United States Court of Appeals
For the First Circuit
No. 05-1254
ESSO STANDARD OIL COMPANY (PUERTO RICO),
Plaintiff, Appellee,
v.
JOSÉ H. MONROIG-ZAYAS
D/B/A MONROIG SERVICE STATION,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Salvador E. Casellas, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella and Lipez, Circuit Judges.
Víctor P. Miranda-Corrada, for appellant.
Angel E. Rotger-Sabat, with whom Maymí, Rivera & Rotger,
P.S.C. was on brief, for appellee.
April 12, 2006
TORRUELLA, Circuit Judge. This appeal concerns a dispute
under the Petroleum Marketing Practices Act ("PMPA"). 15 U.S.C.
§§ 2801 et seq. The PMPA "was enacted by Congress in 1978 to
protect gasoline franchisees from arbitrary or discriminatory
termination or nonrenewal of their franchises." Esso Standard Oil
Co. v. Dep't of Consumer Affairs, 793 F.2d 431, 432 (1st Cir.
1986). "Congress noted that the disparity of bargaining power
existing between franchisors and franchisees sometimes resulted in
franchise agreements that amounted to contracts of adhesion." Id.
Plaintiff Esso Standard Oil Company (Puerto Rico)
("Esso") had a franchise agreement with defendant José H. Monroig-
Zayas ("Monroig"). Esso and Monroig could not agree to the terms
of a renewal agreement, and Esso sought a declaratory judgment from
the district court that it had satisfied the requirements of the
PMPA. In turn, Monroig asked for a preliminary injunction under
the PMPA to maintain the franchise relationship. The district
court denied Monroig's request for a preliminary injunction, and
Monroig appeals. We affirm.
I. Background
Beginning in January 1996, Monroig ran an Esso gas
station as a franchisee. Under a three-year contract from
January 1, 2001 to January 1, 2004, Monroig paid monthly rent of
$3,831. On July 11, 2003, Esso sent Monroig a contract for a new
three-year lease that would begin on January 1, 2004. Under this
-2-
contract, the rent increased by about five percent for each of the
first two years (to $4,035 and $4,235) and did not further increase
the third year. Other modifications included the removal of a
radiator repair shop from the premises and a prohibition against
assignment or sublease of the premises. Monroig disputed the terms
of the renewal. On September 30, 2003, Esso sent Monroig a notice
of nonrenewal based on the parties' failure to agree to the terms
of the renewal.
For the purpose of continuing negotiations, Esso granted
five short-term extensions to the prior contract. The last
extension expired on June 30, 2004, and since the parties had not
come to an agreement, Esso stopped delivering gasoline the next
day.
II. Notice Under the PMPA
Under the PMPA, the franchisor must provide adequate
notice to the franchisee of the nonrenewal of the franchise
agreement. The general rule is that notice must be given at least
90 days before the nonrenewal takes effect. 15 U.S.C. § 2804(a)
(2). An exception to this general rule allows the franchisor to
provide notice on the earliest, reasonably practicable date where
the circumstances make a 90-day notice unreasonable. Id. § 2804
(b)(1). The district court did not address the notice
requirements, stating that Monroig did not "allege that . . . the
notice was somehow defective." Because our review of the record
-3-
indicates that Monroig did indeed press this point below, we now
address the issue.
Other aspects of the PMPA must be considered in
conjunction with the notice requirements. The PMPA offers a
preliminary injunction standard to franchisees that is more
forgiving than the common law standard, see id. § 2805(b)(2), but
in order to take advantage of this more forgiving standard, the
franchisee's request must be timely, see id. § 2805(b)(4). The
timeliness of the franchisee's request for a preliminary injunction
depends on the notice it received. If a franchisee receives at
least 90 days notice, then it has 90 days from the date of its
receipt of the notice to file a preliminary injunction motion. Id.
§ 2805(b)(4)(A). If a franchisee receives less than a 90-day
notice, then it has 30 days from the date of the nonrenewal to file
a preliminary injunction motion. Id. § 2805(b)(4)(C).
The existing franchise agreement between Esso and Monroig
was due to expire on January 1, 2004, and Esso sent Monroig a
notice of nonrenewal 90 days before this date. Absent other
circumstances, this notice would clearly have been sufficient under
§ 2804(a)(2). Esso argues that it complied with the PMPA and that
Monroig was required to seek a preliminary injunction by January 1,
2004. Monroig argues that the notice was essentially revoked by
Esso because the parties continued to negotiate for six more
months, until June 30, 2004. Further, Monroig contends that the
-4-
statute should not be construed to require him to seek a
preliminary injunction while in the midst of negotiating a renewal.
