Franchisee Law – PMPA Protects Gas Station Franchise Owners
Franchise & 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.
This 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.
In 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.