Petition for Writ of Certiorari — Escobedo v. Conoco, Inc.

No, 299 55° vu 7200

eee CER

In THE

Supreme Court of the Hnited States

OcTOBER TERM, 1999

MANUEL EscoBepo, Martua I. EscoBepo, Gary Ivory,

ANTHONY PICKETT, and MICHAEL Ross,

Petitioners,

V.

Conoco, INC.,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

PETITION FOR WRIT OF CERTIORARI

Hat K. GILLESPIE

Counsel of Record

GILLESPIE, RozEN & Warsky, P.C.

3402 Oak Grove Avenue,

Suite 200

Dallas, Texas 75204

(214) 720-2009 Phone

(214) 720-2291 Fax

GILBERT ARRAZOLO

AGUILAR LAW OFFICES, P.C.

700 Lomas Blvd., NE, Suite 201

Albuquerque, New Mexico 87102

(505) 242-6677 Phone

(505) 242-6655 Fax

Attorneys for Petitioners

St. Louis Law Printing, Inc. 14239 Manchester Rd. Manchester,MO 63011 314-231-4477

\2G0 P¥

QUESTIONS PRESENTED

1. Whether disclaimer language, as a matter of national

public policy, can insulate a franchisor who operates a

nationwide system of stores that are places of public

accommodation from liability under 42 U.S.C. §§ 1981

and 2000a for racial discrimination against customers

at its franchise stores, when the franchise agreement

and federal law give the franchisor the right to control

the franchise store and when the franchisor has commu-

nicated this right and ability to the public.

2. Whether the Fifth Circuit erred in affirming sum-

mary judgment against Petitioners by holding that

disclaimer language in a franchise agreement shields

franchisors as a matter of law from claims under 42

U.S.C. §§ 1981 and 2000a of race discrimination by

franchisees when the Fifth Circuit failed to consider the

evidence as a whole, assumed evidence not in the record,

failed to draw all reasonable inferences from the evi-

dence in Petitioners’ favor, and misconstrued Petition-

ers’ burden at the summary judgment stage.

pe, oe

LIST OF PARTIES AND RULE 29.6 LIST

The parties before the Court of Appeals included

Denise Arguello, Alberto Govea, and the parties listed

in the caption. Mrs. Arguello and Mr. Govea are not

seeking certiorari and are therefore not listed as Peti-

tioners. To Petitioners’ knowledge, Conoco, Inc. has no

parent companies or non-wholly owned subsidiaries.

— ili—

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED............ eee i

LIST OF PARTIES AND RULE 29.6 LIST....... il

TABLE OF AUTHORITIES ......... eee Vv

SOR URE MNES CEA WE sicessessvsorssstcrcsscascescenbacnannssons 1

a is Siti sl cdissichvbpnnsad asso daceenbieann 1

pe putas - 2 bi, A'S 3 SRR ean 1

STATEMENT OF THE CASE .............00. eee 6

A. Nature of the Case and Proceedings

NNN dit iieasddaubcetacldidihGiiexasediickeais cxatenins 6

B. Factual Backg@rouna ...............ccccc0scs0000 7

1. Racial Discrimination Against

UNNI icsdcccncacacencshacceecovesnacgreess 7

2. Conoco’s Petroleum Marketer

Agreements (PMAs) ....................4. 8

Be OND FRGROS BEGIN 6.00: scsncicssscsssecsseces 11

REASONS FOR GRANTING THE WRIT ......... 12

A. Conflict With This Court’s De-

I fisted eee nlasasdciketenaae naka aati “se 13

1. Summary Judgment Stan-

Ba fcdidshdicnigatins fcogeun traci eaciackcetee 13

2. Fifth Circuit’s Misapplication of

Summary Judgment Standard ..... 15

B. Important Federal Question Not Yet

sia pia

CRI BAS Tt CNG ai cisicsciitessicccerecsss

C. Conflict Among Courts. .................0...00

1. Whether Genuine Issue of Mate-

I uaa

2. Question of Fact or Law................

CONCLUSION

CORSE EHH EEE HEHEHE HEHEHE EEEEEETETEEEEEEEEED

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27

30

TABLE OF AUTHORITIES

Page(s)

Cases

Adickes v. S.H. Kress & Co., 398 U.S. 144

CNT iictcinvecsidcadsinncessacdbaciceibi tase 14

Anderson v. Liberty Lobby, Inc., 477 U.S. 242

PINES is ccicandnancadacecaisacameentedabiinskcaeiaaeenied 12, 13, 14

Arguello v. Conoco, Inc., 207 F.3d 803 (5th

CP, ee akin) ida cs ceceaiecns ieee 19, 20, 28, 29

Board of Trade of City of Chicago v.. Hammond

Elevator Co., 198 U.S. 424 (1905) ............... 19

Bradbury v. Phillips Petroleum Co., 815 F.2d

Se CAE AE: BED iia chcctisti iets 28

Burlington Indus., Inc. v. Ellerth, USS.

sy RE EAs EE CRIED Ai cecerindisatcdctionchics 21

Cabrera v. Jakabovitz, 24 F.3d 372 (2nd Cir.

SGP ivicosessispndiniccnddsubianca ds coieen 28

Chemtool, Inc. v. Lubrication Technologies,

Inc., 148 F.3d 742 (7th Cir. 1998)............... 27

Chevron Oil Co. v. Sutton, 515 P.2d 1283 (N.M.

WRT iideniitiland ca i acddeet ean 25-27

Drexel v. Union Prescription Centers, Inc.,

§82 F.2d 781 (3rd Cir. 1978) ..:.....5.....0000 25-27, 29

Equilease Corp. v. M/V Sampson, 756 F.2d

Bre CU GE, BOE vecitittticidcnns 28

Gen. Bldg. Contractors Ass’n., Inc. v. Penn-

sylvania, 458 U.S. 375 (1982) ............... 21

ee eee

Jones v. Alfred H. Mayer Co., 392 U.S. 409

CRE chcctetscaccsecsicdctesomiekaaadve alec maine 22

Matsushita Elec. Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574 (1986) ............... 12

Meritor Sav. Bank, FSB v. Vinson, 477 U.S. 57

CRE icncnsetscctnticcictetenseiriesnule ens 21

Metco Prods., Inc., Div. of Case Mfg. Co. uv.

NLRB, 884 F.2d 156 (4th Cir. 1989)........... 28

Neffv. American Dairy Queen Corp., 58 F.3d 1063

(5th Cir. 1995), cert. denied,

GIG 03.0. BOGE Ce ccuckchiccteteeens 18, 29

Northern v.-McGraw-Edison Co., 542 F.2d

BERS COU Gat. Be OP vctnisccasncrenasbieatiepiacaniaie 28

Reeves v. Sanderson Plumbing Products,

Inc., 2000 WL 743663 (June 12,

MOE i xitesissemetoninaanenn session 12, 14-15, 20

Sun Bank, N.A. v. E.F. Hutton & Co., Inc., 926

F.2d 1030 (11th Cir. 1991) 0.0.0... 28

United States v. Glass Menagerie, Inc., 702 F.

Supp. LOD (DD. Tig. TG wisscecvcsncvscssevnsencens 23

Ward v. Mgmt. Analysis Co. Employee Disability

Benefit Plan, 135 F.3d 1276 (9th Cir. 1998),

affd in part, rev’d in part on

other grounds, 526 U.S. 358 (1999) ............ 27

Wood v. Holiday Inns, Inc., 508 F.2d 167

(Pewunme BGR CAG, BG? cnencecestastiboccsmesetaccseus 28

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PETITION FOR WRIT OF CERTIORARI

Petitioners respectfully submit this petition for writ

of certiorari to review the opinion and order of the

United States Court of Appeals for the Fifth Circuit,

rendered in these proceedings on April 10, 2000.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Fifth Circuit is published at 207 F.3d 803. The

opinion of the United States District Court is unpub-

lished but available through Westlaw at 1998 WL 713277.

Copies of both opinions are contained in the Appendix

attached hereto.

JURISDICTION

This Court’s jurisdiction is invoked under 28 U.S.C. §

1254(1) to review a decision of the United States Court

of Appeals for the Fifth Circuit by writ of certiorari after

rendering judgment. The decision for which review is

sought was entered on April 10, 2000. Pursuant to this

Court’s Rule 13.1, this petition for writ of certiorari is

timely because it is being filed within ninety days after

entry of the judgment.

STATUTES INVOLVED

The case involves claims of racial discrimination

under 42 U.S.C. §§ 1981 and 2000a. Petitioners are

former customers at Conoco-branded stores, which are

owned and operated according to Petroleum Marketer

Agreements (“PMAs”) between Conoco and its market-

ers. The relationship between Conoco and its branded

marketers is governed by the Petroleum Marketing

Practices Act (“PMPA”), 15 U.S.C. § 2801, et seq. Rel-

evant portions of 42 U.S.C. §§ 1981 and 2000a and

relevant portions of the PMPA are set forth below:

ja Ses

42 U.S.C. § 1981. Equal rights under the law

(a)

(b)

(c)

Statement of equal rights

All persons within the jurisdiction of the United

States shall have the same right in every State and

Territory to make and enforce contracts, to sue, be

parties, give evidence, and to the full and equal

benefit of all laws and proceedings for the security

of persons and property as is enjoyed by white

citizens, and shall be subject to like punishment,

pains, penalties, taxes, licenses, and exactions of

every kind, and to no other.

“Make and enforce contracts” defined

For purposes of this section, the term “make and

enforce contracts” includes the making, perfor-

mance, modification, and termination of contracts,

and the enjoyment of all benefits, privileges, terms

and conditions of the contractual relationship.

Protection against impairment

The rights protected by this section are protected

against impairment by nongovernmental discrimi-

nation and impairment under color of State law.

42 U.S.C. § 2000a

(a)

Equal access

All persons shall be entitled to the full and equal

enjoyment of the goods, services, facilities, privi-

leges, advantages, and accommodations of any place

of public accommodation, as defined in this section,

without discrimination or segregation on the ground

of race, color, religion, or national origin.

et a

(b) Establishments affecting interstate commerce

or supported in their activities by State ac-

tion as places of public accommodation; lodg-

ings, facilities principally engaged in selling

food for consumption on the premises; gaso-

line stations; places of exhibition or enter-

tainment; other covered establishments.

bith abit etn rsa nari sere

Each of the following establishments which serves

the public is a place of public accommodation within

the meaning of this subchapter if its operations

affect commerce, or if discrimination or segregation

by it is supported by State action:

(1) any inn, hotel, motel, or other establish-

ment which provides lodging to transient

guests, other than an establishment located

within a building which contains not more

than five rooms for rent or hire and which is

actually occupied by the proprietor of such

establishment as his residence;

(2) any restaurant, cafeteria, lunchroom, lunch

) counter, soda fountain, or other facility princi-

pally engaged in selling food for consumption

on the premises, including, but not limited to,

any such facility located on the premises of any

retail establishment; or any gasoline station;

(3) any motion picture house, theater, concert

hall, sports arena, stadium or other place of

exhibition or entertainment; and

(4) any establishment (A)(i) which is physically

located within the premises of any establish-

ment otherwise covered by this subsection, or

(ii) within the premises of which is physically

located any such covered establishment, and

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(B) which holds itself out as serving patrons of

such covered establishment.

(c) Operations affecting commerce; criteria;

“commerce” defined

The operations of an establishment affect commerce

within the meaning of this subchapter if (1) it is one of

the establishments described in paragraph (1) of sub-

section (b) of this section; (2) in the case of an establish-

ment described in paragraph (2) of subsection (b) of this

section, it serves or offers to serve interstate travelers or

a substantial portion of the food which it serves, or

gasoline or other products which it sells, has moved in

commerce; (3) in the case of an establishment described

in paragraph (3) of subsection (b) of this section, it

customarily presents films, performances, athletic

teams, exhibitions, or other sources of entertainment

which move in commerce; and (4) in the case of an

establishment described in paragraph (4) of subsection

(b) of this section, it is physically located within the

premises of, or there is physically located within its

premises, an establishment the operations of which

affect commerce within the meaning of this sub-

section. For purposes of this section, “commerce”

means travel, trade, traffic, commerce, transportation,

or communication among the several States, or between

the District of Columbia and any State, or between any

foreign country or any territory or possession and any

State or the District of Columbia, or between points in

the same State but through any other State or the

District of Columbia or a foreign country.

15 U.S.C. § 2802

(a) General prohibition against termination or

nonrenewal

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Except as provided in subsection (b) of this section

and section 2803 of this title, no franchisor engaged in

the sale, consignment, or distribution of motor fuel in

commerce may

(1) terminate any franchise (entered into or

renewed on or after June 19, 1978) prior to the

conclusion of the term, or the expiration date,

stated in the franchise; or

(2) fail to renew any franchise relationship

(without regard to the date on which the rel-

evant franchise was entered into or renewed).

(b) Precondition and grounds for termination or

nonrenewal

(1)

Any franchisor may terminate any fran-

chise (entered into or renewed on or after

June 19, 1978) or may fail to renew a franchise

relationship, if —

(2)

(A) the notification requirements of sec-

tion 2804 of this title are met; and

(B) such termination is based upon a

ground described in paragraph (2) or

such nonrenewal is based upon a ground

described in paragraph (2) or (3).

For purposes of this subsection, the follow-

ing are grounds for termination of a franchise

or nonrenewal of a franchise relationship:

(A) A failure by the franchisee to comply with

any provision in the franchise, which provision

is both reasonable and of material significance

to the franchise relationship. .. .

(C) The occurrence of an event which is rel-

evant to the franchise relationship and as a

result of which termination of the franchise or

nonrenewal of the franchise relationship is

reasonable. ...

(c) Definition

As used in subsection (b)(2)(C) of this section, the

term “an event which is relevant to the franchise

relationship and as a result of which termination of

the franchise or nonrenewal of the franchise rela-

tionship is reasonable” includes events such as —

(11) knowing failure of the franchisee to com-

ply with Federal, State, or local laws or regula-

tions relevant to the operation of the market-

ing premises;....

STATEMENT OF THE CASE

A. Nature of the Case and Proceedings Below

This case involves allegations of racial discrimination

under 42 U.S.C. §§ 1981 and 2000a. Petitioners are all

former customers of Conoco-branded stores! and were

subjected to racial discrimination while attempting to

receive service at those stores.

Petitioners filed their initial Complaint on March 24,

1997 asserting, among other things, causes of action

under 42 U.S.C. §§ 1981 and 2000a. Petitioners filed

' The phrase “Conoco-branded stores” and/or “branded stores”

refers to stores that are owned and operated by marketers pursu-

ant to Petroleum Marketer Agreements (“PMAs”) between the

marketers and Conoco, Inc.

a pon

various amendments to that Complaint. Petitioners

filed a Fourth Amended Complaint on March 30, 1998,

asserting claims under §§ 1981 and 2000a. On July 27,

1998, Conoco filed a Motion for Summary Judgment

seeking dismissal of Petitioners’ claims. The district

court granted Conoco’s motion and entered summary

judgment against Petitioners in its Judgment and Memo-

randum Opinion and Order on October 8, 1998.

Petitioners appealed the district court’s Order to the

: United States Court of Appeals for the Fifth Circuit, and

following oral argument, a three-judge panel of the Fifth

; Circuit affirmed in part and reversed in part the judg-

| ment of the district court.?

The district court had jurisdiction over Petitioners’

claims under 28 U.S.C. §§ 1331 and 1343.

B. Factual Background

L Racial Discrimination Against Petition-

ers

i

} a. The Escobedos

3

3

Petitioner Manuel Escobedo and his wife, Petitioner

; Martha I. Escobedo, are Hispanic. In November, 1996,

: the Escobedos and other members of their family stopped

at a Conoco-branded store in San Marcos, Texas. While

they were there, the store clerk called Mrs. Escobedo a

“mother-f***ing bitch,” told her to “get out of the store —

we don’t want you here,” told Mr. Escobedo to “get the

? The Fifth Circuit reversed the district court’s judgment as to

Denise Arguello’s and Alberto Govea’s claims against a Conoco-

owned store and affirmed the judgment on Petitioners’ claims

involving Conoco-branded stores.

= [ae

_ es

hell out of his station,” and told him that “you Mexicans

need to go back to Mexico.”

At a Conoco-branded store in Grand Prairie, Texas, a

store clerk told Mr. Escobedo that he had to pre-pay for

gas because “you people steal gas.”

At two Conoco-branded stores in Laredo, Texas, Mr.

Escobedo has consistently been asked to pre-pay for gas

when white customers have not been asked to pre-pay.

b. Ivory, Pickett, and Ross

Petitioners Ivory, Pickett, and Ross are African-Ameri-

can. In September, 1995, at a Conoco-branded store in

Fort Worth, Texas, a store clerk treated them as though

they were suspected of theft, told them “we don’t have to

serve you people” and “you people always act like this,”

and refused them service until they called the police and

the police ordered the clerk to allow them to make a

purchase.

2. Conoco’s Petroleum Marketer Agreements

(“PMAs”) with Branded Stores

Conoco has a system of both Conoco-owned

stores and Conoco-branded stores which are op-

erated pursuant to Petroleum Marketer Agree-

ments (“PMAs”). The Petroleum Marketing Prac-

tices Act (“PMPA”), 15 U.S.C. § 2801, et seq., governs

these PMAs and the relationship between Conoco

and its marketers. The majority of stores within

the Conoco system are branded stores. In Texas alone,

there are 697 Conoco-branded stores, compared to only

25 Conoco-owned stores.

Conoco had a PMA with marketers who owned and

operated the stores where the incidents involving the

iia

Escobedos, Ivory, Pickett, and Ross occurred. Although

‘some provisions in the PMAs for each marketer differ,

the PMAs between Conoco and the marketers of the

branded stores involved in this case are remarkably

similar.’ Relevant portions of these PMAs provide the

following:

e Each PMA requires the marketer to “conduct

its independent business operations consistent

with the standards” set forth in the PMAs in

order to “promote the continuing good reputa-

tion of Conoco and all other Conoco marketers.”

e Each PMA requires the marketer to treat all

customers “fairly, honestly, and courteously.”

e Each PMA requires the marketer to “conduct

its operation to provide efficient, courteous,

and intelligent service to retail dealers and

; other customers” and to “permit such inspec-

: tion of [its] business operations by-Conoco .. .

as may reasonably be required to determine

whether [the branded store] is in compliance”

with the PMA.

