Tuesday, April 22, 2008

Split Widened: Does The Petroleum Marketing Practices Act Permit Claims For Constructive Non-Renewal of Franchise Agreements?

Per Marcoux v. Shell Oil Prods. Co. LLC, 2008 WL 1759157, (1st Cir. Apr. 18, 2008)

Eight Shell franchisees brought suit against Shell for violations of the Petroleum Marketing Practices Act (PMPA). In 1998, Shell transferred franchise agreements to Motiva, a joint venture with Texaco and Star Enterprises. Motiva then changed the rent provisions in the contract, which included a discount based on the amount of gasoline sold above a threshold. This subsidy had been in effect since 1982, although the threshold and discount amount had changed from time to time. The terms of the subsidy explicitly provided for cancellation on thirty days notice, but various representations were made to the franchisees that the subsidy would always exist. Motiva ended the subsidy entirely in 2000, and offered new leases with higher rent. The dealers signed the new leases under protest, and then filed the instant suit.

The First Circuit upholds the jury verdict that cancellation of the subsidy amounted to constructive termination of franchise contracts. It overturns the jury’s finding that the new leases constituted constructive non-renewal in violation of PMPA. The unanimous panel notes that the circuits have split on whether the PMPA even permits constructive non-renewal claims (CA 9), or instead requires a franchisee to receive a notice of non-renewal (CA 5,7, and now 1). Judge Howard finds that the franchisee’s ratification of the new leases precludes any claim of constructive non-renewal. He expresses some discomfort with this result, but finds that it is what the language of the statute requires.

As Appellate Law & Practice notes, this opinion is also notable for those interested in civil procedure as well as gas-gouging. The court permitted substitution of the plaintiffs after the statute of limitations had run by relating the claims back to the original suit. The court also found that Shell did not exercise good faith in setting its prices.

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