We think that the circumstances of this case justify the
application of the alternative notice requirements of § 2804(b)(1).
In the absence of any extensions to the original contract, Esso had
complied with the PMPA's notice requirements. This notice is not
revoked by the parties' mutual agreement to extend the original
contract for the purpose of continuing negotiations. Monroig knew
very well that the failure to come to an agreement on the terms of
the renewal meant an end to the franchise relationship. Monroig
did not know, however, the definitive date of the nonrenewal until
the contract negotiations permanently ceased. The PMPA requires
the franchisor to include in its notice "the date on which . . .
nonrenewal takes effect." Id. § 2804(c)(3)(B). Under these
circumstances, we find that Esso gave notice to Monroig of the
definitive date of nonrenewal on the earliest, reasonably
practicable date. See id. § 2804(b)(1).
We believe that this outcome supports the policy concerns
underlying the PMPA. A franchisor who initially satisfies the
notice requirements of § 2804(a)(2) and then continues negotiations
with a franchisee is not penalized for its efforts to reach a
compromise agreement. In addition, a franchisee is not required to
file a preliminary injunction motion while negotiations are
-5-
ongoing, which would not be conducive to fostering an agreement
between the parties. See id. § 2805(b)(4)(C).
III. Preliminary Injunction Standard
We now address the proper standard for determining
whether the preliminary injunction should be granted. Esso urges
the common-law standard, see Bl(a)ck Tea Soc'y v. City of Boston,
378 F.3d 8, 11 (1st Cir. 2004), and Monroig urges the standard
outlined in the PMPA, see 15 U.S.C. § 2805(b)(2). The PMPA
authorizes a standard for granting preliminary injunctions that is
more forgiving than the common law standard, but in order to
benefit from this standard, the franchisee must be timely in its
request for a preliminary injunction. See id. § 2805(b)(4). The
PMPA does not specify what a district court should do if the
franchisee is tardy in its request. To determine the proper
standard, we must determine whether Monroig was timely and, if not,
what the proper course of action should be.
A. Timeliness
Given our discussion of the notice requirements, above,
we have no problem finding that Monroig did not timely seek a
preliminary injunction. Pursuant to our determination that Esso
gave notice to Monroig on the earliest, reasonably practicable date
under § 2804(b)(1), Monroig had 30 days from the nonrenewal to
timely request a preliminary injunction. Id. § 2805(b)(4)(C).
Monroig requested a preliminary injunction on September 9, 2004,
-6-
which was more than 30 days after the nonrenewal date of June 30,
2004.
B. Standard for an Untimely Request
The PMPA does not provide much guidance to courts
considering an untimely request for a preliminary injunction. The
PMPA merely states that "the court need not exercise its equity
powers to compel continuation or renewal of the franchise
relationship if such action was [not timely] commenced." Id.
§ 2805(b)(4). No circuit court has yet addressed this issue. The
district court below noted that other district courts have taken
three different approaches when the franchisee is tardy in seeking
equitable relief: (1) "outright dismissal of the franchisee's claim
for equitable relief"; (2) reliance "in part upon the franchisee's
failure to timely commence an action in denying equitable relief";
and (3) "adjudge the request under the common law standard." See
Esso Std. Oil Co. (P.R.) v. Monroig Zayas, 352 F. Supp. 2d 165, 171
(D.P.R. 2005). The district court found the third option "to be
the better reasoned approach" and applied the common-law standard.
Id. We agree with the district court that this is the proper
approach.
In the absence of the more forgiving preliminary
injunction standard described in the PMPA, courts would apply the
common-law standard, which does not include any specific time
limitations. Congress created the PMPA to rectify "the disparity
-7-
of bargaining power existing between franchisors and franchisees."
Dep't of Consumer Affairs, 793 F.2d at 432. By creating a more
forgiving preliminary injunction standard in the PMPA, Congress
gave more power to franchisees. We do not think that Congress
intended to give with one hand and take away with the other.
Applying the common-law standard to untimely requests for
injunctions therefore comports well with the underlying purpose of
the PMPA.
IV. Preliminary Injunction
We now apply the common-law standard. We weigh four
factors in determining whether a preliminary injunction should be
granted:
(1) the likelihood of success on the merits;
(2) the potential for irreparable harm [to the
movant] if the injunction is denied; (3) the
balance of relevant impositions, i.e., the
hardship to the nonmovant if enjoined as
contrasted with the hardship to the movant if
no injunction issues; and (4) the effect (if
any) of the court's ruling on the public
interest.
Bl(a)ck Tea Soc'y, 378 F.3d at 11 (internal quotation marks
omitted). The party seeking the preliminary injunction bears the
burden of establishing that these four factors weigh in its favor.
