Free Appendix - District Court of California - California

Case 5:07-cv-04808-JF

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HBall v. Johanns E.D.Cal.,2008. Only the Westlaw citation is currently available. United States District Court,E.D. California. Dennis W. BALL, an individual, Plaintiff,
v.

Defendant, Premier, is a banking corporation

organized and existing under the laws of the state of Oregon and is authorized to conduct business in the state of California. The case-in-chief involves two
consolidated claims of individual debtor, BalL. The

first claim is for breach of contract and related claims

Mike JOHANNS, et aI, Defendants.

against Premier for submitting the Loss Claim to
FSA after entering into a Settlement Agreement that allegedly terminated all of Ball's debts. The second
claim is against FSA under the Administrative
Procedures Act for accepting and paying Premier's

No. CiV. S-07-1190 LKK/AD.
Jan. 29,2008.

Wiliam M. Lukens, Lukens Law Group, San
Francisco, CA, for Plaintiff.

loss claim and subsequently declaring that Ball owed

FSA a federal debt. These cases' allegations were
described more fully in the court's October 23, 2007
order.

Melvile Zachary Smith, Michael Scott Wilcox, McDonough Holland & Allen PC, Sacramento, CA,
for Defendants.

Ana Maria Martel, United States Attorney,
Sacramento, CA, for Defendants/ThirdPart

In its cross-claim, FSA alleges that Premier is liable

for the amount paid on the loss claim if it was
inappropriate for Premier to submit the claim.

Plaintiffs.
ORDER

LA WRENCE K. KARL TON, Senior District Judge. * 1 The plaintiff for the purposes of this motion is the

Specifically, FSA alleges that if Premier improperly submitted the loss claim, FSA had no duty to pay and is entitled to receive either restitution from Defendant or an award of damages. FSA's cross-claim alleges
four causes of action: (1) unjust enrichment, (2)

United States of America, on behalf of its
Department of Agriculture and Farm Service Agency
("FSA"). It has brought a cross-claim against

breach of contract, (3) money had and received, and
(4) money paid by mistake of law or fact.

Defendant PremierWest Bank ("Premier") alleging

various equitable and legal claims to recover a
Guarantee Loss Claim paid to Defendant. This case

II. Standard for Dismissal Under Federal Rule of Civil Procedure 12(b)(6)
In order to survive a motion to dismiss for failure to

was brought as a cross-claim to Ball v. Johanns, which was consolidated with Ball v. Premier West
Bank.Pending before the court is Premier's motion to

state a claim, plaintiffs must allege "enough facts to
state a claim to relief

that is plausible on its face."Bell

dismiss FSA's cross-claim. The court resolves the
motion on the parties' papers and after oral argument.

Atlantic Corp. v. Twomblv. --- U.S. ----. 127 S.Ct. 1955. 1974. i 67 L.Ed.2d 929 (2007). While a

For the reasons explained below, the motion is
granted in part and denied in part.

complaint need not plead "detailed factual
allegations," the factual allegations it does include "must be enough to raise a right to relief above the
speculative level."Id. at 1964-65.

i. Background and Allegations,FNI

FN i. These allegations are taken from the
Answer of

As the Supreme Court observed, Federal Rule of
Civil Procedure 8(a)(2) requires a "showing" that the

the United States and Third Part Complaint fied on November 1,2007.

plaintiff is entitled to relief, "rather than a blanket
assertion" of entitlement to relief. ¡d. at 1965 n. 3.

Plaintiff, FSA, is a federal agency that acts as a loan guarantor. It guarantees payment to secured lenders
for a certain amount of the guaranteed loan.

Though such assertions may provide a defendant with the requisite "fair notice" of the nature of a plaintiffs

claim, only factual allegations can clarify the
"grounds" on which that claim rests. Id. "The

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pleading must contain something more ... than ... a
statement of facts that merely creates a suspicion (of)
a legaIly cognizable right of action ."Id. at 1965,

establish three elements: (1) a benefit conferred on

the defendant by the plaintiff, (2) an appreciation or
knowledge by the defendant of the benefit, and (3)
the acceptance or retention by the defendant of the

quoting 5 C. Wright & A. Miler, Federal Practice
and Procedure, & 1216. Pp. 235-36 Od ed.2004).FN2

benefit under such circumstances as to make it
inequitable for the defendant to retain the benefit
without payment of its value. Van Gemert v. Boeinf! Co.. 590 F.2d 433 (2d Cir.1978), affd,44 L U.S. 942. 99 S.Ct. 2158. 60 L.Ed.2d 1043 (\ 980). The doctrine

FN2. The holding in Twombly explicitly abrogates the weIl established holding in Conley v. Gibson that, "a complaint should not be dismissed for failure to state a claim

of unjust enrichment is recognized where there is no

unless it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle him to relief."355 U.S. 4 I. 45-46, 78 S.Ct. 99. 2 L.Ed.2d 80 (\ 957); Twomblv. 127 S.Ct. at
1968.

enforceable agreement between the parties on the subject matter at issue or where no adequate legal
remedy exists. McKesson HBOC. Inc. v. New York

State Common Retirement Fund. Inc. .. 339 F.3d 1087. 1090 (9th Cir.2003); Beth Israel Medical
Center v. Horizon Blue Cross and Blue Shield of New Jersev. lnc.. 448 F.3d 573 (2d Cir.2006). Here, FAS

*2 On a motion to dismiss, the aIlegations of the
complaint must be accepted as tre. See Cruz v. Beta.
405 U.S. 319. 322. 92 S.Ct. 1079. 31 L.Ed.2d 263

aIleges that if BaIl prevails in its case against FSA,
then Premier has been unjustly enriched by FSA's

payment to Premier on its Loss Claim.

(1972). The court is bound to give the plaintiff the

benefit of every reasonable inference to be drawn
from the "we

1. Inconsistency with FSA's Prior Assertions
Premier makes three arguments. First, Premier asserts
that FSA previously determined in its administrative

II-pleaded" aIlegations of the complaint.

See Retail Clerks Intern Ass'n, Local

1625. AFL-CIO

v. Schermerhorn 373 U.S. 746. 753 n. 6. 83 S.Ct.

1461. 10 L.Ed.2d 678 (\963). In general, the
complaint is constred favorably to the pleader. See
Scheuer v. Rhodes. 416 U.S. 232. 236. 94 S.Ct. 1683.

proceeding that it was proper for Premier to be paid
for the Loss Claim.FN3Premier argues that a court

finding in favor of Ball against FSA would do
nothing to change the basis of FSA's prior conclusion
that payment of the Loss Claim to Premier was

40 L.Ed.2d 90 (1974), overruled on other grounds by Harlow v. Fitzf!erald. 457 U.S. 800. 102 S.Ct. 2727. 73 L.Ed.2d 396 (1982). That said, the court does not
accept as tre unreasonable inferences or conclusory

proper. The court is not persuaded by this argument.

legal aIlegations cast in the form of factual

aIlegations. W. Mining Council v. Watt. 643 F.2d
618, 624 (9th Cir.1981 ).