PRLS EAR ODL ENERO

e Each PMA requires the marketer to satisfy

several Conoco standards, including display-

ing a Conoco capsule sign visible to the public

and displaying and selling Conoco motor oils.

3 * Because the Fifth Circuit affirmed summary judgment against

Petitioners because of the language in the PMAs, the Petitioners

are including two PMAs in the Appendix. These PMAs are essen-

tial to understand this petition. Portions of the 1993 and 1996

PMAs between Conoco and Classic Group, Inc. are included in the

Appendix.

i

e Each PMA states that the branded store and

grounds must be “clean, in good repair, and

well maintained.”

e Each PMA states that the branded store must

be operated with personnel who are well-

groomed and wear clean, appropriate apparel.

If the Conoco marketer violates the PMA, and if

particular provisions of the Petroleum Market-

ing Practices Act (“PMPA”), 15 U.S.C. § 2801, et seq.,

are satisfied, Conoco can revoke its PMA with

that marketer, which is commonly referred to as

“debranding.” Debranding can occur for a variety

of reasons, including volume-related failures,

product adulteration, and failure to satisfy

Conoco image requirements. In addition to debranding,

Conoco may refuse to renew a PMA witha marketer for

various reasons, including numerous valid customer

complaints.

In order to insure that a marketer satisfies its obliga-

tions under the PMA, Conoco conducts an image evalu-

ation program two times per year at Conoco-branded

stores. The image evaluation program evaluates the

branded stores’ compliance with several image require-

ments, including brand requirements such as customer

service, signage and colors, exterior and interior ap-

pearance, and cleanliness. These image evaluations are

conducted anonymously and without notice. A Conoco

branded store can be debranded if it fails the image

evaluation. The image evaluation program is a con-

certed effort by Conoco to diminish the visible differ-

ences between Conoco-owned and Conoco-branded

stores. The image evaluations encompass every detail of

the operation, from the use of Conoco uniforms to the

use of the octane rating stickers placed on fuel pumps.

sid ee ke:

The end result is that consumers are unable to distin-

guish between Conoco-owned and Conoco-branded

stores. This increases Conoco’s profits by drawing cus-

tomers to Conoco-branded stores, which in Texas out-

number Conoco-owned stores 28 to 1.

The PMAs specifically identify the requirement of a

marketer to treat customers “fairly, honestly, and cour-

teously” as an image requirement and as one of the

standards to be complied with by each marketer.

3. The Nokes Memo

On April 4, 1997, Jim Nokes (“N okes”), Conoco’s Vice

President of Refining and Marketing for North America,

sent an internal memorandum to Bill Gover (“Gover”),

Conoco’s Manager for Branded Marketing, North

America. This memo discussed “ethnic insults” and

discrimination against customers at Conoco-owned and

Conoco-branded stores.‘ In the memo, Nokes directed

Gover to “take appropriate action against any employee

or business associate . . . found to have mistreated a

customer for any reason up to and including termina-

tion of an employee and/or debranding of a store.”

(Emphasis added). Nokes also stated that he “want[ed]

it understood that Conoco does not tolerate [racial dis-

crimination against customers] by employees at any of

its branded stores.” (Emphasis added). Nokes told Gover

that “/ajll customers who choose to do business with

Conoco have a right to be treated courteously and fairly”

and that he has “absolutely no tolerance for behavior

outside those expectations.” (Emphasis added). Nokes

* This memo is contained in the Appendix because Petitioners

believe that this internal memo is necessary to understanding this

Petition, especially since the Fifth Circuit completely ignored this

evidence in affirming summary judgment against Petitioners.

nak ee

indicated that the course of action he suggested was

“supported by all of Conoco’s senior management, in-

cluding the CEO.” (Emphasis added). Conoco distrib-

uted this memo to the media, thereby conveying the

message to the public that Conoco would address and

take responsibility for racial discrimination at both its

Conoco-owned and Conoco-branded stores.

REASONS FOR GRANTING THE WRIT

This Petition should be granted for several compel-

ling reasons. First, certiorari should be granted because

the Fifth Circuit’s decision is in conflict with this Court’s

decisions. Specifically, in reaching its decision, the Fifth

Circuit misapplied the summary judgment standard

that is set forth in Fen. R. Crv. P. 56 and explained in

Matsushita Elec. Industrial Co. v. Zenith Radio Corp..,

475 U.S. 574, 585-86 (1986), Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 250-51(1986), and, most recently, in

Reeves v. Sanderson Plumbing Products. Inc., 2000 WL

743663 (June 12, 2000).6 The Fifth Circuit failed to

consider the evidence as a whole, ignored critical parts

of the summary judgment evidence, assumed evidence

not in the record, failed to draw all reasonable infer-

ences from the evidence in Petitioners’ favor, and mis-

construed Petitioners’ burden at the summary judg-

ment stage. Second, certiorari should be granted be-

cause this case involves an extremely important federal

question that has not yet been decided by this Court;

that is, whether, in the public accommodations context,

a franchisor can avoid liability as a matter of law for

racial discrimination against customers by its franchi-

sees. Finally, certiorari should be granted because there

is a split among the courts as to two issues: (1) whether

5 Reeves is to be reported at 120 S.Ct. 2097 once published.

a Ee

a genuine issue of material fact was created on the

agency issue in these circumstances, and (2) whether

the existence of an agency relationship is a question of

fact or of law.

A. Conflict With Prior This Court’s Decisions

Certiorari should be granted because in reaching its

decision on the agency issue between Conoco and its

branded stores, the Fifth Circuit misapplied the sum-

mary judgment standard set forth in Fen. R. Crv. P. 56

and explained in this Court’s cases construing the rule.

1 Summary Judgment Standard

According to Feb. R. Civ. P. 56(c), summary judgment

is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

the affidavits, ifany, show that there is no genuine issue

as to any material fact and that the moving party is

entitled to a judgment as a matter of law.” To survive

Conoco’s motion for summary judgment, Petitioners

had to establish a genuine issue of material fact as to the

existence of an agency relationship between Conoco,

Inc. and the branded stores involved in this case. See

Feb. R. Civ. P. 56(e); Matsushita, 475 U.S. at 585-86.

Summary judgment is not appropriate “if the dispute

about a material fact is ‘genuine,’ that is, if the evidence

is such that a reasonable jury could return a verdict for

the nonmoving party.” Liberty Lobby. Inc., 477 U.S. at

248. The judge’s inquiry at the summary judgment

stage is “the threshold inquiry of determining whether

there is the need for a trial — whether, in other words,

there are any genuine factual issues that properly can

be resolved only by a finder of fact because they may

reasonably be resolved in favor of either party.” Jd. at

250. The inquiry is essentially “whether the evidence

foe, yee

presents a sufficient disagreement to require submis-

sion to ajury or whether it is so one-sided that one party

must prevail as a matter of law.” Jd. at 251-52.

In ruling on a motion for summary judgment, the

court must consider all of the evidence. Matsushita, 475

U.S. at 587 (record must be reviewed “as a whole”). The

court must also consider the non-movant’s evidence as

true and must draw all reasonable inferences from the

evidence in favor of the non-movant. See Liberty Lobby,

Inc., 477 U.S. at 255, citing Adickes v. S.H. Kress & Co.,

398 U.S. 144, 158-59 (1970).

At the summary judgment stage, the judge is “not

himself to weigh the evidence and determine the truth

of the matter but to determine whether there is a

genuine issue for trial.” Liberty Lobby, Inc., 477 U.S. at

249. In doing so, “the judge must ask himself not

whether he thinks the evidence unmistakably favors

one side or the other but whether a fair-minded jury

could return a verdict for the plaintiff on the evidence

presented.” Jd. at 252. “Credibility determinations, the

weighing of evidence, and the drawing of legitimate

inferences from the facts are jury functions, not those of

a judge, whether he is ruling on a motion for summary

judgment or a directed verdict.” Jd. at 255.

These standards were recently reaffirmed by this

Court in Reeves v. Sanderson Plumbing Products, Inc.,

2000 WL 743663 (June 12, 2000) (discussing standard

in reviewing motion for judgment as a matter of law

under Rule 50 and noting that the standard “mirrors”

the summary judgment standard under Rule 56). In

Reeves, this Court unanimously reversed the Fifth Cir-

cuit, finding that the Fifth Circuit “misapplied the

standard of review dictated by Rule 50.” 2000 WL

743663, *12. The Court noted that the Fifth Circuit

iis was

misapplied the standard by “disregard [ing] critical evi-

dence favorable to petitioner,” by “fail{ing] to draw all

reasonable inferences in favor of petitioner,” and by

“impermissibly substitut[ing] its judgment concerning

the weight of the evidence for the jury’s.” Jd.

2. Fifth Circuit’s Misapplication of Summary

Judgment Standard

Certiorari should be granted in this case because the

Fifth Circuit has again misapplied the standards an-

nounced by this Court, this time in the context of a

motion for summary judgment under Rule 56. As in

Reeves, the Fifth Circuit in this case disregarded critical

evidence favorable to Petitioners, failed to draw all

reasonable inferences in Petitioners’ favor, and imper-

missibly substituted its judgment for the jury’s judg-

ment on the weight of the evidence. Certiorari should be

granted to address this flagrant disregard for the stan-

dards previously announced by this Court and recently

reaffirmed in Reeves.

The evidence Petitioners presented on the issue of

agency between Conoco, Inc. and its branded stores

included (1) Conoco’s right to control the branded stores

as set forth in the Petroleum Marketer Agreements

(“PMAs”), (2) Conoco’s right to control the branded

stores as set forth in the Petroleum Marketing Practices

Act, 15 U.S.C. § 2801, et seq. (“PMPA”), and (3) Conoco’s

right and ability to control the branded stores as set

forth in the Nokes memo. The Fifth Circuit completely

ignored the Nokes memo and the evidence showing

Conoco’s rights under the Petroleum Marketing Prac-

tices Act, 15 U.S.C. § 2801, et seg. (“PMPA”), both of

which demonstrate Conoco’s right to control the branded

stores and which therefore raise a genuine issue of

material fact on the agency issue.

a

The Nokes memo provides powerful evidence of

Conoco’s ability to control the branded stores and

is therefore probative as to the agency issue. As

previously discussed, in his memo, Jim Nokes®

discussed the allegations of ethnic insults and

racial discrimination at Conoco-owned and

Conoco-branded stores, and in the memo, he

directed Bill Gover’ to “take appropriate action

against any employee or business associate .. .

found to have mistreated a customer for any

reason, up to and including termination of an

employee and/or debranding of a store.” (Empha-

sis added). Nokes stated that he “want[ed] it

understood that Conoco does not tolerate [racial

discrimination against customers] by employees

at any of its branded stores.” (Emphasis added).

Nokes further stated that “fajll customers who

choose to do business with Conoco have a right to

be treated courteously and fairly” and that he has

“absolutely no tolerance for behavior outside

those expectations.” (Emphasis added). Finally,

Nokes stated that the course of action outlined in

the memo was “supported by all of Conoco’s senior

management, including the CEO.” (Emphasis added).

In addition to the Nokes memo, the Fifth Circuit also

completely ignored evidence of Conoco’s right to control

the branded stores as set forth in the Petroleum Market-

ing Practices Act, (““PMPA”), 15 U.S.C. § 2801, et seq.

The PMPA gives Conoco the right to control the various

6 Again, Nokes was Conoco’s Vice President of Refining and

Marketing for North America at the time.

7Gover was Conoco’s Manager for Branded Marketing, North

America at the time.

en ea

aspects of the branded stores, which could lead a reason-

able jury to conclude that an agency relationship exists

between Conoco, Inc. and its branded stores. Under 15

U.S.C. § 2802(b)(2), Conoco may terminate and/or fail to

renew a PMA for any failure by a branded store to

comply with any provision of the PMA, if the provision

is reasonable and of material significance to the fran-

chise relationship. In this case, the branded stores

violated the PMAs by failing to provide fair, honest, and

courteous service to customers. This is of material

significance to the franchise relationship, as failure to

do so can dramatically affect the branded store’s busi-

ness and Conoco’s overall reputation; thus, Conoco

could exert control over the branded stores by terminat-

ing or failing to renew the PMAs in question. Further,

under § 2802(b)(2)(C), Conoco can terminate or fail to

renew a PMA based upon “the occurrence of an event

which is relevant to the franchise relationship and as a

result of which termination . . . or nonrenewal .. . is

reasonable,” including, but not limited to, a knowing

failure of the branded store to comply with federal laws

relevant to the operation of the branded store. See 15

U.S.C. § 2802(c)(11). Federal law under both 42 U.S.C.

§§ 1981 and 2000a prohibits racial discrimination against

customers. Such laws are relevant to the operation of

the branded store, and Conoco could therefore exert

control over the branded stores by terminating or failing

to renew the PMAs in question.

In this case, the critical issue affecting the agency

question between Conoco, Inc. and its branded stores is

whether Conoco had the right to control the branded

stores. The Nokes memorandum is probative evidence

on this point. It demonstrates the ability and intent to

exercise such control from Conoco’s highest levels of

management. Conoco’s rights under the PMPA also

demonstrates Conoco’s right to control the branded

stores. Both the Nokes memo and Conoco’s rights under

the PMPA could lead a reasonable fact-finder to con-

clude that Conoco had the right to control the branded

stores. The Fifth Circuit completely ignored this evi-

dence in considering the agency issue between Conoco

and its branded stores and thus misapplied the sum-

mary judgment standard in affirming summary judg-

ment. See Reeves, 2000 WL 743663, *12.

Closely akin to the Fifth Circuit’s misapplication of

the standard of review by ignoring evidence in the form

of the Nokes memo and Conoco’s rights under the

PMPA, the Fifth Circuit supplied “evidence” that did

not exist. Specifically, the Fifth Circuit opined:

The facts of the present case are similar to the facts

which form the basis of the claim in Neff v. Ameri-

can Dairy Queen Corp., 58 F.3d 1063 (5th Cir.

1995).

Arguello, 207 F.3d at 808. The Fifth Circuit then stated:

“The only summary judgment evidence presented

by Neff was the franchise agreement.”

Id.

In other words, the facts in Arguello were not similar to

those in Neff, since Neff contained no equivalent of the

Nokes memo, since the franchise agreements in Neff

and this case have different control language, and since

the plaintiff in Neff apparently did not raise any federal

statute giving American Dairy Queen Corporation any

right to control the franchise store in question.

ae ie

In addition to ignoring critical evidence and assuming

evidence not in the record, the Fifth Circuit also failed

to draw from the evidence all reasonable inferences in

Petitioners’ favor and impermissibly weighed the evi-

dence with respect to the PMAs.' First, the Fifth Circuit

examined only portions of the PMAs and failed to draw

all reasonable inferences from the PMAs in Petitioners’

favor. For example, the Fifth Circuit recognized that the

PMAs allow Conoco to conduct regular inspections of

branded stores; however, instead of drawing an infer-

ence in Petitioners’ favor that such inspections evidence

Conoco’s right to control the branded stores, the Fifth

Circuit discussed the ‘normal focus’ of the inspections

and surmised that “[c]ustomer service is not considered

a main focus of the random inspections.” See Arguello,

207 F.3d at 807 n.6. Further, although the Fifth Circuit

recognized that the PMAs contain ‘guidelines’ by Conoco,

Inc. that the branded stores must follow, see Arguello,

207 F.3d at 808, the Court failed to recognize that a

reasonable trier of fact could conclude from those ‘guide-

lines’ that Conoco, Inc. had the right to control the

branded stores and that a principal-agent rela-

tionship existed between them.

Second, using Neff, supra as precedent, where there

was no evidence of agency besides the franchise agree-

ment, the Fifth Circuit treated as dispositive the provi-

sion in the PMAs that state that no agency relationship

exists, even though this Court has previously held that

the fact that an express disclaimer of agency exists

between two parties “is not decisive of their relations so

* Obviously, since the Fifth Circuit completely ignored the

Nokes memo and the PMPA provisions, the Fifth Circuit failed to

draw the reasonable inferences from such evidence in Petitioners’

favor.

ini es

far as third parties dealing with them upon the basis of

their being agents are concerned.” Board of Trade of

City of Chicago v. Hammond Elevator Co., 198 U.S. 424,

437 (1905). The Fifth Circuit’s decision that the dis-

claimer language in the PMA outweighs all its other

language is the same kind of misapplication of the

standard of review denounced in Reeves where the Fifth

Circuit had relied upon evidence that the age discrimi-

nation claimants had been cited for poor recordkeeping

and the defendant employer had employed many man-

agers over the age of 50. This Court noted that this

evidence, although relevant, “is certainly not disposi-

tive.” Reeves, 2000 WL 743663 at *12.

The Fifth Circuit also misconstrued Petitioners’ bur-

den atthe summary judgment stage. Petitioners merely

had to raise a genuine issue of material fact as to the

agency issue. Instead, the Fifth Circuit implicitly held

that Petitioners had to conclusively establish the exist-

ence of an agency relationship between Conoco, Inc. and

its branded stores. The Fifth Circuit stated:

[tlhe language of the PMA, while offering guide-

lines to the Conoco-branded stores, does not estab-

lish that Conoco, Inc. has any participation in the

daily operations of the branded stores nor that

Conoco, Inc. participates in making personnel deci-

sions.

Therefore, we find that there is no agency relation-

ship between Conoco, Inc. and the branded stores in

question...

