Amicus Curiae Brief — Keener v. Exxon Co.

(3)

No. 94-1150

Gn the

Supreme Court of the Mnited States

October Term, 1994

ALSTON R. KEENER,

Petitioner,

Vv.

EXXON COMPANY, USA, and EXXON CORPORATION,

Respondents.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF AMICUS CURIAE OF THE

MINNESOTA SERVICE STATION AND

CONVENIENCE STORE ASSOCIATION;

WISCONSIN AUTOMOTIVE TRADES ASSOCIATION;

SERVICE STATION DEALERS ASSOCIATION OF MICHIGAN;

NORTH DAKOTA PETROLEUM MARKETERS ASSOCIATION;

AND IOWA RETAIL GASOLINE AND AUTOMOTIVE TRADES

ASSOCIATION IN SUPPORT OF THE PETITIONER

GARY E. PERSIAN

Counsel of Record

RANDY V. THOMPSON

Persian, MacGregor & Thompson

900 Second Avenue South #1530

Minneapolis, Minnesota 55402

(612) 339-6733

1995 — Bachman Legal Printing & (612) 339-9518 @ FAX (612) 337-8053

TABLE OF CONTENTS

Page(s)

STATEMENT OF INTEREST OF AMICUS CURIAE.....1

SUMMARY OF ARGUMENT. o0..0.....ccccccscssecssseccsseesssessses 3

PU i i Beh is sis a rs 6

A. THE FOURTH CIRCUIT DECISION

ERRONEOUSLY ALLOWS DISCRIMINA-

TION BETWEEN FRANCHISEEG.................0:0:0000000: 6

B. A RIGHT OF FIRST REFUSAL MUST

ENCOMPASS IDENTICAL TERMS OR IT

BECOMES MEANINGLESS .....0.0.0.....c.ccccccesessssseeee 11

C. THE FOURTH CIRCUIT'S CREATION OF A

"STRONG PRESUMPTION" IMPROPERLY

REVERSES THE BURDEN OF PROOF

TABLE OF CASES

Cases Page(s)

Brach v. Amoco Oil Co., 677 F.2d 1213

CE, Fi i ctnstiersorsuicasssnicinitiisiabticsidiisiaiasandideiaaa 6

Chestnut Hill Gulf, Inc. v. Cumberland

Farms, Inc., 940 F.2d 744 (1st Cir. 1991)... ccceeeeeeeee 15

Ellis v. Mobil Oil Corp., 969 F.2d 784

CI BO ss incsitsnnsooanincsieasbibindeaiebosielaainiadcgieaapadeiiaamaias aan 15

Ewing v. Amoco Oil Co., 823 F.2d 1432

ht 1) Mevemen ROM voi Hm Sumit Same S S », / aMoenT Pm 15

Hilo v. Exxon Corp., 997 F.2d 641 (9th Cir. 1993)..........00000004 14

Keener v. Exxon Company, U.S.A., 32 F.3d 127

COO, SII veniccthixitisiinicccidintniigmae nae 1, 2, 9,

sconencersmndinrsdhatettuabeahichicheehatketntsasnadilieieadaeiaa ae 11, 12, 14

Roberts v. Amoco Oil Co., 740 F.2d 602 (1984)...........cccccccce0. 3,4

Slatky v. Amoco Oil Co., 830 F.2d 476

Bat Ce. SOT EI UO occsiessinircsestisinicosnicitdbahalieebimmeeedie 4, 5,7,

senaesnvebentsibcaiaisidieaiipiiaiaddiiemshimsaaemiua dali ian 8, 10,

senanannnsitvsnsincanesinierstiicenisiiaiiabiissideasschitaisisasnanl maaan 13, 14

Texaco Inc. v. Hasbrouck, 496 U.S. 543,

110 S.Ct. 2535, 110 L.Ed.2d 492 (1990) 00... .ccceceeeeeeees 8,10

ii

neni

Virginia Gasoline Marketers and Automotive

Repair Association, Inc. v. Mobil Oil

Corporation, Supreme Court No. 94-1000 .............scceesecssseessees 2

TABLE OF STATUTES

Page(s)