FN3. To support this proposition, Defendant cites to the National Appeals Division's,

Director Review Determination, In the
Matter of Ball and Farm Services Agency,

III. Analysis

case no. 2006W000130, dated November

In its third part complaint, FSA aIleges four causes
of action: (1) unjust enrichment, (2) breach of

21, 2006 (hereafter "NAD Review") at 6. Defendant requests the court take judicial
notice of it.

contract, (3) money had and received, and (4) money paid by mistake of law or fact. For reasons stated in

the foIlowing analysis, the motion to dismiss is
denied as to the claims of unjust enrichment, breach

A court may take judicial notice of a fact not subject to reasonable dispute pursuant
to Fed.R.Evid. 20l(b) and Fed.R.Evid.

of contract, and money had and received. The motion

20l(d). Here, the National Appeals

to dismiss is granted for the claim of money paid by mistake of law or fact.
A. Unjust Enrichment

Division Review is capable of accurate and ready determination and its contents
derive from a source whose accuracy

cannot reasonably be questioned.
Furthermore, Defendant has complied

In order to prove unjust enrichment, a plaintiff must

with Federal Rule of Evidence 20 I (d) by

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requesting judicial notice and supplying
the court with a copy of the Review.

Therefore, the court takes judicial notice

of the National Appeals Division's, Director Review Determination, In the
Matter of Ball and Farm Services Agency,
case no. 2006W000130, dated November

Here, FSA has pled that the Lender's Agreement was an express contract between the parties. However,

pursuant to Federal Rule of Civil Procedure 8(e)(2),

the plaintiff may plead alternative, inconsistent
theories. See, e.g., ln re Wal-Mart Wage and Hour
EmTJlovment Practices LitifIation. 490 F.Supp.2d

21, 2006. To note the decision and its
contents, is, of course, different from

109\, 1117 (D.Nev.2007). Furthermore, the liberal
policy reflected in Rule 8( e )(2) instrcts courts not to

noting its propriety.
If BaIl prevails in his claims against Premier, the

constre a pleading "as an admission against another

alternative or inconsistent pleading in the same
case."McCalden v. CaL. Librarv Ass'n. 955 F.2d

factfinder necessarily wil have determined that
Premier acted improperly in submitting the loss claim to FSA. This finding against Premier could affect the
basis of FSA's conclusion in its administrative

1214. 1219 (9th Cir.1990) (quoting Molsbergen v.
United States. 757 F.2d 1016. IO 19 (9th Cir.1985).
Thus, Plaintiffs claim for unjust enrichment should

proceedings that its payment to Premier was proper. Since the determinative issues on which the cross-

claim depends are inextricably linked to the
consolidated case-in-chief and have yet to be resolved, it is premature to dismiss this argument for
failure to state a claim.FN4Consequently, it appears

not be bared despite the simultaneous claim for breach of contract. To the extent the Plaintiff is ultimately able to prevail on a legal breach of contract theory, the Plaintiff wil be barred from also recovering under an equitable claim for unjust enrichment. See E.H. Bolv & Son. Inc. v. Schneider.
525 F.2d 20. 23 n. 3 (9th Cir.1975). However, if the
factfinder determines that the terms of the Lender's

that there are potential facts supporting FSA's claim

that Premier inequitably retained the benefit of
payment of the Loss Claim. See Twomblv, 127 S.Ct.
at 1968.

Agreement did not govern the conduct in dispute in the cross-claim, then the unjust enrichment claim is

proper. See McKesson HBOC. lnc.. 339 F.3d at
l090Yan Gemert. 590 F.2d 433

FN4. According to Federal Rule of Civil Procedure 13(g), cross claims need not be

3. Unclean Hands

limited to definite or matured claims or
causes of action. In other words, cross

claims may be brought on the basis of
claims of a contingent nature where the

Third, Defendant argues that if the court finds in

favor of BaIl against FSA, this requires a
determination that FSA did not act equitably and thus is not entitled to an equitable remedy against Premier.

ultimate outcomes of the claims depend on the determination of other features or issues
in the case. Therefore in this situation, the contingent nature of FSA's cross claims on

resolution of the case-in-chief, does not bar
the cross claim.

Defendant specificaIly maintains that "one seeking equity must do equity."In reo Beaty. 306 F.3d 914. 925 (9th Cir.2002). Since unjust enrichment is an
equitable doctrine, Defendant asserts that a finding

for Ball against FSA precludes an equitable remedy
for FSA against Premier.

2. Effect of the Express Contract On FSA's Unjust
Enrichment Claim
*3 Second, Premier maintains that the Lender's
FSA's duty to pay Premier does not revolve around

the concept of equitable behavior by FSA. While the
court in Beaty did state that debtors who have

Agreement between it and FSA governs the issue of FSA's payment to Premier in response to the fiing of the Loss Report, and that FSA has conceded this by
pleading a breach of contract claim. Premier argues,

"unclean hands" may not invoke laches, the court
further explained that debtors also fail to comply with

their obligations innocently, inadvertently and in
good faith. Beatv. 306 F.3d at 925-26.The Beaty

therefore, that the existence of the contract precludes FSA's claim for unjust enrichment. See McKesson HBOC. lnc.. 339 F.3d at 1090.

court held that the debtor in that case did not have
"unclean hands" because the debtor's actions were inadvertent. ld. at 926.The Beaty court did not clearly

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state the standard for finding "unclean hands" but implied that "unclean hands" might be avoided if
there is inadvertent or innocent behavior in good
faith.

was lawful, in that it properly stated that there was a
balance on the loan to which Premier was entitled,

but that it did not constitute a knowing waiver of
FSA's rights under the Lender's Agreement.
Consequently, there are facts suffcient to state a

Based on the pleadings in the cross-claim and the
cases in chief, it appears that FSA's conduct as

claim for breach of contract that is plausible on its
face. Twomblv. 127 S.Ct. at 1974.

alleged by Ball in Ball v. Johanns would not

constitute "unclean hands," as there is no suggestion

of FSA's wilfull impropriety. As the court
understands Ball's causes of actions, he alleges that, at most, FSA's acts were negligent in its payment of
the Loss Claim. This is not the tye of conduct that

C. Money Had and Received
FSA's third cause of action seeks restitution from Premier if the court finds FSA had no duty to pay the

would prevent FSA from subsequent recovery from Premier on equitable principles. See Beaty. 306 F.3d
at 925-26.
*4 Furthermore, since the cour has yet to determine

Loss Claim to Premier. In order to succeed on an
action for money had and received, the plaintiff must show that what the defendant has received should in
good conscience be returned to plaintiff.ndeTJendent

whether Premier properly submitted the Loss Claim

to FSA and whether FSA acted properly in accepting and paying the loss claim, it is premature to dismiss FSA's claim for unjust enrichment against Premier. Premier's motion to dismiss FSA's first cause of action is therefore denied.
B. Breach of Contract

Order or Foresters v. Donald. Lufkin & Jenrette. Inc.. 157 F.3d 933 (2d Cir.1998); Dickev v. Roval Banks or Missouri. 1 i 1 F.3d 580 (8th Cir.1997). As Defendant properly states, a claim for "money had and received"
is a legal claim, although it is subject to equitable

principles. Mvers v. Hurlev Motor Co.. 273 U.S. 18.
24-5.47 S.Ct. 277, 71 L.Ed. 515 (1927).

