Chevron, U.S.A., Inc. v. Lesch

McAULIFFE, Judge. Dr. Warren R. Lesch and his wife were severely burned and suffered the loss of their home and its contents when an explosion occurred in their garage in July 1985. The Lesches filed suit in the Circuit Court for Harford County, ²⁷ contending that the explosion was caused by the negligence of Malcolm Weeks, an employee of Walker’s Chevron, Inc. (Walker’s Chevron). Walker’s Chevron owned and operated an automobile service station business located on Conowingo Road in Bel Air, Maryland.

It leased the premises, and also purchased gasoline, oil, and lubricants from Bay Oil, Inc. (Bay Oil), a jobber. 1 Walker’s Chevron was a “branded station”; that is, it displayed the signs and colors of a particular brand, Chevron, and sold only that brand of gasoline and oil. 2 Bay Oil purchased the Chevron products that it sold to Walker’s Chevron from Chevron U.S.A., Inc. (Chevron U.S.A.), a national oil company. The Lesches sued Weeks, Walker’s Chevron, Bay Oil, and Chevron U.S.A. The claims against Weeks and Walker’s Chevron are based on Weeks’s alleged negligence in failing to properly repair a leak in the gas tank of the Lesch automobile, and on the vicarious liability of Walker’s Chevron as the employer of Weeks. The claim against Bay Oil is grounded on the theory that Walker’s Chevron and its employees were servants of Bay Oil, subject in fact to its control. The complaint against Chevron U.S.A. proceeds on theories of apparent agency, or agency by estoppel.

The Lesches contend that Chevron U.S.A. created, or knowingly allowed to exist, a situation that actually conveyed to the Lesches the reasonable belief that Weeks was an employee of Chevron U.S.A., and therefore possessed the skill that they had the right to expect of one under the control and supervision of a major oil company. They entrusted the repair work to Weeks and Walker’s Chevron because of that belief, and they suffered damage because of that reliance. ²⁸ Before trial, Bay Oil and Chevron U.S.A. filed motions for summary judgment. Judge Cypert O. Whitfill granted the motions, concluding from facts not in dispute that Bay Oil neither possessed nor exercised that degree of control over Walker’s Chevron which would give rise to vicarious liability, and that any belief entertained by the Lesches that employees of Walker’s Chevron were employees of Chevron U.S.A. was not justified by the facts, and was unreasonable as a matter of law. With the concurrence of all parties, and under circumstances we find were appropriate, Judge Whitfill entered final judgment in favor of Bay Oil and Chevron U.S.A., expressly finding that there was no just reason for delay.

Maryland Rule 2-602(b). The plaintiffs appealed, and the Court of Special Appeals reversed, directing that both judgments be vacated. Lesch v. Chevron, 75 Md.App. 669 , 542 A.2d 1292 (1988). We granted certiorari, and we now reverse the judgment of the intermediate appellate court.

The facts surrounding the repair in question, and the subsequent explosion, are as follows. On 14 July 1985, Dr. Lesch became aware that the gas tank of his Buick automobile was leaking, apparently as a result of having been struck by a metal rod he had run over earlier in the day. He pushed the car out of his garage and hosed down the garage floor. The next morning, he called Walker's Chevron, with whom he dealt regularly, and reported the problem.

Weeks arranged to have Dr. Lesch’s car towed to the service station, and after determining that there was a small puncture in the tank, called Dr. Lesch. The content of that conversation is in dispute, but in any event, Weeks proceeded to attempt a repair. He cleaned the tank in the area of the hole with a solvent, pressed air conditioning duct tape into or over the hole, inserted a screw into the hole and covered the patch with a multi-purpose epoxy. After allowing the epoxy to set up for one to two hours, Weeks put several gallons of gasoline in the tank and checked it for leaks.

