Santiago–sepÚlveda v. Esso Standard Oil Co. (p.R.) Inc.

643 F.3d 1

Luis Alfredo SANTIAGO–SEPÚLVEDA, et al., Plaintiffs, Appellants,

v.ESSO STANDARD OIL COMPANY (PUERTO RICO), INC.; Total Petroleum Puerto Rico Corporation, Defendants, Appellees.Enid Margarita Fonseca–Marrero, et al., Plaintiffs, Appellants,

v.Esso Standard Oil Company (Puerto Rico), Inc., et al., Defendants, Appellees.Héctor Gierbolini, et al., Plaintiffs, Appellants,

v.Esso Standard Oil Company, et al., Defendants, Appellees.

Nos. 09–2312

09–2313

09–2330.

United States Court of Appeals, First Circuit.

Heard Dec. 9, 2010.Decided April 26, 2011.

Juan H. Saavedra Castro with whom Manuel Correa Márquez, Xana Connelly, Correa, Collazo & Herrero, P.S.C., Carlos E. Montañez and Carlos E. Montañez Law Office were on brief for appellants.Mark A. Klapow with whom Howrey LLP, Angel E. Rotger Sabat and Maymí, Rivera & Rotger, P.S.C. were on brief for appellee Esso Standard Oil Company (Puerto Rico).Lee Sepulvado–Ramos with whom Lady Cumpiano, Albéniz Couret–Fuentes and Sepulvado & Maldonado, PSC were on brief for appellee Total Petroleum Puerto Rico Corporation.Before TORRUELLA, BOUDIN and LIPEZ, Circuit Judges.BOUDIN, Circuit Judge.

Plaintiffs, who operated gas stations as franchisees of Esso Standard Oil Co. (“Esso”) in Puerto Rico, sued Esso for alleged violations of Title I of the Petroleum Marketing Practices Act (“PMPA”), 15 U.S.C. §§ 2801–2807 (2006 & Supp. III 2010). The magistrate judge, who presided at trial with the parties' consent, see 28 U.S.C. § 636(c)(1) (2006), denied plaintiffs' request for injunctive relief and damages, and plaintiffs now appeal. The facts are largely undisputed.

Esso operated as a supplier of gasoline in Puerto Rico for over one hundred years; as of 2008, 161 stations sold Esso-brand gasoline in Puerto Rico. These stations were operated by independent franchise dealers under agreements with Esso that authorized them to sell Esso's gasoline under Esso's trademark. The franchise term was three years or longer for most plaintiffs, although some plaintiffs had one-year trial franchises. In many cases, Esso also provided the stations.¹

In late 2006, Esso—having suffered losses in the market for the five preceding years—began to consider leaving Puerto Rico. After months of deliberation and negotiations, Esso decided in March 2008 to sell its operations and assets to Total Petroleum Puerto Rico Corp. (“Total”), a gasoline refiner and distributor that at the time operated approximately ninety stations in Puerto Rico. On March 17, 2008, Esso notified its franchisees of its planned withdrawal from the Puerto Rican market, the sale of its assets to Total, and the termination of its relationship with its franchisees, effective September 30, 2008.

In late June and early July 2008, Total began to offer Esso's franchisees contracts to serve as franchisees of Total. Total uses a standard franchise model contract offered to potential new franchisees and to existing franchisees whose contracts are renewed. The standard contract is periodically updated, and had been updated in 2007 and 2008; Total offered the then-current standard contract to Esso franchisees.

In late August and early September 2008, five groups of Esso franchisees, unhappy with the terms Total offered in its franchise agreements, filed separate lawsuits in the federal district court in Puerto Rico against Esso. The complaints sought injunctive and declaratory relief under PMPA to prevent Esso from terminating its contracts with plaintiffs, as well as damages for Esso's alleged failure to comply with PMPA. Esso then pushed back the termination date of its contracts to the end of October 2008.

The district court consolidated the lawsuits and referred the cases to the chief magistrate judge, and the parties consented to a bench trial before the magistrate judge. Three days of hearings were held and ultimately the magistrate judge issued three opinions.² In the first, on October 18, 2008, he concluded that Esso had complied with PMPA and denied plaintiffs' request for injunctive relief. Santiago–Sepúlveda I, 582 F.Supp.2d at 185.

All but two of the plaintiffs eventually agreed to accept franchise agreements offered by Total. In a second opinion, on June 23, 2009, the magistrate judge reaffirmed that Esso's actions had complied with PMPA, but, explaining that the question remained whether the individual contract terms in Total's franchise agreement complied with PMPA, he proceeded to find three specific terms illegal under local law but severable under the franchise contract's severability clause. Santiago–Sepúlveda II, 634 F.Supp.2d at 211–12.