1. Unclean Hands

Premier reasserts its "unclean hands" argument that a

FSA also alleges that if Premier was precluded by its Settlement Agreement with Ball from filing a Loss Claim with FSA, Premier breached the terms of its Lender's Agreement with FSA. Premier argues that FSA had already determined in its administrative
proceedings that if Premier breached its Lender's

cour finding in favor of Ball against FSA wil necessarily lead to FSA's "unclean hands" and
preclude the equitable remedy FSA seeks. The court rejects this argument for the reasons stated in section A.3, supra.

Agreement with FSA by failing to keep FSA informed of the settlement, the breach was not
substantive. Premier contends that FSA's opinion and

2. Judicial Deference to Agency Determinations
Second, Defendant argues that FSA's cause of action

subsequent performance constitutes a waiver of any alleged breach. CuttinfI v. Bryan. 30 F.2d 754. 756
(9th Cir. i 929).

asks the court to review the correctness ofFSA's own

Premier's argument that Plaintiff waived any alleged
breach through agency proceedings and subsequent

agency determination that payment to Premier was proper where the standard of review is deference to agency determinations. This implies that the court should affrm the FSA's decision that Ball owes a
federal debt to the FSA. See MorfIan v. United States. 304 U.S. i. 18 (1938) (stating the deferential standard
for judicial review of agency decisions); Love v.

performance is not persuasive. In CuttinfI. 30 F.2d at
756. the cour simply held that the "acceptance of

acts of performance may operate as a waiver of strict or complete compliance."FSA's administrative decision does not constitute waiver as a matter of law, and Premier has presented no authority to indicate that it does. A factfinder reasonably could

Thomas. Administrator. Environmental Protection
AfIencv. 858 F.2d 1347. 1356 (9th Cir.1988).

*5 The court cannot accept Premier's characterization

conclude that FSA's administrative decision was
based on the assumption that Premier's Loss Claim

of FSA's cause of action. FSA is not asking for the
court to review the correctness of its own Agency

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determinations. Instead, FSA's claim alleges that
Premier acted unlawfully in submitting the Loss

Claim to FSA, which caused FSA to erroneously pay
the claim. FSA alleges in its opposition to Premier's motion and at oral argument that the administrative

FSA did plead this, it is doubtful that it could be pled as a cause of action, since it is an affrmative defense if Premier sought to enforce the contract against FSA.

proceedings did not inquire into the factual validity of the loss Premier asserted in its Loss Claim, and that the FSA presumed that the claim was made in
good faith. As such, while the standard of judicial deference is relevant to the court's determination of

Furthermore, Premier is correct in pointing out that
FSA does not point to any specific facts that FSA
mistook at the time of contract formation with

Premier via the Lender's Agreement. In addition,
FSA's cross-claim pleads no facts as to what facts or law FSA misapprehended at the time of contracting. On this basis, the claim must faiL. Twombly, 127 S.Ct. 1965.

issues in Ball's action against FSA, this standard is irrelevant to the determination of Premier's liabilty
for submitting its Loss Claim to FSA. Premier's

motion to dismiss must be denied as to this cause of
action.

*6 To the extent the FSA intended to plead actual or
constrctive fraud, it has not done so. In order to

D. Money Paid by Mistake of Law or Fact
Finally, FSA has brought a claim seeking restitution

prove a claim of actual fraud, the plaintiff must

demonstrate the following elements: (1) a false
material assertion, (2) knowledge of the falsity or a
high degree if disregard for whether the assertion was correct, (3) intention to induce the plaintiff to act or

if the court finds that FSA was misled by Premier submitting its Loss Claim to FSA and FSA had no
factual or legal duty to pay said claim. Mistake of law
arises when (I) there is a misapprehension of the law

refrain from action, (4) justifiable reliance on the
assertion, and (5) damage to the plaintiff. Cofrel v. Stryker Corp.. 284 F.3d 625 (5th Cir.2002); Southern
Union Co. v. Southwest Gas Com.. 180 F.Supp.2d

by all parties, and (2) there is a misapprehension of
the law by one part of which the other part is aware

1021 (D.Ariz.2002) (applying California law). The
elements for constrctive fraud are similar although

at the time of contracting but which they do not rectify. Cal. Civ.Code & 1578. Mistake of fact, on the
other hand, arises when (1) an unconscious ignorance
or forgetfulness of a fact past or present that is
material to the contract, and (2) belief in the present

knowledge of the falsity is not required. ln re
Harmon. 250 F.3d 1240 (9th Cir.2001) (applying California law). Neither these elements nor the facts comprising them have been pled in FSA's crossclaim. FN5

existence of a thing material to the contract which

does not exist or in the past existence of such a thing
which has not existed.Cal. Civ.Code & 1577.

Furthermore, mistake in judgment alone is not a basis for avoiding a contract or transaction. MWS Wire Industries. lnc. v. Calirornia Fine Wire Co.. 797 F.2d

FN5. Premier's additional arguments,

alleging FSA acted with unclean hands and
that the cour should defer to agency

799. 803 (9th Cir.1986); American Nat'llns. Co. v.
Continental Parking Corp.. 42 Cal.App.3d 260. 267.
116 Cal.Rptr. 801 (1974). The doctrine of

determinations, were considered and
rejected in section iii.C, supra.

mistake of

fact or law is utilzed in the context of consent to a

The cour therefore grants the motion to dismiss this
count, as FSA has not plead a cause of action on which relief may be granted. See Twombly, S.Ct. at
1965 n. 3.
iv. Conclusion

contract. Cal Civ.Code & 1567(5); Cal. Civ.Code &

3391(4). Thus, a mistake of law or fact satisfying the

requirements of the law wil form the basis for an
affrmative action for rescission. Cal. Civ.Code &

1 689(b)(1).

First, Premier argues that the doctrine of mistake is
an affrmative defense and mistake must be mutual or

For the reasons explained above, Defendant's motion

made where the other part knows of the mistake.
Here, FSA does not plead that the Lender's

to dismiss is GRANTED as to FSA's fourth cause of action and DENIED as to FSA's first, second, and third causes of action. FSA is granted leave to amend.

Agreement should be rescinded. Moreover, even if

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IT IS SO ORDERED.
E.D.CaI.,2008. Ball v. Johanns Slip Copy, 2008 WL 269069 (E.D.CaI.)