Arguello, 207 F.3d at 808 (emphasis added). As is

evident from this statement, the Fifth Circuit

misconstrued Petitioners’ burden at the sum-

mary judgment stage. By “finding” no agency

relationship because the PMAs purportedly do not “es-

tablish” Conoco’s participation in certain matters, the

Fifth Circuit apparently affirmed summary judgment

against Petitioners because they did not conclusively

prove their case on the agency issue. Contrary to that

misconception, Petitioners merely had to present suffi-

cient evidence which would allow a reasonable fact-

finder to find that an agency relationship existed. Cer-

tiorari should be granted because the Fifth Circuit

misapplied the summary judgment standard set forth

in Fep. R. Civ. P. 56 and explained in Matsushita,

Liberty Lobby, Inc., and Reeves.

B. Important Federal Question Not Yet Settled

by this Court

Certiorari should also be granted because this

case involves an important federal question that

has not yet been settled by this Court. In prior

cases, this Court has indicated that vicarious

liability in the civil rights and discrimination

context should be determined according to general agency

rules. See, e.g., Burlington Indus., Inc. v. Ellerth, ___

U.S.__, 118 S.Ct. 2257, 2265 (1998) (Title VII); Meritor

Sav. Bank, FSB v. Vinson, 477 U.S. 57, 72 (1986) (same);

Gen. Bldg. Contractors Ass’n, Inc. v. Pennsylvania, 458

U.S. 375, 392 (1982) (§ 1981). However, this Court has

not yet issued any opinions as to how these general

agency rules should be applied either in the public

accommodations context and/or in the context of a

franchisor/franchisee relationship.

If certiorari is granted here, the Court will determine

the appropriate standards governing vicarious liability

of a franchisor for discrimination by its franchisees in

places of public accommodations. This Court should

— A

grant certiorari and address this issue because of the

critical importance this question has upon the future of

civil rights in public accommodations in America. This

is a nation of franchise stores. Due to the overwhelming

number of franchise operations throughout America,’

the practical effect of a refusal to grant certiorari will be

that for many, if not most, consumer transactions in

places of public accommodation, customers will have

essentially no protection against racial discrimination,

for companies can insulate themselves from liability for

such discrimination simply by serving the public through

a system of franchise stores. If certiorari is denied,

discrimination-free public accommodations envisioned

by Congress will be more difficult, but franchisor com-

panies will have the best of both worlds: like Conoco,

they can enforce standards (to their economic benefit) so

the public will not know the difference between a Conoco-

owned and a Conoco-branded store; they can put out

announcements to the public about how Conoco will not

tolerate discrimination at any of its businesses, includ-

ing franchise operations; yet they will rest beyond the

reach of the law when discrimination is practiced at

their franchise store.

Civil rights laws were originally introduced in order

to “give effect to [the declaration that all persons in the

United States should be free] and [to] secure to all

persons within the United States practical freedom.”

Jones v. Alfred H. Mayer Co., 392 U.S. 409, 431-32

(1968) (quoting Cong. Globe, 39th Cong. 1st Sess., 1115-

* Even considering only Conoco’s stores in Texas, the disparity

in number between the Conoco-owned stores and the Conoco-

branded stores is staggering. In Texas alone, there are approxi-

mately 697 Conoco-branded stores and only 25 Conoco-owned

stores, a ratio of approximately 28 to 1.

i.

1124 and 1151-1155, statement by Senator Trumbull).

Senator Trumbull, who introduced the Civil Rights Act

of 1866 (upon with § 1981 is based), explained that

“(t]here is very little importance in the general declara-

tion of abstract truth and principle [that all persons be

free] unless the persons who are to be affected . . . have

some means of availing themselves of their benefits.” Jd.

Congress intended public accommodations laws to be

sweeping in scope, as Title II applies to “any place of

public accommodation,” which includes, in part, any

gasoline station whose operations affect commerce. 42

U.S.C. § 2000a(b)(2). Even if the business was a small

“mom-and-pop” operation, it would fall within Con-

gress’ proscription against racial discrimination against

customers under Title II. The breadth of Congress’

protections under Title II is even more evident when

compared to the protections under Title VII, which was

also enacted as part of the Civil Rights Act of 1964.

Under Title VII, Congress specifically excepted the

small “mom-and-pop” type operations. See 42 U.S.C.

§2000e(b) (as originally enacted, employer had to have

at least 25 employees before being subject to Title VII).

Contrary to the intended breadth of public accommoda-

tions laws, a refusal to grant certiorari will essentially

turn Title II on its head, for large companies will be able

to avoid liability simply by operating through a fran-

chise system, while small “mom-and-pop” type opera-

tions will still be subject to liability.

Both §§ 1981 and 2000a should be interpreted to give

practical effect to the right to be free from racial dis-

crimination in places of public accommodations. Given

the reality of business operations in America today, if

the Fifth Circuit’s decision is allowed to stand, there will

be no real protections in the public accommodations

context, and indeed, “the fundamental precept on which

—

our country is based — ‘that all men are created equal”

— [will be] a sham.” See United States v. Glass Menag-

erie, Inc., 702 F. Supp. 139, 142 (E.D. Ky. 1988).

If certiorari is refused, the guarantee of equal treat-

ment in public accommodations will be simply an illu-

sion and an empty promise for many consumers, as

Conoco and its branded stores (not to mention all other

oil companies and their franchisees, or for that matter,

all other large corporations who operate a nationwide

franchise system) will simply avoid liability by doing

what they do already — serving the public through low-

level employees at branded stores, and then arguing

that the acts of the employees at those stores do not bind

the company. Perhaps because of the apparently sweep-

ing scope of public accommodations laws, or perhaps

just for publicity, the Nokes memo shows that Conoco

chose to tell the world, through the media, that all of

Conoco’s senior management, including the CEO, in-

tended to take appropriate action against any employee

or business associate found to have mistreated a cus-

tomer and that Conoco does not tolerate racial discrimi-

nation against customers by employees at any of its

branded stores. Unless certiorari is granted, the Fifth

Circuit puts Conoco and other employers on notice that

it can save the speeches and disregard racial discrimi-

nation at franchise stores, or, more cynically, it can put

out such statements to the press, to further fool the

public, but that the statements mean nothing. This

Court should grant certiorari so that the Court can more

fully examine the Fifth Circuit’s decision and its devas-

_— ee

tating impact on the future of civil rights laws in public

accommodations in America.’ -

C. Conflict Among Courts

Finally, certiorari should also be granted because

there is a split in the courts as to two issues: (1) whether

a genuine issue of material fact was shown as to the

agency issue in these circumstances, and (2) whether

the agency issue is a question of fact or of law.

lL Whether Genuine Issue of Material Fact

Shown

There is a split between the Fifth Circuit, the Third

Circuit, and the New Mexico Supreme Court as to

whether a genuine issue of material fact on the agency

issue was created based upon the evidence presented in

this case. In this case, the Fifth Circuit concluded that

there was no genuine issue of material fact as to the

existence of an agency relationship between Conoco,

Inc. and its branded stores. The Fifth Circuit’s decision

is in conflict with the Third Circuit’s decision in Drexel

v. Union Prescription Centers, Inc., 582 F.2d 781 (3rd

Cir. 1978) and with the New Mexico Supreme Court’s

decision in Chevron Oil Co. v. Sutton, 515 P.2d 1283

(N.M. 1973).

The Fifth Circuit’s decision implicates other issues, although

they are not at issue in this particular case. For example, the Fifth

Circuit’s decision may affect franchisors’ vicarious liability in the

Title VII context or in the public accommodations context of the

Americans with Disabilities Act. This Court should grant certio-

rari because of the important federal question involved in this

particular case as well as these other important federal questions

implicated by the Fifth Circuit’s decision.

— ee

In Drexel, a widow brought a wrongful death action

against the Union Prescription Centers, Inc. arising

from the death of her husband after he received and

consumed an incorrect prescription medication from

one of UPC’s franchisees. The district court granted

summary judgment against the widow, and the widow

appealed. The Third Circuit reversed, stating that “it

cannot be determined as a matter of law on the present

record that UPC did not have the right to control the

manner of [the franchisee’s] performance or that UPC

was not the ‘master’ of [the franchisee].” Drexel, 582

F.2d at 788. The Third Circuit explained:

When a franchisee is required . . . to perpetuate

‘quality standards, - . . to maintain the premises

and equipment in an ‘attractive condition,’ to en-

sure a ‘high degree of cleanliness’ and a ‘neat,

orderly arrangement’ of merchandise, to conform

all equipment and facilities to [franchisor’s] ‘na-

tional standards, to adhere strictly to [franchisor’s]

‘uniformly high standards of service, appearance,

quality of equipment and proved methods of opera-

tion,’ and to conduct his business in a manner that

will reflect favorably at all times upon [franchisor],’

and when the franchisor has the ‘unqualified right’

to review the store’s operations and to inspect the

store ‘to assure maintenance of [franchisor’s] high

standards ... , the goodwill of the public, and

compliance with the provisions of [the agreement]

... as Well as the right to terminate the relationship

for breach of any provision of the [agreement], we

believe that reasonable minds could differ as to

whether or not [franchisor] had the right to control

[franchisee’s] physical conduct and the manner in

a Se

which he operated the store, including the prescrip-

tion-filling activity.

Drexel, 582 F.2d at 789 (emphasis added).

In Chevron Oil Co. v. Sutton, 515 P.2d 1283 (N.M.

1973), a widower brought a wrongful death action against

Chevron and its lessee for his wife’s death that resulted

from a negligent vehicle repair at the lessee’s station.

The trial court had granted summary judgment against

the widower, and the appeals court reversed. In consid-

ering whether summary judgment was appropriate on

the agency issue, the New Mexico Supreme Court held

that summary judgment was not appropriate, stating

that a “substantial dispute as to a material fact” existed,

thereby foreclosing summary judgment. Jd. at 1286.

The court based its decision, in part, on the fact that the

lessee was required to keep the facilities in a “clean and

orderly condition,” and to “present a ‘good appearance”

and on the fact that lessee “sold Chevron products and

dispensed gasoline and oil provided by Chevron,” “re-

ceived the benefit of Chevron advertising,” and its

employees wore “work uniforms containing the Chev-

ron emblem.” /d.

The facts in this case are strikingly similar to the facts

presented in both Drexel and Sutton, yet the Fifth

Circuit reached the opposite conclusion. Certiorari

should be granted to address the split between the

courts on this issue.

2. Question of Fact or Law

Certiorari should also be granted because there is a

split among the circuits as to whether the agency issue

is a question of fact or of law.

ae, a

The overwhelming majority of the courts of appeals

have indicated that the question of agency is a fact issue

to be submitted to the jury. See, e.g., Chemtool, Inc. v.

Lubrication Technologies, Inc., 148 F.3d 742, 745 (7th

Cir. 1998) (“the existence and scope of an agency rela-

tionship are questions of fact, to be decided by the trier

of fact”); Ward v. Mgmt. Analysis Co. Employee Disabil-

ity Benefit Plan, 135 F.3d 1276, 1283 (9th Cir. 1998);

affd in part, rev'd in part on other grounds, 526 U.S. 358

(1999) (“existence of an agency relationship generally

presents a question of fact”); Cabrera v. Jakabovitz, 24

F.3d 372, 386 (2nd Cir. 1994) (question of agency should

be submitted to jury unless facts are insufficient to

support a finding or there is no dispute as to historical

facts); Sun Bank, N.A. v. E.F Hutton & Co., Inc., 926

F.2d 1030, 1036 (11th Cir. 1991) (“existence of an agency

relationship is an issue of fact”); Metco Prods., Inc., Div.

of Case Mfg. Co. v. NLRB, 884 F.2d 156, 159 (4th Cir.

1989) (“generally, existence and scope of an agency

relationship are factual matters”); Bradbury v. Phillips

Petroleum Co., 815 F.2d 1356, 1361 (10th Cir. 1987)

(“relationship of principal and agent is ordinarily a

question of fact”); Northern v. McGraw-Edison Co., 542

F.2d 1336, 1343 (8th Cir. 1976) (to determine if agency

exists, surrounding facts and circumstances should be

considered, and “the ultimate resolution is appropri-

ately left to the jury in most instances”).

Indeed, even the Fifth Circuit has indicated in deci-

sions prior to this case that the question of agency is a

fact issue that should be submitted to the jury. See, e.g.,

Equilease Corp. v. M/V Sampson, 756 F.2d 357, 363

(5th Cir. 1985) (“the existence of any agency relation-

ship is a question of fact”); Wood v. Holiday Inns, Inc.,

tc ain

508 F.2d 167, 173 (Former 5th Cir. 1978) (the existence

and scope of a principal-agent relationship is generally

for the jury to determine).

In contrast to those cases, however, the Fifth Circuit

in this case decided the agency issue as a matter of law,

refusing to submit the question of agency to the jury."

See Arguello, 207 F.3d at 808. In doing so, the Fifth

Circuit relied upon its prior decision in Neff v. American

Dairy Queen Corporation, 58 F.3d 1063, 1065 (5th Cir.

1995) cert. denied, 516 U.S. 1045 (1996), in which the

court stated that the agency issue was a question of

law.'*In ruling in Neff that the agency question was an

4 Interestingly, however, the Fifth Circuit made specific “find-

ings” on the agency issue. See Arguello v. Conoco, Inc., 207 F.3d at

808 (“[wje find that there is no agency relationship between

Conoco, Inc. and the branded stores”) (emphasis added). Not only

did the court fail to consider all of the evidence, see section A.,

supra, but the court also improperly rendered ‘findings’ even while

considering the issue as a matter of law rather than as a factual

issue.

'2 Not only did the Fifth Circuit in this case incorrectly conclude

that the agency issue was an issue of law rather than fact, but the

Fifth Circuit relied on the Neff case which is substantially distin-

guishable from the facts of this case. In contrast to this case, the

issue in Neff was whether the franchisor “operated” the franchise

store in order to be subject to liability under the public accommo-

dations provisions in Title III ofthe ADA. This is not an ADA public

accommodations case, and the same standards do not apply. Not

only are the cases distinguishable in the types of claim presented,

but the cases are also distinguishable in light of the evidence

presented as well. In Neff, plaintiffs only evidence of an agency

relationship was the franchise agreement itself. 58 F.3d at 1065.

Here, however, Petitioners’ submitted not only the PMAs but also

external evidence of Conoco’s right to control its branded stores as

reflected in the Nokes memo and in the PMPA, which, as previ-

ously discussed, was completely ignored by the Fifth Circuit.

—_ a

issue of law, the Fifth Circuit expressly declined to

follow the Third Circuit’s decision in Drexel v. Union

Prescription Centers, Inc., 582 F.2d 781 (3rd Cir. 1978).

As indicated above, the overwhelming majority of

courts treat the agency question as a question of fact

rather than law, including but not limited to prior

decisions by the Fifth Circuit. In this case, however, the

Fifth Circuit followed another prior Fifth Circuit deci-

sion that stated that the agency issue is a question of law

rather than fact, thereby creating a split between the

circuits on this issue. Certiorari should be granted to

address the current split among the circuits so that

courts will have adequate guidance in resolving these

issues in the future."

CONCLUSION

For all the reasons stated herein, this Petition for

Writ of Certiorari should be granted.

'3 Even if this Court rules that the agency question is an issue

of law rather than fact, this Court should still grant certiorari

because the Fifth Circuit misapplied the summary judgment

_ standard and affirmed summary judgment against Petitioners,

when Petitioners presented sufficient evidence to show a genuine

issue of material fact on the agency question. See Section A.2.,

supra.

pee, ane

Respectfully submitted,

Hal K. Gillespie

Counsel of Record

GILLESPIE, ROZEN &

WATSKY, P.C

3402 Oak Grove Avenue, Suite 200

Dallas, Texas 75204

(214) 720-2009 phone

(214) 720-2291 fax

-and-

Gilbert Arrazolo

Aguilar Law Offices, P.C.

700 Lomas Blvd. NE, Suite 201

Albuquerque, NM 87102

(505) 242-6677 phone

(505) 242-6655 fax

ATTORNEYS FOR PETITIONERS

APPENDIX

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APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 98-11280

DENISE ARGUELLO, ALBERTO GOVEA,

GARY IVORY, ANTHONY PICKETT,

MICHAEL ROSS, for themselves and all others

similarly situated;

MANUEL ESCOBEDO, MARTHA I. ESCOBEDO,

Plaintiffs-Appellants,

eS ee eS Se ee ee eo Pe

versus

CONOCO, INC.,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Texas

April 10, 2000

Before POLITZ, DAVIS, and STEWART,

Circuit Judges.

CARL E. STEWART, Circuit Judge:

SE tk a Se ey ee eM en NS at CRE ee eee SAP ea OREN EE ee

fe ery ©

si a a ead

The appellants, a group of Hispanic and African-

American consumers, filed suit against appellees,

Conoco, Inc. (“Conoco” or “Conoco, Inc.”) alleging that

they were subjected to racial discrimination while pur-

chasing gasoline and other services. Appellants chal-

lenge the district court’s 12(b)(6) dismissal of their

disparate impact claim under 42 U.S.C. § 2000a, and the

district court’s grant of summary judgment to Conoco on

the appellants remaining 42 U.S.C. §§ 1981 and 2000a

claims. For the following reasons we affirm in part, and

reverse in part.

—

FACTUAL AND PROCEDURAL BACKGROUND

There are three different incidents which form the

background for this appeal. In March 1995, Denise

Arguello (“Arguello”), and her father Alberto Govea

(“Govea”), along with various other members of their

family stopped at a Conoco-owned store’ in Fort Worth,

Texas. After pumping their gasoline Arguello and Govea

entered the store to pay for the gasoline and purchase

other items. When Arguello approached the counter she

presented the store cashier, Cindy Smith (“Smith”),

with her items and a credit card. Smith asked to see

Arguello’s identification. When Arguello gave Smith

her Oklahoma driver’s license Smith stated that an out-

of-state driver’s license was not acceptable identifica-

tion. Arguello disagreed with Smith and Smith began to

insult Arguello using profanity and racial epithets.”

Smith also knocked a six-pack of beer off the counter

toward Arguello. After Arguello retreated from the

inside of the store, Smith used the store’s intercom

system to continue yelling racial epithets. Smith also

made obscene gestures through the window.

