NATHANIEL M. GORTON, District Judge.
Hopkinton Friendly Service, Inc. ("Hopkinton" or "plaintiff") filed a complaint against Global Companies LLC and Global Montello Group (collectively "Global" or "defendants") alleging violations of the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801,
On September 20, 2018, Hopkinton filed a motion for a preliminary injunction enjoining Global from increasing the rent and terminating plaintiff's commercial lease and franchise pending completion of this litigation. For the reasons that follow, the motion for a preliminary injunction will be denied.
Hopkinton is a small family operated business that has leased a gas station at 92 West Main Street in Hopkinton, Massachusetts ("the Premises"), for the last 40 years. For the first 30 of those years, plaintiff leased the Premises from ExxonMobile Oil Corporation ("ExxonMobile"). From approximately September, 2010, to the present, plaintiff has leased the Premises from defendants. Defendants distribute and sell gasoline and other petroleum products through a franchise system. At the time ExxonMobile transferred the Premises to defendants, plaintiff entered into a PMPA franchise agreement with defendants. The original franchise agreement was initially for three years and required plaintiff to pay a monthly rent for the Premises of $8,730 with scheduled annual increases. Plaintiff entered into its first extension of the PMPA franchise agreement in 2015 which covered an additional three years at an increased monthly rental payment of $11,450.
In October, 2017, Stephen Lundgren, Vice President of Global, advised Nayla Aoude, a representative of Hopkinton, that Global was considering an expansion and redevelopment of the Premises, including the purchase of two parcels adjacent to the Premises to accommodate a larger layout and larger convenience store for the site. In December, 2017, plaintiff received from defendants a franchise renewal agreement for an additional three years at a monthly rental payment of $14,138 with a scheduled increase for each subsequent year based on Rent Guidelines which were enclosed. The Rent Guidelines were expressly incorporated into the franchise renewal agreement and are the same guidelines that apply to all other franchisees of the defendants. Plaintiff was given until March 22, 2018, to accept or reject the offered renewal agreement.
On January 30, 2018, defendants notified plaintiff in writing of its redevelopment plans for the Premises. Defendants explained that if they chose to proceed with the redevelopment, they would acquire property adjacent to the Premises, construct a larger store, add additional dispensers and improve the layout of the Premises to provide additional parking and more efficient customer traffic flow. The notice referred plaintiff to the applicable portion of the Rent Guidelines which indicated that there would be an associated rental increase based upon the total capital expenditure of the project. The letter 1) estimated renovation costs to be greater than $500,000 with an associated annual rent increase of 15% of the total renovation costs based on the Rent Guidelines, 2) stated that defendants were not obligated to proceed with the redevelopment and 3) reminded plaintiff that it had a right under the lease to terminate the franchise agreement within 30 days of being notified of any rent increase.
Plaintiff signed the franchise renewal agreement ("the Agreement") on March 16, 2018, to become effective on July 1, 2018, for a period of three years. In June, 2018, the Town of Hopkinton Planning Board approved the permits for the redevelopment project and acquisition of the property needed for the redevelopment was completed in September, 2018.
On August 21, 2018, defendants delivered a letter to plaintiff confirming the redevelopment of the Premises to begin in Fall of 2018. That letter also informed plaintiff for the first time that the total cost of redevelopment would be in excess of $5 million, resulting in a monthly rental more than five times greater than what was contained in the Agreement, i.e. $79,301 per month commencing upon completion of the redevelopment. The letter explained that plaintiff would have to pay for the interior layouts, equipment and products for the larger store (which, according to plaintiff's Certified Public Accountant ("CPA"), could exceed $120,000) in addition to the increased rent. The letter also reminded plaintiff of its right to terminate the Agreement within 30 days of receipt of notice of the rent increase or else be obligated to continue the franchise relationship subject to that increase. Plaintiff did not submit a notice of termination before September 20, 2018, and continues to operate the franchise on the Premises.
Plaintiff alleges that from 2012 to 2017, it has never made an annual net profit of more than $70,000 and thus is unable to afford the dramatically increased monthly rental. Plaintiff's CPA estimates that Hopkinton would have to sell an additional $6.4 million in product and double the rest of its revenue to cover the increased rent which is highly unlikely despite the prospective renovations.
Plaintiff contends that the sudden and drastic increase in rent constitutes a constructive termination of plaintiff's franchise agreement in violation of the PMPA. The PMPA provides that
§ 2802(a).
Plaintiff argues that by undertaking a unilateral redevelopment of the Premises which will result in an inordinate increase in the monthly rent for plaintiff, Global's purpose was to coerce Hopkinton into terminating its lease and franchise in violation of Hopkinton's protected rights. Plaintiffs contend that this constituted a constructive termination because plaintiffs were left with the Hobson's choice of terminating the Agreement or perpetuating an unworkable franchise. Plaintiff asserts that defendants knew the premises could not generate sufficient revenue to cover the increased rent and thus did not negotiate the renewal in good faith.
On September 20, 2018, plaintiff filed motions for both a temporary restraining order and a preliminary injunction under § 2805(b) of the PMPA. The Court denied plaintiff's motion for a temporary restraining order the following day (Docket No. 11), and directed plaintiff to give requisite notice to defendants of a hearing on plaintiff's motion for a preliminary injunction which is now before the Court.
The PMPA promulgates a separate standard for granting preliminary injunctive relief that is more forgiving than the common law standard.
§ 2805(b).
In
In so holding, the Court rejected the argument that its reading of the word "terminate" would render the PMPA's preliminary injunction provision meaningless by requiring franchisees to go out of business before they can obtain injunctive relief.
