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Hopkinton Friendly Service, Inc. v. Global Companies LLC

United States District Court, D. Massachusetts

June 4, 2019

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 (“the PMPA”), 15 U.S.C. § 2801, et seq., and various state law claims, including claims for breach of contract and unfair and deceptive practices pursuant to M.G.L. c. 93A. Plaintiff seeks injunctive and declaratory relief, as well as damages.

         Hopkinton alleges that Global violated its rights under federal and state law when it dramatically increased its monthly rent pursuant to a massive redevelopment project at the subject gas station. Before the Court is Global's motion to dismiss the complaint. For the reasons that follow, the motion will be allowed, in part, and denied, in part.

         I. Background

         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”), from defendants and their predecessor for the past 40 years. For the first 30 of those years, plaintiff leased the Premises from ExxonMobil Oil Corporation (“ExxonMobil”) but since approximately September, 2010, the lessor of the Premises has been Global. Global distributes and sells gasoline and other petroleum products through a franchise system. After ExxonMobil sold the Premises to defendants, plaintiff entered into a PMPA franchise agreement with defendants.

         The original franchise agreement was for three years and required plaintiff to pay a monthly rental of $8, 730 with scheduled annual increases. Hopkinton 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 subject to scheduled increases for each subsequent year. During that time, Hopkinton allegedly earned a monthly profit of between $15, 000 and $20, 000.

         Hopkinton alleges that in or around January, 2017, Global retained attorneys, consultants and engineers to redevelop the Premises. In or around June, 2017, Global (through a wholly-owned subsidiary) purportedly began purchasing or entering into agreements to purchase properties abutting the Premises to be used for the reconstruction of the existing gas station and convenience store. Global allegedly did not notify plaintiff of their purchase of the abutting properties or of their intent to drastically expand their operations at the Premises.

         In December, 2017, Hopkinton received from Global a franchise renewal agreement for an additional three years at a monthly rental payment of $14, 138 subject to scheduled increases for each subsequent year based on Rent Guidelines which were enclosed. The Rent Guidelines are expressly incorporated into the franchise renewal agreement and are said to be the same guidelines that apply to all other franchisees of the defendants. The renewal agreement also provides Global the discretionary right to redevelop the Premises at any time and to increase the rent based upon the cost of the redevelopment but did not disclose defendants' planned capital investment at that time. The renewal agreement also provides that during the period of demolition/construction, Global will reduce plaintiff's gasoline purchase requirements and rent by an amount that, in its judgment, would adequately compensate plaintiff for the restrictions in use of the Premises.

         The renewal agreement gives Hopkinton the right to terminate the franchise agreement within 30 days of receiving notice of a rent increase but plaintiff asserts that the agreement also requires it to pay to Global 1) all expenses incurred by Global as a result of that termination, 2) any rent and other charges owed to Global up to the time of termination and 3) an amount equal to the rent and other charges and expenses that would be payable if the lease remains in effect, less the net proceeds from Global's reletting of the Premises. Plaintiff was given until March 22, 2018, to accept or reject the proffered renewal agreement.

         On January 3, 2018, Global submitted an application with the Town of Hopkinton for special permits and variances for the construction of the new gas station and convenience store. That application was accompanied by site development plans and reports prepared by various engineering companies.

         On January 30, 2018, defendants notified plaintiff in writing of its plans for redevelopment of the Premises (“the January Letter”). 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 included: 1) estimated renovation costs at greater than $500, 000 with an associated rent increase of 15% based on the Rent Guidelines, 2) a disclaimer of defendants' obligation to proceed with the redevelopment and 3) a reminder that plaintiff had a right under the lease to terminate the franchise agreement within 30 days of being notified of any rent increase. The letter did not, however, disclose that Global had already submitted an application with the Town of Hopkinton for special permits and variances to allow for the construction of the new gas station and convenience store or that consultants had prepared plans and reports for the redevelopment project.

         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 or around June, 2018, the Town of Hopkinton Planning Board approved the special permits for the redevelopment project. The acquisition of the property needed for the redevelopment was completed in September, 2018.

         On August 21, 2018, Global delivered a letter to Hopkinton confirming the redevelopment of the Premises and notifying it that construction would begin in Fall of 2018. That letter also informed Hopkinton for the first time that the total cost of redevelopment would be in excess of $5 million, resulting in a monthly rental of more than five times the amount anticipated in the Agreement, i.e. $79, 301 per month, commencing upon completion of the redevelopment. The letter explained that Hopkinton would have to pay for the interior layouts, equipment and products for the larger store and those costs, according to plaintiff's Certified Public Accountant (“CPA”), could exceed $120, 000 in addition to the increased rent. The letter also reminded Hopkinton of its right to terminate the Agreement within 30 days of receipt of notice of the rental increase or else be obligated to continue the franchise relationship subject to that increase. Hopkinton 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 under the Agreement. Plaintiff's CPA estimates that Hopkinton would have to nearly double its current revenue and sell an additional $6.4 million in product to cover the increased rent which he believes is unlikely despite the larger store after redevelopment.

         B. Alleged Violations

         Hopkinton contends that the sudden dramatic increase in rent constitutes a constructive termination of its franchise agreement in violation of the PMPA. It argues that by undertaking a unilateral redevelopment of the Premises which will result in a dramatically increased monthly rent for plaintiff, Global's purpose was to coerce Hopkinton into terminating its lease and franchise in order to misappropriate its goodwill without payment. Plaintiff contends that actions of defendants constitute a constructive termination because Hopkinton was left with the choice of either terminating or defaulting under the Agreement as a result of the increased rent. Plaintiff submits that defendants knew that the Premises did not generate sufficient revenue to cover the increased rent and thus did not negotiate the Agreement in good faith.

         Hopkinton brings claims for 1) violations of the PMPA and injunctive relief thereunder, 2) breach of contract, 3) breach of the implied covenant of good faith and fair dealing, 4) unfair and deceptive practices under M.G.L. c. 93A, and 5) fraud in the inducement.

         C. Procedural History

         On September 20, 2018, Hopkinton 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. On October, 22, 2018, the Court denied the motion for a preliminary injunction after a hearing. In December, 2018, plaintiff filed an amended complaint in response to which Global filed a timely motion to dismiss for failure to state a claim.

         II. Motion to Dismiss

         A. Legal Standard

         To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In considering the merits of a motion to dismiss, the Court may look only to the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the complaint and matters of which judicial notice can be taken. Nollet v. Justices of Trial Court of Mass., 83 F.Supp.2d 204, 208 (D. Mass. 2000), aff'd, 248 F.3d 1127 (1st Cir. 2000). Furthermore, the Court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Langadinos v. Am. Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). Although a court must accept as true all of the factual allegations contained in a complaint, that doctrine is not applicable to legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662 (2009).

         B. ...


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