Evans Group, Inc. v. Foti and Foti
Fuels, Inc., 2012 VT
77
[Act
1-Prologue]
To
be, or not to be, a Franchisee, that is the question: Whether sub-distributor
twas authorized to use refiner’s trademark in the pursuit of outrageous
fortune, or to simply carry fuel across the Green Mountains until the
Distributor said “no more.” Ay, tis when
the heart-ache began. That franchise,
though devoutly wished, twas perhaps just a dream, or, in the King’s Court, an
Oppressor’s wrong, and that is what must give us pause.
The
scene is fair Vermont. Two wholesale fuel
distributors, both with well-established reputations and long-standing customers,
penned a lucrative distributing agreement on the back of a napkin. The proposed deal went a little something
like this: Appellee/distributor would sell fuel to Appellant/sub-distributor at
a slight mark-up, which would then be re-sold to sub-distributor’s customer.
Distributor
had a pre-existing relationship with a major oil refiner. Sub-distributor (also known in this instance
as the middle-man), had a pre-existing relationship with a convenience store that
sold gasoline at its pumps. Sub-distributor’s
convenience store customer agreed to change its sign to refiner’s brand name to
reflect that it was buying gasoline exclusively from distributor’s refiner. The parties’ napkin agreement provided that sub-distributor
would pick up fuel directly from the refinery and deliver it to the convenience
store. Sub-distributor charged the fuel
it picked up from the refinery to distributor’s charge account, but then
reimbursed distributor. Distributor directly
received the credit card payments for the fuel that was purchased at the pump,
but subsequently credited them to sub-distributor, who then credited the
convenience store. The convenience store
paid over cash payments for the fuel that was purchased to sub-distributor, who
then credited distributor. Phew!
[Quick
intermission]
Let’s
take a moment here. After all, this is an
Elizabethan tragedy, which can sometimes be difficult to understand. Perhaps a 1970’s commercial can provide a
Cliff Notes© version of events.
Basically, the two principals from each corporation ran into each other
one day and the distributor exclaimed “hey, you put your chocolate in my peanut
butter.” The sub-distributor replied “you put your peanut butter on my
chocolate.” Sound familiar? Except here,
the collision and resulting concoction occurred by choice, rather than
happenstance. Even so, much like America’s
favorite peanut butter cup, it really didn’t matter who put what where; the
combination of the two was better than each ingredient solo. In dollars and cents, the arrangement resulted
in a payment to distributor by sub-distributor of $10,000 to $35,000 every ten
days or so. That’s a lot of peanut
butter cups!!!!
But
alas, as tis often the case with these types of formal napkin contracts, the
deal went south. Actually, in this case,
it was one of the original contracting parties that literally went south—or southwest,
to be more precise—and like all good tragedies, the protagonist fell from
prosperity to misery.
[Act II, Scene I- The Jobbers Unite]
Roughly
six years passed without incident. The
two distributors were as happy as they could be, but as blissful (and
profitable) as it all seemed to be, there was darkness looming.
[Enter
second owner of sub-distributor]
About
six years into the relationship with distributor, sub-distributor sold its
affiliated trucking company to one of its employees. At the same time, the employee assumed
management of sub-distributor’s wholesale fuel business. Sub-distributor’s original principal then
retired to Arizona.
Initially,
the management agreement between the original principal and employee, much like
the relationship between sub-distributor and distributor, was uneventful. About four years into the arrangement, however,
the retired principal and employee had a disagreement.
[Enter
Donald Trump playing himself].
You know what’s coming, right? Of course, sub-distributor fired its
apprentice and resumed the management of the fuel company.
[Exeunt
Donald Trump and second owner].
[Scene
II- Arizona, A Different Time Zone]
Not
long after sub-distributor’s retired principal came out of retirement, sub-distributor’s
once-happy relationship with distributor soured. Sub-distributor failed to make timely payments
to distributor. Remember all those
peanut butter cups? Well, when you are
used to getting 10,000 to 35,000 peanut butter cups every ten days or so, you
notice when the supply stops.
Sub-distributor’s
relationship with its own long-standing customer, the convenience store, also deteriorated.
It appears that the once-dependable
principal, still living in Arizona and no doubt, well-sunned, was not able to
effectively run the company from out of state.
In one incident (and there were others), sub-distributor’s lackadaisical
management caused the convenience store to run out of fuel for a portion of the
day.
[Re-enter
Donald Trump].
Dissatisfied, the convenience store
began buying its fuel directly from the distributor.
[Exeunt
Donald Trump].
Shortly
thereafter, distributor notified sub-distributor that it was terminating the
napkin agreement. Of course, more than
ten years later, the napkin was nowhere to be found.
[Enter
Jim Nabors as Gomer Pyle].
Well, “sur-prise, sur-prise,
sur-prise.”
[Exeunt
stage left Gomer Pyle]
Distributor
also informed sub-distributor that it owed distributor $68,864 for fuel that
was charged to distributor’s account, but never reimbursed. When sub-distributor failed to pay the
outstanding balance, in either peanut butter cups or cash, distributor sued and
sub-distributor counter-claimed, alleging that distributor was prohibited by
the federal Petroleum Marketing Practices Act (“PMPA”) from unilaterally
terminating the parties’ napkin agreement.
[Scene
III- Trials and Tribulations]
At
trial, sub-distributor claimed that it held a franchise, as that term was
defined by the PMPA and, therefore, was entitled to the PMPA’s franchise protections.