Moments after the incident occurred Arguello and

Govea used a pay phone outside the station to call a

Conoco customer service phone number and complain

about Smith’s conduct. Govea also attempted to reenter

the store to discover Smith’s name. When Govea at-

tempted to reenter the store, Smith and another store

‘We will use the term “Conoco-owned” to denote stores that are

owned and operated by Conoco, Inc. “Conoco-branded” stores are

stores which are independently owned marketers of Conoco prod-

ucts and are subject to the Petroleum Marketer Agreements.

*These racial epithets included “f***ing Iranian bitch”, and “go

back to where you came from you poor, f***ing Mexicans.”

TY a Tee Le ae ee ee ne rs

ieee

employee locked the doors. Linda Corbin (“Corbin”), a

district manager, received Arguello and Govea’s com-

plaints. Corbin reviewed video tape from the store,

which had no audio, and concluded that Smith had acted

inappropriately. When she was confronted by Corbin,

Smith admitted to using the profanity, racial epithets,

and obscene gestures. Corbin counseled Smith about

her behavior but did not suspend, or terminate Smith.

Several months after the incident Corbin transferred

Smith to another store for Smith’s protection after

receiving phone calls that a group was planning to

picket the store at which the incident took place.

In September 1995, Gary Ivory (“Ivory”), Anthony

Pickett (“Pickett”), and Michael Ross (“Ross”) visited a

Conoco-branded store in Fort Worth, Texas. While in-

side the store they allege that they were followed by a

store employee and after complaining about this treat-

ment a store employee told them “we don’t have to serve

you people” and “you people are always acting like this.”

The employee refused to serve them and asked them to

leave. Eventually the police were summoned and the

policeman ordered the store employee to serve the

group.

In November 1996, Manuel Escobedo (“Escobedo”)

and Martha Escobedo (“Mrs. Escobedo”) stopped at a

Conoco-branded store in San Marcos, Texas. Escobedo

claims that while visiting this store the store employee

refused to provide toilet paper for the restroom, shouted

profanities at his wife, and said “you Mexicans need to

go back to Mexico.” Escobedo called Conoco to complain

about this incident, and was told by a Conoco customer

service supervisor, Pamela Harper, that there was noth- -

ing Conoco could do because that station was not owned

by Conoco. In a separate incident at a Conoco-branded

pee Ey eee

store in Grand Prairie, Texas Escobedo was allegedly

told by the store clerk that “you people steal gas.”

Finally, Escobedo claims that at two Conoco-branded

stores in Laredo, Texas he was required to pre-pay for

his gasoline while Caucasian customers were allowed to

pump their gas first and then pay.

In March 1997, Arguello, Govea, the Escobedos, Ivory,

Pickett, and Ross (“plaintiffs” or “appellants”) filed suit

against Conoco, Inc. on behalf of themselves and all

other similarly situated parties.’ The plaintiffs alleged

that Conoco was in violation of 42 U.S.C. §§ 1981‘ and

2000a (“Title II”)® and state law for refusing to serve

Hispanic and African-American customers, and sub-

jecting this class of customers to substandard service

and racially derogatory remarks. The plaintiffs also

claimed that Conoco had illegal policies and practices

which disparately impacted Hispanics and African-

Americans.

In July 1997, the district court issued an order dis-

missing all claims based on the plaintiffs’ allegations of

disparate impact and the plaintiffs’ state law claims. In

3In the Plaintiffs’ Fourth Amended Complaint they dropped all

claims made on behalf of the class.

*42 U.S.C. § 1981 provides that “[a]ll persons within the

jurisdiction of the United States shall have the same right in every

State and Territory to make and enforce contracts, to sue, be

parties, give evidence, and to full and equal benefit of all laws...as

is enjoyed by white citizens.”

*Title II states that “[a]ll persons shall be entitled to the full and

equal enjoyment of the goods, services, facilities, privileges, ad-

vantages, and accommodations of any place of public

accommodation...without discrimination or segregation on the

ground of race, color, religion, or national origin.” 42 U.S.C. §

2000a.

coe Si ies

October 1998, the district court granted summary judg-

ment to Conoco on all of the plaintiffs’ remaining claims.

DISCUSSION

Appellants raise several issues on appeal. First, ap-

pellants contend that the district court erred in finding

no agency relationship between Conoco, Inc. and the

Conoco-branded stores. Appellants also argue that the

district court erred in finding no agency relationship

between Conoco, Inc. and Cindy Smith because Smith

acted outside the scope of her employment. Appellants

argue in the alternative that even if Smith was outside

the scope of her employment Conoco had a non-del-

egable duty to prevent racial discrimination, and fur-

ther that Conoco should be held liable because it ratified

Smith’s conduct. Finally, appellants contend that the

district court improperly dismissed their disparate im-

pact claims under Title II. We will consider each of these

issues in turn.

A. Standard of Review

This court reviews a grant of summary judgment de

novo. Neff v. American Dairy Queen Corporation, 58

F.3d 1063, 1065 (5 Cir. 1995). Summary judgment

should be granted if there is no genuine issue as to any

material fact and the moving party is entitled to judg-

ment as a matter of law. Fed. R. Civ. P. 56(c). We review

the facts drawing all inferences most favorable to the

party opposing the motion. Neff, 58 F.3d at 1065 (quot-

ing Reid v. State Farm Mut. Auto Ins. Co., 784 F.2d 577,

578 (5 Cir. 1986)).

oe yee

B. Agency Relationship between Conoco, Inc. and

Conoco-branded Stores

The incidents involving Ivory, Ross, Pickett and the

Escobedos occurred at Conoco-branded stores. These

Conoco-branded stores are independently owned, and

have entered into Petroleum Marketing Agreements

(“PMA”) that allow them to market and sell Conoco

brand gasoline and supplies in their stores. The district

court held that no agency relationship existed between

Conoco, Inc. and the Conoco branded stores. The district

court found that Conoco, Inc. did not control the details

of the daily operations of the Conoco branded stores,

including personnel decisions.

The Supreme Court has suggested that in order to

impose liability on a defendant under § 1981 for the

discriminatory actions of a third party, the plaintiff

must demonstrate that there is an agency relationship

between the defendant and the third party. General

Building Contractors Association v. Pennsylvania United

Engineers and Constructors, 458 U.S. 375,393, 102

S.Ct. 3141, 3151-52, 73 L.Ed.2d 835 (1982). Agency is a

fiduciary relation which results from the manifestation

of consent by one person to another that the other shall

act on his behalf and subject to his control, and consent

by the other so to act. Jd. at 391 (citing Restatement

(Second) of Agency § 1 (1958) (“Restatement”)). At the

core of agency is a “fiduciary relation” arising from the

“consent by one person to another that the other shall

act on his behalf and subject to his control...equally

central to the master-servant relation is the master’s

control over or right to control the physical activities of

the servant.” Jd. at 393 (citing Restatement §1). There-

fore, to establish an agency relationship between Conoco,

Inc. and the branded stores the plaintiffs must show

fink! Si poe

that Conoco, Inc. has given consent for the branded

stores to act on its behalf and that the branded stores are

subject to the control of Conoco, Inc.

Appellants argue that the PMAsestablish that Conoco,

Inc. has an agency relationship with the branded stores.

They argue that the PMAs give Conoco, Inc. control of

the branded stores because the PMAs require the

branded stores to maintain their businesses according

to the standards set forth in the PMAs. Plaintiffs fur-

ther contend that Conoco, Inc. controls the customer

service dimension of the Conoco-branded stores. As

evidence the plaintiffs point to a statement in the PMA

that instructs the branded stores that) “all customers

shall be treated fairly, honestly, and courteously.” Fur-

thermore, the plaintiffs assert that Conoco, Inc. has the

power to debrand the Conoco-branded stations for not

complying with the contractual terms of the PMA. Thus,

because of this debranding power the plaintiffs reason

that Conoco controls the operations of their brand mar-

keters in all areas which are discussed in the PMA,

including customer service. The plaintiffs also produced

summary judgment evidence that Conoco, Inc. conducts

random, bi-yearly inspections of the branded stores to

determine if business is being conducted in\accordance

with the standards of the PMA.®

Despite the plaintiffs’ interpretation of the PMAs and

the evidence of inspections, the plain language of the

PMA defines the relationship between Conoco, Inc. and

its branded stores. The PMA states:

6 These inspections normally focus on product displays and

labeling. Customer service is not considered a main focus of the

random inspections.

ay ye

Marketer [Conoco branded store] is an independent

business and is not, nor are its employees, employ-

ees of Conoco. Conoco and Marketer are completely

separate entities. They are not partners, general

partners...nor agents of each other in any sense

whatsoever and neither has the power to obligate or

bind the other.

The facts of the present case are similar to the facts

which formed the basis of the claim in Neff v. American

Dairy Queen Corporation, 58 F.3d 1063 (5"" Cir. 1995).

In Neff, the plaintiff appealed summary judgment of her

claims against American Dairy Queen Corporation

(“ADQ”) for violation of the Americans with Disability

Act (“ADA”). Neff claimed that ADQ violated the ADA

by failing to make its San Antonio stores wheel chair

accessible. Jd. at 1064. We held that ADQ was a franchisor

and the franchise agreement specifically stated that

ADQ did not own or operate the San Antonio stores. Id.

at 1068. The only summary judgment evidence pre-

sented by Neff was the franchise agreement. Neff ar-

gued that contrary to franchise agreement's statement

disclaiming operation of the franchisee establishments,

other clauses in the franchise agreement demonstrated

that ADQ did in fact “operate” the San Antonio stores.

Id. at 1065. Neff did not allege that the franchise

agreement was ambiguous, instead she disputed whether

the control over franchisee facilities which was provided

for in the agreement made ADQ an “operator.” Id. at

1065. The franchise agreement stated that the fran-

chise building should be constructed and equipped in

accordance with the ADQ’s specifications, and that the

building should be maintained in accordance with the

ADQ’s requirements. Id. at 1066. We held that this

language in the franchise agreement “[did] not estab-

sii LM ie

lish sufficient control on ADQ’s part such that ADQ can

be said to “operate” the San Antonio stores.” Jd. at 1067. Reena

In the present case, our review of the record and

pleadings do not reveal any allegation by, the nJaintiffs.

that the language in the PMA is ambiguous as to its

meaning. The clauses of the PMA which state that the

franchisee’s business operations should be conducted in

a consistent manner with the standards of Conoco, Inc.,

and that customers should be treated fairly and courte-

ously are similar to the language of the franchise agree-

ment in Neff which required that building specifications

be approved by the franchisor. See also, Perry v. Burger

King Corporation, 924 F.Supp. 548 (S.D.N.Y. 1996)

(granting summary judgment to defendant based on

franchise agreement which defined franchisee as an

independent contractor, and plaintiff presented no evi-

dence that franchisor had policies regarding franchisee

employees). The language of the PMA, while offering

guidelines to the Conoco-branded stores, does not estab-

lish that Conoco, Inc. has any participation in the daily

operations of the branded stores nor that Conoco, Inc.

participates in making personnel decisions.

Therefore, we find that there is no agency relation-

ship between Conoco, Inc. and the branded stores in

question, and that Conoco, Inc. asa matter of law cannot

be held liable for the unfortunate incidents which hap-

~ pened to Ivory, Pickett, Ross, and the Escobedos at the

Conoco- branded stores.

C. Scope of Employment

Arguello and Govea complain of discriminatory treat-

ment at a Conoco-owned store. Appellants argue that

the district court erred in finding that Conoco could not

— A-10 —

be held liable under Title IT, 42 U.S.C. § 2002e-2’, or 42

U.S.C. § 19813, for the acts of its store clerk, Smith. The

district court found that as a matter of law there was no

agency relationship between Smith and Conoco because

Smith’s acts of discrimination towards Arguello and

Govea were outside the scope of Smith’s employment.

In Flanagan, this Court considered whether agency

principles applied to an employment discrimination

suit alleging racial discrimination and seeking relief

under both 42 U.S.C. § 1981 and Title VII. Flanagan v.

A.E. Henry Comm. Health Svcs. Ctr., 876 F.2d 1231,

1233 (5th Cir. 1989). We held that the doctrine of

respondeat superior applied under § 1981° to render the

employer liable for the discriminatory acts of the

plaintiffs supervisors. Jd. at 1236 (relying on the Su-

preme Court’s implication, in General Building Con-

tractors Ass’n v. Pennsylvania, 458 U.S. 375, 392, 102

S.Ct. 3141, 3151-52, 73 L.Ed.2d 835 (1982), that agency

742 U.S.C. § 2000a provides, in relevant part “[a]ll persons shall

be entitled to full and equal enjoyment of the goods, services,

facilities, privileges, and accommodations of any place of public

accommodation, as defined in this section, without discrimination

or segregation on the ground of race, color, religion, or national

origin.”

§42 U.S.C. § 1981 provides, in relevant part, “[aJil persons

within the jurisdiction of the United States shall have the same

right ... to make and enforce contracts ... as is enjoyed by white

citizens.”

°As the district court noted in its opinion, a plaintiff must prove

purposeful discrimination under § 1981. See Patterson v. McClean

Credit Union, 491 U.S. 164, 186, 109 S.Ct 2363, 2377, 105 L.Ed.2d

132 (1989) (citing General Bldg. Contractors, 458 U.S. at 391, 102

S.Ct. at 3150). A successful § 1981 plaintiff may be entitled to

compensatory and punitive damages. Under Title II the only relief

is injunctive. Therefore, we see no reason that vicarious liability

standards under § 1981 should not also be applicable to Title II.

“ ee eg ee Oe ee ey eee ee eee

— A-11—

principles apply under § 1981). In Flanagan, we did not

foreclose the possibility that an employer must respond

in damages for the acts of a non-supervisor. Jd. Conoco

does not dispute that we must apply agency principles

in determining liability under § 1981. However, Conoco

cites a recent Supreme Court decision holding that

courts may not hold an employer vicariously liable for

the discriminatory actions of non-supervisory employ-

ees. Faragher v. City of Boca Raton, 524 U.S. 775, 118

S.Ct. 2275, 141 L.Ed.2d 662 (1998).

In Faragher, the plaintiff brought a sexual harass-

ment action under Title VII claiming sexual discrimina-

tion in the “terms, conditions, and privileges” of her

employment. Faragher, 524 U.S. at 781, 118 S.Ct. at

2280. The Court held that an employer is subject to

vicarious liability for the discriminatory actions of su-

pervisory employees where the employer undertakes

tangible employment action, discharge, demotion, or

undesirable reassignment. Jd. at 807, 118S.Ct. at 2293.

The Court further held that when no tangible employ-

ment action is taken such as in a hostile environment

sexual harassment action, “a defending employer may

raise an affirmative defense” to liability or damages ....”

Id. at 807-08, 118 S.Ct at 2293. The Supreme Court

explained that:

[w]hen a person with supervisory authority dis-

criminates in the terms and conditions of subordi-

nates’ employment, his actions necessarily draw

10“The defense comprises two necessary elements: (a) that the

employer exercised reasonable care to prevent and correct promptly

any sexually harassing behavior, and (b) that the plaintiff em-

ployee unreasonably failed to take advantage of any preventive or

corrective opportunities provided by the employer or to avoid harm

otherwise.”

— A-12 —

upon his superior position over the people who

report to him, or those under them, whereas an

employee generally cannot check a supervisor's

abusive conduct the same way that she might deal

with abuse from a co-worker. When a fellow em-

ployee harasses, the victim can walk away or tell

the offender where to go, but it may be difficult to

offer such responses to a supervisor, whose ‘power

to supervise-[which may be]-to hire and fire, and to

set work schedules and pay rates-does not disap-

pear ... when he chooses to harass through insults

and offensive gestures rather than directly with

threats of firing or promises of promotion.

Id. at 803, 118 S.Ct. at 2291.

Conoco argues that we should follow Faragher and

hold that Conoco is not vicariously liable for the actions

of Smith, a non-supervisory employee. Alternatively,

Conoco argues that even if it has some responsibility for

Smith’s acts it is entitled to assert an affirmative de-

fense as outlined by the Court in Faragher, by showing

at trial that it was not negligent. It points to the lack of

evidence indicating prior harassment by Smith that

would have notified Conoco of her behavior so that

Conoco could have had an opportunity to fashion a

remedy. We disagree with Conoco’s arguments.

The Supreme Court in Faragher recognized that in an

action based on discrimination in the workplace whether

the discriminating party is a supervisor is all-impor-

tant. The supervisor controls the career of the employee

under his supervision. The offended employee cannot

rebuke the supervisor, laugh at the supervisor, or walk

away from the supervisor as she could from a fellow

employee. In a public accommodation case such as this,

— A-13 —

the supervisory status of the discriminating employee is

much less relevant than it isin an employment discrimi-

nation case. Smith subjected Arguello and Govea to

discrimination that was just as harmful as if the dis-

criminatory acts had been committed by one of Conoco’s

supervisory employees. We are therefore not persuaded

that the Supreme Court would apply the same re-

stricted vicarious liability rule in this public accommo-

dation context as it did in Faragher, involving discrimi-

nation in the workplace.

Also, in a public accommodation case under § 1981, a

rule that only actions by supervisors are imputed to the

employer would result, in most cases, in a no liability

rule. Unlike the employment context it is rare that ina

public accommodation setting a consumer will be mis-

treated by a manager or supervisor. Most consumer

encounters are between consumers and clerks who are

non-supervisory employees.

In City of Chicago v. Matchmaker Real Estate Sales

Center, Inc., 982 F.2d 1086, 1089 (7th Cir. 1992), cert.

denied, 508 U.S. 972, 113 S.Ct 2961, 125 L.Ed.2d 662

(1993), plaintiff sued a real estate company under the

Fair Housing Act and § 1982, a companion statute to §

1981. One of the questions presented in the case was

whether the real estate company was responsible for the

discriminatory acts of its employees, who engaged in

illegal racial steering. Jd. at 1096-97. The court, apply-

ing the Restatement (Second) of Agency, held that the

real estate company was responsible for the acts of these

non-supervisory employees. Jd. at 1098. For allofthese _

reasons, we are persuaded that the restrictive rules of

respondeat superior, applied in Faragher, do not apply

to this case.

