The Petroleum Marketing Practices Act (PMPA)

The Petroleum Marketing Practices Act (PMPA) may be found at 15 U.S.C. §2801-2806. The full text of the act as codified follows this narrative. First, we present the amendments to the PMPA, and then present an overview of each section. You may use the hypertext in the description to get where you want to go in the PMPA, or leisurely scroll your way on down through the PMPA. Click here for a link to the Department of Energy's notice required for termination pursuant to the PMPA as published in the Federal Register at 61 F.R.32786 on June 25, 1996. This link is to the Federal Register at the website maintained by the United States Government Printing Office. Soon we hope to be adding links to the premier digest of cases for the PMPA: the Digest of Decisions Under the Petroleum Marketing Practices Act. Thank you for visiting our site.

The 1994 Amendments

The 1994 amendments to the PMPA:
1. Re-defined "Failure" by adding §2801(13)(C) which removes from the definition of failure any "failure" based on any illegal or unenforceable law of any State;
2. Added §2802(b)(3)(A) which addresses the issue of converting a leased facility from a dealer-operated facility to a company-operated facility;
3. Amended §2802(c)(4) so that a franchisor company must offer to assign to the franchisee any underlying lease of the facility, allowing certain conditions to be met prior to the assignment;
4. Added §2806(a)(2) which prohibits any state from legislating payment of goodwill upon termination or nonrenewal;
5. Added §2806(b)(2), which clarifies the right of a State to legislate the terms and conditions under which a franchise may make provision for succession upon death; and,
6. Inserted §2805(f)(1) and (2) making it clear that waiver of rights under PMPA, other federal law or applicable state law is not allowed, and that the only allowed applicable state law is the law of the principal place of business of the franchise.

The Petroleum Marketing Practices Act 15 USC §2801-2806 (Summary)

Section 2801. This section sets out the definitions of key terms that are used throughout the PMPA.

Section 2802. This section is the meat of the termination and nonrenewal of franchises. §2802(a) essentially prohibits termination of nonrenewal except as provided for in the PMPA. §2802(b) sets forth in detail the cookbook for proper termination or nonrenewal of a franchise. §2802(c) is a definition for the "relevant events" as referred to in 2802(b).

Section 2803. Here you will find the provisions relating to trial franchises.
§ 2803(a) removes applicability of §2802 in relation to trial franchises. The definitions for §2803 are in §2803(b). The conditions for nonrenewal of a trial franchise are set forth in §2803(c).

Section 2804. This section of the PMPA sets out the requirements for the timing, manner and form of the notification of termination and nonrenewal. §2804(a) sets forth the general requirements of notification. In §2804(b) attention is given to particular situations that allow for special notification requirments. The form notice and its content are spelled out in §2804(c). The special notice from the Department of Energy is called for in §2804(d).

Section 2805. This section sets forth the procedural matters in the event that an action is commenced to enforce franchise rights under the PMPA. §2805(a) specifies where and how a franchisee may sue a franchisor. The equitable relief available through the PMPA is set out in §2805(b). The burden of proof and of going forward are set out in §2805(c). The damages available under the PMPA are set out in §2805(d). The power of the court to continue a franchise is set out in §2805(e).

Section 2806. This section is about preemption. The prohibition of termination legislation is found in §2806(a). Transfer, assignment and succession rights are addressed in §2806(b).

Summary of Title 1 of the Petroleum Marketing Practices Act

(3128-01)

SUMMARY OF TITLE I OF THE PETROLEUM MARKETING PRACTICES ACT

AGENCY: Department of Energy

ACTION: Notice

SUMMARY: This notice contains a summary of title I of the Petroleum Marketing Practices Act, a new Federal law enacted on June 19, 1978. The law is intended to protect franchised distributors and retailers of gasoline and diesel motor fuel against arbitrary or discriminatory termination or nonrenewal of franchises. The summary describes the reasons for which a franchise may be terminated or not renewed under the new law, the responsibilities of franchisors, and the remedies and relief available to franchisees. Franchisors must give franchisees copies of the summary contained in this notice whenever notification of termination or nonrenewal of a franchise is given.

FOR FURTHER INFORMATION CONTACT:

William C. Lane, Jr., Office of Competition, Department of Energy, 20 Massachusetts Avenue NW.,Room 712, Washington, D.C. 20845, 202-376-9495.

Michael Paige or Judith H. Garfield, Office of General Counsel, Department of Energy, 12th and Pennsylvania Avenue NW., Room 5134, Washington. D.C., 20461, 202-566-9565 or 202-566-2085.