BS UTS. SPOON BIG aii isssesacicsssccssescccseresesecerssesereseseesnees 1

15 U.S.C. §2801(1)(A) or (B) and (4) 20... eeeeeeeeeeeeeteteeeeneneneneens 8

iia daiscinsescesscsecconcseorasiverensevnessosecees 11

15 U.S.C. §2802(6\3 (Dix)

I gains ccesavicevasesnsensccessnscnsecsnserascorseseneseresecee 5

15 U.S.C. §2802(b)(3)(D){ili (I) «2... .sececececececeseeeeeeeeeseneeenenees 7, 13

Be es I anne nce sscccccscecsccceeseserececeeeesees 1]

aii: hisichicesevwscserncsssaceseaectesoseoevess 5, 13, 14

Neen ils cnivt sve vnsenescennasasituad 8,9

OTHER AUTHORITIES

Page(s)

Brown, Franchising-A Fiduciary Relationship,

49 Tex. L. Rev. 650, 655-657 (1971).............:cesccssesseseesseeseeeees 4

iil

Hearings on H.R. 130, Senate Subcomm. on Energy

Conservation and Regulation of the Energy and

Natural Resources Committee, Publ. No. 95-61, 287

(95th Cong. 1st Sess.) (written statement of Exxon

FS EAR ROE CR Eee eS Re NN Oe 4,5

Ss I NE Bin scscnsnictisessachnssucstessnindintebaicesabdasecenmamacundl 8

FE SN A Ds cecisincgnccenséstnigdebtbtinbintcotiaagapessantaaaeaeate 7

124 Cong. Rec. §12762 (May 5, 1978) (Statement of

Se FN sheeicceaniici casted lis ccsditgboidlerncabtnaae te reiuiiss suokchsactia 3

Senate Congressional Record, May 5, 1978, S. 6998

(Comments Of Sem. Jackson) ..............:ccccccscccccccscsccssescesesssssescesees 4

S. Rep. No. 95-731, 95th Cong., 2d Sess. 15,

reprinted in [1978] U.S. Code Cong. & Ad.

News 873, 874 (Semmht TBOPE) .ccscscecsccscaseccssscessssecsecesceseesace 6

iV

L STATEMENT OF INTEREST OF AMICUS

CURIAE

This Amicus Curiae brief is filed on behalf of service

station and automotive repair associations representing service

station dealers from states in the Sixth, Seventh, and Eighth

Circuits.’ An important function of these trade associations is

to represent the interests of their members on critical issues

before courts, legislatures and regulatory agencies.

The judgment and opinion of the United States Court of

Appeals for the Fourth Circuit in Keener v. Exxon Company,

U.S.A., 32 F.3d 127 (4th Cir. 1994) is an extremely serious

and negative precedent for retail service station dealers

nationwide because it allows discrimination between

franchisees in the non-renewal of a petroleum franchise. In

reaching it's decision, the Fourth Circuit majority fails to

protect the franchise service station dealer by allowing him to

purchase on terms equal to the jobber, the very right that was

to compensate the franchisee for the otherwise permissible loss

of the franchise on business grounds. Moreover, the majority

reaches its conclusion through the starkest form of judicial

activism by overturning the legislative burden of proof on the

franchisor to show compliance with the Petroleum Marketing

Practices Act ("PMPA"), 15 U.S.C. §§2801-2806, by creating

a burden shifting "strong presumption" which is imposed upon

the franchisee.

In dissent, Judge Murnaghan aptly noted that the "strong

presumption," which the majority "creat[ed] out of whole

cloth," impermissibly overrides the right of Petitioner, as the

party opposing summary judgment, to all reasonable

' The states of Minnesota, Iowa, North Dakota, Michigan and

Wisconsin are represented by the Associations participating in this

Amicus Curiae brief.

]

inferences from the evidentiary record. Keener, supra, 32

F.3d 133-4. In a nutshell, Judge Murnaghan had no trouble in

understanding why the sale of a station coupled with the loss

of the franchise and without a favorable gasoline supply

arrangement for 1.2 million dollars did not equal the sale of

the station for 1.2 million dollars plus a supply of gasoline at a

favorable price plus a franchise.

