Antitrust Law Daily Wrap Up, FRANCHISING AND DISTRIBUTION—7th Cir.: Termination for late payments was valid under Petroleum Marketing Practices Act, (Nov 5, 2013)

By Linda O’Brien, J.D., LL.M.

A gasoline station franchisor’s termination of an Illinois franchise based on late payments for fuel deliveries did not violate the federal Petroleum Marketing Practices Act, according to the U.S. Court of Appeals in Chicago (Joseph v. Sasafrasnet, LLC, November 4, 2013, Hamilton, D.). The franchisee’s motion for a preliminary injunction was properly denied

The Petroleum Marketing Practices Act (PMPA) authorizes a franchisor to terminate a franchise if an event occurs that is relevant to the franchise relationship. Twelve types of events are listed under Section 2802(c) that constitute a relevant event for which the termination of the franchise would be reasonable. One type of event is a failure by the franchisee to pay the franchisor in a timely manner all sums to which the franchisor is legally entitled. Section 2801(13) provides that such an event does not constitute a failure under the PMPA if it was only technical or unimportant to the franchise relationship or if the event was for a cause beyond the reasonable control of the franchisee.

There was no dispute that Sarafrasnet attempted to debit Joseph’s bank account to pay for fuel deliveries on three occasions in July 2010 but payment was denied for insufficient funds (NSF).

The district court did not abuse its discretion in determining that Joseph’s bank account was not adequately funded on two occasions when he decided to change banks and failed to timely notify Sarafrasnet of the change. Those circumstances were entirely within Joseph’s control. Considering Joseph’s history of delinquent payments and the large amounts of the fuel invoices, the district court found that Joseph’s late payments were not technical or unimportant.

The franchisee’s claim that he did not bear the burden of proof was properly rejected. The district court required Joseph as the party seeking a preliminary injunction to show that “there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation.” The appeals court found no clear error in those findings and upheld the district court’s denial of Joseph’s motion for a preliminary injunction.

The case is No. 13-1202.

Attorneys: Michael R. Lacy (Lacy & Associates) for Emmanuel Joseph. Thomas M. Burnett (Reinhart Boerner Van Deuren S.C.) for Sasafrasnet, LLC.

Companies: Sasafrasnet, LLC

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