Pain At The Pump

Read the Franchise Disclosure Document and Franchise Agreement carefully and understand the risks of early termination, before signing up! That is the lesson to be learned from 2 United Oil, et al. v. BP West Coast Products, LLC, et al.

BP West Coast Products, LLC (“BP”) leased 261 gasoline station sites under a Master Lease with Thrifty Oil Co. (“Thrifty”), and then entered into franchise agreements and subleases with independent gas station operators (the “Franchisees”). BP elected not to renew the Master Lease in 2010, but did not notify the Franchisees for at least a year that it was losing its Master Lease. Thrifty entered into a new Master Lease with Tesoro, knowing that Tesoro intended to replace the Franchisees with its own operators in 2012.

When BP finally sent out notices of termination/non-renewal, the Franchisees made a “Hail Mary” attempt to keep their stations by filing suit against BP and Thrifty under the federal Petroleum Marketing Practices Act (the “PMPA”) and asked the Court to “[compel] the continuation of [the] franchise relationship.” The PMPA, however, only applies to oil refiners or motor fuel distributer franchisors and permits franchisors that lose their ground leases to terminate franchise agreements early.

The Court noted that Thrifty was neither a refiner nor a motor fuel distributor franchisor, and held that the Franchisees had no claim under the PMPA against Thrifty, even though many of the stations operated under the “Thrifty” name. In an interesting twist, though, the Court stated that since the PMPA did not apply to Thrifty, the Court was “powerless” to rule against BP to prevent the Franchisees from losing their stations since doing so would improperly interfere with Thrifty’s new contract with Tesoro.

Franchisees should understand the risks of becoming part of a systembefore entering into franchise agreements. If the risks aren’t clear, ASK QUESTIONS! Click here to see the Court’s order.