— A-14 —

Under general agency principles a master is subject to

liability for the torts of his servants while acting in the

scope of their employment. See Restatement § 219.

Some of the factors used when considering whether an

employee’s acts are within the scope of employment are:

1) the time, place and purpose of the act; 2) its similarity

to acts which the servant is authorized to perform; 3)

whether the act is commonly performed by servants; 4)

the extent of departure from normal methods; and 5)

whether the master would reasonably expect such act

would be performed. Domar Ocean Transportation Ltd.

v. Independent Refining Company, 783 F.2d 1185, 1190

(5th Cir. 1986) (citing Prosser and Keeton, The Law of

Torts 502 (5th ed. 1984); Restatement § 228.

First, we must consider the time, place and purpose of

Smith’s actions. Smith’s behavior toward Arguello and

Govea occurred while she was on duty inside of the

Conoco station where she was employed. The plaintiffs

also put forth summary judgment evidence that Smith

asked Arguello to present identification for credit card

purchases. The purpose of Smith’s interaction with

Arguello was to complete the sale of gas and other store

items. The initial confrontation and subsequent use of

racial epithets occurred while Smith was completing

Arguello’s purchase of her items and processing the

credit card transaction.

Second, we must consider whether Smith’s actions

were similar to those she was authorized by Conoco to

perform. The sale of gasoline, other store items, and the

completion of credit card purchases are the customary

functions of a gasoline store clerk. The plaintiffs pre-

sented summary judgment evidence that Smith also

used the intercom, which is also a customary action of

gasoline store clerks.

— A-15 —

Third, we will examine the extent of Smith’s depar-

ture from normal methods. It is self-evident that Smith

did not utilize the normal methods for conducting a sale.

There was no summary judgment evidence presented

that Conoco expected or anticipated that Smith would

perform her functions in this manner. The appellees

would have this court adopt the position that because

Smith’s use of racial epithets is comparable to the

commission of an intentional tort, Conoco should not be

held liable for Smith’s behavior. However, the fact that

an employee engages in intentional tortious conduct

does not require a finding that the employee was outside

the scope of his employment. Domar, 783 F.2d at 1190

(citing Restatement § 231). In Domar, we found that a

captain of a tanker vessel who stole crude oil and sold

the oil was within the scope of his employment when he

committed the theft and sale. Jd. This court found that

the captain’s illegal actions took place while he was

serving as master of the vessel and that the illegal

transaction was similar to other transactions he had

authority to perform. Id. We correctly concluded that

although the captain’s employer did not expect the

captain to steal the cargo, that factor was outweighed by

the other considerations. Jd. In the present case, al-

though Conoco could not have expected Smith to shout

racial epithets at Arguello and Govea, Smith’s actions

took place while she was performing her normal duties

as aclerk. Conoco, Inc. had authorized Smith to interact

with customers as they made purchases. Therefore,

although Smith did depart from the normal methods of

conducting a purchase this does not lead to the conclu-

sion that as a matter of law she was outside the scope of

her employment.

Finally, we must consider whether Conoco could have

reasonably expected Smith to act in a racially discrimi-

— A-16 —

natory manner. There is no evidence in the record on

this prong of the test. However, we note that even if

Conoco is able to show that they could not have expected

this conduct by Smith, the jury is entitled to find that

the other factors outweigh this consideration. Domar,

783 F.2d at 1190.

In assessing whether Smith was within the scope of

her employment the district court found that the only

summary judgment evidence presented by the plaintiffs

was that Smith was working in her job as cashier when

the offensive behavior occurred. The district court con-

cluded that the summary judgment evidence was insuf-

ficient to “overcome the common-sense conclusion” that

Smith’s offensive actions were not within the scope of

her employment. However, we reject the presumption

that because Smith behaved in an unacceptable manner

that she was obviously outside the scope of her employ-

ment. See Domar, 783 F.2d at 1190. The plaintiffs did

present summary judgment evidence that Smith was on

duty as aclerk, and that she was performing authorized

duties such as conducting sales. This summary judg-

ment evidence is not insignificant. Smith’s position as

clerk, and her authorization from Conoco to conduct

sales allowed her to interact with Arguello and Govea,

and put Smith in the position to commit the racially

discriminatory acts. The plaintiffs also presented sum-

mary judgment evidence that Smith used her authority

to conduct credit card transactions and use the gas

station intercom system to commit the acts in question.

It is also important to note that Conoco does not

challenge whether this incident occurred. Smith admit-

ted to a Conoco district manager that she did subject

Arguello and Govea to the use of racial epithets, profan-

ity, and obscene gestures. The only dispute is whether

SCR Haney,

is aE ie

‘ —A-17 —

there is a legal remedy for Arguello and Govea by

holding Conoco liable for Smith’s actions. The plaintiffs

contend that the inference that should be drawn from

Smith’s actions is that Smith was authorized by Conoco

to perform the actions of aclerk and that this meant that

her actions while on duty as clerk were within the scope

of her employment. Conoco, utilizing the same facts

asks us to draw the inference that because Smith was

acting on personal racial bigotry and animosity that she

was outside the scope of her employment.

This court has repeatedly held that when the basic

facts of a case are undisputed and the parties disagree

about the material factual inferences that may be drawn

from these facts summary judgment may be improper.

See Winters v. Highlands Insurance Company, 569 F.2d -

297, 299 (5" Cir. 1978). Summary judgment is appropri-

ate when a party fails to “make a showing sufficient to

establish the existence of an element essential, to the

party’s case, and on which that party will bear the

burden of proof at trial.” Celotex Corporation v. Catrett,

477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265

(1986).

The plaintiffs in the present case do bear the burden

of proof to establish the existence of an agency relation-

ship between Smith and Conoco. See Karl Rove & Co. v.

Thornburg, 39 F.3d 1273, 1296 (5" Cir. 1994). To estab-

lish an agency relationship between Smith and Conoco

the plaintiffs must establish that Smith was within the

scope of her employment when she committed the ra-

cially discriminatory acts against Arguello and Govea.

See Restatement § 319. The factors for establishing

scope of employment were outlined in Domar. As we

have discussed supra it is clear that the plaintiffs have

presented summary judgment evidence regarding these

— A-18 —

factors. Therefore, the plaintiffs have met the standard

set forth in Celotex, and summary judgment should not

have been granted in favor of Conoco.

D. Non-Delegable Duty

Appellants argue in the alternative that even if Smith

was outside the scope of her employment Conoco should

still be held liable because it had a non-delegable duty

not to discriminate against minority consumers. A mas-

ter is not subject to liability for the torts of his employees

acting outside the scope of their employment, unless: 1)

the master intended the conduct or consequences, 2) the

master was negligent or reckless, or 3) the conduct

violated a non-delegable duty of the master, or 4) the

employee purported to speak on behalf of the principal.

Restatement § 219(2). The argument that an employer

has a non-delegable duty under § 1981 not to discrimi-

nate has been largely foreclosed by the Supreme Court

in General Building Contractors, 458 U.S. at 395. In

General Building Contractors, the Supreme Court stated

that § 1981 is meant to prohibit employers from inten-

tional discrimination and not intended to make them

guarantors of rights against all third parties. See Gen-

eral Building Contractors, 458 U.S. at 396. Therefore, it

follows that the duty not to discriminate is not a non-

delegable duty, instead a plaintiff must establish a close

connection between the employer and the third party

who engages in the intentional discrimination.

Plaintiffs also argue in the alternative that Conoco

ratified the actions of Smith by not suspending or firing

her. In order for an employer to be found to have ratified

the actions of an employee the employer must know of

the act and adopt, confirm, or fail to repudiate the acts

of its employee. See generally, Prunty v. Arkansas

Freightways, Inc., 16 F.3d 649, 653-54 (5" Cir. 1994). In

— A-19 —

the present case, after Conoco was notified of Smith’s

actions, a customer service supervisor, Linda Corbin,

told Arguello and Govea that she agreed that Smith had

acted inappropriately and she counseled Smith about

her behavior. While Conoco did not fire or suspend

Smith, it does not appear that Conoco ratified Smith’s

actions.

E. Disparate Impact Claims under Section 2000a

Appellants argue that the district court erred in

finding that as a matter of law the plaintiffs could not

state a claim for redress under 42 U.S.C. § 2000a (“Title

II”) based on a disparate impact theory. The district

court found that the language of Title II evidences an

intent to prohibit only intentional discrimination and

that disparate impact claims are not cognizable under

Title II. However, the district court offered no authority

to support that proposition. Neither the Supreme Court

nor this court has addressed the question of whether

disparate impact claims are cognizable under Title II.

Furthermore, the law in the other circuits is generally

unclear as to whether disparate impact claims are

recognized under Title II."

In the present case, even assuming arguendo that

disparate impact claims are cognizable under Title II,

'' See Stephen E. Haydon, A Measure of Our Progress: Testing

for Race Discrimination in Public Accommodations, 44 UCLA L.

Rev. 1207, 1220 n.47 (1997). There are cases in which courts have

acknowledged disparate impact theories in Title II cases. See e.g.,

Robinson v. Power Pizza, Inc., 993 F.Supp. 1462, 1464-65 (M.D.

Florida 1997) (parties agreed and court applied disparate impact

analysis in Title II claim); Olzman v. Lake Hills Swim Club, 495

F.2d 1333, 1340 (2d Cir. 1974) (using disparate impact analysis in

case against social club in which plaintiffs challenged facially

neutral club guest policy).

— A-20 —

the plaintiffs did not establish a prima facie case of

discrimination of the type required in disparate impact

claims.” The plaintiffs failed to allege that there was a

specific Conoco policy which had a negative disparate

effect on minority customers. The plaintiff's complaint

contains general allegations that Conoco’s policies and

or practices though neutral on their face have a dispar-

ate impact on black and Hispanic persons. In their

original complaint and subsequent amended complaints

plaintiffs failed to identify any specific Conoco policy

that hada discriminatory effect. Furthermore, the plain-

tiffs also failed to provide a specific allegation that any

Conoco practice or policy was having an effect on an

identified class of Conoco’s consumers. The plaintiffs’

complaints set forth facts regarding approximately six

specific incidents of racially discriminatory treatment,

but do not establish any widespread or general effect on

minority consumers. During discovery it was shown

that in a two year period Conoco received between ten

and twenty compiaints which alleged racial discrimina-

tion. Therefore, because the plaintiffs’ allegations could

not support a disparate impact claim, we decline to

decide whether disparate impact claims are generally

cognizable under Title II. We conclude that the district

court properly granted the motion to dismiss under

12(b)(6) for failure to state a claim upon which relief can

be granted.

'2In disparate impact claims the plaintiff must first establish

that there is neutral policy or practice that has had a discrimina-

tory impact on a particular group. See e.g., Griggs v. Duke Power

Company, 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed. 2d 158 (1972);

Simms v. First Gibraltor Bank, 83 F.3d 1546, 1555 (5 Cir. 1996).

— A-21 —

CONCLUSION

We hold that the district court did not err in finding

that no agency relationship existed between Conoco,

Inc. and its branded stores, and properly entered sum-

mary judgment against the Escobedos, Ivory, Pickett,

and Ross. We also affirm the district court’s dismissal of

the plaintiffs’ disparate impact claims for failure to

state a claim upon which relief could be granted. We

reverse the district court’s determination that Cindy

Smith acted outside the scope of her employment as a

matter of law and remand for further proceedings con-

sistent with this opinion.

AFFIRMED in part, and REVERSED in part.

a =. yee

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

Civil Action No. 3:97-CV-0638-H

DENISE ARGUELLO, et al.,

Plaintiffs

V.

CONOCO, INC.,

Defendant.

MEMORANDUM OPINION AND ORDER

[Filed: October 7, 1998]

Before this Court is Defendant Conoco, Inc.’s Motion

for Summary Judgment, with a supporting brief and

appendix, filed July 27, 1998; Plaintiffs’ Response to

Defendant’s Motion for Summary Judgment, with a

supporting brief and appendix, filed August 31, 1998;

and Defendant’s Reply Brief, filed September 21, 1998.

Plaintiffs sue for injunctive relief and monetary dam-

ages basec on the allegedly discriminatory treatment

they received at Conoco gas stations. Defendant Conoco,

Inc. (“Conoco”) now moves for summary judgment argu-

ing that it is not legally responsible for the discrimina-

tory acts of its employee or the employees of indepen-

dently owned and operated Conoco franchises (herein-

after, “Conoco-branded stores”). Plaintiffs oppose this

motion.

Having considered the motions and briefs of both

parties, and for the reasons set forth below, the Court

concludes that there is no genuine issue of material fact

and that Defendant Conoco is entitled to judgment as a

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— A-23 —

matter of law. Defendant Conoco’s Motion for Summary

Judgment will be granted.

I. BACKGROUND

Plaintiffs Denise Arguello, Manuel Escobedo, Martha

Escobedo, Alberto Govea, Gary Ivory, Anthony Pickett,

and Michael Ross brought this suit claiming Conoco gas

stations were discriminating against Hispanics and

African-Americans in their provision of services. The

incidents underlying this suit allegedly transpired

against three distinct groupings of the plaintiffs at no

less than five different Conoco gas stations. Further-

more, the specific Conoco gas stations involved can be

divided into two distinct classes, the one store directly

owned and operated by Defendant Conoco, Inc., and the

four other stores independently owned and operated by

franchisees of the Defendant — the Conoco-branded

stores.

A. Incident Involving Plaintiffs Arguello and

Govea

Plaintiffs Denise Arguello and Alberto Govea claim

that in March of 1995, Plaintiff Arguello, her husband,

three of her children, Plaintiff Govea (who is Plaintiff

Arguello’s father), and Plaintiff Govea’s wife (who is

also Plaintiff Arguello’s mother) stopped at a Conoco gas

station on Randol Mill in Fort Worth, Texas to purchase

gasoline and some beer and soda. This station is owned

and operated by Defendant, Conoco. When Denise

Arguello, along with her father, Alberto Govea, at-

tempted to pay for her purchases with an American

Express card, the cashier at the store, Ms. Cindy Smith,

asked Ms. Arguello to provide some sort of identification

in order to complete the purchase. When Ms. Arguello

— A-24 —

presented her Oklahoma! driver’s license, Ms. Smith

refused to accept it, claiming it was an invalid form of

identification and that it was her duty to refuse out-of-

state driver’s licenses. Ms. Smith eventually accepted

Ms. Arguello’s credit card, but while Ms. Arguello was

signing the receipt for her credit card purchase, Ms.

Smith began to yell racial obscenities at her. This

haranguing continued even after Ms. Arguello and Mr.

Govea left the store. Ms. Smith utilized the store’s

intercom to continue her racial slurs, while supplement-

ing them with obscene gestures.

Ms. Arguello and Mr. Govea reported this incident to

the store manager and the district manager of Conoco.

The district manager had viewed a videotape of the

incident and agreed with Ms. Arguello that she had

been mistreated. Ms. Smith was transferred to another

store.

B. Incident Involving Plaintiffs Gary Ivory.

Anthony Pickett and Michael Ross

In September 1995, at a Conoco-branded store located

on Country Club Lane in Fort Worth, Texas, Gary Ivory,

Anthony Pickett and Michael Ross, all of whom are

black, were suspected of theft and told by a store clerk

that “we don’t serve you people” and that “you always

act like this.”

C. Incidents Involving Plaintiffs Manuel and

Martha Escobedo

In November 1996, while at a Conoco-branded store

in San Marcos, Texas, a store clerk called Martha

Escobedo an obscene name, and told her and Manuel

'Ms. Arguello is a resident of Broken Arrow, Oklahoma.

— A-25 —

Escobedo (her husband) that “you Mexicans need to go

back to Mexico.” Furthermore, the Escobedos assert

they have consistently been asked to prepay for gas at

Conoco-branded stores in Laredo, Texas, while white

customers have not.

D. Procedural History of The Plaintiffs’ Suit

On March 24, 1997, Plaintiffs filed their Original

Complaint — Class Action, alleging Defendant Conoco,

Inc., discriminated in providing services to African-

American and Hispanic customers. On March 27, 1997,

Plaintiffs filed their First Amended Complaint, aver-

ring causes of action under 42 U.S.C. § 1981 (the Civil

Rights Act of 1866), 42 U.S.C. § 1985(3) (civil con-

spiracy), 42 U.S.C. § 2000a (Title II - Public Accommo-

dations), Texas Business and Commerce Code § 17.50

(Texas Deceptive Trade Practices Act (“DTPA”)), and

common law negligent supervision. On April 28, 1997,

Conoco moved for the dismissal of all claims based on

allegations of disparate impact, the DTPA, and negli-

gent supervision. This Court granted Defendant’s mo-

tion in a July 21, 1997, Memorandum Opinion and

Order. On September 24, 1997, Conoco filed a Federal

Rule of Civil Procedure 12(b)(6) motion to dismiss for

failure to state a claim or, in the alternative a Rule 12(c)

motion for judgment on the pleadings with regards to

the Plaintiffs’ remaining claims. This Court, in a No-

vember 21, 1997, Memorandum Opinion and Order,

granted that motion as to Plaintiffs’ claims under 42

U.S.C. § 1985(3), but denied it as to their claims under

42 U.S.C. § 1981 and 42 U.S.C. § 2000a. On March 28,

1998, Plaintiffs filed their Fourth Amended Complaint,

which deleted from their Complaint the class action and

pattern and practice allegations. Conoco filed this mo-

tion for summary judgment on July 27, 1998.

ow Me xe

II. RELEVANT STANDARD

The Federal Rules of Civil Procedure provide that

summary judgment shall be rendered when the evi-

dence establishes that there is “no genuine issue as to

any material fact” and that the movant is “entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56 (c); see

Ruiz v. Whirlpool, Inc., 12 F.3d 510, 513 (5th Cir. 1994);

Armstrong v. City of Dallas, 829 F. Supp. 875, 876(N.D.