SUPPLEMENTARY INFORMATION:
Title I of the Petroleum Marketing Practices Act, Pub. L. 95-297 (the "Act"), enacted on June 19, 1978, provides for the protection of franchised distributors and retailers of motor fuel by establishing minimum Federal standards governing the termination of franchises and the nonrenewal of franchise relationships by the franchisor or distributor of such fuel. Section 104(d)(1) of the Act provides that the Secretary of Energy shall prepare and publish in the FEDERAL REGISTER, not later than 30 days after enactment of the act, a simple and concise summary of the provisions of title I, including a statement of the respective responsibilities of, and the remedies and relief available to, franchisors and franchisees under that title.

As required by section 104(d)(1) of the Act, the following is a summary of the respective responsibilities of and the remedies and relief available to, franchisors and franchisees. Franchisors must give copies of this summary statement to their franchisees when entering an agreement to terminate the franchise or not to renew the franchise relationship, and when giving notification of termination or nonrenewal. In addition to the summary of the provisions of title I, a more detailed description of the provisions of the definition contained in the Act and of the legal remedies available to franchisees is also included in this notice, following the summary statement.

SUMMARY OF LEGAL RIGHTS OF MOTOR FUEL FRANCHISEES

This is a summary of the franchise protection provisions of the Federal Petroleum Marketing Practices Act. This summary must be given to you, as a person holding a franchise for the sale, consignment or distribution of gasoline or diesel motor fuel, in connection with any termination or nonrenewal of your franchise by your franchising company (referred to in this summary as your supplier).

The franchise protection provisions of the Act apply to a variety of franchise arrangements. The term "franchise" is broadly defined as a license to use a motor fuel trademark which is owned or controlled by a refiner, and it includes secondary arrangements such as leases of real property and motor fuel supply arrangements which have existed continuously since May 15, 1973 regardless of a subsequent withdrawal of a trademark. Thus, if you have lost the use of a trademark previously granted by your supplier but have continued to receive motor fuel supplies through a continuation of a supply agreement with your supplier, you are protected under the Act.

You should read this summary carefully, and refer to the Act if necessary, to determine whether a proposed termination or nonrenewal of your franchise is lawful, and what legal remedies are available to you if you think the proposed termination or failure to renew is not lawful. In addition, if you think your supplier has failed to comply with the Act, you may wish to consult an attorney in order to enforce your legal rights.

The Act is intended to protect you, whether you are a distributor or a retailer, from arbitrary or discriminatory termination or nonrenewal of your franchise agreement. To accomplish this, the Act first lists the reasons for which termination or nonrenewal is permitted. Any notice of termination must state the precise reason, as listed in the Act, for which the particular termination or nonrenewal is being made. These reasons are described below under the headings "Reasons for Termination" and "Reasons for Nonrenewal."

You should note that the Act does not restrict the reasons which may be given for the termination of a franchise agreement entered into before the June 19, 1978 effective date of the Act. However, any nonrenewal of such a terminated franchise must be based on one of the reasons for nonrenewal summarized below.

The Act also requires your supplier to give you a written notice of termination or intention not to renew the franchise within certain time periods. These requirements are summarized below, under the heading "Notice Requirements for Termination or Nonrenewal."

The Act allows trial and interim franchise agreements, which are described below under the heading "Trial and Interim Franchises."

The Act gives you certain legal rights if your supplier terminates or does not renew your franchise in a way that is not permitted by the Act. These legal rights are described below under the heading "Your Legal Rights."

This summary is intended as a simple and concise description of the general nature of your rights under the Act. For a more detailed description of these rights, you should read the text of the Petroleum Marketing Practices Act itself (Pub. L. 95-297, 92 Stat. 322, 15 U.S.C. 2801).

I. REASONS FOR TERMINATION

The following is a list of the only reasons for which your franchise is permitted to be terminated by the Act. One or more of these reasons must be specified if your franchise was entered into on or after June 19, 1978 and is being terminated. If your franchise was entered into before June 19, 1978, as discussed above, there is no statutory restriction on the reasons for which it may be terminated, however, the Act requires the supplier to renew the franchise relationship unless the one of the reasons listed under this heading or one of the additional reasons for nonrenewal described below under the heading "Reasons for Nonrenewal" exists.

If your supplier attempts to terminate a franchise which you entered into on or after June 19, 1978 for a reason that is not listed under this heading, you can take the legal action against your supplier that is described below under the heading "Your Legal Rights."