Finding none, he filled the tank and parked the car. Dr. Lesch picked up the car the next day. ²⁹ Weeks explained the nature of the repair to Dr. Lesch, and said he had not observed any leaks. Weeks suggested, however, that Dr. Lesch “keep an eye on it.” That afternoon and evening, Dr. Lesch made several checks for evidence of leaks, but saw nothing. The next morning, however, he and his wife smelled an odor of gasoline, and went to the garage to investigate.

Dr. Lesch said that he was careful not to turn on any lights, or to activate the electric garage door opener. Perceiving a significant odor of gasoline in the garage, he stated that he disengaged the garage door from the electric opening device, and manually raised the door. He said that when the door reached a certain height it activated a light on the housing of the electric door opener, and the explosion occurred. Dr. Lesch suffered second degree bums to 45 percent of his body, and Mrs. Lesch incurred second and third degree bums to 45 percent of her body.

Their home and all of its contents were destroyed by the ensuing fire. Additional facts pertaining to the relationship that existed between the Lesches and Walker’s Chevron, and between the several defendants, as well as additional facts bearing on the possible appearance of an agency relationship between Walker’s Chevron and Chevron U.S.A., will be set forth as we discuss the separate theories of liability. I. Bay Oil — The Claim of Actual Agency Bay Oil is a petroleum products jobber doing business primarily in Harford, Cecil and Baltimore counties. It has, for some time, purchased petroleum products from several national gasoline producers, and sold those products to branded and unbranded retail gasoline service stations.

It became a Chevron jobber in 1972, after which it provided Chevron products to branded Chevron dealers. Contractual rights and obligations between Bay Oil and Chevron U.S.A. for the period of time involved in this case were controlled by a Branded Jobber Petroleum Products Agreement dated ³⁰ 11 September 1984. As part of this agreement, Bay Oil was authorized to supply Chevron products and “insignia” 3 to those retail stations that were approved by Chevron U.S.A. as acceptable outlets for Chevron branded products. The service station involved in this case was first approved as a Chevron branded station in 1976.

The business of that station was then owned by Ben Walker, and was operated as a sole proprietorship. Ben Walker had been in the service station business for some time, and had owned the business at this particular station since the mid-1960’s. Prior to that time, he had owned a service station business on Rock Spring Road, approximately two miles from the Conowingo Road station. The Rock Spring Road location was a branded Sinclair station, and Ben Walker traded there as Walker’s Sinclair.

When he moved his business to Conowingo Road, he continued to operate as Walker’s Sinclair. In the mid or late 1960’s, B.P. Oil, Inc. bought Sinclair, and Walker’s Sinclair became Walker’s BP. In 1976, Bay Oil obtained a leasehold interest in the Conowingo Road property from B.P. Oil, Inc., and in turn entered into a sublease with Ben Walker. It was at that time that Bay Oil entered into a Reseller’s Contract with Walker, and Walker’s BP became Walker’s Chevron.

The original Reseller’s Contract, which was apparently extended by an oral agreement of the parties, was a fairly simple document consisting of two pages. Bay Oil agreed to sell and deliver, and Ben Walker agreed to buy, certain quantities of Chevron gasoline, oil, and lubricants. Additionally, Bay Oil agreed to lease an eight foot internally lighted Chevron sign and a credit card imprinter to Walker. The contract did not grant Bay Oil any control over the operation of Walker’s business, and included this provision: It is the spirit and intent of this contract that Buyer will have the right to conduct and carry on the business of selling at retail, automobile fuel and gasoline and ³¹ lubricating oils and greases, wholly free and independent of any domination or control by Seller; and nothing in this contract is intended or shall be construed to give Seller any domination or control of Buyer’s said business.

The original lease agreement between Bay Oil and Walker’s Chevron was also an uncomplicated pre-printed document consisting of two pages. It provided, at paragraph 10, that: The provisions of this lease shall not be construed as reserving to the Lessor any right to exercise any control over the business or operations of the Lessee conducted upon the leased premises or to direct in any respect the manner in which any such business and operations shall be conducted. Although these provisions are not controlling, they may be of assistance in determining the intent of the contracting parties. In support of their contention that Bay Oil exercised actual control over Walker’s Chevron, plaintiffs point to a letter of 16 December 1982 from Bay Oil to Ben Walker.

