United States District Court, D. Massachusetts
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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