END OF DOCUMENT

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LEXSEE 1989 U.S. DIST. LEXIS 18393

CHARTER MARKETING COMPANY v. JAMES BERGEN
Civil No. H-89-405(AHN)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT
1989 U.S. Dist. LEXIS 18393

October 20,1989, Decided

October 20,1989, Filed

JUDGES: (*1) Nevas
OPINION BY: ALAN H. NEV AS

summary judgment should be denied because an
evidentiary hearing is needed for the court to assess

OPINION
RULING ON PLAINTIFF'S MOTIONS FOR SUMMARY

whether, under the circumstances of this case, the notice Charter provided was reasonable. For the reasons stated below, both motions for summary judgment are granted.
Background

The following facts giving rise to this action are not
in dispute. 1 Bergen 2 signed a written three-year lease

JUDGMENT

The plaintiff Charter Marketing Co. ("Charter")
brought this action under the Petroleum Marketing

with Charter for the use and occupancy of the Capital A venue station for the period from August 8, 1986
through August 7,1989, which they renewed in February 1989 for another three years to run from August 8, 1989 through August 7, 1992. The lease provided for a monthly base rent of $ 550 due on or before the tenth day

Practices Act, 15 u.s. C. Section 2801 et seq. (the "PMPA") and under the doctrine of pendent jurisdiction, seeking declaratory and injunctive relief as well as money damages under Rules 57 and 65, Fed. R. Civ. P. The case involves the termination by Charter, effective June 24, 1989, upon fifteen days notice to the defendant, James Bergen, of a lease and franchising agreement for the use and occupancy of a gasoline station and convenience
store located on Capitol Avenue in Hartford, Connecticut; and the termination by Charter, effective September 18,
1989, upon 62 days notice, of a lease and franchising

of each month and a monthly ancillary rent based on convenience store sales of a minimum of $ 660 on or
before the tenth day of the month succeeding the month in which ancillary sales were made. Bergen paid Charter the monthly (*3) base rent for the period through April 30, 1989 and the monthly ancillary rent for the period through March 31, 1989. He has paid Charter no base

agreement for the defendant's use and occupancy of a
gasoline station and convenience store located on New

rent for the month of May 1989 or thereafter and no
ancillary rent for the month of April 1989 or thereafter. The Capitol Avenue station was closed on May 26, 1989
and has remained closed. On June 9, 1989, Charter

Park Avenue in West Hartford, Connecticut. The plaintiff
has fied two motions for summary judgment, one

terminated the franchise by sending Bergen a written
notice, effective June 24, 1989, invoking Bergen's failure

pertaining to the Capitol Avenue station and the other to

the New Park Avenue station, arguing that the
terminations were valid. At issue is whether, as a matter
of (*2) law, fifteen days notice and sixty-two days

to pay the base rent for May and the ancillary rent for
April as well as his failure to operate the station since

notice of termination for nonpayment of rent and failure

May 26, thereby providing Bergen with fifteen days
notice.

to operate the station for seven consecutive days was
"reasonable" notice within the meaning of Section

i Compare Plaintiffs Statement of Undisputed
Facts, fied August 8, 1989 and the Supplemental

2804(b)(1) of the PMPA. The defendant argues that

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1989 U.S. Dist. LEXIS 18393, *3

Statement of Undisputed Facts, fied September

14, 1989 with Defendant's Statement of Disputed

Facts in Opposition to Plaintiffs Motion for
Summary Judgment, filed September 18, 1989.

PMP A or were rather executory prepetition contracts which could be assumed by Bergen under the bankrptcy proceeding. To restrain Charter from reclaiming the New

2 A police offcer by occupation, Bergen
operated the service stations as an investment.

Park A venue station upon the effective date of
termination, Bergen fied a motion for a temporary

Bergen's explanation for his failure to pay the rent

was that his money was tied up in other
investments (i.e. retirement vilages throughout

restraining order ("TRO"). Upon joint stipulation, a TRO was entered pending the outcome of the hearing on Charter's motions for summary judgment.
Discussion

the United States, the financing of which required his personal involvement in seeking the chartering of an offshore bank in Montserrat in the British
West Indies and in Antigua). See Bergen's
Affdavit in Opposition to Charter's Motion for

A. The Petroleum Marketing Practices Act
At issue in this case is the reasonableness of

Summary Judgment, filed September 18, 1989 at
4.

Charter's notices of termination to Bergen under Section

2804 of the PMPA. 3 Section 2804(a)(2) requires a
franchisor to provide 90 days notice of termination in

(*4) Bergen also signed a written three-year lease with Charter for the use and occupancy of the New Park

writing but section 2804(b)(1) (*6) provides for an exception in circumstances in which it would not be
reasonable for the franchisor to furnish notification. . .." To comply with the exception in section 2804(b)(1), the statute provides in section 2804(b)(1)(A) that the less than
90 days notice must be furnished lion the earliest date"
which is reasonably practicable. II

A venue service station for the period from August 8, 1986 through August 7, 1989, which they renewed in
February 1989 for another three years to run from August

8, 1989 through August 7, 1992. The lease provided a
monthly base rent of $ 1,500 due on the tenth day of each month for which such rental was paid; and a monthly

ancillary rent based on convenience store sales of a minimum of $ 660, due on the tenth day of the month
succeeding the month in which the ancillary sales were made. Bergen paid Charter the monthly base rent for the period through April 30, 1989 and the monthly ancilary rent for the period through March 31, 1989. He has paid

3 Section 2804 provides in relevant part:
(a) Prior to termination of any

franchise. . ., the franchisor shall
furnish notification of such
termination. . . to the franchisee

Charter no base rent for the month of May 1989 or thereafter and no ancilary rent for the month of April
1989 or thereafter, but continues to operate the station.

who is a part to such franchise. . .

Charter terminated the franchise, effective September 18, 1989, by sending Bergen written notice on July 13, 1989, invoking Bergen's failure to pay the base rent for Mayor

(1) . . .
(2) except as provided in

the ancillary rent for April, thereby providing Bergen
with 62 days notice.

subsection (b) of this section, not less than 90 days prior to the date

on which such termination. . .
takes effect. (b)(I) In
circumstances in which it would

The plaintiff commenced this action (*5) on June
30, 1989, seeking a declaratory ruling that the Capital Avenue lease was validly terminated under the PMPA
and an order that the defendant vacate the station

not be reasonable for the franchisor

to furnish notification, not less
than 90 days prior to the date on
which termination. . . takes effect, as required by subsection (a)(2) of
this section --

immediately. Bergen fied a bankruptcy petition under
Chapter II of the Bankrptcy Code, on August 10, 1989.

The Bankrptcy Court (Krechevsky, 1.) granted Charter relief from automatic stay pursuant to Section 362 of the

Bankrptcy Code to permit this court to determine
whether the leases were validly terminated under the

(A) furnish

such franchisor
notification to

shall the

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franchisee affected thereby on the earliest date on which furnishing of
such notification is reasonably

relevant part:
(c) As used in subsection
(b)(2)(C) of this section, the term

practicable. . ..

(*7) In addition to the notice requirement in section

"an event which is relevant to the franchise relationship and as a result of which termination of the
franchise. . . is reasonable"

2804, sections 2802(b)(2) and (3) 4 explicitly enumerate
examples of per se reasonable grounds for termination,

including the franchisee's failure to make timely
payments (section 2802(c)(8)) and the franchisee's failure

includes events such as --

to operate the marketing premises for seven consecutive

days (section 2802(c)(9)). Thus, the statute's
requirements for termination of a franchise are in the

(8) failure by the franchisee to pay to the franchisor in a timely

conjunctive: the franchisor must have reasonable grounds

manner when due all sums to
which the franchisor is legally
entitled;

for termination under 2802 and must comply with the notice provisions set forth in section 2804, providing (in
the disjunctive) either 90 days notice or less than 90 days

notice in circumstances in which it would not be
reasonable for the franchisor to provide 90 days notice.
4 Section 2082(b)(2) provides in relevant part:

(9) failure by the franchisee to operate the marketing premises for

(A) 7 consecutive days.