There are two issues where this case has far reaching

implications and merits Supreme Court review. First, can the

courts create, without any legislative support, a "strong

presumption” that shifts the burden of proof from the

franchisor, a burden placed squarely on the franchisor by

Congress in enacting the PMPA, to the franchisee? Second,

will the ability to protect the value of the franchise business,

when a service station dealer is faced with non-renewal, be

meaningful in that the franchisee will have an opportunity to

meet a right of first refusal on terms identical to those offered

to a third party? The PMPA was enacted by Congress in 1978

and there have been hundreds of lower court cases decided

under it; however, this Court has yet to interpret this very

significant federal statute that impacts a broad area of our

energy distribution.”

The significance of an adequate remedy upon non-renewal

and the judicial creation out of whole cloth of a "strong

presumption" designed to undermine the burden of proof have

far reaching implications, create a split between the Circuits,

and merit this Court's review.

? At the time of preparation of this brief, this Court has also been

asked to grant certiorari in the case entitled Virginia Gasoline Marketers

and Automotive Repair Association, Inc. v. Mobil Oil Corporation,

Supreme Court No. 94-1000, another 2 to 1 decision from the Fourth

Circuit involving the issue of preemption of state regulation by the

PMPA.

2

I. SUMMARY OF ARGUMENT

When the PMPA was enacted in 1978, Congress had

heard extensive testimony concerning the unique nature and

plight of the service station retailer. By the time the PMPA

was enacted, the gasoline marketing system in the United

States was already well into the throes of a massive

reorganization brought on, at least in part, by the oil shock

crises of the early 1970's. From the oil embargo to 1978, the

number of gasoline dealers in the United States declined by

35,000.

Service station dealers had presented an overwhelming

body of evidence which demonstrated the unique and

dependent relationship they bore to the major oil companies.

As a leading franchise commentator noted in 1971:

In the Nation's second largest industry, the major oil

firms have the gasoline station dealers in virtual

bondage, hinged on the constant threat that their

short-term contracts will not be renewed unless they

submit to burdensome franchisor-imposed practices.

** *

It is generally conceded that the gasoline station

situation is almost hopeless and offers a prime

example of the worst abuses in franchising.

> 124 Cong. Rec. §12762 (May 5, 1978) (Statement of Sen. Durkin),

cited in Roberts v. Amoco Oil Co., 740 F.2d 602, 605 (8th Cir. 1984).

3

Brown, Franchising-A Fiduciary Relationship, 49 Tex. L.

Rev. 650, 655-657 (1971), cited in Roberts v. Amoco Oil Co.,

supra, 740 F.2d 604.

The nature of that dependency is not difficult to

understand in light of the unique relationship service station

dealers have to the major oil companies. The franchisor not

only owns the trademark, but is the landlord of the property

on which the dealer does business and is the exclusive supplier

of the motor fuel sold.

In short, we have an independent small businessman

who must negotiate with an oil company for his

trademark, the lease on his premises, and his supply

of product. It is difficult to imagine a greater

disparity in bargaining power in the marketplace.

Senate Congressional Record, May 5, 1978, S. 6998

(comments of Sen. Jackson). In addition, the major oil

companies have vast economic power.

There is more than one item of value at a service station

property. First is the value of the real estate and

improvements. Second is the value of the trademark. Third is

the value of the motor fuel being sold, which depends on

trademark and buying price. The first three are controlled by

the franchisor. The last item of value is the value of the

franchise business, a value created by the franchisee but

dependent upon actions of the franchisor. During the hearings

leading to the passage of the PMPA, the oil companies argued

cogently that they should not be responsible for damages upon

lease termination and non-renewal if the reason for the

termination or non-renewal was motivated by legitimate

business needs. Slatky v. Amoco Oil Co., 830 F.2d 476, 481-

482 (3rd Cir. 1987) (in banc). See, Hearings on H.R. 130,

4

Senate Subcomm. on Energy Conservation and Regulation of

the Energy and Natural Resources Committee, Publ. No. 95-

61, 287 (95th Cong. Ist Sess.) (written statement of Exxon

Company, U.S.A.).

The compromise that resulted in the PMPA was that if a

franchisor decided to non-renew the franchise relationship

because of a decision to sell the premises, as long as the

franchisor made that decision in good faith and in the normal

course of business, the franchisee's only remedy would be the

right to purchase the station at fair market value or meet the

terms of a right of first refusal offer. 15 U.S.C.