Tex. 1992), affd 997 F.2d 62 (5th Cir. 1993). Under

proper circumstances, awarding summary judgment is

favored in the federal courts: “Summary judgment rein-

forces the purpose of the Rules, to achieve the just,

speedy, and inexpensive determination of actions, and,

when appropriate, affords a merciful end to litigation

that would otherwise be lengthy and expensive.” Fontenot

v. Upjohn Co., 780 F.2d 1190, 1197 (5th Cir. 1986)

(footnote omitted).

A summary judgment movant must inform the court

of the basis for the motion and identify the material

specified in Rule 56(c) that it believes demonctrates the

absence ofa genuine issue of material fact. Celotex Corp.

v. Catrett, 477 U.S. 317, 322-23 (1986); Topalian v.

Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied,

506 U.S. 825 (1992). Ifthe movant falls to meet its initial

burden, the motion must be denied, regardless of the

nonmovant’s response. Little v. Liquid Air Corp., 37

F.3d 1069, 1975 (5th Cir. 1994) (en banc).

If the movant carries its burden, the burden shifts to

the nonmovant to show that summary judgment should

not be granted. Celotex, 477 U.S. at 324. A party oppos-

ing summary judgment must go beyond the pleadings

and “set forth specific facts” showing that there is a

“genuine issue for trial.” Fed. R. Civ. P. 56(e); see

——

— A-27 —

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256

(1986); Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio

Corp., 475 U.S. 574, 587 (1986); Ruiz, 12 F.3d at 513;

Armstrong, 829 F. Supp. at 876. A party opposing

summary judgment may not rest on mere conclusory

allegations or denials in the pleadings. Fed. R. Civ. P.

56(e); see also Hightower v. Texas Hosp. Ass‘n., 65 F.3d

443, 447 (5th Cir. 1995). Furthermore, a party “must do

more than simply show that there is some metaphysical

doubt as to the material facts.” Matsushita, 475 U.S. at

586. There must be “significant probative evidence” on

which a jury could reasonably find for the nonmovant.

Anderson, 477 U.S. at 249.

In determining whether a genuine issue exists for

trial, the Court must view the evidence introduced and

all factual inferences from the evidence in the light most

favorable_-to the nonmovant. Eastman Kodak v. Image

Technical Servs., Inc., 504 U.S. 451, 456-58 (1992);

Gremillion v. Gulf Coast Catering Co., 904 F.2d 290, 292

(5th Cir. 1990); see also Bodenheimer v. PPG Indus.,

Inc., 5 F.3d 955, 956 (5th Cir. 1993). If the record, taken

as a whole, cannot “lead a rational trier of fact to find for

the nonmoving party,” no genuine issue remains for

trial. Matsushita, 475 U.S. at 587; see Friou v. Phillips

Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991).

Ill. ANALYSIS

As the case now stands, plaintiffs seek relief under

two different statutes based on events which occurred at

Conoco gas stations under two distinct ownership struc-

tures. Plaintiffs seek relief under both 42 U.S.C. § 1981

(the Civil Rights Act of 1866) and 42 U.S.C. § 2000a

(Title If — Public Accommodations). The incident un-

derlying the claims of plaintiffs Denise Arguello and

— A-28 —

Alberto Govea occurred at a gas station owned and

operated by Conoco. The claims of the other plaintiffs

arise from events which transpired at Conoco-branded

stores. The analysis as to the potential liability of

Conoco is different for each of the two ownership struc-

tures.

A. 42U.S.C.§ 1981

Section 1981 provides that all persons in the United

States shall have the same contractual rights as white

citizens. 42 U.S.C. § 1981(a). “Claims of racial discrimi-

nation brought under § 1981 are governed by the same

evidentiary framework applicable to claims of employ-

ment discrimination brought under Title VII.”

Deffenbaugh-Williams v. Wal-Mart Stores, Inc., __ F.3d

__, No 97-10685, 1998 WL 645810, at *4 (5th Cir. Sept.

24, 1998) quoting LaPierre v. Benson Nissan, Inc., 86

F.3d 444, 448 n.2 (5th Cir. 1996). Thus, to prevail under

§ 1981, the plaintiff must establish a prima facie case of

intentional discrimination. If the plaintiff successfully

establishes a prima facie case, the burden then shifts to

the defendant to articulate a legitimate non-discrimina-

tory reason for the challenged action. If the defendant

meets this burden, the plaintiff must then demonstrate

that the defendant’s proffered explanation is not the

actual reason for its decision, but is instead a pretext for

discrimination. See Rhodes v. Guiberson Oil Tools, 75

F.3d 989, 992-93 (5th Cir. 1996) (en banc).

B. Title II of the Civil Rights Act of 1964, 42

U.S.C. 2000a

Title II of the Civil Rights Act of 1964 (“Title II”)

entitles all persons to the full and equal enjoyment of

the goods, services, facilities, privileges, advantages,

and accommodations of any place of public accommoda-

tion, without discrimination on the basis of race, color,

ie il

religion, or national origin. 42 U.S.C. § 2000a(a). The

statute further prohibits any person from withholding,

denying, or attempting to withhold or deny any person

any right secured by Title II, 42 U.S.C. § 2000a-2. The

statute also creates a private right of action for injunc-

tive relief, but not for monetary damages. 42 U.S.C. §

2000a-3(a).

The parties do not indicate, and the Court’s indepen-

dent research has not revealed, Fifth Circuit cases

discussing the burdens on the respective parties in

relation to a claim under Title II. Those courts which

have considered the issue have applied the well-estab-

lished burden-shifting rules governing Title VII. See

Hornick v. Noyes, 708 F.2d 321, 325 n.8 (7th Cir. 1983)

(upholding the district court’s application of the burden-

shifting framework of Title VII established in Texas

Dep‘t of Community Affairs v: Burdine, 450 U.S. 248

(1981)); Robinson v. Power Pizza, Inc., 993 F. Supp.

1462, 1464 (M.D. Fla. 1998) (utilizing the Title VII

burden-shifting test in Title II case.); Boyle v. Jerome

Country Club, 883 F. Supp. 1422, 1429 (D. Idaho 1995)

(applying Burdine burden-shifting rules to Title II).

Since no Fifth Circuit case discusses the proper frame-

work to use, and the Fifth Circuit has not hesitated to

apply the Title VII burden-shifting framework outside

of Title VII, see Rhodes, 75 F.3d at 992 n.3 (applying

Title VII burden-shifting rules to age discrimination

claims); Harrington, 118 F.3d at 367 (applying Title VII

burden-shifting rules to claims arising under 42 U.S.C.

§ 1981), this Court will apply the burden-shifting rules

established in Burdine and its progeny to this case.

OE

— A-30 —

C. Plaintiffs Gary Ivory. Anthony Pickett.

Michael Ross. Martha Escobedo, Manuel

Escobedo

The causes of action of plaintiffs Ivory, Pickett, Ross,

and the Escobedos (Martha and Manuel) under 42

U.S.C. § 1981 and Title II stem from at least three

separate incidents at four different Conoco-branded

stores. The issue presented is to what extent can a third-

party hold a franchisor liable for the torts of the employ-

ees of a franchisee.

This inquiry begins with the basic question of whether

an agency relationship exists between Conoco, Inc., and

Conoco-branded stores such that the acts of a Conoco-

branded store can be considered the acts of the Defen-

dant, and therefore, the Defendant can be held legally

accountable. The essential element of an agency rela-

tionship is the right of control. The alleged principal

must “have the right to control both the means and the

details of the process by which the alleged agent is to

accomplish his task.” Matter of Carolin Paxon Advertis-

ing; Inc., 938 F.2d 595, 598 (5th Cir. 1991). Moreover,

this right of control must pertain to a task or matter

material to the lawsuit. O’Bryant v. Century 21 South

Central States, Inc., 899 S.W.2d 270, 271 (Tex. App.

1995, no writ).

Plaintiffs Ivory, Pickett, Ross, and the Escobedos

attempt to establish this element of control by pointing

to the Petroleum Marketer Agreements (PMAs) be-

tween Defendant Conoco, Inc., and the Conoco-branded

stores. (See Defs App. in Supp. of Mot. for Summ. J. at

APP 0001 - 0302.) Each of the PMAs between Conoco

and the Conoco-branded stores at question provides

that the Conoco-branded store shall conduct its inde-

— A-31 —

pendent business operations consistent with the stan-

dards and requirements set forth in the agreement, one

of which is to treat all customers “fairly, honestly, and

courteously.” (Def’s App. in Supp. of Mot. for Summ. J.

q 3(1)(9) at APP 0003; J 4(H)(1)(e) at APP 0032.) How-

ever, as Conoco points out, the same PMAs define the

relationship between Conoco and the Conoco-branded

stores as follows:

The [Conoco-branded store] is an independent busi-

ness and is not, nor are its employees, an employee

of Conoco. Conoco and the [Conoco-branded store]

are completely separate entities. They are not part-

ners, general partners, limited partners, joint ven-

turers, nor agents of each other in any sense what-

soever and neither has the power to obligate or bind

the other.

(Def’s App. in Supp. of Mot. for Summ. J. {10 at APP

0014; 714 at APP 0110.)

To overcome this express clause of no agency relation-

ship in the PMAs, the plaintiffs must produce proof to

show that the true operating agreement was one which

vested the right of control in the franchisor.” O’Bryant

899 S.W.2d at 272. The plaintiffs have not offered any

such summary judgment evidence. All that the PMAs

establish is that Conoco has contracted for protections of

its trademark. The PMAs do not in and of themselves

create an agency relationship. Moreover, Plaintiffs have

not offered any summary judgment evidence demon-

strating that Conoco controlled the details of the daily

operations of the Conoco-branded stores. On the other

hand, Conoco presents summary judgment evidence

that issues such as the hiring and firing of employees

are left to the absolute discretion of each Conoco-branded

— A-32 —

store. (See Decl. of Alan K. Kosley, Marketing Manager,

Wholesale, Branded Marketing Gulf Coast at J11, Def’s

App. in Supp. of Mot. for Summ. J. at APP 0305.) This

evidence further confirms the conclusion that Conoco

did not control the “means and details” of the operation

of the Conoco-branded stores. Therefore, as a matter of

law, Conoco-branded stores are not the agents of Conoco,

Inc. See also Perry v. Burger King Corp., 924 F. Supp.

548, 554 n.4 (S.D.N.Y. 1996) (listing analogous cases

finding franchisee is not the agent of the franchisor).

Since the Conoco-branded stores are not agents of

Defendant Conoco; it follows that the employees of a

Conoco-branded store are also not the agents of Defen-

dant Conoco. That being so, Defendant Conoco cannot

be held liable for any of the discriminatory acts of the

employees of the Conoco-branded stores.

Plaintiffs Ivory, Pickett, Ross, and the Escobedos also

attempt to establish Defendant Conoco’s liability by

claiming that the Defendant cannot absolve itself from

liability by delegating the duty not to discriminate to an

agent. This argument fails for two reasons. First, the

Conoco-branded stores are not agents of Conoco, so

there has been no delegation of a non-delegable duty to

an agent. Second, in making this argument plaintiffs

rely on housing discrimination cases grounded in the

underlying policies and language of the Fair Housing

Act, 42 U.S.C. § 3601, et. seg, which do not apply to the

situation in this case.

Plaintiffs Ivory, Pickett, Ross, and the Escobedos

have not offered any evidence or theory under which

Defendant Conoco can be held liable; there being no

genuine issue of material fact, Defendant Conoco’s

Motion for Summary Judgment is granted and all claims

— A-33 —

of plaintiffs Ivory, Pickett, Ross, and the Escobedos

against Defendant Conoco must be dismissed.

D. The Claims of Plaintiffs Denise Arguello

and Alberto Govea

Plaintiffs Denise Arguello and Alberto Govea suit

against Conoco for violations of both 42 U.S.C. § 1981

and Title II is based on an incident with the cashier at

a Conoco gas station on Rando! Mill in Fort Worth,

Texas. This particular station is owned and operated by

Defendant Conoco, Inc. The question, therefore, be-

comes to what extent may Conoco be held liable for the

discriminatory acts of its employee towards a third

party.

The Supreme Court considered the issue of vicarious

liability under 42 U.S.C. § 1981 in General Building

Contractors Association v. Pennsylvania, 458 U.S. 375

(1982), but did not determine whether the mere exist-

ence of an agency relationship without more is sufficient

to impose liability under § 1981. In applying General

Building Contractors, the Fifth Circuit has allowed for

a principal to be held liable under § 1981 for the acts of

an agent, with the qualification that the finding of

intentional discrimination necessary to a § 1981 claim

“demands a closer look at the relationship between

principal and agent.” Flanagan v. A.E. Henry Commu-

nity Health Servs. Ctr., 876 F.2d 1231, 1236 (5th Cir.

1989). In Flanagan, the Circuit Court found a suffi-

ciently close agency relationship between the Medical

and Executive Directors of a community health center

and the health center itself to find the health center

liable based on the acts of the Directors. Therefore, to

determine Conoco’s liability for the discriminatory acts

of its employee the Court will look to the existence of an

— A-34 —

agency relationship and the basic principles of agency

law.”

Under the common law of agency,’ an employer is not

responsible for every tort or wrongful act committed by

an employee. In general, an employer is liable only for

those torts of an employee committed within the “scope

? Conoco, relying on a favorable reference to a Seventh Circuit

case, Hunter v. Allis-Chalmers Corp., 797 F.2d 1417 (7th Cir.

1986), in Flanagan, 876 F.2d at 1236, pushes the argument that it

is not the existence of an agency relationship with the employee

which determines their liability but whether the employee was a

managerial or non-managerial employee. The Court has been

unable to locate Fifth Circuit precedent in support of Conoco’s

argument.

3 In a recent decision examining the limits of an employer’s

vicarious liability for the discriminatory acts of an employee under

Title VII of the Civil Rights Act of 1964, Burlington Indus., Inc. v.

Ellerth, 118 S.Ct. 2257 (1998), the Supreme Court turned to the

principles of agency law. In so doing the Court relied on “the

general common law of agency, rather than the law of a particular

state” in an effort to establish “a uniform and predictable stan-

dard” as a matter of federal law. Jd. at 2265. Before this decision,

the Fifth Circuit had also utilized common law agency principles

to determine an employer’s vicarious liability under Title VII.

Long, 88 F.3d at 306. While this Court recognizes that in Burlington

the Supreme Court was interpreting the specific meaning of a

specific word in a specific statute (“employer” as used in Title VII),

the general principles of uniformity and predictability of liability

under a federal statute apply with equal force to § 1981. The Court

also notes that, since Texas has adopted the Restatement (Second)

of Agency’s general test for respondeat superior liability, the

analysis would be substantially the same under the law of Texas.

See Moore’s; Inc. v. Garcia, 604 S.W.2d 261 (Tex. App. 1980, no

writ) (finding the Restatement (Second) of Agency is the control-

ling statement of law); see also Rodriguez v. Sarabyn, 129 F.3d 760,

768 (5th Cir. 1997) (looking to Restatement (Second) of Agency in

determining employer liability under Texas law).

— A-35 —

of employment.” An employee’s “scope of employment”

has traditionally been defined as conduct “of the kind

[the employee] is employed to perform,” occurring “sub-

stantially within the authorized time and space limits,”

and actuated, at least in part, by “a purpose to serve the

master.” Id, § 228. However, an employer may be liable

for the actions of an employee which are outside the

scope of employment if (1) the employer intended the

conduct or consequences of the actions; (2) the employer

was negligent or reckless; (3) the conduct violated a non-

delegable duty of the employer; or (4) the employee

purported to act or to speak on behalf of the employer

and there was reliance upon apparent authority; or the

employee was aided in accomplishing the tort by the

existence of the agency relation. Restatement (Second)

of Agency, § 219 (1957).

Traditionally, the intentional torts of an employee

have been determined to be outside of the scope of the

employee’s employment. Such acts are viewed as being

committed for reasons of personal ill will and not for the

purpose of serving the employer. See Id, § 235 crnt. a.

illus. 2. While employers are not absolutely absolved of

responsibility for their employees’ intentional torts it is

“accepted that ‘it is less likely that a willful tort will

properly be held to be in the course of employment and

that the liability of the master for such torts will natu-

rally be more limited.” Burlington, 118 S.Ct. at 2266,

quoting F. Mechem, Outlines of the Law of Agency § 394,

p. 266 (P. Mechem 4th ed., 1952).

In this case, Plaintiffs Arguello and Govea contend

that Conoco’s employee, Ms. Cindy Smith, was acting

within her scope of employment when she began berat-

ing them with racial slurs. Since the plaintiffs are

alleging the existence of the agency relationship, they

io

have the burden of establishing its existence. Karl Rove

& Co. v. Thornburg, 39 F.3d 1273, 1296 (5th Cir. 1994).

The only summary judgment evidence Plaintiffs have

offered in support of their claim of agency is that Ms.

Smith was working in her job as a cashier when she

engaged in her offensive behavior and that she claimed

that it was her duty to refuse Ms. Arguello’s out-of-state

driver's license. Even taken in the light most favorable

to the Plaintiffs, this quantum of summary judgment

evidence is simply insufficient to overcome the common-

sense conclusion that her offensive actions were not

within the scope of her employment. Plaintiffs have not

furnished any summary judgment evidence establish-

ing Conoco’s corporate polices as to the acceptance of

credit cards from customers or requests for identifica-

tion. Additionally, Plaintiffs do not provide any sum-

"mary judgment evidence that Ms. Smith was under the

impression that her behavior would somehow benefit

her employer. Consequentiy, this Court finds that Ms.

Smith was acting outside the scope of her employment

and, therefore, Defendant Conoco is not liable for her

personal discriminatory acts.

Furthermore, Conoco cannot be held liable for Ms.

Smith’s actions under any of the other agency principles

delineated in Section 219 of the Restatement (Second) of

Agency. Plaintiffs have not offered any summary judg-

ment evidence to demonstrate Conoco intended for her

to behave in this way. There is no summary judgment

evidence to find Conoco reckless or negligent. Plaintiffs’

allegations do not concern a non-delegable duty. No

summary judgment evidence has been offered to estab-

lish that Ms. Smith was somehow aided in accomplish-

ing the tort by the existence of her relationship with

Conoco. Finally, Plaintiffs have not alleged that Conoco

REIT. dehy) At SO a RRR A SAE SIT ORGY ROS Cire CONS wang

het

has in any way ratified Ms. Smith’s behavior; indeed,

the facts are to the contrary. See p .3, supra.