This letter advised Walker “of certain problems regarding the operation of your service station,” and stated that if Walker wished to continue to occupy the premises, then he would be expected to conform to certain conditions. The conditions stated in the letter were: 1. The station will be kept clean and free of debris and trash at all times. 2. The station will be opened seven days per week no later than 7:00 a.m. and closed no earlier than 8:00 p.m. 8.

The station will be properly lighted in a manner to give the appearance the station is open for business between sundown and 8:00 p.m. 4. All junk cars will be removed immediately, no more than three motor vehicles shall remain outside overnight and no automobile shall remain on the premises for more than one week. 5. You will be expected to furnish a deposit of $700.00 as security for future payments of rent. ³² 6. Gas will be paid for in full at the time of delivery. 7.

Monthly rent will be calculated based on the previous month’s sales according to the attached schedule. 8. We will bill you for rent at the beginning of each month. Your rent shall be due upon receipt of the bill. The Court of Special Appeals, characterizing this letter as an ultimatum, held that its contents constituted sufficient evidence of Bay Oil’s power to control the conduct of Walker’s Chevron to permit a trier of fact to find the existence of a master-servant relationship.

Lesch v. Chevron, supra, 75 Md.App. at 698-700 , 542 A.2d 1292 . We do not agree. In evaluating the relationship that existed between these parties to determine whether Bay Oil may be held vicariously liable for the torts of employees of Walker’s Chevron, we keep in mind that not every close relationship will create that liability. One may be an agent of another, owing to his principal the fiduciary obligations of loyalty and general obedience, but at the same time not be sufficiently under the control of the principal to be considered a servant.

See Brady v. Ralph Parsons Co., 308 Md. 486, 510-512 , 520 A.2d 717 (1987). The relationship of master and servant exists only when the employer has the right to control and direct the servant in the performance of his work and in the manner in which the work is to be done. Id. at 510 ; Mackall v. Zayre Corp., 293 Md. 221, 230 , 443 A.2d 98 (1982). In Keitz v. National Paving Co., 214 Md. 479, 491 , 134 A.2d 296 (1957), this Court said: [TJhere are at least five criteria that may be considered in determining the question whether the relationship of master and servant exists.

These are: (1) the selection and engagement of the servant, (2) the payment of wages, (3) the power to discharge, (4) the power to control the servant’s conduct, (5) and whether the work is a part of the regular business of the employer. Standing alone, none of these indicia, excepting (4), seems controlling in ³³ the determination as to whether such relationship exists. The decisive test in determining whether the relation of master and servant exists is whether the employer has the right to control and direct the servant in the performance of his work and in the manner in which the work is to be done, (emphasis in original). To like effect, see Whitehead v. Safway Steel Products, 304 Md. 67, 77-78 , 497 A.2d 803 (1985); B.P. Oil Corp. v. Mabe, 279 Md. 632, 637-39 , 370 A.2d 554 (1977).

Assuming, as we do for the purpose of considering Bay Oil’s motion for summary judgment, that the plaintiffs could establish that Ben Walker, and his successor, Walker’s Chevron, had accepted and agreed to be bound by the conditions imposed by Bay Oil, we hold that to be insufficient evidence of the right on the part of Bay Oil to exercise the degree of control that would support a claim of vicarious liability. This exercise of control by Bay Oil flows partly from its status as landlord, and partly from its status as jobber. Provisions dealing with required cleanliness of the premises, number of cars that may be parked overnight, and revised rent structures are customary in lease agreements. See, e.g., Miller v. Sinclair Refining Company, 268 F.2d 114, 117 (5th Cir.1959); Texas Co. v. Wheat, 140 Tex. 468 , 168 S.W.2d 632, 635 (1943).

