[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32786-32790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16124]
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DEPARTMENT OF ENERGY
Revised Summary of Title I of the Petroleum Marketing Practices
Act
AGENCY: Department of Energy.
ACTION: Notice.
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SUMMARY: This notice contains a summary of Title I of the Petroleum
Marketing Practices Act, as amended (the Act). The Petroleum Marketing
Practices Act was originally enacted on June 19, 1978, and was amended
by the Petroleum Marketing Practices Act Amendments of 1994, enacted on
October 19, 1994. On August 30, 1978, the Department of Energy
published in the Federal Register a summary of the provisions of Title
I of the 1978 law, as required by the Act. The Department is publishing
this revised summary to reflect key changes made by the 1994
amendments.
The Act is intended to protect franchised distributors and
retailers of gasoline and diesel motor fuel against arbitrary or
discriminatory termination or nonrenewal of franchises. This summary
describes the reasons for which a franchise may be terminated or not
renewed under the law, the responsibilities of franchisors, and the
remedies and relief available to franchisees. The Act requires
franchisors to 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: Carmen Difiglio, Office of Energy
Efficiency, Alternative Fuels, and Oil Analysis (PO-62), U.S.
Department of Energy, Washington, D.C. 20585, Telephone (202) 586-4444;
Lawrence Leiken, Office of General Counsel (GC-73), U.S. Department of
Energy, Washington, D.C. 20585, Telephone (202) 586-6978.
SUPPLEMENTARY INFORMATION: Title I of the Petroleum Marketing Practices
Act, as amended, 15 U.S.C. Secs. 2801-2806, 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 required the Secretary of Energy to
publish in the Federal Register a simple and concise summary of the
provisions of Title I, including a statement of the respective
[[Page 32787]]
responsibilities of, and the remedies and relief available to,
franchisors and franchisees under that title. The Department published
this summary in the Federal Register on August 30, 1978. 43 F.R. 38743
(1978).
In 1994 the Congress enacted the Petroleum Marketing Practices Act
Amendments to affirm and clarify certain key provisions of the 1978
statute. Among the key issues addressed in the 1994 amendments are: (1)
termination or nonrenewal of franchised dealers by their franchisors
for purposes of conversion to ``company'' operation; (2) application of
state law; (3) the rights and obligations of franchisors and
franchisees in third-party lease situations; and (4) waiver of rights
limitations. See H.R. REP. NO. 737, 103rd Cong., 2nd Sess. 2 (1994),
reprinted in 1994 U.S.C.C.A.N. 2780. Congress intended to: (1) make
explicit that upon renewal a franchisor may not insist on changes to a
franchise agreement where the purpose of such changes is to prevent
renewal in order to convert a franchisee-operated service station into
a company-operated service station; (2) make clear that where the
franchisor has an option to continue the lease or to purchase the
premises but does not wish to do so, the franchisor must offer to
assign the option to the franchisee; (3) make clear that no franchisor
may require, as a condition of entering or renewing a franchise
agreement, that a franchisee waive any rights under the Petroleum
Marketing Practices Act, any other Federal law, or any state law; and
(4) reconfirm the limited scope of Federal preemption under the Act.
Id.
The summary which follows reflects key changes to the statute
resulting from the 1994 amendments. The Act requires franchisors to
give copies of this summary statement to their franchisees when
entering into an agreement to terminate the franchise or not to renew
the franchise relationship, and when giving notification of termination
or nonrenewal. This summary does not purport to interpret the Act, as
amended, or to create new legal rights.
In addition to the summary of the provisions of Title I, a more
detailed description of the definitions 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, as amended in 1994 (the
Act), 15 U.S.C. Secs. 2801-2806. 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).
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 franchise protection provisions of the Act apply to a variety
of franchise agreements. 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 agreements 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.
Any issue arising under your franchise which is not governed by
this Act will be governed by the law of the State in which the
principal place of business of your franchise is located.
Although a State may specify the terms and conditions under which
your franchise may be transferred upon the death of the franchisee, it
may not require a payment to you (the franchisee) for the goodwill of a
franchise upon termination or nonrenewal.
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 or nonrenewal 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.''
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 also provides certain special requirements with regard to
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.''
The Act contains provisions pertaining to waiver of franchisee
rights and applicable State law. These provisions are described under
the heading ``Waiver of Rights and Applicable State Law.''
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, as amended in 1994 (15 U.S.C. Secs. 2801-
2806). This summary does not purport to interpret the Act, as amended,
or to create new legal rights.
