On the Road – the Official Communication of the New Jersey Gasoline, C-Store, Automotive Association: Gasoline Station Franchise Terminations – Can You Fight Back?
It is the piece of paper that most franchisees dread – a letter from your franchisor that says it has decided to take away your rights to be a franchisee and that you must close your business.
As you read the letter, one question often races through your head – can I fight back? If you own a gas station, the answer is often YES.
A federal law, known as the Petroleum Marketing Practices Act (“PMPA”), generally prohibits a gasoline franchisor from terminating a franchisee unless the franchisor specifically bases its decision to terminate on at least one reason specified in the PMPA. If the franchisor relies on any reason not allowed by the PMPA, then the termination may be unenforceable.
For example, the PMPA provides that a gasoline supplier franchisor can, generally, terminate a franchisee for not complying with a “reasonable” and “materially significant” provision in the parties’ franchise agreement. Say, for instance, the franchisor attempted to terminate a franchisee for failure to comply with some minor term in the franchise agreement. The franchisee may be able to fight back against this termination, even if the actual language of the franchise agreement would otherwise allow the franchisor to shut down the franchisee’s business operations.
Under the PMPA, the timing of terminations is relevant and can result in an otherwise valid reason to terminate a franchisee being invalidated. This is because the PMPA’s notice requirements override any shortened period provided in a franchise agreement. The PMPA sets a clock on the franchisor to terminate a franchisee and, depending on the circumstances, requires the franchisor to act in very limited timeframes. Often, the franchisor must provide at least 90 days notice before a termination can become effective. Termination that does not comply with the PMPA’s timeframes can give the franchisee the ability to challenge the termination.
The PMPA also generally gives a gas station franchisee significant practical recourse in the face of a threatened termination that may be in violation of the PMPA. Specifically, the PMPA allows a franchisee to go into federal court to seek a preliminary injunction, which is to ask the court to effectively stop the franchisor from shutting down the franchise while the franchisee pursues a lawsuit against the franchisor. Obtaining a preliminary injunction is ordinarily difficult because the standard can be quite high. However, that is not necessarily the case for gasoline station franchisees.
The PMPA relaxes the typical standard for temporary injunctive relief. A franchisee is only required to show that (1) sufficiently serious questions going to the merits of the termination exist; and (2) the balance of hardships weighs in favor of keeping the franchise open during the lawsuit. Additionally, the PMPA permits a court to order the franchisor pay the franchisee its attorney fees for the lawsuit, if successful.
There are legal procedures that are specific to seeking relief under the PMPA. Notably, for New Jersey gas station locations, such owners can often run into New Jersey federal court, even if the franchise agreement specifically requires lawsuits to be filed in a different state. That said, the PMPA provides a one-year statute of limitations, meaning that franchisees must act in a relatively short amount of time if they feel that the franchisor has terminated their franchise rights wrongfully.
In sum, a termination notice from a franchisor is not necessarily the end of a gas station owner’s business. If you are faced with a franchise termination notice, you may be able to fight back, particularly with counsel knowledgeable of the PMPA’s protective provisions.
This article was originally published in the Summer 2023, Volume 15 – Issue 3 of On the Road, the official communication of the New Jersey Gasoline, C-Store, Automotive Association, and is reprinted with permission.