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CROWN CENTRAL PETROLEUM CORPORATION, et al. v. HILL (59938)


CROWN CENTRAL PETROLEUM
CORPORATION, ET AL.

v.

HILL, T/A CEDAR
ROAD AMOCO


June 6, 1997
Record No. 962601

CROWN CENTRAL PETROLEUM
CORPORATION, ET AL.

v.

FRANK G. HILL, T/A CEDAR
ROAD AMOCO

OPINION BY JUSTICE ELIZABETH B. LACY
UPON A QUESTION OF LAW CERTIFIED BY THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA

Present: All the Justices


Pursuant to our Rule 5:42, the United States District Court
for the Eastern District of Virginia, Norfolk Division, certified
to this Court a question of Virginia law involving the
application of the Virginia Petroleum Products Franchise Act,
Code ?? 59.1-21.8
through 59.1-21.18:1 (the Act). The district court stated that
the answer to the question will be determinative of a proceeding
pending before it. We accepted the certification by order entered
January 15, 1997.

The following facts are set forth in the district court’s
certification order. Crown Central Petroleum Corporation (Crown)
is a petroleum refiner. It seeks to build a gasoline service
station on property owned by its wholly-owned subsidiary, Fast
Fare, Inc., and sell Crown gasoline at that station. Frank G.
Hill operates a gasoline service station under a lease and dealer
supply agreement with Amoco Oil Company, another petroleum
refiner. Hill’s station is located within one and one-half miles
of Crown’s proposed station.

Section 59.1-21.16:2(A) of the Act provides, in pertinent
part, that:

no refiner of petroleum products shall operate any major
brand, secondary brand, or unbranded retail outlet in the
Commonwealth of Virginia with company personnel, a parent
company, or under a contract with any person, firm, or
corporation, managing a service station on a fee arrangement
with the refiner; however, such refiner may operate such
retail outlet with the aforesaid personnel, parent, person,
firm, or corporation if such outlet is located not less than
one and one-half miles . . . from the nearest
retail outlet operated by any franchised dealer.

Pursuant to 28 U.S.C. ? 2201(a),
Crown sought a declaratory judgment that this provision of the
Act does not prevent Crown from building and operating the
station on its property because the location prohibition applies
only to retail outlets operated by a refiner within one and
one-half miles of a retail outlet operated by a franchised dealer
of that refiner. To resolve this issue, the district court
certified the following question to us:

Whether the Virginia Petroleum Products Franchise Act, Va.
Code ? 59.1-21.16:2,
was only intended to regulate intra brand competition, that
is, competition among retailers of the same brand of products
and representing the same company, or whether it was also
intended to regulate interbrand competition, competition
among retailers of different brands of products or
representing different refiners as is contemplated by Crown’s
proposed use of its property.

We conclude that ? 59.1-21.16:2(A)
regulates interbrand competition because it prohibits a refiner
from operating a retail outlet unless that outlet is located one
and one-half miles or more from a retail outlet operated by a
franchised dealer, including franchised dealers that are not
franchisees of the refiner.

In construing statutes, courts are charged with ascertaining
and giving effect to the intent of the legislature. City of
Winchester v. American Woodmark Corp.
, 250 Va. 451, 457, 464
S.E.2d 148, 152 (1995). That intention is initially found in the
words of the statute itself, and if those words are clear and
unambiguous, we do not rely on rules of statutory construction or
parol evidence, unless a literal application would produce a
meaningless or absurd result. Id.; Allen v. Chapman,
242 Va. 94, 100, 406 S.E.2d 186, 189 (1991); Beach Robo, Inc.
v. Crown Central Petroleum Corp.
, 236 Va. 131, 134, 372
S.E.2d 144, 146 (1988). The statutory language at issue here is
clear on its face. It prohibits a refiner from operating any
retail outlet in Virginia unless the outlet is located one and
one-half miles or more from a retail outlet operated by "any
franchised dealer." Nothing in the language used in the Act
supports an interpretation that the franchised dealer must be a
franchisee of the refiner.

Crown argues, however, that this interpretation improperly
ignores explicit legislative findings contained in ? 59.1-21.9 of the Act.
That section states:

The General Assembly finds and declares that since the
distribution and sales through franchise arrangements of
petroleum products in the Commonwealth of Virginia vitally affect
the economy of the Commonwealth, the public interest, welfare,
and transportation, and since the preservation of the rights,
responsibilities, and independence of the small businesses in the
Commonwealth is essential to economic vitality, it is necessary
to define the relationships and responsibilities of the parties
to certain agreements pertaining thereto.

Crown asserts that these findings demonstrate that the General
Assembly passed the Act to address the relationships between
parties to franchise agreements and, therefore, the location
prohibition contained in ? 59.1-21.16:2(A)
applies only to a refiner and its franchised dealer, and not to
refiners and franchised dealers unrelated by such an agreement.
To apply the location prohibition to such unrelated refiners and
franchised dealers is, Crown concludes, inconsistent with the
clearly expressed intent of the General Assembly. We disagree. A
number of sections in the Act do address the franchise
relationship, such as those prescribing certain terms of the
agreement, requiring disclosure of information prior to the
execution of the agreement, and setting conditions regarding its
termination.[1]
See ?? 59.1-21.11,
-21.14, -21.15. The legislative findings, however, do not, as
Crown suggests, compel an interpretation of the Act which
restricts all economic regulation imposed by the Act to
circumstances involving a refiner and its own franchisees.