I. Reasons for Termination
If your franchise was entered into on or after June 19, 1978, the
Act bars termination of your franchise for any reasons other than those
reasons discussed below. If your franchise was entered into before June
19, 1978, there is no statutory restriction on the reasons for which it
may be terminated. If a franchise entered into before June 19, 1978, is
terminated, however, the Act requires the supplier to reinstate the
franchise relationship unless 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.
A. Non-Compliance with Franchise Agreement
Your supplier may terminate your franchise if you do not comply
with a reasonable and important requirement of the franchise
relationship. However, termination may not be based on a failure to
comply with a provision of the franchise that is illegal or
unenforceable under applicable Federal, State or local law. In order to
terminate for non-compliance with the franchise agreement, 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
[[Page 32788]]
days, before you receive notification of the termination.
B. 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 can be used
by your supplier only if you fail to make good faith efforts to carry
out the requirements of the franchise within the period which began not
more than 180 days before you receive the notice of termination.
C. 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 that agreement, together with this summary statement of your
rights under the Act. You may cancel the agreement to terminate 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.
D. 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. See 15 U.S.C.
Sec. 2802(b)(E).
E. 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 relates 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: (a) your supplier gave you 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; (b) your franchisor
offered to assign to you, during the 90-day period after notification
of termination or nonrenewal was given, any option which the franchisor
held to extend the underlying lease or to purchase the marketing
premises (such an assignment may be conditioned on the franchisor
receiving from both the landowner and the franchisee an unconditional
release from liability for specified events occurring after the
assignment); and (c) in a situation in which the franchisee acquires
possession of the leased marketing premises effective immediately after
the loss of the right of the franchisor to grant possession, the
franchisor, upon the written request of the franchisee, made a bona
fide offer to sell or assign to the franchisee the franchisor's
interest in any improvements or equipment located on the premises, or
offered the franchisee a right of first refusal of any offer from
another person to purchase the franchisor's interest in the
improvements and equipment.
(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 your marketing premises. If the termination is
based on the destruction of the marketing premises and if the premises
are rebuilt or replaced by your supplier and operated under a
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.
A. 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
converting the leased premises to a company operation or otherwise
preventing the renewal of the franchise relationship, your supplier may
decline to renew the franchise.
B. 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.
C. 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.
D. 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.
[[Page 32789]]
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 franchise terminations, including franchises
entered into before June 19, 1978 and trial and interim franchises, as
well as to all nonrenewals of franchise relationships.
A. How Much Notice Is Required
In most cases, your supplier must give you notice of termination or
non-renewal at least 90 days before the termination or nonrenewal takes
effect.
In circumstances where it would not be reasonable for your supplier
to give 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 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.
B. 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 non-renewal 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.
A. 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.
The unexpired portion of a transferred franchise (other than as a
trial franchise, as described above) does not qualify as a trial
franchise.
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.''
B. 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 interim franchises between the franchisor and the franchisee,
does not exceed three years, and which begins immediately after the
expiration of a prior franchise involving the same marketing premises
which was not renewed, based on a lawful determination by the
franchisor to withdraw from marketing activities in the geographic area
in which the franchisee operates.
An interim franchise must be 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 geographic 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 judgment,
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. 15 U.S.C. Secs. 2801-2806.
VI. Waiver of Rights and Applicable State Law
Your supplier may not require, as a condition of entering into or
renewing the franchise relationship, that you relinquish or waive any
right that you have under this or any other Federal law or applicable
State law. In addition, no provision in a franchise agreement would be
valid or enforceable if the provision specifies that the franchise
would be governed by the law of any State other than the one in which
the principal place of business for the franchise is located.
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
summary statement. (You should consult section 101 of the Act for
additional definitions not included here.)
A. 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
[[Page 32790]]
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.
B. 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.
C. 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.
D. 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.
E. 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.
F. 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.
G. 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.
A. 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 one 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.
B. 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 if such relief is
granted.
Courts are not required to order continuation 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 renew the franchise
agreement.
C. 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.
D. Damages
A franchisee 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 Act's requirements or the franchisee's rights under
the Act, 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.
E. 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 non-renewal
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 geographic area in
which such premises are located; or
(5) That the 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 provisions 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 June 12, 1996.
Marc W. Chupka,
Acting Assistant Secretary for Policy.
[FR Doc. 96-16124 Filed 6-24-96; 8:45 am]
BILLING CODE 6450-01-P
