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Hopkinton Friendly Service, Inc. v. Global Companies LLC

United States District Court, D. Massachusetts

October 22, 2018

HOPKINTON FRIENDLY SERVICE, INC., Plaintiff,
v.
GLOBAL COMPANIES LLC, and GLOBAL MONTELLO GROUP CORP., Defendants.

          MEMORANDUM & ORDER

          NATHANIEL M. GORTON UNITED STATES DISTRICT JUDGE.

         Hopkinton Friendly Service, Inc. (“Hopkinton” or “plaintiff”) filed a complaint against Global Companies LLC and Global Montello Group (collectively “Global” or “defendants”) alleging violations of the Petroleum Marketing Practices Act (“PMPA”), 15 U.S.C. § 2801, et seq., and various state law claims, including a claim for unfair and deceptive practices pursuant to M.G.L. c. 93A. Plaintiff seeks injunctive and declaratory relief, as well as damages including costs, interest and attorneys' fees. That action stems from a dramatic increase in Hopkinton's monthly rent that allegedly violates federal and state law.

         On September 20, 2018, Hopkinton filed a motion for a preliminary injunction enjoining Global from increasing the rent and terminating plaintiff's commercial lease and franchise pending completion of this litigation. For the reasons that follow, the motion for a preliminary injunction will be denied.

         I. Background and Procedural History

         A. Facts

         Hopkinton is a small family operated business that has leased a gas station at 92 West Main Street in Hopkinton, Massachusetts (“the Premises”), for the last 40 years. For the first 30 of those years, plaintiff leased the Premises from ExxonMobile Oil Corporation (“ExxonMobile”). From approximately September, 2010, to the present, plaintiff has leased the Premises from defendants. Defendants distribute and sell gasoline and other petroleum products through a franchise system. At the time ExxonMobile transferred the Premises to defendants, plaintiff entered into a PMPA franchise agreement with defendants. The original franchise agreement was initially for three years and required plaintiff to pay a monthly rent for the Premises of $8, 730 with scheduled annual increases. Plaintiff entered into its first extension of the PMPA franchise agreement in 2015 which covered an additional three years at an increased monthly rental payment of $11, 450.

         In October, 2017, Stephen Lundgren, Vice President of Global, advised Nayla Aoude, a representative of Hopkinton, that Global was considering an expansion and redevelopment of the Premises, including the purchase of two parcels adjacent to the Premises to accommodate a larger layout and larger convenience store for the site. In December, 2017, plaintiff received from defendants a franchise renewal agreement for an additional three years at a monthly rental payment of $14, 138 with a scheduled increase for each subsequent year based on Rent Guidelines which were enclosed. The Rent Guidelines were expressly incorporated into the franchise renewal agreement and are the same guidelines that apply to all other franchisees of the defendants. Plaintiff was given until March 22, 2018, to accept or reject the offered renewal agreement.

         On January 30, 2018, defendants notified plaintiff in writing of its redevelopment plans for the Premises. Defendants explained that if they chose to proceed with the redevelopment, they would acquire property adjacent to the Premises, construct a larger store, add additional dispensers and improve the layout of the Premises to provide additional parking and more efficient customer traffic flow. The notice referred plaintiff to the applicable portion of the Rent Guidelines which indicated that there would be an associated rental increase based upon the total capital expenditure of the project. The letter 1) estimated renovation costs to be greater than $500, 000 with an associated annual rent increase of 15% of the total renovation costs based on the Rent Guidelines, 2) stated that defendants were not obligated to proceed with the redevelopment and 3) reminded plaintiff that it had a right under the lease to terminate the franchise agreement within 30 days of being notified of any rent increase.

         Plaintiff signed the franchise renewal agreement (“the Agreement”) on March 16, 2018, to become effective on July 1, 2018, for a period of three years. In June, 2018, the Town of Hopkinton Planning Board approved the permits for the redevelopment project and acquisition of the property needed for the redevelopment was completed in September, 2018.

         On August 21, 2018, defendants delivered a letter to plaintiff confirming the redevelopment of the Premises to begin in Fall of 2018. That letter also informed plaintiff for the first time that the total cost of redevelopment would be in excess of $5 million, resulting in a monthly rental more than five times greater than what was contained in the Agreement, i.e. $79, 301 per month commencing upon completion of the redevelopment. The letter explained that plaintiff would have to pay for the interior layouts, equipment and products for the larger store (which, according to plaintiff's Certified Public Accountant (“CPA”), could exceed $120, 000) in addition to the increased rent. The letter also reminded plaintiff of its right to terminate the Agreement within 30 days of receipt of notice of the rent increase or else be obligated to continue the franchise relationship subject to that increase. Plaintiff did not submit a notice of termination before September 20, 2018, and continues to operate the franchise on the Premises.

         Plaintiff alleges that from 2012 to 2017, it has never made an annual net profit of more than $70, 000 and thus is unable to afford the dramatically increased monthly rental. Plaintiff's CPA estimates that Hopkinton would have to sell an additional $6.4 million in product and double the rest of its revenue to cover the increased rent which is highly unlikely despite the prospective renovations.

         B. Alleged Violations

         Plaintiff contends that the sudden and drastic increase in rent constitutes a constructive termination of plaintiff's franchise agreement in violation of the PMPA. The PMPA provides that

no franchisor engaged in the sale, consignment, or distribution of motor fuel in commerce may-- (1) terminate any franchise . . . prior to the conclusion of the term, or the expiration date, stated in the franchise; or (2) fail to renew any franchise relationship . . . .

§ 2802(a).

         Plaintiff argues that by undertaking a unilateral redevelopment of the Premises which will result in an inordinate increase in the monthly rent for plaintiff, Global's purpose was to coerce Hopkinton into terminating its lease and franchise in violation of Hopkinton's protected rights. Plaintiffs contend that this constituted a constructive termination because plaintiffs were left with the Hobson's choice of terminating the Agreement or perpetuating an unworkable franchise. Plaintiff asserts that defendants knew the premises could not generate sufficient revenue to cover the increased rent and thus did not negotiate the renewal in good faith.

         C. Procedural History

         On September 20, 2018, plaintiff filed motions for both a temporary restraining order and a preliminary injunction under § 2805(b) of the PMPA. The Court denied plaintiff's motion for a temporary restraining order the following day (Docket No. 11), and directed plaintiff to give requisite notice to defendants of a hearing on plaintiff's motion for a preliminary injunction which is now before the Court.

         II. Plaintiff's Motion for a Preliminary Injunction

         A. Legal Standard Under § 2805(b) of the PMPA

         The PMPA promulgates a separate standard for granting preliminary injunctive relief that is more forgiving than the common law standard. Esso Standard Oil Co. (P.R.) v. Monroig-Zayas, 445 F.3d ...


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