§2802(b)(3)(D)(i)(I) and (iii)(T) and (II); Slatky, supra, 830

F.2d 481-2. If the franchisor complies with the PMPA, the

franchisee must purchase in order to preserve his business

value, or lose the entire value of the franchise. In effect, the

PMPA provides that the franchisee could remain as a

competitor in the marketplace if he could economically justify

his continued operations by meeting the terms of another

offer.

At this point the Fourth Circuit's majority Opinion breaks

down. Blinding itself to the obvious fact that the jobber was

willing to pay more for the facility than Keener because the

jobber was also getting a franchise and a favorable buying

price, the Fourth Circuit majority reasoned that since some of

the terms were equal, namely the total price and the real estate

involved, the burden shifted to Keener to overcome the

"strong presumption" that Exxon's offer complied with the

PMPA.

It is on these two key points, the discrimination between

franchisees in connection with the non-renewal of a service

station franchise and the imposition of a "strong presumption"

that overrides the burden of proof on the franchisor under 15

U.S.C. §2805(c) to prove that the franchisor has complied

5

with the PMPA, that this brief focuses. Amicus Curiae submit

that the Fourth Circuit majority was wrong. The dissent

correctly reasoned that a right of first refusal must be on the

same terms and conditions in order to comply with the PMPA,

and that a "strong presumption" created out of whole cloth

impermissibly changes the express statutory directive that the

franchisor has the burden of proof that it has complied with all

aspects of the PMPA.

Ii. ARGUMENT

A. THE FOURTH’ CIRCUIT DECISION

ERRONEOUSLY ALLOWS DISCRIMINA-

TION BETWEEN FRANCHISEES

If there is one point on which the Congressional Record

and the decisions by the lower courts agree, it is that the

PMPA was designed to prevent arbitrary and discriminatory

terminations and non-renewals of franchisees.

Congress enacted the PMPA in an effort to protect

franchisees from arbitrary oor discriminatory

termination or non-renewal of their franchises.'

S. Rep. No. 95-731, 95th Cong., 2d Sess. 15, reprinted in

[1978] U.S. Code Cong. & Ad. News 873, 874 (Senate

Report’). Brach v. Amoco Oil Co., 677 F.2d 1213, 1216 (7th

Cir. 1982).

The essence of this case is that a franchisee who is being

non-renewed must pay the same price for the right to purchase

the station and continue his business operations as another

franchisee who is receiving a franchise and a more favorable

price to purchase product.

Congress never intended that the PMPA's provision that

allows a franchisor to non-renew a franchise in order to sell

the property would allow the franchisor to open a bidding war

between franchisees for the same property in which the non-

renewed franchisee would be put at a severe economic

disadvantage in responding to the purchase proposal.

Here the discrimination is in two forms. First, the buyer

for this station, Joe DeFazio Oil Company ("DeFazio") is a

jobber who is receiving an Exxon franchise for the station,

while Keener is losing his Exxon franchise. Second, DeFazio

has a guaranteed supply of Exxon gasoline at favorable "rack"

prices while Keener has no guaranteed supply and if Keener

can buy Exxon gasoline at all, must buy at a price above rack,

since Keener's supplier would be buying at rack price.

The burden of proof is on Exxon to demonstrate that

these offers are equivalent, but Exxon of course cannot.

Indeed, it defies economic common sense to believe that a

station which was built by Keener to a volume of 2 million

gallons annually under the Exxon trademark has an equivalent

value when sold without the Exxon trademark and without the

favorable Exxon buying price. This would mean that Keener's

franchise has no value; but by the compromise reached in

Congress that led to the requirement that Keener be provided

with a right of first refusal as the surrogate for damages for

loss of the franchise, Congress recognized that there was value

in a franchise.

In interpreting the alternate and parallel provision under

15 U.S.C. §2802(b)(3)(D)(iii)(1) that the franchisor offer a

bona fide (interpreted as fair market value) price, the court in

Slatky v. Amoco Oil Company, supra, 830 F.2d 481 noted that

the PMPA's structure was changed from the bill pending in the

94th Congress to the bill ultimately enacted by the 95th

Congress. Under H.R. 13000 (94th Cong.) the franchisor

7

could mitigate damages by making a bona fide offer to sell the

station. In the 95th Congress, the bona fide offer became "a

surrogate for damages" under H.R. 130 which became law.