Section 59.1-21.16:2, the section which includes the location
restriction at issue, contains provisions that clearly regulate
the conduct of refiners, irrespective of any franchise
relationship. For example, the second paragraph of ? 59.1-21.16:2(A)
imposed a blanket prohibition on refiners constructing and
operating retail outlets, from July 1, 1990 through June 30,
1991, unless the outlets were purchased, or under option to
purchase, by March 1, 1990. This prohibition was not conditioned
on a franchise relationship. Similarly, subsection (B) requires
refiners to apportion gasoline "among their purchasers"
in times of shortages. Again, this requirement is not based on
the existence of a franchise relationship between the refiner and
purchaser. Indeed, "purchasers" include all parties
buying product from the refiner, not just the refiner’s
franchisees. These provisions of ? 59.1-21.16:2 simply
cannot reasonably be construed to limit their application to
circumstances involving a refiner/franchisor and its franchised
dealer, the construction Crown argues is required by the
legislative findings contained in ? 59.1-21.9.

The specific location prohibition at issue is completely
consistent, not only with other provisions of ? 59.1-21.16:2, but
also with the expressed legislative intent, to preserve "the
rights, responsibilities, and independence of the small
businesses in the Commonwealth." ? 59.1-21.9. A refiner
operating a retail outlet is an integrated business entity which
produces its product and sells that product at both the wholesale
and retail level. Thus, the refiner has the ability to allocate
availability of its product and subsidize the price of its
product sold at its retail outlets. Such control could injure a
franchised dealer regardless of whether the refiner is the
franchisor of the dealer. It is the refiner’s integration and
access to the product that puts the retail franchised dealer at a
potentially competitive disadvantage. Therefore, to protect the
rights of franchised dealers in avoiding such a potentially
unfair price structure and thus preserve the independence of
dealers, the General Assembly chose to require a minimum distance
of one and one-half miles between a refiner-owned-and-operated
retail station and a retail station operated by a franchised
dealer.[2]

Finally, our construction of ? 59.21-16:2(A) is not
inconsistent with the regulations adopted by the Commissioner of
Agriculture and Consumer Services, as Crown asserts. Crown cites
to language in a regulation adopted by the Commissioner which
allows a refiner to relocate its retail outlet "at least 1
1/2 miles from any other franchised retail outlet of the same
brand." 2 Virginia Administrative Code ? 5-460-20(A), at 516
(1996). This regulation, Crown argues, shows that the agency
charged with enforcing the statute considers the prohibition to
apply only to refiners and their franchised dealers. Crown’s
position, however, fails to consider the regulation in its full
context.

Subsection (E) of ? 59.1-21.16:2
is a grandfather clause which allows refiners to continue
operating nonconforming retail outlets if they were operating the
outlets on July 1, 1979. Rather than simply requiring a
nonconforming outlet to comply with the location prohibition in
the event the outlet had to be relocated, the General Assembly
instructed the Commissioner to adopt regulations "providing
for" relocation of such outlets. ? 59.1-21.16:2(D). The
regulation adopted by the Commissioner limited relocations to
instances in which the original site was lost through involuntary
condemnation, non-renewal by the owner of the property lease, or
denial of a building permit or prohibited zoning. The relocation
had to be within a 10-mile radius of the original site and,
rather than imposing the full prohibition against locating within
one and one-half miles of "any franchised
dealer," the relocated, grandfathered retail outlet was only
precluded from relocating within one and one-half miles of
"any other franchised retail outlet of the same brand."

This regulation was not an interpretation or application of
the statutory location prohibition, but a response to the
legislative directive to provide for circumstances in which a
nonconforming but legal retail outlet was forced to relocate
through no fault of its own. In that response, the Commissioner
struck a balance between strictly applying the statutory location
prohibition and allowing the grandfathered retail outlet some
relief as a result of a forced relocation. Nothing in the
regulations promulgated by the Commissioner is inconsistent with
the plain meaning of the statute.

Accordingly, because ? 59.1-21.16:2(A)
regulates interbrand competition, the certified question is
answered in the negative.

 

FOOTNOTES:

[1]
We note that if the General Assembly had intended only to
restrict a refiner/franchisor from locating near its own
franchisee, it could have easily required that the franchise
agreement include a provision requiring the refiner/franchisor to
agree not to locate its retail outlet within the proscribed
distance from the franchisee’s outlet.

[2]
Other states adopted similar protective legislation, often
broader in scope, prohibiting petroleum refiners from operating
any retail outlets based, inter alia, on evidence that
refiners favored company-operated stations in allocating
gasoline. Exxon Corp. v. Governor of Maryland, 437 U.S.
117, 124 (1978).

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