E-Alert Case Updates

District Court Holds that Free Assignment Contract Provision Controls Exxon Dispute

Duncan Servs. v. ExxonMobil Oil Corp.
Civil Action No. A W-09-2486 (United States District Court for the District of Maryland, July 12, 2010)
By Carrie A. Scrufari, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

The United States District Court for the District of Maryland granted Defendants’ Motions to Dismiss and denied Plaintiffs’ Motion for Reconsideration in a case where sixty-five franchises of ExxonMobil Oil Corporation, ExxonMobil Corporation, White Oak Petroleum, and GTY MD Leasing Inc. (collectively, “Defendants”) filed suit, alleging violations of the Petroleum Marketing Practices Act (“PMPA”) and breach of contract. Plaintiffs were all franchisees of Exxon who filed suit after Exxon reassigned the franchises.

Two groups of Plaintiffs filed suit — those whose franchises were assigned to Defendant White Oak, and those whose franchises had not yet been reassigned at the time of filing. All the Defendants moved to dismiss all claims filed against them, and the Court ruled in favor of the Defendants.

The Court dismissed Plaintiffs’ PMPA claims because Exxon’s reassignment of the franchises to White Oak did not terminate the franchises or result in nonrenewal of the franchise relationships. See 15 U.S.C. § 2805 (c). The PMPA only prohibits conduct that would forcefully end a franchise. Thus, the PMPA permits changes in the franchisor-franchisee relationship so long as those changes do not actually or constructively terminate the franchise. Because the assignment of the franchises to White Oak did not terminate the franchise relationship, the Court found Defendants had not violated the PMPA.

In addition to dismissing the PMPA count of the Complaint, the Court similarly dismissed Plaintiffs’ breach of contract claim. The Court relied on the actual contract language, which provided that the parties agreed to make the franchises freely assignable. When Plaintiffs submitted to those contract terms, the Court reasoned they submitted to the risks of changes in fuel price, course of dealing, or changes in lease status if they were reassigned. Moreover, the Plaintiffs did not allege violations of contractual obligations sufficient to result in a breach of contract because the Franchise Agreement contained an open price fuel clause stating that fuel prices were subject to change without notice.

The Plaintiffs also attempted to hold Defendants White Oak and GTY vicariously liable for Exxon’s alleged violation of the PMPA by alleging civil conspiracy. Yet, the Court also dismissed Plaintiffs’ allegations that the Defendants engaged in a civil conspiracy to violate the PMPA. Because the Court already held Exxon did not violate the PMPA and that Exxon did not breach the franchise contract, the Court ruled there was no basis to find White Oak or GTY vicariously liable. Thus, the Court granted Defendants’ Motion to Dismiss with respect to the civil conspiracy claims.

Next, the Court also denied Plaintiffs’ remedy claim for imposition of a constructive trust on the properties White Oak leased from GTY. Since Plaintiffs failed to show Defendants were unjustly enriched by the franchise reassignment, there was no basis to award a constructive trust.

Lastly, the Court denied Plaintiffs’ Motion for Reconsideration. The second group of Plaintiffs moved for reconsideration after learning the identity of the party to whom they would be reassigned. Yet, the mere identity of the party to whom Exxon would reassign the franchises is insufficient to warrant reconsideration. See Hutchinson v. Stanton, 994 F.2d 1076, 1081 (4th Cir. 2002) (holding reconsideration is only appropriate to accommodate new changes in the law, to account for new evidence not previously available at trial, or to correct a clear error of law or injustice). While it is true that Plaintiffs did not know to whom they would be reassigned at the time of the Complaint, knowledge of the assignee still does not result in constructive termination of the franchise agreement. Therefore, new evidence regarding the assignee’s identity does not have any bearing on the Court’s previous decision that reassignment was permissible.

Thus, the Court dismissed all of Plaintiffs’ claims.