Revised Summary of Title I of the Petroleum Marketing Practices Act

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Practices Act was originally enacted on June 19, 1978, and was amended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

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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

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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.

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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

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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