Because the parties apparently were in agreement that they were on a month-to-month rental basis, Bay Oil announced the change in terms as a condition to the continuation of the lease. For example, Item 2, dealing with the minimum hours of operation of the station, parallels a provision that was contained in the original, pre-printed lease, but which had not been filled in by the parties. In addition, Item 6, which provided that gas would be sold to Walker’s Chevron on a C.O.D. basis, was entirely in accordance with the Reseller’s Contract that existed between the parties. Individually or collectively, these conditions did not demonstrate a claim to, or exercise of, the degree of control required to establish a master-servant relationship.

Summary judgment was correctly entered in favor of Bay Oil. ³⁴ II. Chevron U.S.A. — The Claim, of Apparent Agency Plaintiffs do not contend that a master-servant relationship existed between Chevron U.S.A. and Walker’s Chevron, and the facts of record would not support the contention if made. Rather, plaintiffs contend that Chevron U.S.A. is liable for the negligent acts of employees of Walker’s Chevron because Chevron U.S.A. influenced the plaintiffs to believe that Weeks was its employee and, reasonably relying on that apparent relationship and the care and skill that the plaintiffs believed a mechanic employed by Chevron U.S.A. would possess, they entrusted the repair to Weeks, to their detriment. This theory of liability, most often referred to as apparent agency or agency by estoppel, 4 was before us in B.P. Oil Corp. v. Mabe, supra, and more recently in Mehlman v. Powell, 281 Md. 269 , 378 A.2d 1121 (1977).

As we pointed out in B.P. Oil Corp. v. Mabe, supra, the law applicable to the plaintiffs’ claim against Chevron U.S.A. is that set forth in Restatement (Second) of Agency, § 267 (1958): One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such. In order to recover on this theory, in addition to showing that Weeks was negligent and that his negligence was a proximate cause of the ensuing damage, plaintiffs must show that: 1) they were misled by appearances by Chevron U.S.A. into believing that Weeks was an employee of Chev ³⁵ ron U.S.A.; 2) this belief was objectively reasonable under all the circumstances; and, 3) they relied on the existence of that relationship in making their decision to entrust Weeks with the repairs. See B.P. Oil Corp. v. Mabe, supra, 279 Md. at 644-45 , 370 A.2d 554 . See also Drexel v. Union Prescription Centers, Inc., 582 F.2d 781, 791 (3rd Cir.1978).

One commentator has described the first two requirements in these terms: The first [test] is objective: could a reasonable man believe that the company’s manifestations of apparent authority indicate it is holding the operator out as its agent? The second is subjective: did the facts known by the plaintiff in a particular case reasonably justify his assumption that the operator was the company’s agent? Comment, Service Stations Torts: Time for the Oil Companies to Assume Their Share of the Responsibility, 10 Cal.W.L.Rev. 382, 394-95 (1974). Comment a to § 267 of the Restatement (Second) of Agency discusses the third requirement: The mere fact that acts are done by one whom the injured party believes to be the defendant’s servant is not sufficient to cause the apparent master to be liable.

There must be such reliance upon the manifestation as exposes the plaintiff to the negligent conduct. We shall assume, without deciding, that summary judgment could not properly have been entered on the questions of whether the plaintiffs subjectively entertained the belief that Weeks was an employee of Chevron U.S.A., and whether Weeks was engaged by the plaintiffs to make the repairs as a result of that belief. We hold, however, that summary judgment was correctly entered in favor of Chevron U.S.A. on the ground that any belief so held by the plaintiffs was not objectively reasonable under all of the circumstances. Most of the alleged indicia of control relied on by these plaintiffs were identical to those relied on by the plaintiff in B.P. Oil Corp. v. Mabe, supra.

The Lesches related by affidavit that: ³⁶ The station was known as Walker’s Chevron, Inc. There was a large sign bearing the Chevron logo which was