Slatky v. Amoco Oil Co., 830 F.2d 481.

In this case, DeFazio was to receive an Exxon franchise

for Keener's- station if DeFazio purchased the property.

DeFazio is a "jobber" who would buy at "rack" prices.

DeFazio was going to operate as the retailer, just as Keener

had, but DeFazio also had the dual advantages of being able to

buy Exxon gasoline (1) as an Exxon franchisee (2) at Exxon's

"rack" price, a lower wholesale price than paid by a dealer like

Keener.‘

There is no question that DeFazio was receiving a

franchise to operate an Exxon facility at Keener's station:

DeFazio was receiving a contract for the supply of motor fuel

under a trademark owned by a refiner. 15 U.S.C.§2801(1)(A)

or (B) and (4). Viewed simply, if Exxon was non-renewing

Dealer A on the basis that Dealer A must pay the same price

for the station as Dealer B being offered the same station plus

the franchise, the court could easily determine that the

following mathematical formula demonstrates that the

franchisor has not complied with the PMPA:

(Purchase of Station) + (Franchise and Trademark) +

(Purchase of Station) - (Franchise and Trademark)

In that case it is easily discernable that there is a discrimination

between the two franchisees in the non-renewal of the

franchise since one is receiving a franchise and the other is

: Compare Texaco Inc. v. Hasbrouck, 496 U.S. 543, 110 S.Ct. 2535,

110 L.Ed.2d 492 (1990) in which the court recognized the existence of

pricing disparities between jobbers and dealers in a Robinson-Patman

action.

8

losing a franchise. In this case, however, the discrimination

and differential is even greater, as shown by the following

formula:

(Purchase of Station) + (Franchise and Trademark) +

(Reduced Buying Price) +

(Purchase of Station) - (Franchise and Trademark)

But in taking over Keener's station, DeFazio, while ostensibly

a jobber, was functionally a franchise retailer like Keener had

been, only with a better buying price.

The Fourth Circuit majority erred when it concluded that

"whatever advantage DeFazio Oil may have had, however,

resulted from its preexisting distributor relationship with

Exxon..." Keener, supra, 32 F.2d 131. That assumption is

untrue. DeFazio's advantage existed from the fact that Exxon

was willing to give DeFazio a franchise for the Keener station,

and give DeFazio the right to buy Exxon gasoline for the

station at the rack price.” What the majority misses is that

Exxon was treating DeFazio just as a franchisee dealer, namely

that it was giving DeFazio the trademark and right to market

gasoline at retail from Keener's station. The difference was

that DeFazio was going to get a lower buying price. This

form of price discrimination raises serious Robinson-Patman

* The majority in footnote 4 of it's decision demonstrates why the

burden shifting is so egregious as to Keener. The court assumes that

there is "no indication that the station sales contract in itself guaranteed

DeFazio Oil a supply of Exxon gasoline." Jd, 32 F.3d 131. This elevates

conjecture over reason. Under DeFazio's station sales contract, he had to

resell the station to Exxon if he ceased selling Exxon branded gasoline at

any time over the next 21 years. Even in the absence of a separate supply

agreement, the station sales contract between DeFazio and Exxon clearly

demonstrated an intent to provide DeFazio with Exxon gasoline at the

rack price.

9

Act implications. Texaco Inc. v. Hasbrouck, supra, 496 U.S.

543. The only way that Exxon can justify a lower buying price

to DeFazio than to Keener is if DeFazio is providing jobber

"functions" and then only a functional difference. The Fourth

Circuit majority points out that Keener had an ability to secure

supplies of Exxon gasoline from jobbers. The difference in

buying price is self-evident since the jobber will require a

profit for its services and materials.

Ultimately the decision is simple: allowing one class of

franchisees the right to purchase a station and receive a more

favorable buying price is discrimination in connection with

non-renewal when another class of franchisees must pay the

same price for the station but without the franchise and the

buying price advantage when both will operate in the same

functional position.

