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Russo v. TEXACO Inc.

decided: December 30, 1986.

MICHAEL A. RUSSO, T/A NOR-BRIDGE SERVICE CENTER, INC., AND ROBERT A. LORINGER, T/A BOB'S GETTY SERVICE STATION, PLAINTIFFS-APPELLANTS,
v.
TEXACO, INC., A DELAWARE CORPORATION, AND POWER TEST CORPORATION, A DELAWARE CORPORATION, DEFENDANTS-APPELLEES



Appeal from an order of the United States District Court for the Eastern District of New York (Weinstein, Ch. J.), granting appellees' motions for summary judgment and denying appellants' cross-motion for summary judgment, and from a judgment dismissing appellants' claims under the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801-2806.

Author: Pierce

Before: CARDAMONE and PIERCE, Circuit Judges, and BONSAL, Senior District Judge.*fn*

PIERCE, Circuit Judge.

This is an appeal from an order of the United States District Court for the Eastern District of New York, Weinstein, Chief Judge, entered February 21, 1986, granting appellees' motions for summary judgment and denying appellants' cross-motion for summary judgment, and from a judgment, entered June 3, 1986, dismissing appellants' claims under the Petroleum Marketing Practices Act ("PMPA" or the "Act"), 15 U.S.C. §§ 2801-2806.

Appellants, Michael A. Russo and Robert A. Loringer, maintain that appellee Texaco, Inc. ("Texaco") terminated their franchises in violation of the PMPA. Specifically, they claim that § 2802(b)(2)(C) of the Act which provides that a franchisor may terminate a franchise "upon the occurrence of an event which is relevant to the franchise relationship and as a result of which termination of the franchise is reasonable" is not applicable to Texaco's divestment to appellee Power Test Corporation ("Power Test") of certain Getty Oil Company ("Getty") assets, including their Getty franchises.

The district court ruled that Texaco's termination of appellants' franchises was permissible under § 2802(b)(2)(C) of the Act. Russo v. Texaco, Inc., 630 F. Supp. 682 (E.D.N.Y. 1986). Chief Judge Weinstein's ruling was premised on two grounds. First, he held that Texaco's loss of the right to grant the right to use the "Getty" trademark as a result of a Federal Trade Commission ("FTC" or "Commission") divestiture order fell within § 2802(c) which enumerates certain events any one of which conclusively establishes the reasonableness of termination under § 2802(b)(2)(C). Alternatively, after reviewing the legislative history of the PMPA and the divestiture as a whole, Judge Weinstein concluded that Texaco's termination of appellants' franchises was in any event reasonable under § 2802(b)(2)(C) as an event not enumerated in § 2802(c).

Reviewing this question of law de novo, we hold, in substantial agreement with the first prong of Judge Weinstein's opinion, that Texaco's loss of the "Getty" trademark pursuant to the FTC order was an event enumerated in § 2802(c), and therefore that Texaco's termination of appellants' Getty franchises is conclusively presumed to be reasonable under § 2802(b)(2)(C). We do not find it necessary to reach, and therefore do not review, Judge Weinstein's alternative holding that Texaco's termination of the Getty franchises was in any event reasonable.

We affirm the judgment dismissing appellants' claims under the Act.

BACKGROUND

This case arises out of Texaco's acquisition of Getty in 1984 and its subsequent sale to Power Test in 1985 of certain Getty assets, including appellants' Getty franchises, pursuant to an order of the FTC. We need not recount here all the facts surrounding those transactions, but only those necessary for an understanding of the issues presented in this appeal.

In January 1984, Texaco agreed to acquire the shares and assets of Getty for approximately $10.1 billion. Because of the size of the transaction, FTC review of the acquisition was required under the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. § 18a. Anticipating that it would be necessary to divest certain assets in order to obtain FTC approval, Texaco, on January 27, 1984, agreed to sell to Power Test virtually all of the Getty gasoline station assets, supply contracts, and franchise agreements in the Northeast and Mid-Atlantic regions. Under that agreement, Texaco would have retained ownership of the "Getty" trademark and granted Power Test a license to use the "Getty" mark and name.

The FTC was indeed concerned about the antitrust ramifications of the merger between Texaco and Getty. A draft complaint was published in March 1984 which expressed, among other concerns, the FTC's concern that the effect of the acquisition may be substantially to lessen competition in several markets. See Texaco Inc. and Getty Oil Co.; Proposed Consent Agreement With Analysis To Aid Public Comment, 49 Fed. Reg. 8550, 8556 (March 7, 1984). Specifically, the draft complaint noted that "control by Texaco of Getty's marketing operations is likely to reduce price competition in gasoline and middle distillate marketing provided by Getty . . ." Id.

However, rather than enjoin the entire merger, the Commission proposed specific remedial action to alleviate its particular concerns. Among the proposed remedies, which were embodied in a consent order, was one which called for Texaco not only to divest Getty's wholesale gasoline terminals in six specific Northeast and Mid-Atlantic markets but also the Getty retail stations served by the terminals to be divested. In this way, the FTC sought to maintain competition at the wholesale level by guaranteeing that the divested assets would continue to be part of "an ongoing, viable petroleum marketing business." Id. at 8551. The FTC analysis which accompanied the proposed order made clear that the Commission would not rubber stamp any prior agreement between Texaco and Power Test, that the contemplated transaction would not be permitted without Commission approval, and that FTC scrutiny would be forthcoming only after Texaco had first committed itself to a final divestiture order,*fn1 FTC Analysis, 49 Fed. Reg. at 8559 (emphasis added).

After a period for considering public comments, a final consent order was entered into on July 9, 1984. That order required Texaco to divest absolutely and in good faith certain Getty assets, including the Getty franchises at issue herein and the "Getty" brand name and trademark. The provision requiring Texaco to divest the "Getty" name and mark was included at the sole insistence of the FTC and was not a subject of negotiation between Texaco and the FTC. Moreover, the FTC required that any potential purchaser first be approved by the Commission. Finally, on January 17, 1985, after consideration of public comments and other information, ...


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