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A unanimous ruling on PMPA

Below, Shira Liu, a student at Stanford Law School, recaps last week’s opinion in Mac’s Shell Service, Inc. v. Shell Oil Products Co. and Shell Oil Products Co. v. Mac’s Shell Service. Check the Mac’s Shell (08-240 and 08-372) SCOTUSwiki page for additional commentary.

Last week the Court issued its opinion in Nos. 08-240 and 08-372, Mac’s Shell Service, Inc. v. Shell Oil Products Company and Shell Oil Products Company v. Mac’s Shell Service.  The Court held that under the Petroleum Marketing Practices Act (“PMPA”), retail gasoline franchisees cannot bring a claim for constructive termination of the franchise if they have not abandoned the franchise, nor can they bring a claim for non-renewal of a franchise agreement if they have signed a new agreement.

In a unanimous opinion by Justice Alito, the Court held that under the PMPA, a franchisee cannot sue for termination of its contract unless it severs the legal relationship.  The PMPA provides that “no franchisor . . . may . . . terminate any franchise,” and defines “termination” to include “cancellation.”  The Court considered both the ordinary and the Uniform Commercial Code meanings of termination and cancellation.  It noted that claims for constructive discharge and constructive eviction generally fail without an end to the legal relationship.  And although the First Circuit had distinguished these doctrines from the constructive termination of a retail gasoline franchise relationship by emphasizing the franchisees’ substantial sunk costs, the Court “s[aw] no reason for a different rule” in the franchise context.

The Court noted two additional considerations.  Because the PMPA overlaps with state contract law, the Court stated that it would need a “clearer indication that Congress intended to federalize such a broad swath of the law” before reading the PMPA to govern more actions that are currently handled under state law.  In addition, as Justices Breyer and Alito hinted during oral argument, the Court noted that any standard defining which franchisees can bring PMPA termination claims notwithstanding the lack of actual termination “would be indeterminate and unworkable.”

Although a substantial part of the briefs and oral argument was devoted to defining a standard for constructive termination, the Court explicitly declined to decide whether constructive termination claims can ever be brought under the PMPA, or whether the PMPA covers only terminations initiated, explicitly or implicitly, by the franchisor.

The second question presented, whether a franchisor that signs a new contract could sue for constructive non-renewal, was barely discussed at oral argument. The Court rejected the franchisees’ claim that they could bring the claim if they signed “under protest,” explaining that “[s]igning a renewal agreement does not constitute a waiver of a franchisee’s legal rights—something that signing ‘under protest’ can sometimes help avoid.”  Rather, the Court held, relying on the text, structure and purpose of the statute, that a new agreement “negates the very possibility of a violation of the PMPA.”  Here too, the Court did not determine whether a franchisee can claim constructive non-renewal if it refuses to sign a new franchise agreement, or whether such claims are available only to franchisees who are not presented with new contracts.