internal appraised value for Station 2219 was $238,000, including the value of all personal and real property, id., but without regard to goodwill or the value of the Marathon brand. In addition, MAP's offer to sell required that MAP remain responsible for any remediation of the property because of the USTs. Masters Dep. Exh. 12, Offer to Sell, Apr. 15, 1998. Furthermore, MAP also offered to make arrangements with its supplier of USTs to install new ones at the site at Ms. Masters' expense. Id. Finally, MAP also offered two other appraisal reports for other leased stations that applied the same procedure to further evidence that it followed that procedure for the premises that Ms. Masters leased. Based on this specific evidence, the Court finds that MAP made its offer using its standard appraisal procedure.
Turning to the objective test, MAP's evidence that its offer approached market value consists of: the information it obtained about the property across the intersection selling for $250,000.00 in 1996, two years prior to its offer to Ms. Masters in 1998, Cramer Aff. ¶ 7, its use of a figure within a few thousand dollars of its offer to calculate the rental rate for the location, Mansfield Aff. Exhs. 1-7, Rent Calculation Print Outs for Station 2219, July 1995 to July 1998 (showing land market value estimate of $130,000.00 and building market value of $125,000.00 or $101,250.00 with depreciation), and its current marketing of the property without the USTs at $225,000.00, a price consistent with MAP's evaluation of the property in March 1998 at $224,400.00 for non-petroleum use. Cramer Aff. ¶ 8; id. Exh. 1, MAP Appraisal Rep., Station 2219, Mar. 1998; id. ¶ 14.
Neither MAP nor Ms. Masters offers any independent appraisal value for the property. However, MAP's internal appraiser has no affiliation with the divisions of the company that make decisions about renewal or nonrenewal, thus, in that respect, the appraiser's estimate is somewhat independent. See Cramer Aff. ¶ 4. Further, although MAP has not offered the best evidence of the fair market value for the property, based on the evidence before the Court it appears that the offer MAP made was within the range of values for property in the area with similar frontage. In addition, it is a reasonable inference that MAP would not currently list the property at a value that was not similarly consistent with the fair market value of commercial property in the area today. Thus, its reliance on the square-footage price of the neighboring property as a basis for its estimate of the land value in 1998 appears objectively sound. Without evidence to the contrary, and Ms. Masters offers none, MAP's offer of $238,000.00 for the land, building and equipment at Station 2219 appears to have approached market value because the exclusive basis upon which it made the estimate was the actual selling price of a comparable piece of commercial real estate across the intersection.
Finally, Ms. Masters' assertions that MAP's offer was not bona fide because the company did not subtract the replacement cost of the USTs, the amount of Ms. Masters' investment in Thompson's business or the value of Marathon's trademark fail because those are not the considerations a land owner would make when appraising property. As for the USTs in particular, it has been established in prior cases that a franchisor may deduct the value of the USTs, if they are not included in the offer price, and concurrently offer to replace the USTs at the franchisee's expense. See LCA, 916 F.2d at 438-39; Tobias, 782 F.2d at 1174-75. In such circumstances, the purpose of the PMPA to ensure that the franchisee is afforded the opportunity to continue in the petroleum dispensing business is not thwarted because the franchisee would still be able to attain the equipment necessary for providing fueling services, however, under a different financial arrangement. See LCA, 916 F.2d at 438-39. Here, MAP excluded any value of the USTs from its offer to sell, based on its knowledge of the tank's minimal useful life, yet offered to help Ms. Masters obtain new tanks so that she could continue in the business. Thus, its offer to sell included the means by which Ms. Masters could continue to supply gasoline, albeit with a different financial arrangement.
The Court also notes that Ms. Masters makes a passing reference in her brief to environmental remediation costs that should have been deducted from the offer. However, as MAP points out, part of MAP's offer to sell included the requirement that MAP pay for any environmental clean-up required to address existing contamination. Masters Dep., Exh. 12, Offer to Sell, Exh. D. ¶ 2.0 Summary of Future Activities. Therefore, there was no reason for MAP to deduct such costs from its offer.
Furthermore, with respect to Ms. Masters' initial investment in Thompson's business, MAP was never part of that transaction, therefore, it need not consider those expenses in a bona fide offer to sell the leased premises to Ms. Masters upon nonrenewal. In addition, Ms. Masters testified that she still possessed the equipment she purchased from Thompson, which she could still sell, and that she sold the inventory she obtained with the purchase. Masters Dep. at 27. Therefore, MAP could not properly consider those costs because those elements are not part of the premises it offered to sell. Similarly, goodwill is not something that is associated with land, but with a business. See Yoon v. Yoon, 711 N.E.2d 1265, 1268 (Ind. 1999) (defining goodwill as "the value of a business or practice that exceeds the combined value of the net assets used in the business"). MAP was not offering to sell Ms. Masters a business, it was offering Ms. Masters the opportunity to obtain the real and personal property that comprised Station 2219. Thus, MAP properly did not include any consideration of goodwill in its offer to sell the property to Ms. Masters because the goodwill of the business in fact belonged to Ms. Masters. Accord Ellis, 969 F.2d at 787.
Similarly, the PMPA does not require the franchisor to include a deduction for debranding the premises. The PMPA, by its terms, only requires that the franchisor offer to sell the premises, which by reasonable inference includes the land, buildings and equipment on at the site, not the Marathon brand name. Accord Ellis, 969 F.2d at 787; LCA, 916 F.2d at 438-39; Roberts, 740 F.2d at 606. Thus, the fact that MAP made no deductions for removing its association with the facility does not diminish the bone fides of its offer to sell.
In summary, MAP's offer to sell was bona fide because it was determined using MAP's usual appraisal process and that process was grounded in the fair market value of commercial property in the area. Further, MAP did not need to take into account Ms. Masters' original investment in the business, the goodwill that she developed or the removal of its trademark from the premises when it made its offer to sell.
IV. CONCLUSION
For the foregoing reasons, MAP's motion for summary judgment on counts I and III of Ms. Masters' complaint is GRANTED. In addition, its motion to strike Ms. Masters' affidavit is GRANTED in part and DENIED in part and its motion to strike Ms. Masters' Statement of Facts and Issues Which Preclude Summary Judgment is GRANTED in part and DENIED in part as discussed in part IIIA.