The Supreme Court left open, however, the direct issue of whether the PMPA addresses claims for constructive termination at all but noted that several Courts of Appeals have held that the statute does create a cause of action for constructive termination.
Finally, the Court in
Plaintiff has not demonstrated that it has actually abandoned any aspect of its franchise. In fact, plaintiff brings this action precisely for the purpose of enjoining Global from coercing it into terminating the franchise agreement. Plaintiff continues to operate the convenience store and service station on the Premises, receive fuel from defendants and use the franchisor's trademark. Without abandoning at least one of those statutory elements of the franchise, there can be no claim for constructive termination under the PMPA. While defendants' conduct in quintupling the monthly rental arguably leaves plaintiff no reasonable alternative but to abandon the franchise because it will necessarily default, no court has held that such conduct constitutes constructive termination. Because plaintiff has taken no steps to terminate the franchise, it has no claim for relief under the PMPA.
Even if plaintiff could show that it had abandoned some aspect of the franchise, it would likely still be unable to maintain a claim for injunctive relief. Defendants have not breached any provision of the Agreement in pursuing the redevelopment project and raising the rent, nor has their conduct, for reasons explained below, violated any provision of Massachusetts state law.
Finally, plaintiff is precluded from maintaining a claim for constructive nonrenewal under the PMPA. Hopkinton actually accepted and signed the Agreement and thus cannot carry its threshold burden of showing a nonrenewal of the franchise relationship. For these reasons, plaintiff cannot avail itself of the injunctive relief provision of the PMPA and its motion for a preliminary injunction will therefore be denied.
Where the relaxed preliminary injunction standard of the PMPA does not apply, courts may still apply the common law standard to alleged violations of the PMPA.
The Court may accept as true "well-pleaded allegations [in the complaint] and uncontroverted affidavits."
For the same reason that plaintiff cannot demonstrate a right to preliminary injunctive relief under the PMPA standard, i.e. its failure to terminate the franchise, plaintiff also fails to establish the first prong for injunctive relief under the common law standard. Without showing that it has actually abandoned the franchise as a result of defendants' conduct, plaintiff cannot show that it has a reasonable likelihood of success on the merits of its PMPA claim.
Plaintiff submits that even if the Court finds that a preliminary injunction on the basis of its PMPA claim is unwarranted, the Court should still allow its motion for a preliminary injunction on the basis of its state law claims. Those include claims for breach of contract and for unfair or deceptive practices pursuant to M.G.L. c. 93A.
When determining whether an act or practice is unfair for purposes of Chapter 93A, a court assesses
Plaintiff contends that defendants' conduct in pursuing the redevelopment project and increasing the rent five-fold is unfair and deceptive because defendants knew that Hopkinton could not afford such an exhorbitant increase in rent. While not entirely clear from plaintiff's pleadings, its argument appears to be that defendants' representation in the January letter that the redevelopment was likely to cost more than $500,000 was misleading and deceptive because it is now informed that the costs of redevelopment will exceed $5 million. If it had known of the quintupling of its rent, it would not have signed the franchise renewal agreement. Plaintiff provides no case law, however, that directly supports its proposition that defendants' conduct constituted unfair or deceptive trade practices under Chapter 93A.
Defendants respond that the PMPA preempts plaintiff's Chapter 93A claim. Defendants rely for that proposition upon two District of Massachusetts cases and a First Circuit case, all decided before
The holdings of
Based on that language from
Even assuming that plaintiff's Chapter 93A claim is not preempted by the PMPA because it deals with a substantive aspect of the franchise agreement, defendants nevertheless claim that plaintiff cannot demonstrate a reasonable likelihood of success on the merits of its Chapter 93A claim. Defendants assert that their conduct did not violate Chapter 93A for two reasons: (1) they have not breached the terms of the franchise renewal agreement because the agreement expressly allows them to redevelop the Premises at any time and to increase the rent to cover the costs of such redevelopment and (2) the substantial rent increase is permissible under the PMPA because it was promulgated in good faith and in the normal course of business.
Plaintiff responds that defendants pursued the redevelopment and unconscionably increased its rent for the sole purpose of coercing Hopkinton either to terminate the Agreement or to default. Plaintiff has not alleged a single, nonconclusory fact, however, demonstrating that the redevelopment or rent increase was done in bad faith, let alone that it was misconduct rising to the level of an extreme or egregious business wrong or commercial extortion. Indeed, defendants have complied with the literal terms of the franchise renewal agreement which permitted both the redevelopment project and the correspondent rental increase the latter of which was imposed pursuant to defendants' uniform Rent Guidelines that apply to all of their franchisees. Moreover, plaintiff was aware that a $500,000 redevelopment project was in the offing when it entered into the renewal of its Agreement with defendants.
Plaintiff has cited no case law supporting its proposition that the redevelopment project or rental increase was unfair or deceptive under Chapter 93A or that it constituted a breach of contract and thus has failed to satisfy its burden as the moving party.
While the likelihood of the success on the merits provides the "touchstone of the preliminary injunction inquiry," the second element for consideration, namely irreparable harm, in this case also weighs against plaintiff.
Plaintiff submits that it will be subject to irreparable harm if it is forced either to terminate the lease or default because of the exhorbitant monthly rent. Either way it will purportedly lose its steadfast family-owned business. The increased monthly rent is not set to take effect, however, until the completion of the redevelopment project. That project could presumably take several years to complete and thus plaintiff is in no immediate danger of defaulting under its increased rental obligations. Moreover, neither the parties nor the Court can predict the profitability of the enterprise after the redevelopment. At this point, plaintiff's purported harm resulting from the increased rent is speculative and thus injunctive relief is unwarranted.
For the forgoing reasons, plaintiff's motion for a preliminary injunction (Docket No. 7) is