Supreme Court rules in oil franchise dispute

The US Supreme Court on Tuesday ruled unanimously in Mac's Shell Service, Inc. v. Shell Oil Products Co. that a service station operator cannot recover for constructive termination under the Petroleum Marketing Practices Act (PMPA) when the operator continues to run the franchise with the same trademark, fuel, and premises. The US Court of Appeals for the First Circuit affirmed a district court ruling that a franchise could recover for constructive termination even if it continues to use the same trademark, fuel, and premises. The First Circuit also 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. Partially reversing the decision below, Justice Samuel Alito wrote:

We hold that a franchisee cannot recover for constructive termination under the PMPA if the franchisor's allegedly wrongful conduct did not compel the franchisee to abandon its franchise. Additionally, we conclude that a franchisee who signs and operates under a renewal agreement with a franchisor may not maintain a claim for constructive nonrenewal.

The court remanded the case for further proceedings.

The PMPA regulates the relationship between oil companies and gas retailers. When Shell Oil assigned its rights under several franchise agreements to a third party, the gas station owners signed the new agreements but brought suit under the PMPA alleging constructive non-renewal and constructive termination.

(Published by Jurist - February 23, 2010)