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Monday
Aug282017

Gas Station Dealers: A Review of the Petroleum Marketing Practices Act

Franchise Litigation Attorney David GurnickCertified Franchise & Distribution Law Specialist

by David Gurnick

818.907.3285

So far in 2017 no federal or state court in California issued a published decision under the Petroleum Marketing Practices Act (“PMPA”) – despite the fact gasoline demand and consumption continue to rise. The reason for fewer cases may be the ongoing decline in number of gas stations and dealers. For dealers who operate as franchisees, it is useful to be aware of the PMPA.

The PMPA was passed nearly 40 years ago, in 1978. Congress sought to protect gas station franchisees from being unfairly terminated or not renewed by their oil company franchisors.

Its basic rule is that a franchisor cannot terminate a dealer or refuse to renew a dealer’s franchise at the end of the term. The law then states exceptions. For a franchisor to lawfully terminate or not renew a franchisee, it must fit the circumstances into one of the law’s exceptions.

A franchisor may terminate or not renew a franchisee dealer in the following circumstances: 

  • If the franchise dealer does not perform the franchise agreement, or try in good faith to carry out its terms. 

  • If the franchisor withdraws from the market area where the dealer is located. 

  • The franchisee fails to pay the franchisor on time. 

  • The franchisee fails to operate for 7 days. 

  • The franchisee commits fraud, criminal conduct or files for bankruptcy. 

  • The franchisee becomes severely disabled, physical or mental. 

  • The franchisor loses its lease for the location. 

Nonrenewal by the franchisor is allowed if: 

  • The franchisee did not operate in a clean, safe and healthful manner. 

  • The franchisee did not correct problems identified in customer complaints. 

  • The parties cannot agree on renewal terms. 

  • The franchisor decides to convert the location to a different use or to sell or replace the location. 

  • The franchisor decides the location is not economical. 

The above circumstances for termination or nonrenewal are summaries. The actual statutory grounds include additional restrictions and conditions on the franchisor.

For example, some of the grounds apply only if the franchisor’s decision was made close in time to when the situation occurred. Franchisor decisions must be made in good faith. In some cases, the franchisor is required to offer to sell the premises to the franchisee.

A franchisor seeking to terminate or not renew a dealer must provide written notice under the rules of PMPA.

For example, if the franchisor’s action is due to breach or misconduct by the franchisee, the franchisee must be allowed an opportunity to correct the breach. A franchisor must provide notice at least 90 days before the termination or nonrenewal date. The notice must meet requirements as to form. It must state the date of termination or nonrenewal and provide a summary statement specified by the PMPA.

For a dealer whose rights are being violated, the PMPA allows an action in federal court. The PMPA provides a relaxed standard for the court to grant an injunction against wrongful termination or nonrenewal. The PMPA directs the court to grant a preliminary injunction if the franchisee shows: the franchise is being terminated or not renewed; there are serious questions to be litigated; and the hardship to the franchisor from an injunction is less than the hardship to the franchisee if no injunction is granted.

A dealer who wins PMPA litigation can recover damages, punitive damages, expert fees and attorney fees. In one case, $2.5 million of damages was awarded against a franchisor (Sun Oil) that stopped selling product to its dealer on credit and told the dealer to stop using its trademark.  

A jury agreed that the franchisor had not followed the PMPA’s requirement to give an advance notice of termination. A franchisee whose claim is frivolous could be ordered to pay the franchisor’s attorney and expert fees.

David Gurnick is a business litigation attorney and a Certified Specialist in Franchise & Distribution Law.

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Mar222012

Franchisee Law - PMPA Protects Gas Station Franchise Owners

 

Business Litigation Attorney EncinoFranchise & Business Litigation Attorney

 

by David Gurnick
818.907.3285

 

British Petroleum or BP, one of the world's largest oil companies, owns the ARCO gas station brand. Recently, BP announced they will sell their southern California oil refinery as well as a number of their ARCO locations here, while allowing other gas station franchise agreements to expire without being renewed.  

Gas FranchiseThis announcement has caused anxiety among numerous franchised ARCO dealers in Southern California. Will many of these gas station franchisees find themselves out of business?   

Oil companies supply fuel to the public through retail gas stations. Many gas stations are operated by independent franchisees. In a typical franchise, an oil company [like  Arco (BP), Exxon, Shell or Chevron] leases the premises to the franchisee, lets the franchisee use the company's brand, and agrees to sell gasoline to the franchisee for resale. Tens of thousands of franchised gas stations serve the public across the USA. These franchisees may be protected under the Petroleum Marketing Practices Act, or PMPA. 

 

PMPA Cuts Both Ways

 

In response to unfair terminations and nonrenewals of franchise agreements, Congress enacted the PMPA in 1978. The PMPA limits the circumstances in which an oil company may terminate a franchise or choose not to renew the franchise relationship at the end of the agreement's term. A franchisor may terminate a franchise or choose not to renew only if the franchisor provides prior written notice and has a good reason, recognized in the Act.

A franchisee can sue in federal court against a franchisor that violates the PMPA's restrictions against termination or nonrenewal. Various remedies are available to a franchisee, including damages, attorney's fees, costs of expert witnesses and equitable relief. A court can grant a preliminary injunction to protect a franchisee from a wrongful termination or nonrenewal. 

Franchisee Gas StationIn the BP situation, dealers may find some solace in the PMPA. Under that federal law, an oil industry franchisor cannot terminate a franchise early, or elect not to renew when its term expires, unless certain conditions are met. One of these conditions is that the Franchisor elects "in good faith and in the normal course of business" to withdraw from marketing fuel through retail outlets in the relevant geographic market area. When such a decision is made, the franchisor must offer to sell, transfer or assign its interest in the premises to the franchisee, or offer the franchisee an opportunity to buy the premises on the same terms as the franchisor is selling to someone else.

The PMPA has other detailed provisions which, if followed, may not prevent BP from completing its plan. But franchised ARCO dealers, and franchisees of any oil company, have rights as well, and may wish to explore those rights before their franchises are terminated, or not renewed.

David Gurnick is a Certified Specialist in Franchise and Distribution Law, as designated by the State Bar of California Board of Legal Specialization. You may reach the franchise attorney by calling 818.907-3285  or by email at dgurnick@lewitthackman.com.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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