Noncompliance with franchise agreement.
Your supplier may terminate your franchise is you do not comply with a reasonable and important requirement of the franchise relationship. In order to use this reason, your supplier must have learned of this non-compliance recently. The Act limits the time period within which your supplier must have learned of your non-compliance to various periods, the longest of which is 120 days, before you receive notification of the termination.

Lack of good faith efforts.
Your supplier may terminate your franchise if you have not made good faith efforts to carry out the requirements of the franchise, provided you are first notified in writing that you are not meeting a requirement of the franchise and you are given an opportunity to make a good faith effort to carry out the requirement. This reason con be used by your supplier only if you fail to make good faith efforts to carry out the requirements of the franchise for a period of 180 days before you receive the notice of termination.

Mutual agreement to terminate the franchise.
A franchise can be terminated by an agreement in writing between you and your supplier if the agreement is entered into not more than 180 days before the effective date of the termination and you receive a copy of this agreement, together with this summary statement of your rights under the Act. You may cancel within 7 days after you receive a copy of the agreement, by mailing (by certified mail) a written statement to this effect to your supplier.

Withdrawal from the market area.
Under certain conditions, the Act permits your supplier to terminate your franchise if your supplier is withdrawing from marketing activities in the entire geographic area in which you operate. You should read the act for a more detailed description of the conditions under which market withdrawal terminations are permitted.

Other events permitting a termination.
If your supplier learns within the time period specified in the Act (which in no case is more than 120 days prior to the termination notice) that one of the following events has occurred, your supplier may terminate your franchise agreement:

1. Fraud or criminal misconduct by you that related to the operation of your marketing premises.

2. You declare bankruptcy or a court determines that you are insolvent.

3. You have a severe physical or mental disability lasting at least 3 months which makes you unable to provide for the continued proper operation of the marketing premises.

4. Expiration of your supplier's underlying lease to the leased marketing premises, if you were given written notice before the beginning of the term of the franchise of the duration of the underlying lease and that the underlying lease might expire and not be renewed during the term of the franchise.

5. Condemnation or other taking by the government, in whole or in part, of the marketing premises pursuant to the power of eminent domain. If the termination is based on a condemnation or other taking, your supplier must give you a fair share of any compensation which he receives for any loss of business opportunity or good will.

6. Loss of your supplier's right to grant the use of the trademark that is the subject of the franchise, unless the loss was because of bad faith actions by your supplier relating to trademark abuse, violation of Federal or State law, or other fault or negligence.

7. Destruction (other than by your supplier) of all or a substantial part of marketing premises. If the termination is based on the destruction of the marketing premises and if the premises are rebuilt or replaced by your franchise, your supplier must give you a right of first refusal to this new franchise.

8. Your failure to make payments to your supplier of any sums to which your supplier is legally entitled.

9. Your failure to operate the marketing premises for 7 consecutive days, or any shorter period of time which, taking into account facts and circumstances, amounts to an unreasonable period of time not to operate.

10. Your intentional adulteration, mislabeling or misbranding of motor fuels or other trademark violations.

11. Your failure to comply with Federal, State, or local laws or regulations of which you have knowledge and that relate to the operation of the marketing premises.

12. Your conviction of any felony involving moral turpitude.

13. Any event that affects the franchise relationship and as a result of which termination is reasonable.

II. REASONS FOR NONRENEWAL

If your supplier gives notice that he does not intend to renew any franchise agreement, the act requires that the reason for nonrenewal must be either one of the reasons for termination listed immediately above, or one of the reasons for nonrenewal listed below.

Failure to agree on changes or additions to franchise.
If you and your supplier fail to agree to changes in the franchise that your supplier in good faith has determined are required, and your supplier's insistence on the changes is not for the purpose of preventing renewal of the franchise, your supplier may decline to renew the franchise.

Customer complaints.
If your supplier has received numerous customer complaints relating to the condition of your marketing premises or to the conduct of any of your employees, and you have failed to take prompt corrective action after having been notified of these complaints, your supplier may decline to renew the franchise.

Unsafe or unhealthful operations.
If you have failed repeatedly to operate your marketing premises in a clean, safe and healthful manner after repeated notices from your supplier, your supplier may decline to renew the franchise.

Operation of franchise is uneconomical.
Under certain conditions specified in the Act, your supplier may decline to renew your franchise if he has determined that renewal of the franchise is likely to be uneconomical. Your supplier may also decline to renew your franchise if he has decided to convert your marketing premises to a use other than for the sale of motor fuel, to sell the premises, or to materially alter, add to, or replace the premises.