(2) For purposes of this
subsection, the following are

grounds for termination of a
franchise. . .:

(*8) B. Summary Judgment
Summary judgment under Rule 56, Fed. R. Civ. P., is appropriate and indeed may be favored when there are no genuine issues of material fact to be resolved at trial, and

(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

where the moving part is entitled to judgment as a
matter oflaw. See Celotex Corp. v. Catrett, 477 Us. 317,
91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Anderson v.

Liberty Lobby, Inc., 477 Us. 242, 91 L. Ed. 2d 202, 106

relationship -(i) .. .

(C) The occurrence of an event which is relevant to the
franchise relationship and as a result of which termination of the franchise. . . is reasonable, if such event occurs during the period the franchise is in effect. . ..
(i) .. .

S. Ct. 2505 (1986); Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.), cert. denied, 474 Us. 829, 88 L. Ed. 2d 74 , 106 S. Ct. 91 (1986). To grant summary judgment in the instant case, the court must find as a matter of law that it would not be reasonable under the circumstances of this case to require 90 days notice of termination of the
franchise.

C. The Case Law

Bergen's failure to pay the rent and failure to operate the station for seven consecutive days fall squarely within the statute's enumeration of per se reasonable grounds for termination under section 2802. The courts have held that

failure to pay the rent in a timely manner when due
constitutes suffcient grounds for termination under

2802(c)(8). Kajdan v. Exxon Co., U.S.A, 1980-lTrade
Section 2802(c) provides in
Reg. Rep. (CCH), para. 63,262 at p. 78,306 (D. Conn.

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1980); (*9) Exxon v. Gonzalez, Bus. Franchise Guide

(CCH), R 8440 (S.D. Fla. 1985).

(* 11) The defendant argues that summary judgment is inappropriate here and that the court should conduct an
evidentiary hearing in order to satisfy the reasonable
circumstances test of section 2804(b), citing Wisser V.

At issue here, however, is whether the less than 90 days notice of termination provided by Charter to Bergen

comports with the statute's provision in section
2804(b)(1) for less than 90 days notice in cases where it
would be unreasonable to supply 90 days notice. The
courts interpreting the PMP A's notice provision have held
terminations based on less than 90 days notice to be

Mobil Oil Corp., 730 F.2d 54 (2d Cir. 1984). In Wisser,
the court held that 90-days notice was unreasonable in

light of the franchisee's misbranding of gasoline. 6 The
Wisser court did not, however, even in dictum, restrict
that result to instances of wrongful misconduct and

reasonable where the franchisee has breached the contract

by failing to make timely payments or to operate the
marketing premises. Smith v. Amerada Hess Corp., Bus.
Franchise Guide (CCH), para. 58,177 (D.N.J. 1984)

serious default. Furthermore, neither the language of section 2804(b)(l) nor the Senate report accompanying it

restrict its applicability to serious misconduct like
misbranding. Desfosses v. Wallace Energy, Inc., 836 F.2d

22,29 (lst Cir. 1987). 6 The Wisser court rejected as too restrctive the analysis in Escobar V. Mobil Oil Corp., 522 F.
Supp. 593, 600 (D. Conn. 1981), rev'd on other

(holding two days notice reasonable where franchisee had failed to make timely payments and to operate the station for several consecutive days); Loomis v. Gulf Oil, 567 F.

Supp. 591, 597 (MD. Fla. 1983) (holding eight days notice reasonable where franchisee had failed to make
Mich. i

grounds, 678 F.2d 398 (2d Cir. 1982) (per
curiam), holding that section 2804(b)(l)(A) of the

timely payments); Brummet v. Amoco Oil Corp., (W.D. 988)(Lexis 3561) (stating that ten days notice was

PMPA was intended to apply only to
"circumstances created by an outside agency, such
as condemnation of the marketing premises."

reasonable where franchisee had failed to make timely
payments). Under the circumstances, these courts (* 1 0)

concluded that it would not be reasonable to require the franchisor to suffer additional loss of revenues by waiting for 90 days to terminate the franchises. 5 Where, as here,

Wisser, 730 F.2d at 60.

(* 12) Conclusion

the statute explicitly provides that a franchise can be terminated if the franchisee fails to make timely
payments, and the contract states that payments are due on the tenth of each month, it would frustrate the intent of
the drafters to require the franchisor to wait for an

This cour agrees with the holding and rationale of
the cited cases and concludes that Bergen's failure to pay

rent since May for either station and to operate the
(Capital A venue) station for seven consecutive days

extended period following the breach before termination.
Similarly, where, as here, the statute explicitly provides that a franchise can be terminated if the franchisee fails to
operate the marketing premises for seven consecutive

constitute circumstances under which it would not be reasonable as a matter of law to require Charter to give
90 days notice, in compliance with Section 2804(b)(1) of the PMPA. Accordingly, both of Charter's motions for
summary judgment are granted. The temporary

days, it would be unreasonable to require the franchisor

to wait more than fifteen days beyond the seven day
period to terminate the franchise.
5 These decisions reflect the legislative intent to

restraining order, entered on September 20, 1989 and extended by stipulation of counsel at oral argument on
September 22, is hereby dissolved.

protect the small service station retailers from
arbitrary termination of their franchises but to

SO ORDERED this 20th day of October, 1989 at
Hartford, Connecticut.

allow the franchisor to terminate a franchise

"based on certain actions of the franchisee." S.

Alan H. Nevas

Rep. No. 95-731, 95th Cong., 2d Sess. 15, 17
(1978), reprinted in 1978 U.S. Code Congo & Admin. News 874.

United States District Judge

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Copyright 2008 CCH Incorporated, All Rights Reserved CCH Business Franchise Guide
Cases, Rulings, New Developments State Decision

Business Franchise Guide (CCH) P 8326
February 25, 1985 Dated

Fotinos v. Amoco Oil Co.
New Jersey Superior Court, Chancery Division. No. C527184E. Dated February 25, 1985

Strict Compliance with Notice of Nonrenewal Not Required

Petroleum Marketing Practices Act
Relationship/Termination -- Gasoline Dealers -- Notice of Nonrenewal-- Duration of Underlying Lease-Notice that Lease Might Not Be Renewed -- Strict Compliance v. Flexible Approach.
A gasoline franchisor's letter informing a franchisee that an underlying lease of service station premises would expire and might not be renewed did not strictly comply with the notice of nonrenewal requirement of the Petroleum Marketing Practices Act. However, the franchisor provided suffcient notice of the expiration through the lease
agreement, various documents contained in the lease package, and information disclosed by the franchisor's teITItory

manager. Moreover, each of the leases from the inception of the franchise relationship put the franchisee on notice of the expiration date of the underlying lease and of the franchisor's right to tenninate the relationship upon the loss of the underlying leasehold estate. Accordingly, the franchisee had actual knowledge of the terms of the underlying lease and the franchisor provided suffcient information to meet the notice requirements of the federal dealer law.

Letter Opinion
(In full text)

Kentz, 1.:

Gentlemen:
This matter comes before the court by way of motion fied by plaintiff Nicholas Fotinos (Fotinos) seeking an order of the court granting partial summary judgment for plaintiff on the notice issue in connection with the termination of the franchise agreement between the parties and compelling defendant Amoco Oil Co. (Amoco) to continue to supply plaintiff with gasoline at his retail service station located at the comer of Yale Avenue and Cornell Place in Hilside, New Jersey.

