The opinion of the court was delivered by: Nickerson, District Judge.
Plaintiff Shell Oil Company (Shell) brought this action against
defendant Hillary Farmer Service Station, Inc. (the Station),
seeking, among other things, a declaration that the franchise
agreement between the parties has been properly terminated and
an injunction requiring the Station to return to Shell all its
fixtures and personal property. The complaint asserts
jurisdiction based on diversity (28 U.S.C. § 1332), and federal
question jurisdiction (28 U.S.C. § 1331, 1337).
By Memorandum and Order dated December 7, 1989, familiarity
with which is assumed, this court issued a preliminary
injunction requiring the Station to return Shell's trademark
identifications, signs, and other advertising devices. Shell
now moves for summary judgment pursuant to Rule 56,
Fed.R.Civ.P., declaring the franchise agreement terminated, or,
in the alternative, summary judgment adjudicating specific
The critical facts are for the most part not in dispute. In
July 1988, Shell and the Station entered into a franchise
Dealer Agreement (the Agreement) dated May 1, 1988. Shell was
to provide the Station with a petroleum marketing franchise,
supplying trademark identifications, signs, advertising
devices, motor fuel, and other petroleum products from May 1988
until April 30, 1991.
On September 14, 1989, the Station was damaged by a fire which
started in the repair bays and spread to the attached office.
The Station contends that no structural damage was done to the
building. Photographs show the building still to be standing,
but there were signs of fire on the roof and brick work, and
considerable fire damage to the interior, including the repair
bays, sales office and lavatories.
On October 5, 1989, citing the terms of the Agreement, Shell
purported to terminate the franchise, explaining that the
Station had been destroyed in "substantial part" by the fire,
the Station had failed to comply with New York environmental
regulations requiring service stations to install by July 1,
1989 a Stage II Vapor Recovery System to protect surrounding
property from fuel seeping from the gasoline storage tanks, and
the Station had been closed for over seven days.
After the Station refused to return the trademark
identifications, signs and other advertising devices, Shell
moved to compel the return of these items. The Station
cross-moved for an order declaring that (1) Shell, by
terminating the Agreement, had violated the restrictions on
termination imposed by the Petroleum Marketing Practices Act
(the Act), 15 U.S.C. § 2805(a), protecting motor fuel
franchisees from, among other things, arbitrary termination;
(2) the franchise was still in force; and (3) Shell was
required to continue to supply fuel and related products.
As noted above, the court granted Shell's motion, requiring the
Station to return the advertising items. The court denied the
The court may grant summary judgment under Rule 56(c),
Fed.R.Civ.P., only if there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter
of law. See Anderson v. Liberty Lobby, 477 U.S. 242, 247, 106
S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). The burden rests on
the movant to demonstrate the lack of a genuine issue of fact.
See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct.
1598, 1608, 26 L.Ed.2d 142 (1970). All reasonable inferences
must be drawn in favor of the non-movant. United States v.
Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d
Section 18.1 of the Agreement provides that "[s]ubject to any
limitations imposed by law," Shell may terminate the Agreement
upon notice (or advance notice if required by law) for, among
other reasons, "knowing failure of Dealer to comply with
federal, state, or local laws or regulations relevant to the
operation of Dealer's Station" and "destruction (other than by
Shell) of all or a substantial part of the Dealer's Station."
The Petroleum Marketing Practices Act (the Act), 15 U.S.C. § 2801-2806,
one of the "limitations imposed by law," prohibits a
franchisor engaged in the selling or distributing of motor fuel
from terminating a franchise agreement before its expiration
unless the particular requirements outlined by the Act have
first been met. See 15 U.S.C. § 2802(a), (b).
Under 15 U.S.C. § 2802(b)(1) the franchisor may not terminate
the franchise unless the notification requirements of section
2804 are met and the termination is based upon a ground
described in subparagraph (2) of § 2802(b). That subparagraph
provides that, among other "grounds for termination of a
franchise," is 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 and the franchisor first
acquired actual or constructive knowledge of such occurrence"
"not more than 60 days prior to the date on which notification
of termination is given, if less than 90 days notification is
given." 15 U.S.C. § 2802(b)(2)(C).
Section 2802(c) defines such an "event" making termination of
the franchise "reasonable" to include, among twelve such
events, "knowing failure of the franchisee to comply with
Federal, State, or local laws or regulations relevant to the
operation of the marketing premises" and "destruction (other
than by the franchisor) or all or a substantial part of the
marketing premises." If any of the twelve events is found to
exist, the termination is "conclusively presumed to be
reasonable as a matter of law." Russo v. Texaco, Inc.,
808 F.2d 221, 225 (2d Cir. 1986).
The court will first address whether Shell had grounds for
termination and then whether it provided notice, as required by
A. Grounds for Termination under the Act
i) Failure to Comply with Environmental Regulations
The regulations of the New York State Department of
Environmental Conservation (the State Department) provide, in
pertinent part, that no "owner" or "operator" of a
gasoline-dispensing site may allow the transfer of gasoline
into a tank at gasolinedispensing sites in the New York City
metropolitan area whose annual "throughput" exceeds 250,000
gallons, "unless the gasoline-dispensing site is equipped with
a Stage II vapor ...