III. NOTICE REQUIREMENTS FOR TERMINATION OR NONRENEWAL

The following is a description of the requirements for the notice which your supplier must give you before he may terminate your franchise or decline to renew your franchise relationship. These notice requirements apply to all franchises entered into before June 19, 1978 and trial and interim franchises, as well as to all nonrenewals of franchise relationships.

How much notice is required.
In most cases, your supplier must give you notice of termination or nonrenewal at least 90 days before the termination or nonrenewal takes effect.

In circumstances where it would not be reasonable for your supplier to five you 90 days notice, he must give you notice as soon as he can do so. In addition, if the franchise involves leased marketing premises, your supplier may not establish a new franchise relationship involving the same premises until 30 days after notice was given to you or the date of the termination or nonrenewal takes effect, whichever is later. If the franchise agreement permits, your supplier may repossess the premises and, in reasonable circumstances, operate them through his employees or agents.

If the termination or nonrenewal is based upon a determination to withdraw from the marketing of motor fuel in the area, your supplier must give you notice at least 180 days before the termination or nonrenewal takes effect.

Manner and contents of notice.
To be valid, the notice must be in writing and must be sent by certified mail or personally delivered to you. It must contain:

1. A statement of your supplier's intention to terminate the franchise or not to renew the franchise relationship, together with his reasons for this action;

2. The date the termination or nonrenewal takes effect; and

3. A copy of this summary.

IV. TRIAL FRANCHISES AND INTERIM FRANCHISES

The following is a description of the special requirements that apply to trial and interim franchises.

Trial franchises.
A trial franchise is a franchise, entered into on or after June 19, 1978, in which the franchisee has not previously been a party to a franchise with the franchisor and which has an initial term of 1 year or less. A trial franchise must be in writing and must make certain disclosures, including that it is a trial franchise, and that the franchisor has the right not to renew the franchise relationship at the end of the initial term by giving the franchisee proper notice.

In exercising his right not to renew a trial franchise at the end of its initial term, your supplier must comply with the notice requirements described above under the heading "Notice Requirements for Termination or Nonrenewal."

Interim franchises.
An interim franchise is a franchise, entered into on or after June 19, 1978, the duration of which, when combined with the terms of all prior franchises between the franchisor and the franchisee, does not exceed 3 years, and which begins immediately after the expiration of a prior franchise involving the same marketing premises which was not renewed, based upon a lawful determination by the franchisor to withdraw from marketing activities in the geographic area in which the franchisee operates.

An interim franchise must in writing and must make certain disclosures, including that it is an interim franchise and that the franchisor has the right not to renew the franchise at the end of the term based upon a lawful determination to withdraw from marketing activities in the geographical area in which the franchisee operates.

In exercising his right not to renew a franchise relationship under an interim franchise at the end of its term, your supplier must comply with the notice requirements described above under the heading "Notice Requirements for Termination or Nonrenewal."

V. YOUR LEGAL RIGHTS

Under the enforcement provisions of the Act, you have the right to sue your supplier if he fails to comply with the requirements of the Act. The courts are authorized to grant whatever equitable relief is necessary to remedy the effects of your supplier's failure to comply with the requirements of the Act, including declaratory judgement, mandatory or prohibitive injunctive relief, and interim equitable relief. Actual damages, exemplary (punitive) damages under certain circumstances, and reasonable attorney and expert witness fees are also authorized. For a more detailed description of these legal remedies you should read the text of the Act.

FURTHER DISCUSSION OF TITLE I -- DEFINITIONS AND LEGAL REMEDIES

I. DEFINITIONS

Section 101 of the Petroleum Marketing Practices Act sets forth definitions of the key terms used throughout the franchise protection provisions of the Act. The definitions from the Act which are listed below are of those terms which are most essential for purposes of the foregoing summary statement. (You should consult section 101 of the Act for additional definitions not included here.)

Franchise.
A franchise is any contract between a refiner and a distributor, between a refiner and a retailer, between a distributor and another distributor, or between a distributor and a retailer, under which a refiner or distributor (as the case may be) authorizes or permits a retailer or distributor to use, in connection with the sale, consignment, or distribution of motor fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies motor fuel to the distributor which authorizes or permits such use.