Sub-distributor’s argument rested on two
seemingly related grounds. First, sub-distributor
claimed that it had a contract to supply fuel for resale under a refiner’s trademark. Second, sub-distributor claimed that the
napkin agreement fell within the statute’s franchise protection because the statute
defines “franchise” to include any contract between two distributors in which
one distributor—authorized by the refiner that supplies its fuel—permits
another distributor to use the refiner’s trademark in connection with the re-sale
of fuel. Thus, according to
sub-distributor, it was a franchisee authorized to use refiner’s trademark and,
under the PMPA, distributor was required to provide sub-distributor both with a
statutory basis for its termination and at least 90 days prior notice, neither
of which was done.
[Re-enter
Gomer Pyle].
Shame, shame, shame!
[Exeunt
Gomer Pyle].
The
trial court was not persuaded. It decisively
found that sub-distributor’s tanker trucks had never displayed the refiner’s
trademark and, ultimately, concluded that neither sub-distributor’s wholesale
fuel business nor its affiliated tanker company was ever authorized to use the
refiner’s trademark. Consequently, the
trial court rejected sub-distributor’s claim that it was entitled to the statute’s
franchise protections, and, alas, ruled that sub-distributor’s franchise twas
not to be.
[Act
III- Fortinbras Arrives and the Rule of Law Reigns Supreme]
On
appeal, sub-distributor argues that the trial court erred by focusing solely on
its use of the refiner’s trademark, or, more specifically, its lack of use. It claims, instead, that the relevant inquiry
under the PMPA is whether a franchisee is authorized to use the trademark, not
whether it actually does. According to
sub-distributor, it was authorized to use refiner’s trademark by virtue of the
fact that it exclusively sold refiner’s fuel to its customer. As such, it is a franchisee under the PMPA,
and distributor’s unilateral termination of the parties’ agreement violates the
statute.
Unfortunately
for sub-distributor, the SCOV (i.e.,
Fortinbras) agrees with the trial court that sub-distributor’s franchise tis
not to be and disposes of its argument rather summarily. Initially, the SCOV
sets forth the statutory definition of “franchisee,” and notes that the statute
contemplates a typical “refiner to distributor to retailer” authorization chain. Whether PMPA also covers a sub-distributor—as
in the instant case—is not a question that the SCOV addresses.
Instead,
the SCOV dismisses sub-distributor’s claim almost out-of-hand. The SCOV points out that, under PMPA,
sub-distributor must affirmatively establish that it is a franchisee. Here,
however, sub-distributor fails to cite persuasive authority for its claim that merely
re-selling refiner’s fuel to its customer, operating under the refiner’s brand,
demonstrates that it was a franchisee with authority over refiner’s
trademark. More damning, the trial court
expressly rejected this claim, and since the SCOV concludes that the trial
court’s findings are supported by the record, the SCOV will not reweigh the
evidence.
In
essence, while sub-distributor’s testimony does accurately reflect its version
of events, the SCOV simply cannot conclude that the trial court’s findings are
wholly unsupported by the evidence, and therefore, decides that sub-distributor’s
franchise simply tis not to be. It is,
thus, not entitled to PMPA’s protections.
[The stage goes dark
and a single light shines down stage, front and center. Re-enter Gomer Pyle,
looking disheveled and somewhat depressed].
G-o-l-l-y.
[Exeunt
stage right Gomer Pyle].
Well,
at least that’s what Justice Robinson thinks!
[Curtain
Call- I Want My Money Back]
Despite
the majority’s rather terse dismissal of sub-distributor’s claim, Justice
Robinson writes a lengthy dissent.
According to the dissent, the only reasonable conclusion, based on the
record, is that sub-distributor tis a franchisee.
The
dissent points out that prior to distributor taking over the supply of fuel to
sub-distributor’s customer, distributor had no direct contact with the convenience
store. Since a franchise, under PMPA,
must involve a direct contract between parties, distributor cannot be a
franchisor under the statute. Thus,
unless the convenience store was simply acting as a retail outlet for the
refiner without authority to do so—a suggestion the dissent raises, but not the
parties—its authority has to be conferred by someone. Moreover, any authority to act has to come
from a direct contract with a party who can permit the convenience store’s use
of the refiner’s trademark.
Here,
it is undisputed that distributor never had any direct contact or contract with
sub-distributor’s customers prior to distributor’s unilateral termination of
the napkin agreement. As such, while the
dissent concedes that the convenience store’s authority to use the refiner’s
trademark must originate from distributor, it cannot overlook the unequivocal
evidence that the only way to confer that same authority is directly through
sub-distributor to its customer. Otherwise, there is a gap in the authorization
chain that cannot be overcome (refiner to distributor to ________ to retailer).
In
addition, the dissent notes that the majority’s focus, like the trial court’s,
on the fact that sub-distributor did not transport refiner’s fuel in trucks
bearing refiner’s trademark, is misplaced.
Instead, the dissent finds that sub-distributor’s role in the supply
chain has to be much more than simply hauling fuel. To illustrate, the dissent reiterates that the
only party who could possibly confer authority to use refiner’s trademark on
the convenience store is sub-distributor vis-à-vis the parties’ napkin
agreement.
Since
there is no credible evidence to support the trial court’s conclusion that
sub-distributor was not a franchisee, the dissent would reverse the trial
court’s judgment and remand the case for further proceedings.
[Epilogue]
Ay,
let us haste to replay it, and call to the noblest of audiences. For sub-distributor,
it is a departure of sorrow. For distributor, it is a vantage claimed and a fortune
of peanut butter cups.
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