Nieves-Márquez v. Puerto Rico, 353 F.3d 108, 120 (1st Cir. 2003).
"The sine qua non of this four-part inquiry is likelihood of
success on the merits: if the moving party cannot demonstrate that
he is likely to succeed in his quest, the remaining factors become
-8-
matters of idle curiosity." New Comm Wireless Servs., Inc. v.
SprintCom, Inc., 287 F.3d 1, 9 (1st Cir. 2002). The district court
denied the preliminary injunction, and we review for abuse of
discretion. Id.
The district court addressed only the first factor,
finding that Monroig had not shown a substantial likelihood of
success on the merits. We agree with the district court's
determination and find it unnecessary to address the remaining
factors. To this end, we now address the likelihood of success on
the merits.
The PMPA lists several grounds under which a franchisor
can choose not to renew a franchise agreement. One such ground is
the "failure of the franchisor and the franchisee to agree to
changes or additions to the provisions of the franchise." 15
U.S.C. § 2802(b)(3)(A). In negotiating any changes or additions to
the franchise agreement, the franchisor must have acted (1) "in
good faith and in the normal course of business" and (2) not for
the purpose of "preventing the renewal of the franchise
relationship." Id. Monroig's only argument is that Esso acted in
bad faith during the negotiations.1
The requirement that a franchisor act "in good faith and
in the normal course of business" is not a stringent one. The test
1
Monroig's passing reference in his brief to the second
requirement is not sufficiently developed to preserve the argument
for appeal.
-9-
is whether the "franchisor had acted in subjective good faith in
requesting the changes, and not whether the demanded changes were
the result of reasonable business judgments." Dep't of Consumer
Affairs, 793 F.2d at 432 (internal quotation marks omitted).
Congress sought to "provide adequate protection of franchisees from
arbitrary or discriminatory termination or nonrenewal, yet avoid
judicial scrutiny of the business judgement itself." Id. We have
found that the "good faith requirement requires merely that a
franchisor not act with evil motive or discriminate selectively
against franchisees." Id. (internal quotation marks and brackets
omitted).
Monroig has not borne his burden to show that Esso did
not act in good faith. Monroig speculates that Esso might have
violated Puerto Rico regulations that limit the amount of rent that
may be charged to gasoline filling stations. Monroig further
faults Esso's failure to show that it had complied with these
regulations. However, it is Monroig who bears the burden of proof.
He could have discovered the necessary information to ascertain
whether Esso complied with the regulations but did not do so. He
cannot now use such speculation to establish a lack of good faith.2
2
We do not make any statement as to whether compliance with the
Puerto Rico regulations is relevant to whether Esso acted in good
faith.
-10-
Monroig also points to an apparent clerical error by Esso
that was revealed during the preliminary injunction hearing. He
characterizes this error as manipulation of data and argues that it
is evidence of bad faith. Given that the error was in Monroig's
favor and resulted in a lower rent than what he should have been
charged, we do not find this error relevant. Monroig also faults
Esso for not producing the testimony of the person who discovered
the error, but as the district court noted, Monroig made no attempt
to call this person as a witness.
Finally, Monroig urges that Esso's bargaining tactics
showed an absence of good faith. He notes that at one point in the
negotiations "Esso took its interest in a rent increase off the
table" only to bring it up again "four months later when
significant progress had been made in the negotiations and an
agreement was imminent." Such bargaining does not rise to the
level of an "evil motive" and not even remotely indicative of bad
faith. In contrast, the rent increases proposed by Esso were five
percent for each of the first two years and zero percent for the
final year. In light of the fact that courts have upheld rent
increases of 100 to 300 percent, see Dep't of Consumer Affairs, 793
F.2d at 432, Esso's modest request suggests that it negotiated in
good faith.
Monroig also argues that the district court committed
error in applying the common-law standard without giving notice to
-11-
the parties of its intent to do so. Having only argued the PMPA
standard, Monroig claims he was denied the opportunity to fully
argue his case before the district court. We find this assertion
meritless for three reasons. First, under either standard, Monroig
was required to show some level of success on the merits.3 Thus,
his arguments going to the merits would have been the same under
either standard. Second, even if we had applied the PMPA standard,
we would still have denied the injunction, because Monroig has
utterly failed to present any evidence of bad faith on the part of
Esso. Finally, Monroig had the opportunity to argue the common-law
standard on appeal, and he has not explained how he was prevented
from presenting any relevant evidence before the district court.
Affirmed.
3
Under the PMPA standard, Monroig was required to show
"sufficiently serious questions going to the merits," 15 U.S.C.
§ 2805(b)(2), while under the common law standard, he was required
to show his likelihood of success on the merits.
-12-