Supreme Court hears arguments in oil franchise, collective bargaining cases

The US Supreme Court heard oral arguments Tuesday in two cases. In the combined cases of Mac's Shell Service, Inc. v. Shell Oil Products Co. and Shell Oil Products Co. v. Mac's Shell Service, Inc., the Court heard arguments on whether a service station operator can bring a constructive termination action under the Petroleum Marketing Practices Act when the operator continues to run the franchise with the same trademark, fuel, and premises. Additionally, the Court will decide on the requirements for constructive non-renewal of a franchise-franchisee agreement under the act. The US Court of Appeals for the First Circuit affirmed a district court ruling that a franchise may recover for constructive termination even if it continues to use the same trademark, fuel, and premises. The First Circuit additionally reversed the district ruling on constructive non-renewal of an agreement, holding that a franchisee faced with an unlawful lease has to either sign the lease and forgo any potential actions under the act or refuse to sign and bring a challenge to it after receiving a notice of non-renewal. Counsel for Shell Oil argued:

Because the term "terminate," at the very least, requires an end, we and the United States agree that the First Circuit erred in upholding the so-called constructive termination, where the dealers continued to receive each element of the statutory franchise - that is the premises, the trademark, and fuel -

Counsel for Mac's argued:

In this case the jury determined that Shell and Motiva engaged in conduct designed - prohibited by the PMPA when they raised rent to force dealers out of business and convert their stations to direct operations. Nevertheless, Shell and Motiva argue that conduct designed to force the dealers out of business is insufficient to invoke statutory protection because the dealers were not deprived of any of the statutory elements of the franchise and they remained in business for some period following the rental increase.

If accepted, the practical effect of Shell and Motiva's position will allow franchisors to circumvent the PMPA and terminate franchises at any time, at any reason, by simply increasing the burden on their operations.

In Granite Rock Co. v. International Brotherhood of Teamsters, the Court heard arguments on whether a federal court has jurisdiction to determine whether a collective bargaining agreement (CBA) was formed when it is disputed whether any binding contract exists, but no party makes an independent challenge to the arbitration clause apart from claiming it is inoperative before the contract is established. The court also heard arguments on whether Section 301(a) of the Labor Management Relations Act (LMRA), which generally preempts otherwise available state law causes of action, provides a cause of action against a third-party international union that is not a direct signatory to the collective bargaining agreement. The US Court of Appeals for the Ninth Circuit affirmed the district court's dismissal of a claim against the International Brotherhood of Teamsters (IBT) for tortious interference with a collective bargaining agreement between Granite Rock and Local Union 287. Counsel for the petitioner argued, "the concept that we are advancing is the plain language of the statute. Violation of a contract is right at the heart of this suit. You have for 150 years jurisprudence where in enforcing contracts, which is the central mission of the statute." Counsel for the IBT argued:

that allowing the tort action as, Granite Rock is urging, would work a big change in the structure that Congress has established by which it has decided that major issues of labor law, such as the weapons - economic weapons that parties can use, should be decided by Congress through statute and by the National Labor Relations Board through the application of the statute.