The material facts necessary for the resolution ofplaintifts application are not in dispute. Subsequent to the lease agreement dated December 15, 1978 between Amoco as lessor and Fotinos as lessee, the parties continued in their business relationship with respect to the service station premises in question by executing three subsequent leases and product supply agreements covering the total period from December 29, 1979 through
execution of the initial

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January 31, 1985. During the entire period oftime covered by these three subsequent leases and supply agreements, Amoco continued to exercise its oneyear options on an annual basis with the owners of the realty upon which the service station premises are located and extended the underlying lease with the owners for the total period commencing February i, 1979 through January 31, 1985. Prior to the expiration on January 30, 1982 of the November 3, 1980 lease between Amoco and Fotinos, Amoco entered into its final lease with Fotinos pertining to the service station premises. That final lease dated November 30, 1981 which covered the period commencing January 31, 1982 and ending January 30, 1985 was prepared on November 30, 1981 along with several other documents, including a dealer supply agreement to be executed by Fotinos, and comprised the "342 Lease Package." The entire lease package was presented to Fotinos on or before December 8, 1981 by Harold 1. Smith, the territory manager for Amoco. Smith reviewed the lease with Fotinos and explained the various provisions contained therein. Fotinos was advised by Smith that Amoco's underlying lease with the owners of the service station premises was expiring on January 31, 1982, that Amoco had eight oneyear options to renew the base lease each for a period of one further year, that Amoco was going to exercise its option to extend its base lease for the period commencing February 1, 1982 through January 31, 1983, that thereafter Amoco had the right but was under no obligation to further extend the base lease for additional oneyear periods at the end of each
successive year but that if Amoco did not extend the base lease with the owner of

the service station premises during anyone of those successive years for which it held oneyear options, Amoco had the right to terminate or nonrenew the

lease with Fotinos and the business relationship between the parties. In addition to the provisions of the lease dated November 30, 1981 pertaining to the expiration of Amoco's underlying lease with the owner of the propert, Amoco notified F otinos of this fact by forwarding a letter dated November 31, 1981 which letter comprised one of the documents in the lease package. The letter advised Fotinos that in accordance with the provisions of

the Petroleum

Marketing Practices Act (PMPA), the propert being leased to him was leased to him by Amoco from the owners, that the underlying lease term in effect would expire on January 31, 1982, that the underlying lease with the propert owner
may not be renewed and that in the event it was not renewed, Fotinos would be given notice of

this fact in a timely

manner.
(Notice Requirement)

The plaintiff Fotinos alleges that Amoco did not comply with the notice requirements of the PMP A, /5 u.s. CA. §
the PMPA provides that loss of the right to grant possession of the premises is a valid reason for nonrenewal if the franchisee was notified in writing prior to the commencement of the tenn of the then existing franchise 2802(c)(4). Section 2802(c)(4) of

(a)

of the duration of the underlying lease, and
(b)

oftermination) or at the end of

of the fact that such underlying lease might expire and not be renewed during the term of such franchise (in the case the term (in the case ofnonrenewal).

In support of this allegation, Fotinos, relies upon Amoco's letter dated November 30, 1981 which notified Fotinos that its underlying lease with the propert owner would expire on January 31, 1982 and may not be renewed. Fotinos alleges that Amoco did not comply with subsection (A) of the PMPA since the lease ran for oneyear terms expiring on January 31 of each year and could be renewed yearly until 1990. Furthermore, Fotinos submits that the current franchise agreement ran from January 31, 1982 until January 30, 1985 and that the lease underlying this franchise is really three leasesthree oneyear leases running from February 1, 1982 until January 31, 1985. Fotinos contends that Amoco's notice, however, notified him of the underlying lease for the previous franchise agreementthe 19811982 lease with the propert ownerrather than the lease underlying the current franchisethe 19821983 lease with the propert owner. Accordingly, Fotinos asserts that Amoco did not comply with the statute which requires that notice of the duration of the lease which underlies the franchise relationship be given prior to the commencement of the term of the then existing franchise. The

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plaintiff takes the position that the PMP A requires strict compliance with the notice provisions and that defendant's failure to give proper notice is grounds for compellng Amoco to continue the franchise relationship and to close its new
service station.
In opposition to this application, Amoco submits that under the totality of facts in this case, it substantially complied with the notice provisions of

the circumstances and the undisputed

the PMPA with respect to notifying Fotinos of the duration of the underlying lease. Amoco points out that although Fotinos relies upon the notice letter from Amoco to
Fotinos dated November 30,1981 which accompanied the lease, Fotinos fails to address paragraph 17 of the final lease which notified him that there remained only eight oneyear options to renew the underlying lease each for a period of one further year. It is Amoco's position that paragraph 17 of the final lease, when read in conjunction with paragraph 17 of the prior lease dated November 3,1980, reveals one less option for Amoco to renew the underlying lease since the prior lease reveals nine oneyear options remaining while the final lease reveals eight oneyear options remaining, thereby notifying Fotinos that Amoco was extending the underlying lease for a further period of one year and thus notifying Fotinos that the duration of the underlying lease, at a minimum, would be January 31, 1983. It is argued that these facts, together with the facts pertaining to the knowledge imparted by Harold Smith to Fotinos as to the duration of the underlying lease, reveal that Fotinos had actual knowledge of the duration of the underlying lease when he entered into his final lease with Amoco dated November 30, 1981. Amoco asserts that plaintiffs contention on the notice issue is a hypertechnical argument which ignores the undisputed facts of the case. Under the totality of the circumstances, Amoco submits that Fotinos was properly notified of the duration of the underlying lease as required by the PMPA and that such notice was legally suffcient under the federal act.

rStrict Compliance v. Flexible Approach

I

Although certain court have held that compliance with specific notice provisions of the PMPA is a mandatory prerequisite to nonrenewal and the court has no power either to cure or to waive a notice defect (see Blankenship v. AtlanticRichfeld Co., 478 F Supp. 1016, 1018 (D. Ore. 1979)), other courts have hesitated to take such a rigid approach to the PMPA's notice requirements. See Brown v. Am. Petrofina Marketing, Inc., 555 FSupp. 1327 (MD.