The well reasoned in banc decision by the Third Circuit in

Slatky v. Amoco Oil Co, supra, applies here. If the right to

purchase the station became the surrogate for damages upon

loss of the franchise, then the Court must interpret the PMPA

to assure that the franchisee has meaningful protection in

exercising that surrogate. A right of first refusal must mean

on equal terms or it becomes not a surrogate for damages, but

an invitation to creative manipulation that disenfranchises

service station dealers without an effective remedy. The

service station dealer is not seeking to repeal the free market

forces, but only seeks an equal opportunity on equal terms

when entering the playing field.

10

B. A RIGHT OF FIRST REFUSAL MUST

ENCOMPASS IDENTICAL TERMS OR IT

BECOMES MEANINGLESS

It is a fundamental premise of the law that a right of first

refusal must allow and require the person receiving the right to

meet the identical terms and conditions of the previous offer.

A right of first refusal requires application of the "mirror

image" standard, both in terms of the offer and the acceptance.

Any other rule creates ambiguities in the contracting

relationship, and allows one party or the other to vary the

terms to its own convenience and to the detriment of the other

party.

The PMPA's right of first refusal applies to the

"franchisor's interest" "in the leased marketing premises." 15

U.S.C. §2802(b)(3)(D)(iii)(T). “Leased marketing premises"

is defined in 15 U.S.C. §2801(9) to include "marketing

premises owned, leased or in Ww ntroll

franchisor .. ." In this case, Exxon was going to continue to

have an interest in and control over the leased marketing

premises under the DeFazio offer, since Exxon retained the

right to repurchase the premises from DeFazio if DeFazio did

not market Exxon motor fuel for 21 years. This meant that

Exxon's interest in the leased marketing premises included the

right to market Exxon gasoline through DeFazio. Exxon

wasn't offering to convey to Keener the same interests in the

leased marketing premises that DeFazio was to receive from

Exxon.

DeFazio is receiving a franchise and DeFazio is receiving

a long term gasoline supply commitment at favorable rack

prices. These are items of value to DeFazio. The advantage

to DeFazio did not, as the majority concludes, stem from his

"preexisting distributor relationship with Exxon." Keener, 32

1]

F.3d 131. Rather the advantage arose because of Exxon's

willingness to extend that relationship, a franchise, to Keener’s

station while denying the same advantages to Keener.

Assume, since no proof on the buying differential was

offered by Exxon which bore the burden of proof, that the

differential in the rack price and the price at which Keener

could buy Exxon gasoline was 5¢ per gallon. Even giving

DeFazio the benefit of the doubt that he would only buy 1.7

million gallons per year from Exxon, pursuant to his supply

arrangement,’ the value to DeFazio would be 5¢ x 1.7 million

gallons x 21 years = 1.785 million dollars. At 3¢ per gallon

for 1.7 million gallons annually, the difference is 1.07 million

dollars. Three cents per gallon for 2 million gallons annually is

a difference of 1.26 million dollars. Reducing those amounts

to present day values could easily account for the differential

between the amount DeFazio was willing to pay and the fair

market value of the station. Drawing reasonable inferences in

Keener's favor, the station price differential was not an

"unacceptable windfall" to Keener but the price differential

arising from the disparity in terms between DeFazio's offer and

Keener's created by Exxon. Jd, 32 F.3d 132.

The mirror image rule, contrary to what the majority

found,’ is the simplest rule. Any other rule requires that the

Court attempt to balance and weigh competing terms and their

values. Requiring that Exxon offer to sell the station to

Petitioner Keener on the same terms as the arrangement with

DeFazio, namely the purchase price plus the franchise plus the

° There is no reason to believe that DeFazio would not receive the 2

million gallons per year from Exxon that Keener had been able to sell

from the station, and all these calculations assume gasoline volumes

remain constant and not grow.

” Keener, supra, 32 F.3d 131.

12

favorable buying price, means that the Court will not have to

examine other aspects of the economic arrangement.