Finally, on reconsideration, the magistrate judge issued his third opinion on July 30, 2009. In it, he reaffirmed that the terms found illegal in the previous opinion were severable and held that two more terms were unenforceable under Puerto Rico law. Santiago–Sepúlveda III, 638 F.Supp.2d at 200, 204–05. He thereafter entered a final judgment in favor of Esso and Total (which had intervened to defend its franchise contract and its acquisition of Esso's properties).

Appeals, by several contingents of plaintiffs, followed. We review factual findings made in the bench trial for clear error, Monahan v. Romney, 625 F.3d 42, 46 (1st Cir.2010); denials of an injunction for abuse of discretion, García–Rubiera v. Calderón, 570 F.3d 443, 455–56 (1st Cir.2009); and rulings on purely legal issues de novo, id. at 456. Because the framework for the judgment under review is provided by PMPA, the first step is to outline the relevant elements of the statute.

PMPA is a conventional dealer-protection statute limiting the circumstances in which a motor fuel franchisor can terminate or choose not to renew a franchise relationship. See Chestnut Hill Gulf, Inc. v. Cumberland Farms, Inc., 940 F.2d 744, 746 (1st Cir.1991). This statute, like most others at both the federal and the state level, rests on the perceived “disparity of bargaining power between franchisor and franchisee,” Veracka v. Shell Oil Co., 655 F.2d 445, 448 (1st Cir.1981) (Breyer, J.), coupled with concerns said to be peculiar to franchising, Draeger Oil Co. v. Uno–Ven Co., 314 F.3d 299, 299 (7th Cir.2002) (Posner, J.); see 123 Cong. Rec. 10,386 (1977) (statement of Rep. Mikva).

Under PMPA, a franchisor may terminate the relationship on any of five specified grounds, 15 U.S.C. § 2802(a), (b)(2)(A)-(E), and the one pertinent here—subsection (E)—permits termination if a franchisor determines

in good faith and in the normal course of business to withdraw from the marketing of motor fuel through retail outlets in the relevant geographic market area in which the marketing premises are located.

There are other restrictions and requirements, such as proper advance notice, id. §§ 2802(b)(1)(A), 2804(b)(2), but they are not at issue on this appeal.

However, for withdrawals under subsection (E), there are further conditions, 15 U.S.C. § 2802(b)(2)(E)(iii), specifying alternative means to preserve the franchisee's operations; the statutory alternative chosen by Esso here allowed it to sell the premises it leased to its dealers to another franchisor, so long as the purchasing franchisor-to-be

offers, in good faith, a franchise to the franchisee on terms and conditions which are not discriminatory to the franchisee as compared to franchises then currently being offered by such other person or franchises then in effect and with respect to which such other person is the franchisor.

Id. § 2802(b)(2)(E)(iii)(II). Whether this condition applies to all of the dealers in this case is an open question but, given our disposition, need not be resolved.³

If a franchisor terminates the franchise relationship but fails to comply with these requirements, its franchisees can sue it for equitable relief, actual and exemplary damages, and attorney and expert witness fees. 15 U.S.C. § 2805(a), (b), (d). When the fact of termination is proved by the franchisee (and it is conceded here), the burden falls on the franchisor to establish “that such termination or nonrenewal was permitted” by PMPA. Id. § 2805(c).

Plaintiffs' first substantive contention is that Esso did not comply with section 2802(b)(2)(E)(iii)(II) because (allegedly) Total did not offer the former Esso dealers “franchise[s] ... on terms and conditions which are not discriminatory to the franchisee as compared to franchises then currently being offered by [Total] or franchises then in effect and with respect to which [Total] is the franchisor.” 15 U.S.C. § 2802(b)(2)(E)(iii)(II). In a nutshell, plaintiffs allege on appeal that different Esso franchisees were offered different contracts by Total.

For example, plaintiffs say that Total required some to operate a convenience store, while others were not required to do so, and those operating convenience stores also had to sign non-compete agreements, while others did not. They also allege that Total included a term in the franchise agreement—personal supervision by the franchisee—that would make those franchisees that operate multiple stations in default (an interpretation that Total's marketing director denied in his own testimony).

Although plaintiffs made a discrimination claim below, it was different from those urged on appeal. The argument made to the magistrate judge was that the franchises offered to them were different than the ones Total offered to its preexisting franchisees, not that the terms offered to former Esso dealers differed from each other. Absent plain error, which was not even asserted on this issue, a claim not presented in the lower court is not available on appeal. Bennett v. City of Holyoke, 362 F.3d 1, 6 (1st Cir.2004); Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 22 (1st Cir.1998).

As it happens, “Congress did not intend ‘not discriminatory’ to mean that each service station operator must be offered a franchise with identical terms. A franchisor must be free to offer different terms at different franchise...