The term "franchise" includes any contract under which a retailer or distributor (as the case may be) is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of motor fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies motor fuel to the distributor which authorizes or permits such occupancy. The term also includes any contract pertaining to the supply of motor fuel which is to be sold, consigned or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, motor fuel was sold, consigned or distributed under a trademark owned or controlled on such date by a refiner. The unexpired portion of a transferred franchise is also included in the definition of the term.

Franchise relationship.
The term "franchise relationship" refers to the respective motor fuel marketing or distribution obligations and responsibilities of a franchisor and a franchisee which result from the marketing of motor fuel under a franchise.

Franchisee.
A franchisee is a retailer or distributor who is authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of motor fuel.

Franchisor.
A franchisor is a refiner or distributor who authorizes or permits, under a franchise, a retailer or distributor to use a trademark in connection with the sale, consignment, or distribution of motor fuel.

Marketing premises.
Marketing premises are the premises which, under a franchise, are to be employed by the franchisee in connection with the sale, consignment, or distribution of motor fuel.

Leased marketing premises.
Leased marketing premises are marketing premises owned, leased, or in any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with the sale, consignment, or distribution of motor fuel.

Fail to renew and nonrenewal.
The terms "fail to renew" and "nonrenewal" refer to a failure to reinstate, continue, or extend a franchise relationship (1) at the conclusion of the term, or on the expiration date, stated in the relevant franchise, (2) at any time, in the case of the relevant franchise which does not state a term of duration or an expiration date, or (3) following a termination (on or after June 19, 1978) of the relevant franchise which was entered into prior to June 19, 1978 and has not been renewed after such date.

II. LEGAL REMEDIES AVAILABLE TO FRANCHISEE

The following is a more detailed description of the remedies available to the franchisee if a franchise is terminated or not renewed in a way that fails to comply with the Act.

Franchisee's right to sue.
A franchisee may bring a civil action in United States District Court against a franchisor who does not comply with the requirements of the Act. The action must be brought within on year after the date of termination or nonrenewal or the date the franchisor fails to comply with the requirements of the law, whichever is later.

Equitable relief.
Courts are authorized to grant whatever equitable relief is necessary to remedy the effects of a violation of the law's requirements. Courts are directed to grant a preliminary injunction if the franchisee shows that there are sufficiently serious questions, going to the merits of the case, to make them a fair ground for litigation, and if, on balance, the hardship which the franchisee would suffer if the preliminary injunction is not granted will be greater than the hardship which the franchisor would suffer is such relief is granted.

Courts are not required to order continuation or renewal of the franchise relationship or renewal of the franchise relationship if the action was brought after the expiration of the period during which the franchisee was on notice concerning the franchisor's intention to terminate or not to renew the franchise agreement.

Burden of proof.
In an action under the Act, the franchisee has the burden of proving that the franchise was terminated or not renewed. The franchisor has the burden of proving, as an affirmative defense, that the termination or nonrenewal was permitted under the Act and, if applicable, that the franchisor complied with certain other requirements relating to terminations and nonrenewals based on condemnation or destruction of the marketing premises.

Damages.
A franchise who prevails in an action under the Act is entitled to actual damages and reasonable attorney and expert witness fees. If the action was based upon conduct of the franchisor which was in willful disregard of the law's requirements or the franchisee's rights under the law, exemplary (punitive) damages may be awarded where appropriate. The court, and not the jury, will decide whether to award exemplary damages and, if so, in what amount.

On the other hand, if the court finds that the franchisee's action is frivolous, it may order the franchisee to pay reasonable attorney and expert witness fees.

Franchisor's defense to permanent injunctive relief.
Courts may not order a continuation or renewal of a franchise relationship if the franchisor shows that the basis of the nonrenewal of the franchise relationship was a determination made in good faith and in the normal course of business.

1. To convert the leased marketing premises to a use other than the sale or distribution of motor fuel;

2. To materially alter, add to, or replace such premises;

3. To sell such premises;

4. To withdraw from marketing activities in the geographical area in which such premises are located; or

5. That renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonable changes or additions to the franchise provisions which may be acceptable to the franchisee.

In making this defense, the franchisor also must show that he has complied with the notice requirements of the Act.

This defense to permanent injunctive relief,however, does not affect the franchisee's right to recover actual damages and reasonable attorney and expert witness fees if the nonrenewal is otherwise prohibited under the Act.

Issued in Washington, D.C. on August 23, 1978.

John F. O'Leary
Deputy Secretary.

(FR Doc. 78-24429 Filed 8-28-78; 9:15 am)

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