C. THE FOURTH CIRCUIT'S CREATION OF A

"STRONG PRESUMPTION" IMPROPERLY

REVERSES THE BURDEN OF PROOF

UNDER THE PMPA

The Fourth Circuit has created a "strong presumption"

despite absolutely no legislative support for the creation of this

assumption, despite the fact that no other court has found such

a presumption to exist, and despite the fact that the Fourth

Circuit's position is contrary to the express requirement of the

PMPA that the burden of proof is on the franchisor. 15

U.S.C. §2805(c). The decision by the Fourth Circuit majority

is contrary to the parallel decision by the Third Circuit

interpreting the requirements of a "bona fide" price under 15

U.S.C. §2802(b)(3)(D)(ili)(D), which is the alternative to a

right of first refusal. The Sl/atky court in banc rejected the

concept that a "bona fide offer" required only the franchisor’s

subjective good faith, and instead tied it to fair market value.

As we have discussed, the overriding purpose of Title

I of the PMPA is to protect the franchisee's

reasonable expectation of continuing the franchise

relationship. Because of the distributor's need to

adjust to changing market conditions, however,

Congress permitted distributors to end the franchise

relationship for legitimate business reasons. Yet in

doing so, distributors still deprived franchisees of

their reasonable expectations. The bona fide offer

provision therefore serves as a second, and distinct,

layer of protection, assuring the franchisee an

13

RATE OPS SSI TN I OST ETI TT,

opportunity to continue to earn a livelihood from the

property while permitting the distributor to end the

franchise relationship.

Slatky v. Amoco Oil Co., supra, 830 F.2d 484.

The Slatky court went on to hold that a bona fide offer

requires an objectively established fair market value. In

footnote 7, the Slatky court indicated that it was not excluding

the possibility of other relevant factors, and indicated that "an

offer approaching fair market value might be hedged with

unreasonable conditions of sale." Slatky, 830 F.2d at 485, fn 7.

While the Third Circuit recognized that the terms of an

offer could impact fair market value, and hence deserve

scrutiny, the Fourth Circuit majority in this case not only

rejected that approach, but placed the burden on the franchisee

to demonstrate that the franchisor had not complied with the

PMPA.* This approach erroneously shifts the burden of proof

under the PMPA, and operates as a complete surprise to a

franchisee preparing to respond to a summary judgment

motion in which the franchisee has only the burden of

demonstrating that there is a franchise and it is being non-

renewed before the burden shifts to the franchisor. 15 U.S.C.

§2805(c). If such a standard were to be adopted, it could only

be applied prospectively in a summary judgment setting.

*The Fourth Circuit claims “maximum economic efficiency”

justifies the creation of a strong presumption. Keener, supra, 32 F.3d

130, 131. Slatky correctly reasoned that the PMPA's purpose of

franchisee protection takes precedence and requires meaningful

protection for the damages surrogate. The Fourth Circuit's failure to

apply the principle that franchisee protection is the overriding purpose of

the PMPA puts it in conflict with other circuits. Slatky v. Amoco Oil Co.,

830 F.2d 484 (3rd Cir. 1987) and Hilo v. Exxon Corp., 997 F.2d 641 (9th

Cir. 1993).

if

In fact, the burden was on Exxon to demonstrate that the

additional terms being offered to DeFazio, namely a franchise,

trademark and a reduced buying price, did not alter the value

of offer to purchase the station by Petitioner Keener. Exxon

made no showing that these provisions did not contribute

substantial value to DeFazio in connection with DeFazio's

offer.

It is extremely critical that this Court grant certiorari to

reverse the unfounded attempt by the Fourth Circuit to shift

the burden of proof to the franchisee, by creating a strong

presumption that the same price for the same property means

that the franchisor has complied with the PMPA unless the

franchisee can show otherwise. Indeed, the Fourth Circuit's

Opinion is expressly contrary to the Ninth Circuit decision in

Ellis v. Mobil Oil Corp., 969 F.2d 784 (9th Cir. 1992), the

First Circuit in Chestnut Hill Gulf, Inc. v. Cumberland Farms,

Inc., 940 F.2d 744 (1st Cir. 1991), and the Tenth Circuit in

Ewing v. Amoco Oil Co., 823 F.2d 1432 (10th Cir. 1987).

IV. CONCLUSION

The Petition for Writ of Certiorari should be granted.

Respectfully submitted,

Gary E. Persian*

Randy V. Thompson

PERSIAN, MacGREGOR & THOMPSON

1530 International Centre

900 Second Avenue South

Minneapolis, MN 55402

(612) 339-6733

*Counsel of Record for

Amicus Curiae

15

. a ———