Since Conoco is not liable for the actions of Ms. Smith

as a matter of law, and there are no genuine issues of

material fact, Defendant Conoco’s Motion for Summary

Judgment is granted with respect to Plaintiffs Arguello

and Govea’s claims against Defendant Conoco.

IV. CONCLUSION

Defendant Conoco is entitled to judgment as a matter

of law. Defendant Conoco’s Motion for Summary Judg-

ment is GRANTED as to all claims of all plaintiffs.

Judgment will be entered accordingly.

SO ORDERED.

DATED: October 7, 1998

/s/ Barefoot Sanders

BAREFOOT SANDERS

SENIOR U.S. DISTRICT

COURT JUDGE

NORTHERN DISTRICT OF

TEXAS

— A-38 —

D STATES DISTRICT COURT

HERN DISTRICT OF TEXAS

H

IN THE UNITE

FOR THE NORT

Civil Action No. 3-97-CV-0638-

DENISE ARGUELLO, et al.,

Plaintiffs

Vv

CONOCO, INC.,

Defendant.

JUDGMENT

[Filed: October 7, 1998]

the Court’s

entered pursuant to

ber 7, 1998.

Memorandum Opinion and Order, filed Octo

IT IS ORDERED, ADJUDGED and DECREED by

the Court that the Plaintiffs take nothing by their suit

against the Defendant Conoco, Inc., and that this suit

be, and it is hereby, DISMISSED with prejudice.

SIGNED this 7 day of October,

/s/ Barefoot Sanders

BAREFOOT SANDERS

SENIOR U.S. DISTRICT

COURT JUDGE

NORTHERN DISTRICT

OF TEXAS

This Judgment is

1998.

s — A-39 —

APPENDIX C

CONOCO INC.

PETROLEUM MARKETER AGREEMENT

This Agreement, effective on the lst day of April,

1993 (“Effective Date”), by and between Conoco Inc., a

Delaware corporation (hereinafter called “Conoco”), and

Classic Group, Inc. (hereinafter called “Marketer”),

whose mailing address is 5840 W. Interstate 20, #280,

City of Arlington, TX, Zip 76017.

WITNESSETH:

WHEREAS, Conoco is engaged in the business of oil

exploration, refining and marketing under Conoco trade-

marks and trade names, and has made a significant

investment over the years in developing quality prod-

ucts and promoting the Conoco trademarks and trade

names; and

WHEREAS, Marketer recognizes that Conoco has a

protectible business interest in ensuring that Marketer’s

distribution of Conoco-branded products under this

Agreement will be accomplished in a manner which

respects the high standards, reputation, and integrity

of the Conoco trademarks and trade names which Conoco

has created over the years; and

WHEREAS, Conoco’s ability to recover its costs and

investment in its relationship with Marketer are depen-

dent on its sales of petroleum products to Marketer

under this Agreement, it is specifically understood and

agreed by Marketer that the minimum volume require-

ments are reasonable and of material significance to

this Agreement, and Marketer further understands

that Conoco may adjust said minimum volume require-

ment upon any renewal of this Agreement in order to

— A-40 —

assure an economic relationship between Conoco and

Marketer; and

WHEREAS, Conoco and Marketer desire to set out

the terms and conditions under which Conoco shall sell

to Marketer and Marketer shall purchase from Conoco

various petroleum products for resale by Marketer to

Marketer's customers under Conoco’s trademark and

trade names, and

WHEREAS, Marketer’s failure to carry out its re-

sponsibilities hereunder jeopardize the reputation of

Conoco, and Marketer acknowledges that adherence to

the terms of this Agreement is & matter of mutual

importance and consequence to Marketer, to Conoco,

and to all other Conoco-branded marketers.

-NOW, THEREFORE, In consideration of the mutual

benefits to be derived by Conoco and Marketer from the

execution of this Agreement, the parties hereto agree as

follows:

1. Selling Rights. As long as this Agreement shall

remain in effect, Marketer shall have the right to pur-

chase from Conoco (according to the provisions of para-

graph 13 and Exhibit “A” of this Agreement) and to sell

to its customers petroleum products bearing the Conoco

brand or certain other brands owned by Conoco (herein-

after called “Conoco products”). Subject to the terms of

this Agreement, Marketer shall prominently display

Conoco’s trademarks and trade names and shall grant

credit to holders of Conoco credit cards at its places of

business where Conoco marketing standards are main-

Nothing contained herein shall be construed as grant-

ing Marketer an exclusive territory or an exclusive

3. Duties and Obligations of Conoco. Conoco Shall sel]

to Marketer the quantities of Conoco Products set forth

in Exhibit “A” (and Exhibit “E” if Marketer is enrolled in

A. Permit Marketer to identify its operation as an

authorized Conoco brand distributorship and, in this

keter” adjacent to Conoco’s marks as follows: “Conoco

Products Jobber (or Marketer).”

— A-42 —

B. Make available to Marketer (upon Marketer’s

request) the advice and counsel of Conoco’s experience

relating to Marketer’s operation, including retail opera-

tions.

C. Continue research and development necessary

to maintain and improve the quality and performance of

Conoco products to serve the motoring public.

D. Make available to Marketer, on such terms as

Conoco and Marketer may agree and within the con-

fines of existing laws and regulations, advertising and

promotional materials, including materials Marketer

may require to participate in such promotional plans as

Conoco may undertake to sponsor, and materials neces-

sary for participation in such promotional plans as

Conoco may provide and Marketer may sponsor.

E. Accept assignment of Conoco credit card in-

voices, subject to the terms and conditions in the current

Conoco Credit Card Guide for Dealers and Retail Stores,

which may be revised from time to time or discontinued

at Conoco’s sole discretion.

4. Duties and obligations of Marketer. Consistent

with the principles herein set forth, Marketer shall

conduct its independent business operations consistent

with the standards set forth below, which will promote

the continuing good reputation of Conoco and all other

Conoco marketers, and toward this end, Marketer shall:

A. Conduct its operation to provide efficient, cour-

teous, and diligent service to retail dealers and other

customers.

B. Use its best efforts to grow and strengthen the

volume sales of Conoco products.

— A-43 —

C. Seek prior approval for the locations and_keep

Conoco informed of current volume ofits Conoco-branded

retail outlets, as set forth in Exhibit “A”.

such premises after notice, Conoco may enter and re-

move them at Marketer’s expense.

E. Refuse to honor Conoco credit cards for pur-

chases made at locations other than those approved by

Dealers and Retail Stores, which may be revised from

time to time at Conoco’s sole discretion.

—_ en

even though such “unbranded Conoco products” are

purchased from Conoco. Marketer shall use Conoco’s

brands, trademarks, service marks, or trade names only

in a form and manner approved by Conoco, and shall not

sell any products, whether purchased from Conoco or

not, under any brand, trademark, service mark, or trade

name which is confusingly similar to any Conoco brand,

trademark, service mark, or trade name, or under any

circumstances likely to cause confusion, mistake, or

deception as to the origin, source, or sponsorship of the ©

products.

G. Comply with the provisions of Exhibit “B,”

concerning the regulation of petroleum products pursu-

ant to the Clean Air Act, as revised from time to time.

H. Permit such inspection of Marketer’s business

operations by Conoco, its employees and agents, as may

reasonably be required to determine whether Marketer

is in compliance with the Agreement.

I. Assure that Marketer and the operators or

dealers of Marketer’s Conoco-branded retail outlets

shall comply with the following standards:

(1) A Conoco capsule sign must be displayed on

the site visible to the motoring public.

(2) Credit must be granted to Conoco credit card

holders, as outlines in the Credit Card Guide for Dealers

and Retail Stores, and to holders of credit cards issued

by other companies listed in the current Credit Card

Guide and subject to the terms thereof.

(3) Each retail outlet must have and use Conoco’s

Credit Express Electronic Point-of-Sale System.

(4) Each retail outlet must prominently display

and sell Conoco branded motor oils.

———e=——————“‘( lew

an i-th

(5) Each retail outlet must meet Conoco’s image

requirement, set forth in the current Conoco Image

Standards Manual, as revised from time to time.

(6) The entire retail outlet, including the grounds,

must be clean, in good repair, and well maintained;

(7) Each retail outlet must complement the

community and the environment;

(8) Each retail outlet must be operated with

personnel who are well groomed and wear clean, appro-

priate apparel; and

(9) All customers must be treated fairly, hon-

estly, and courteously.

(10) The Conoco trademark may only be used in

connection with any advertising, distribution or sale of

Conoco-branded products or other products selected by

Conoco for sale under the Conoco trademark. Conoco

unbranded gasoline shall not be sold under the Conoco

trademark.

(11) Motor fuels may not be diluted, adulterated,

misbranded or mislabeled.

(12) No alternative motor fuel as defined by the

Energy Policy Act of 1992 shall be sold from a premises

displaying the Conoco trademarks or trade names un-

less the alternative motor fuel is supplied by Conoco or

by a supplier approved in writing by Conoco. Addition-

ally, there is a separate agreement which must be

executed before selling alternative motor fuels from a

premises or dispenser displaying the Conoco trade-

marks or trade names.

Alternative fuels sold as non-motor fuels must

not be in the Conoco trade dress, must not be sold from

— A-46 —

the pump islands or in close proximity to the pump

islands, and must be clearly marked with a non-Conoco

trademark.

(13) Marketer, its employees and agents, and

Conoco, its employees and agents, must be permitted to

inspect Conoco-branded retail outlets supplied by Mar-

keter as may be reasonably required to determine

whether the retail outlets are in compliance with this

Agreement.

(14) Asigned Exhibit “C”, (or a signed Exhibit “F”

if Marketer is enrolled in the Conoco Truck Stop Pro-

gram), of the Petroleum Marketer Agreement must be

on file with Conoco for each Conoco-branded retail

outlet supplied by Marketer and operated by a party

other than Marketer.

(15) The operators or dealers of retail outlets

shall comply with all applicable petroleum product

regulations, including, without limitation, those set

forth in Exhibit “B” of this Agreement, as revised from

time to time.

(16) Each retail outlet must attain passing grades

during periodic inspections on the Appearance/Mer-

chandising Section of the Image Evaluation Report,

attached hereto and made a part hereof as Exhibit “C-

1.” A retail outlet which fails to pass any portion of the

Brand Requirements Section of the Image Evaluation

Report will automatically fail the image inspection

regardless of the number of points the retail outlet

scored in the Appearance/Merchandising Section. Conoco

reserves the right to amend the Image Evaluation

Report at any time upon 30 days’ written notice to

Marketer.

— A-47 —

(17) Any exception to the above standards in this

Section I requires the written approval of the General

Manager, Branded Marketing, Product Marketing, Sup-

ply & Transportation.

5. Use of Trademarks and Trade Names.

A. Conaco hereby gives Marketer permission to use

Conoco’s trademarks, trade names and brand names in

conjunction with the sale of Conoco products. Marketer

acknowledges and recognizes Conoco’s interest in all its

trademarks and trade names and the exclusive right of

Conoco to control the use of these trademarks or trade

names. Upon the termination or nonrenewal of this

Agreement, Marketer shall immediately cease holding

itself out to the public as a Conoco marketer; and upon

such termination or nonrenewal, or the debranding for

any reason of an individual retail outlet, Marketer shall

immediately discontinue the use of trademarks and

trade names of Conoco and remove from the premises

and surrender to Conoco, at Marketer’s risk and ex-

pense, any and all trademark and trade names identifi-

cation, including credit card imprinters, which makes it

appear that Marketer is an authorized Conoco-branded

distributor. If Marketer fails to remove such Conoco

brand identification from the premises, Conoco may

enter and remove it at the expense of Marketer.

B. Marketer shall obtain prior written approval

from a Conoco Branded Marketing Manager of all sta-

tions which Marketer intends to brand Conoco.

C. Marketer shall obtain for each Conoco-branded

retail outlet supplied by Marketer and operated by a

party other than Marketer, an executed copy of Exhibit

“C”, which is attached hereto and made-a part hereof.

Marketer shall return one copy of such exhibit to Conoco.

— A-48 —

D. Conoco reserves the right at any time to change

its product line and specifications, trade dress, trade

names, and trademarks or to change or withdraw any

services offered in connection with any products such as

credit card acceptance. In the event of such change,

Conoco shall be relieved of all obligation to sell such

discontinued product, etc., to Marketer; and if Conoco

shall market any other brand or product in lieu of the

discontinued items, this Agreement shall embrace such

new brands or products. Conoco shall not be liable to

Marketer by reason of any such changes.

¢. Financial Responsibility. When requested by

Conoco, Marketer agrees to provide periodic financial

statements, periodic business balance sheets, and in-

come statements, in addition to applicable notes and

schedules, and/or to furnish reasonable collateral, guar-

antees, and/or other security to support its line of credit.

Marketer’s failure to provide such financial information

and/or collateral requested by Conoco may result in

Conoco’s denial of credit to Marketer. Furthermore, ifin

Conoco’s judgment, Marketer’s ability to pay/creditwor-

thiness is unsatisfactory Or deteriorates, Or if Marketer

fails to fulfill the payment terms, Conoco may without

prejudice to any other lawful remedy, defer shipment

until payment is made, deny credit and demand cash

payment, or immediately terminate or non-renew this

Agreement pursuant to paragraph 2. Bhereunder. Noth-

ing herein shall give Marketer the right to gxceed any

credit limit established for Marketer by Conoco. Pay-

ment terms are set forth in Exhibit A.

If Marketer fails to make a timely payment of any

amount due, in accordance with the terms hereof, then

Conoco shall, in addition to any other rights or remedies

available to it, have the right, but not the obligation, to

-— A-49 — sey

recoup or set off against any amount then due to Mar-

keter, including, but not limited to, any amounts due

Marketer for the assignment to Conoco of credit card

invoices pursuant to paragraph 3 hereof, up to the total

amount outstanding.

EXECUTION OF THIS AGREEMENT BY CONOCO

SHALL NOT CONSTITUTE APPROVAL OF -~ LINE

OF CREDIT FOR MARKETER. Si

7. Taxes. Marketer shall pay to Conoco, in addition

to applicable prices hereunder, any tax, license fee,

inspection fee, or other charge imposed by any govern-

mental authority or other agency on, or measured by

gross receipts from, any products sold hereunder, or on

the production, manufacture, transportation, sale, use,

delivery or other handling of products or any component

thereof, or on any feature thereof, or of this Agreement,

existing at the time of any delivery hereunder, if such

tax, fee or charge is required to be, or is in fact, paid by

Conoco. Failure of Conoco to add any such tax, fee or

charge to the invoice shall not relieve Marketer from

liability therefor. Marketer shall reimburse Conoco for

any interest and/or penalty assessed by any governmen-

tal authority or other agency when such penalty and/or

interest is accrued as the result of false, incorrect or

delinquent certification made to Conoco by Marketer.

8. Transfer of Franchise. This Agreement is personal

to Marketer and assignable or transferable by Marketer

only with the prior written consent of Conoco, which

consent shall not be unreasonably withheld. Marketer

understands, however, that Conoco may condition its

consent to any assignment upon the agreement of the

proposed assignee to: (1) enter into a Trial Franchise in

conformity to the provisions of the Petroleum Market-

ing Practices Act; and (2) simultaneously therewith,

— A-50 —

enter into a Mutual Cancellation of this Agreement.

Refusal of the proposed assignee or transferee to enter

into such Trial Franchise and Mutual Cancellation

shall conclusively be adequate reason for Conoco to

withhold its consent to the assignment.

9. Nonwaiver. Subject to the provisions of the

Petroleum Marketing Practices Act and any other ap-

plicable provision of law, no delay, waiver, omission, or

forbearance on the part of Conoco to the-exercise of any

right, duty, or power arising out of any breach or default

by Marketer, or by any other jobber, of any of the terms,

provisions, or covenants contained herein, shall consti-

tute a waiver by Conoco to enforce any such right,

option, or power against Marketer for any subsequent

breach or default by Marketer.

EXECUTION OF THIS AGREEMENT BY CONOCO

SHALL NOT CONSTITUTE AUTOMATIC APPROVAL

OF THE IMAGE OF ANY CONOCO-BRANDED RE-

TAIL OUTLET OR CONSTITUTE A WAIVER OF THE

REQUIREMENT THAT EVERY CONOCO-BRANDED

RETAIL OUTLET MUST COMPLY WITH CONOCO’S

IMAGE STANDARDS, AS SET FORTH HEREIN.

10. Relationship of the Parties. Marketer is an

independent business and is not, nor are its employees,

—an-employee of Conoco. Conoco and Marketer are com-

pletely separate entities. They are not partners, general

partners, limited partners, joint venturers, nor agents

of each other in any sense whatsoever and neither has

the power to obligate or bind the other.

Further, nothing herein contained is intended, nor

shall it be construed as reserving to Conoco rights or

powers to exercise control over the business practices of

Marketer or to direct the manner in which its business

— A-51 —

operations shall be conducted; except, Conoco may take

reasonable actions to promote compliance with the

standards set forth above and may provide such instruc-

tions, guidance, and recommendations as may be neces-

sary and desirable to promote the mutual objectives of

Conoco and Marketer, including the promotion of public

goodwill toward Conoco, its trademarks and trade names,

and the reputation of Conoco products. Conoco shall

have nocontrol whatsoever over Marketer’s resale prices

of the products purchased hereunder.

11. Severability. Any provision of this Agreement

prohibited by law or by court decree in any locality or

state shall be ineffective to the extent of such prohibi-

tion without in any way invalidating or otherwise affect-

ing the remaining provisions of this Agreement within

states and localities where not prohibited by law or

ceurt decree.

12. Notices. Any notice in connection with this

Agreement shall be made in writing and sent by certi-

fied mail or delivered personally to Conoco at the office

at 600 North Dairy Ashford, Houston, Texas 77079 or to

General Manager, Branded Marketing, Product Mar-

keting, Supply & Transportation, Post Office Box 4784,

Houston, Texas 77219-4784, and to Marketer at the

address above noted. The deposit in the United States

mail of a properly addressed and postage pre-paid

communication shall be deemed delivery to the party

addressed.