Fla. 1983),

affd, 733 F2d 906 (11th Cir. 1984) (The court was reluctant to accept a hypertechnical argument requiring strict
compliance when the franchisees had actual knowledge of and plaintiffs may not have been prejudiced as a result of

the notice that was required to be given under § 2802(c)(4)

the lack of such written notice. The cour instead proposed that substance rather than form should control the notice issue.) Other courts have similarly rejected strict compliance with the notice provisions of the PMPA, adopting the more flexible approach first enunciated in Brown by looking at the totality of the circumstances and all the facts known by the franchisee in connection with the notice given by the franchisor. See Hooper Oil Co., Inc. v. Am. Petrofina Marketing, Inc., No. 831050, sip op. at 5 (5th Cir. Nov. 14, 1983) ("In determining the suffciency of notice, courts should consider not only the reason stated in the formal notice, but all the facts about nonrenewal or termination known to the franchisee. "). See also Perk v. Standard Oil Co., Inc., No. 831 067 (4th Cir. Jan. 17, 1984) (The Court of Appeals rejected the plaintiffs argument that there must be strict compliance with the notice provisions and looked instead to the totality of the circumstances and the franchisee's actual knowledge.).
After reviewing the documentation submitted by the parties and after considering the oral argument on the motion for partial summary judgment, I conclude that Amoco complied with the notice requirements set forth in the PMP A. Although Amoco's letter dated November 30, 1981 may be construed as facially defective in that the date which Amoco specified as the expiration date of its underlying lease with the propert owner was January 31, 1982 rather than January 31, 1983, the court is compelled to consider the past business practices and relationship between the parties which impact upon the propriety of the notice given by Amoco with respect to the duration of the underlying lease. It is a fundamental maxim of equity that "equity looks to the substance rather than the fonn." Applestein v. United
Bd. & Carton Corp., 60 N.J. Super. 333 (Ch. Div.), affd, 33 N.i. 72 (1960). The application of

this maxim further

supports my conclusion that adequate notice was given as required by the PMP A.

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Furthermore, the record reveals that although Amoco's letter dated November 30, 1981 did not strictly comply with the notice requirements of the PMP A, Amoco did provide suffcient notice of the expiration of the underlying lease
through the lease agreement and the various collateral documents contained in the final lease package as well as through the information disclosed to Fotinos by Amoco's territory manager. Moreover, each of the leases from the inception of and through the entire business relationship between the parties put Fotinos on notice of the date of the expiration of Amoco's underlying lease with the available options which remained but that if Amoco's underlying lease terminated or was not renewed during the term of or at the expiration of the lease, Amoco had the right to terminate or nonrenew the lease with Fotinos and any applicable franchise relationship coincidentally with Amoco's loss of its underlying leasehold estate. Accordingly, I find that Fotinos had actual knowledge of Amoco provided suffcient information to Fotinos to meet the notice requirements of the terms of

the underlying lease and that
the PMPA.

For the foregoing reasons, plaintiffs motion for partial summary judgment compelling defendant to continue to with gasoline and to close its new service station facility is denied. In accordance with this ruling, all preliminary restraints are dissolved.
supply plaintiff

Please submit an order in accordance herewith.

UPDATE-DATE: April 04, 2008

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LEXST A T BUS. FRANCHISE GUIDE (CCH) 9264

Copyright 2008 CCH Incorporated, All Rights Reserved CCH Business Franchise Guide
Cases, Rulings, New Developments U.S. Bankruptcy Court, East. Dist. La.

Business Franchise Guide (CCH) P 9264
September 19, 1988 Dated

In re Harold D. Smith and Donna M. Smith, d/b/a Sam's Servce Center.
U.S. Bankruptcy Court, District of

Massachusetts. Chapter II; Case No. 88-11045-HL. Dated September 19, 1988

Gasoline Franchise Validly Terminated Prior to Franchisee's Bankruptcy

Petroleum Marketing Practices Act
Relationship/Termination -- Notice of Termination -- Refusal to Accept Delivery of Notice -- Posting v. Receipt -- Assignment During Notice Period. -A gasoline franchisee's refusal to accept delivery of a notice of termination sent by its franchisor did not render the
the notice. In addition, Section I 04( c )(2) of the Petroleum Marketing Practices Act requires only that a notice of termination be
notice ineffective. Under Massachusetts law, one who avoids notice is deemed to have knowledge of

posted by certified mail; it does not require receipt of the notice. A contention that the franchise agreement was assignable to a third part during the notice period was rejected. Once a notice of termination is posted, the franchise agreement is deemed terminated. The 90-day notice period is not intended to be a cure period; it is intended to provide an opportnity for the franchisee to contest the validity of a termination.

Relationship/Termination -- Cause for Termination -- Closing Franchise for Seven Consecutive Days -Reason Beyond Franchisee's Control -- Continued Operation as Repair Shop. -A gasoline franchisee's closing of its service station for more than seven consecutive days constituted good cause the Petroleum Marketing Practices Act. The franchisee correctly maintained that closing for more than seven days is not a per se ground for termination. However, such closing is excused only if it was caused by a reason beyond the franchisee's control, such as a fire. The lack of funds necessary to continue operation did not qualify as a reason beyond the franchisee's control. A contention that the franchise was not closed because it continued to operate as a repair shop was without merit. The primary mission of the franchise was to sell gasoline. The franchise agreement required the franchisee to sell gasoline and nothing else. Thus, failure to sell gasoline was, in effect, closing the franchise.
for termination within Section 102(c) (9) of

Bankruptcy Law -- Assumption, Assignment of Franchise Agreement -- Termination Prior to Bankruptcy -Filng for Bankruptcy During Notice Period. -A gasoline franchisee could not assume and assign a franchise agreement in bankrptcy, since the franchisee termination prior to fiing for bankrptcy. The Petroleum Marketing Practices Act provides that once notice of termination is posted by certified mail, the franchise agreement is deemed terminated. Neither the Act nor

received notice of a

the agreement allowed the franchisee a cure period. A franchisee's subsequent fiing for bankrptcy does not revive the

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franchise agreement even if

the gasoline station continues to operate. Since the agreement was terminated prior to

bankrptcy, it was not part of the bankrptcy estate and could not be assumed or assigned by the franchisee.

Memorandum on Termination of Gas Station Lease
(In full textl
LA VIEN, BANKR. 1. The matters before the Court are the debtors' motions to assume a franchise and lease and assign the same. On March 16, 1988, the debtors entered into a franchise and lease of an Exxon gasoline station. Within two months, the debtors lacked the funds to purchase fuel for resale. On May 12, 1988, an Exxon sales representative, Mr. Schnakenberg, visited the service station and found the fuel pump islands were blocked by a tow truck, as well as bearing signs stating "out of gas." At that time Mr. Schnakenberg took meter and tank readings. Also, Mr. Schnakenberg informed the debtors and debtors' counsel that the failure to sell fuel constituted suffcient cause to terminate the lease.

Eight days later, on May 20, 1988, the representative of Exxon again visited the gasoline station. He found the islands still had "out of gas" signs and were blocked by a tow truck. At that time, Mr. Smith was again warned that this was grounds for termination of his lease and franchise. The debtors executed an agreement to assign their lease to Howard A. Rhone, Jr. on May 21, 1988. Exxon then made another visit on May 26 to establish that no gasoline was being sold. The next day, Exxon notified the debtors' counsel in writing that Exxon would not consent to the assignment to Mr. Rhone. In addition, Exxon noted that the Smiths had breached their lease and sales agreement and that Exxon had the right to terminate the lease and sales agreement and intended to do so. On June 1, 1988, Exxon posted by certified mail that it was terminating the lease pursuant to paragraph 14 of the retail service station lease and paragraph 21 of the sales agreement, as of September 1, 1988. The debtor, on June 10, 1988, fied for the protection under Chapter 11 of the Bankrptcy Code. On August 9, 1988, the debtor fied the motions to assume and assign the lease in question. The Court held a hearing on August 25, 1988. The right of the Exxon Corporation to terminate the lease under its
terms and the Petroleum Marketing Practices Act ("PMPA") were dealt with at the hearing. 15 Us.e. § § 2801-2806.
(Notice of Terminatìonl

The debtors contended at the hearing that they had not been given suffcient notice pursuant to 15 Us. e. § 2804
because they refused to accept delivery of

Massachusetts law. One who avoids notice is deemed to have knowledge of

the certified letter from Exxon. That argument has no merit under the notice. Durkin v. Siegal, 340 Mass. 445 (1960); Liberty Mutual Insurance Company v. Wolfe, 7 Mass. App. 263 (1979). In addition, PMPA only requires that a

notice of termination is posted by certified mail and does not require receipt of it. Moody v. Amoco Oil Co., 734 F.2d. 1200, 1212 (7th Cir. 1983); 15 Us. e. § 2804( c)(2). The Court, therefore, found that the debtors had notice of the
termination as of June i, 1988.