Where the notice concerns termination or

nonrenewal of this Agreement, the notice shall contain:

A. Astatement of intention to terminate or not to

renew, together with the reasons therefor;

— A-52—

B. The date on which such termination oF

nonrenewal will take effect, and

c. A copy of the Summary of Title I of the

Petroleum Marketing Practices Act, prepared and pub-

lished by the Secretary of Energy.

13. Terms of Delivery and Allocation. The sale by

Conoco and purchase by Marketer of Conoco products

shall be accomplished in accordance with Exhibit “.%

(and Exhibit «@” jf enrolled in the Conoco Truck Stop

program). The amount of product to be supplied to

Marketer shall be subject to any good faith allocation

program which Conoco many find necessary to effect for

any reason, including, but not limited to, shortage of

product or government regulations. Conoco shall have

\ the right to impose @ surcharge on any gallons pur-

chased which exceed Marketer's allocation.

In the event Conoco’s inventory, ability to refine or

sources of supply of crude petroleum or refined petro-

leum products are not sufficient to meet demand at

Marketer's normal or assigned distribution points (re-

gardless of whether Conoco may have diverted supply to

other distribution points to alleviate shortages at such

other distribution points), Conoco shall not be bound to

acquire by purchase or otherwise additional quantities

of crude petroleum or refined petroleum products from

other suppliers or to take any other action which is

uneconomic to Conoco. No allocation pursuant to this

paragraph shall operate to extend the period of this

Agreement and Conoco shall not be obligated to make

available any quantities omitted due to any allocation

program.

All orders will be filled with reasonable promptness

but Conoco shall not be held responsible when deliveries

— A-53 —

are delayed or prevented by fire, storm, flood, strikes,

riots, wars or political disturbances in this or any other

country, difference with or refusal of any employees of

Conoco or of its agent or distributor to deliver, disrup-

tion or breakdown of transportation, or any cause be-

yond Conoco’s control, whether of any class of causes

referred to or not. If by reason of any said causes Conoco

shall be unable to supply the requirements of all of its

customers of any product covered hereby in the area in

which sales are to be made hereunder, Conoco’s obliga-

tion while such inability exists shall at its option be

reduced with allocation in accordance with this para-

graph.

Marketer will receive Conoco products from a supply

point designated by Conoco and Conoco shall have the

right at any time to change Marketer’s designated

supply point or to limit or otherwise control the volume

of Marketer’s Exhibit “A” volume which Conoco will

make available at any supply point.

Marketer agrees to promptly unload, upon arrival at

destination, all shipments made hereunder and to reim-

burse Conoco for any demurrage paid by Conoco result-

ing from Marketer’s failure to do so. Marketer shall

furnish Conoco shipping instructions sufficiently prior

to date of shipment to allow ample time for delivery. All

shipments shall be invoiced as of date shown on Bill of

Lading. Invoices will be rendered on a net basis (normal

temperature 60 degrees Fahrenheit with gallonage ad-

justments as provided for in the abridged Volume Cor-

rection Table for Petroleum Oils), or in accordance with

any existing state law. In the absence of state law to the

contrary, Marketer may elect annually, for each state

where Marketer purchases products from Conoco, to

purchase on a basis other than net, by mutual written

agreement between Conoco and Marketer.

— A-54 —

If Marketer transports its own product from the

terminal or other supply point, Marketer shall qualify

with Conoco or the terminal operator to enter on the

premises and Marketer shail execute necessary docu-

ments. Minimum transport quantity shall be the mini-

mum set by the terminal operator.

14. Gasoline Treated with Tetraethy! Lead,

Tetramethyl Lead, or Other Mixed Lead Alkyla. Some

or all of the brands of gasoline covered hereby have

contained and are expected to contain an anti-knock

compound, of which tetraethy] lead, tetramethyl lead or

other mixed lead alkyla is an ingredient. Marketer

agrees to comply with the rules and regulations in

existence with respect to the handling, distribution, and

sale of such gasoline and to require each subsequent

purchaser for resale from Marketer to assume a similar

obligation.

15. Previous Agreements. This Agreement super-

sedes all prior and current Jobber Franchise Agree-

ments and/or Petroleum Marketer Agreements between

the parties and it contains each and every understand-

ing of the parties relating to the subject covered hereby.

No verbal representations, statements or agreements of

any nature relating to the subject matter of this Agree-

ment or to any relationship between the parties will be

considered valid or enforceable.

16. Indemnity. Marketer hereby agrees to indemnify,

defend and hold Conoco, and its affiliates, officers,

directors, employees, agents, and representatives, harm-

less from any and all claims, demands, suits, actions or

other loss or liability, including all reasonable attorney’s

fees and legal expenses, fines, and penalties, arising out

of any claim or cause of action at law or in equity, or any

administrative or judicial action, concerning or relating

—

to any loss, loss of use of, remediation of, or damage to

property or natural resources (including, but not lim-

ited to, that arising from storage tank leaks or spills,

waste disposal, or air emissions), personal injuries,

death, violation of any governmental laws, regulations,

or orders or patent or trademark infringement or envi-

ronmental claims arising in any manner from Marketer’s

operation, including but not limited to, Marketer’s load-

ing, transportation, unloading, storage, handling, sale,

or use of Conoco products sold hereunder, or Marketer’s

performance or failure to perform under this Agree-

ment, whether or not Marketer was negligent or other-

wise at fault. Provided, however, such indemnification

obligations shall not apply to claims for loss, damage,

injury or death:

A. To the extent Marketer proves them to have

been caused by Conoco’s negligence or willful miscon-

duct, or

B. When caused by defects in the Conoco product

not caused or contributed to by any act or omission of

Marketer or Marketer’s employees or agents.

Conoco shall have the right, but not the duty, to

participate in the defense of any claim or litigation with

attorneys of Conoco’s selection. Marketer’s obligations

hereunder shall survive any termination of this Agree-

ment.

17. Warranties. Conoco warrants that the products

it delivers hereunder shall meet Conoco’s then current

product specifications for the respective products and

shall be in merchantable conditions. UNDER NO CIR-

CUMSTANCES SHALL CONOCO BE LIABLE FOR

ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL,

OR PUNITIVE DAMAGES.

— A-56 —

18. Marketer Claims/Lawsuits. Conoco shall not be

liable to Marketer for breach of this Agreement or for

any other claim by Marketer, unless Marketer provides

Conoco with written notice of the incident (which forms

the basis of the alleged breach or claim) within 90 days

of the occurrence of the incident and files suit within 1

year after the occurrence of the incident.

Notwithstanding the above paragraph, Conoco shall

not be liable to Marketer for any defect in quality or

shortage in quantity of any product delivered hereunder

unless (a) Marketer notifies Conoco of Marketer’s claim

within 48 hours after delivery thereof, or in the case of

any latent defect in quality, within 48 hours after

Marketer’s discovery of such defect, and (b) Conoco is

given a reasonable opportunity to inspect the product

and to take and test samples thereof. Marketer’s failure

to specify any shortage, defect or nonconformity shall

constitute a waiver of that defect or nonconformity.

Every notice of claim shall set forth fully the facts on

which the claim is based.

19. Amendment. Except as otherwise specified herein,

this Agreement can only be amended by an agreement

in writing which is signed by both parties.

20. Choice of Law. This Agreement shall be governed

by and interpreted in accordance with the laws of the

State of Delaware.

21. Exhibits. Exhibits “A” through “D” (and Exhibits

“E” and “F”, if enrolled in the Conoco Truck Stop Pro-

gram), are attached hereto and are made a part of this

Agreement.

22. No Unspecified Third Party Beneficiary. Except

as specifically provided in this Agreement (e.g. in para-

— A-57 —

graph 15), there are no third party beneficiaries of this

Agreement.

23. Binding Effect. This Agreement shall inure to the

benefit of and be binding upon the heirs, executors,

administrators, successors, and assigns of the respec-

tive parties hereto.

24. Petroleum Marketing Practices Act. Conoco and

Marketer hereby expressly reserve their rights under

the Petroleum Marketing Practices Act (15 U.S.C. 2801

et seq.). No omission of any reference herein to any such

specific right shall constitute a waiver.

25. Special Conditions.

IN WITNESS WHEREOF, the parties have caused

this Agreement to be executed as of the date first above

written.

For Reference Only:

This Petroleum Marketer

Agreement was discussed

in its entirety with

Marketer by:

Name of Employee

CONOCO INC.

By: /s/ (illegible)

Title: Branded Mktg Mgr.

Classic Group, Inc.

By: Calvin Zuber

(Name Printed)

Signature: /s/ Calvin S. Zuber

Title: CEO

— A-58 —

CONOCO INC.

PETROLEUM MARKETER AGREEMENT

This Agreement, effective on the 1st day of April,

1996 (“Effective Date”), by and between Conoco Inc., a

Delaware corporation (hereinafter called “Conoco”), and

CLASSIC GROUP, INC. (hereinafter called “Marketer’”),

whose mailing address is 6031 WEST I-20, City of

ARLINGTON, TX, Zip 76017.

WITNESSETH:

WHEREAS, Conoco is engaged in the business of oil

exploration, refining and marketing under Conoco trade-

marks and trade names, and has made a significant

investment over the years in developing quality prod-

ucts and promoting the Conoco trademarks and trade

names; and

WHEREAS, Marketer recognizes that Conoco has a

protectible business interest in ensuring that Marketer’s

distribution of Conoco-branded products under this

Agreement will be accomplished in a manner which

respects the high standards, reputation, and integrity

of the Conoco trademarks and trade names which Conoco

has created over the years; and

WHEREAS, Conoco’s ability to recover its costs and

investment in its relationship with Marketer are depen-

dent on its sales of petroleum products to Marketer

under this Agreement, it is specifically understood and

agreed by Marketer that the minimum volume require-

ments are reasonable and of material significance to

this Agreement, and Marketer further understands

that Conoco may adjust said minimum volume require-

ment upon any renewal of this Agreement in order to

assure an economic relationship between Conoco and

Marketer; and

— A-59 —

WHEREAS, Conoco and Marketer desire to set out

the terms and conditions under which Conoco shall sell

to Marketer and Marketer shall purchase from Conoco

various petroleum products for resale by Marketer to

Marketer’s customers under Conoco’s trademark and

trade names; and

WHEREAS, Marketer’s failure to carry out its re-

sponsibilities hereunder jeopardize the reputation of

Conoco, and Marketer acknowledges that adherence to

the terms of this Agreement is a matter of mutual

importance and consequence to Marketer, to Conoco,

and to all other Conoco-branded marketers.

NOW, THEREFORE, In consideration of the mutual

benefits to be derived by Conoco and Marketer from the

execution of this Agreement, the parties hereto agree as

follows:

1. Selling Rights. As long as this Agreement shall

remain in effect, Marketer shall have the right to pur-

chase from Conoco (according to the provisions of Sec-

tion 13 and Exhibit “A” of this Agreement) and to sell to

its customers petroleum products bearing the Conoco

brand or certain other brands owned by Conoco (herein-

after called “Conoco products”). Subject to the terms of

this Agreement, Marketer shall prominently display

Conoco’s trademarks and trade names and shall grant

credit to holders of Conoco credit cards at its places of

business where Conoco marketing standards are main-

tained.

NOTHING CONTAINED HEREIN SHALL BE CON-

STRUED AS GRANTING MARKETER AN EXCLU-

SIVE TERRITORY OR AN EXCLUSIVE GROUP OF

CUSTOMERS. CONOCO RESERVES THE RIGHT TO

SELL ITS PRODUCTS TO ANY CUSTOMER OF ITS

CHOOSING.

— A-60 —

2. Duration. This Agreement shall be effective for a

term of three (3) years from the Effective Date of this

Agreement.

A. Marketer shall have the absolute right to cancel

this Agreement without cause at the end of the three (3)

year term by giving Conoco written notice at least 3

months in advance of such cancellation.

B. Conoco shall have the right not to renew this

Agreement at the end of the term and the right to

terminate this Agreement at any time during the term

upon 90 days’ written notice, or upon a lesser period of

notice where 90 days’ notice is unreasonable, for any of

the grounds permitted by the Petroleum Marketing

Practices Act.

3. Duties and Obligations of Conoco. Conoco shall sell

to Marketer the quantities of Conoco products set forth

in Exhibit “A.” In connection therewith and pursuant to

this Agreement, Conoco shall:

A. Permit Marketer to identify its operation as an

authorized Conoco brand distributorship and, in this

connection, and subject to Sections 4 and 5 and Exhibit

“D,” make available to Marketer and authorize it to

display signs and insignia bearing Conoco trade names

and/or Conoco trademarks. If Marketer uses Conoco’s

trademarks or trade names in conjunction with adver-

tising, forms or upon any building, transport or dispens-

ing equipment, then Marketer must properly identify

itself as a “Products Jobber” or “Products Marketer”

adjacent to Conoco’s marks as follows: “Conoco Products

Jobber (or Marketer).”

B. Make available to Marketer (upon Marketer’s

request) the advice and counsel of Conoco’s experience

relating to Marketer’s operations.

aay ee

C. Continue research and development necessary

to maintain and improve the quality and performance of

Conoco products to serve the motoring public.

D. Make available to Marketer, on such terms as

Conoco and Marketer may agree and within the con-

fines of existing laws and regulations, advertising and

promotional materials, including materials Marketer

may require to participate in such promotional plans as

Conoco may undertake to sponsor, and materials neces-

sary for participation in such promotional plans as

Conoco may provide and Marketer may sponsor.

E. Accept assignment of Conoco credit card in-

voices, subject to the terms and conditions in the Conoco

Credit Card Guide for Dealers and Retail Stores, which

in incorporated herein by this reference, and which may

be revised from time to time or discontinued at Conoco’s

sole discretion (“Credit Card Guide”).

4. Duties and obligations of Marketer. Consistent

with the principles herein set forth, including but not

limited to Section 14 of this Agreement, Marketer shall

conductits independent business operations consistent

with the standards set forth below, which will promote

the continuing good reputation of Conoco and all other

Conoco marketers, and toward this end, Marketer shall:

A. Conduct its operation to provide efficient, cour-

teous, and diligent service to retail dealers and other

customers.

B. Subject to Section 5B, of this Agreement, use its

best efforts to grow and strengthen the volume sales of

Conoco products.

C. Comply with Conoco’s requirements for the use

of Conoco trademarks and trade names, as set forth in

Section 5 of this Agreement.

— A-62 —

D. Refuse to honor Conoco credit cards for pur-

chases made at locations other than those approved by

Conoco and listed on Exhibit A-1, and shall not assign

invoices to Conoco for sales or purchases made at outlets

not previously approved by Conoco. Marketer shall

accept and promptly reimburse Conoco for invoices

refused by Conoco in accordance with the provisions of

the Credit Card Guide.

E. Not, without Conoco’s prior written consent,

offer for sale nor sell any petroleum products under any

of Conoco’s brand, trademarks, service marks, or trade

names, unless such products were purchased from

Conoco. With Conoco’s prior written consent, Marketer

may sell other than Conoco petroleum products (But not

“unbranded Conoco products”) under the Conoco brands,

trademarks, service)marks, or trade names for limited

periods, provided the other products meet Conoco’s

specifications, and Conoco shall have the right to test

and inspect such other products. Marketer may not sell

“unbranded Conoco products” under any of Conoco’s

brands, trademarks, service marks, or trade names,

even though such “unbranded Conoco products” are

purchased from Conoco. Marketer shall use Conoco’s

brands, trademarks, service marks, or trade names only

in a form and manner approved by Conoco, and shall not

sell any products, whether purchased from Conoco or

not, under any brand, trademark, service mark, or trade

name which is confusingly similar to any Conoco brand,

trademark, service mark, or trade name, or under any

circumstances likely to cause confusion, mistake, or

deception as to the origin, source, or sponsorship of the

products.

F.Comply with the provisions of Exhibit “B,” con-

cerning the regulation of petroleum products pursuant

to the Clean Air Act, as revised from time to time.

— A-63 —

G. Comply with the provisions of Conoco’s Pro-

grams and Image Standards Manuals, which are incor-

porated herein by this reference, and which may be

revised from time to time at Conoco’s sole discretion.

H. Ensure to Conoco that Marketer and the opera-

tors or dealers of Conoco-branded retail outlets supplied

by Marketer comply with the following standards:

(1) Each retail outlet much meet Conoco’s Image

requirements:

(a) Each retail outlet shall comply with the

Conoco Image standards set forth in the Conoco Image

Standards Manual, as revised from time to time, and

incorporated herein by this reference;

(b) The entire retail outlet, including the

grounds, must be clean, in good repair, and well main-

tained;

(c) Each retail outlet must complement the

community and the environment;

(d) Each retail outlet must be operated with

personnel who are well groomed and wear clean, appro-

priate apparel; and

(e) All customers must be treated fairly, hon-

estly, and courteously.

(2) Credit must be granted to Conoco credit card

holders, as outlined in the Credit Card Guide, and to

holders of credit cards issued by other companies listed

in said Credit Card Guide, and subject to the terms

thereof.

(3) Each retail outlet must have and use Conoco’s

Credit Express Electronic Point-of-Sale System.

— A-64 —

(4) Each retail outlet must prominently display

and sell Conoco branded motor oils.

(5) The Conoco trademark may only be used in

connection with any advertising, distribution or sale of

Conoco-branded products or other products selected by

Conoco for sale under the Conoco trademark. Conoco

unbranded gasoline shall not be sold under the Conoco

trademark.

(6) Motor fuels may not be diluted, adulterated,

misbranded or mislabeled.

(7) No alternative motor fuel as defined by the

Energy Policy Act of 1992 shall be sold from a premises

displaying the Conoco trademarks or trade names un-

less the alternative motor fuel is supplied by Conoco or

by a supplier approved in writing by Conoco. Addition-

ally, there is a separate agreement which must be

executed

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