The debtors advanced as an alternative argument that if notice was deemed to be given as of June 1, 1988, the lease did not terminate until September 1, 1988 and, therefore, the lease is assignable. PMP A requires that a franchisee be
given 90-day notice of

termination. 15 Us.e. § 2804(a). Exxon has rebutted this argument by showing that once a

notice of termination is posted, the contract is deemed terminated and that the subsequent fiing of a backrptcy petition by the franchisee does not revive a terminated service station franchise agreement, even if the gasoline station is stil operating. The 90-day notice is not intended as a cure period but rather as providing an opportnity to contest the validity of the termination. In re Anne Cara Oil Co., Inc., 32 B.R. 643 (Bankr. D. Mass. 1983); In re Joyner, 46 B.R. 130 (Bankr. MD. Ga. 1985). The fiing of a bankrptcy petition, however, stays the right of the franchisor to mail the notice of termination if, unlike this case, it has not been mailed prepetition. Joyner, 46 B.R. 130.

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(Cause/or Termination)

The debtors contend that Exxon's termination of the franchise violates PMP A; however, there is no merit to that contention. A franchisor can terminate a service station franchise if it is closed for seven consecutive days. 15 u.s. C. § 2802( c)(9). The debtors correctly argue that closing a service station for more than seven days is not per se grounds for

terminating the franchise. Sun Refining & Marketing Company v. Rago, 741 F.2d 670 (3rd Cir. 1984). Rago, however, only excuses a seven day closing if the closing was for a reason beyond the service station control, such as a fire. ld. Lack of funds is not in legal contemplation a reason beyond their control. Consequently, the Court has no choice but to find the franchise could be terminated for failure to operate. Once a franchise is terminated due to a failure to operate,
the grounds for termination cannot be cured. Wisser Co. v. Mobil Oil Corp., 730 F.2d 54 (2d Cir. 1984).

The debtors' final argument that the service station was not closed because it has been operating as a repair shop has no merit. Both parties knew that the primary mission of this gas station was to sell gas. The intent of both parties that the primary obligation of this service station was to sell fuel is evidenced by the March 16, 1988 sales agreement that required the debtors to sell fuel and nothing else. The debtors' failure to sell gas was, in effect, closing the gas station.

At the August 25, 1988 hearing, the Court allowed Exxon to file a memorandum explaining why a vague paragraph in the sales agreement did not grant the debtors a right to cure a ground for franchise termination. Exxon has fied a well researched brief that attempts to explain away the right to cure. The debtors have fied a response. While the issues raised are interesting, the matter is not before the Court. The debtors are only seeking to assume the retail service station lease in which paragraph 14 clearly provides the lease can be terminated for a failure to operate for seven days and does not provide an opportnity to cure. The debtor is not seeking to assume the sales agreement, but even if it were, without the lease the sales agreement would be meaningless.
The Court, for reasons provided herein, denies the debtors' motions to assume and assign the lease which had been legally terminated pre-filing in accordance with both its terms and the PMPA provisions.

UPDATE-DATE: June 26, 2008

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LEXSEE 1989 u.s. DlST LEXIS 15266

CHARLIE JACKSON, PLAINTIFF v. KERR-McGEE REFINING CORPORATION, a Delaware Corporation, DEFENDANT; MANNING CURETON, JAMES CURETON, and THEDREL C. CURETON, PLAINTIFFS v. KERR-McGEE REFINING CORPORATION, FIRST NATIONAL BANK OF EASTERN ARKANSAS, and CHARLIE JACKSON, DEFENDANTS
Case No. H-C-88-45, H-C-87-78
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF ARKANSAS, EASTERN DIVISION
1989 U.S. Dist. LEXIS 15266

May 8, 1989, Decided; May 9,1989, Filed; May 10,1989, Entered

COUNSEL: (*1) FOR: Manning Cureton, et al: W.
Frank Morledge, Forrest City, Arkansas.

entry of summary judgment only in those circumstances where there is no genuine issue of material fact, so that
the dispute may be decided on purely legal grounds.

FOR: Charlie Jackson: R. Alan Cline, Michael Easley,
Forrest City, Arkansas.

This may occur when a plaintiff cannot demonstrate that a genuine fact issue exists. But the part opposing the

FOR: Kerr-McGee Refining Corporation: Peter G.
Kumpe, Leon Holmes, Steven W. Quattlebaum Wiliams & Anderson, Little Rock, Arkansas and Carolyn G. Hill, Kerr-McGee Corporation, Oklahoma City, Oklahoma.
OPINION BY: YOUNG

summary judgment must be given the benefit of all

favorable factual inferences, and (*2) summary
judgment cannot be granted when the non-movant shows that an alleged undisputed fact actually presents a triable
issue.

Holloway v. Lockhart, et al., 813 F.2d 874, 878 (8th Cir.
1987) (citations omitted).

OPINION

FACTUAL BACKGROUND
ORDER

Jackson and Kerr-McGee were operating under a
franchise relationship as defined in the Petroleum

H. DAVID YOUNG, UNITED STATES MAGISTRATE

Marketing Practices Act, 15 U.S.c. § 2801 et seq.

Now before the Court are three motions filed by Kerr-McGee

(PMPA), at all relevant times. Jackson had been a
Kerr-McGee franchisee for more than ten years prior to the events leading to these consolidated cases.
On September 30, 1986, Jackson and Kerr-McGee

Refining Corporation (Kerr-McGee) in this
consolidated case. Kerr-McGee has fied a motion for summary judgment pursuant to Fed. R. Civ. P. Rule 56 with respect to Charlie Jackson. Kerr-McGee has also
fied a motion for summary judgment against Manning

executed a service station lease whereby Jackson leased
the service station located at 1506 North Washington,

Cureton, James Cureton, and Thedrel C. Cureton (the Curetons).
Federal Rule of

Forrest City, Arkansas, from Kerr-McGee for a term of three years. Paragraph 16 of the lease provided that
Jackson was not to assign the lease without the written
consent of Kerr- McGee.

Civil Procedure 56 provides for the

224

Case 5:07-cv-04808-JF

Document 60-7

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1989 U.S. Dist. LEXIS 15266, *2

Kerr-McGee and Jackson also agreed that Kerr-McGee would supply Jackson with petroleum
products on a credit basis. As security for this credit

17,000.00, and he requested that Kerr-McGee permit a
payout of the tax bil over time. The p