Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—9thCir: Franchise Termination for Loss of Leased Premises Was Valid Under Petroleum Marketing Practices Act, (Nov 16, 2012)

By John W. Arden, J.D., LLM.

Neither a gasoline station franchisor’s termination of a California franchise, based on the franchisee’s loss of its underlying lease of premises, nor its failure to make a bona fide offer to sell station improvements violated the federal Petroleum Marketing Practices Act, according to a not-for-publication memorandum of the U.S. Court of Appeals in San Francisco (Chinivasagam v. Equilon Enterprises, LLC, November 15, 2012, Per Curiam).

The Petroleum Marketing Practices Act establishes minimum standards governing the termination and nonrenewal of petroleum franchises. However, franchisor Equilon’s termination of the franchise for the loss of the underlying lease was lawful under the Act. Loss of the underlying lease was an occurrence of an event relevant to the franchise relationship as a result of which termination is reasonable under Section 2802(b)(2)(C), as enumerated in Section 2802(c)(4).

Contrary to the franchisee’s claim, Equilon was not required to make a bona fide offer to sell station improvements to the franchisee under Section 2802(c)(4)(C) of the Act because a third-party, rather than the franchisee, acquired possession of the property when the lease expired, the appeals court held.

Conversion

The district court properly granted summary judgment to Equilon on its counterclaim for conversion of its personal property, the appellate court held. All of the elements of conversion existed: (1) Equilon’s ownership right in improvements made on the property, (2) the franchisee’s unlawful exercise of control over Equilon’s personal property, and (3) damages. The district court’s calculation of damages at ten percent of the rental value of the property was reasonable.

The franchisee’s claim that the Petroleum Marketing Practices Act preempted the state law conversion claim was properly rejected by the court. The Act’s preemptive effect applied only to those state and local laws that govern the termination or nonrenewal of petroleum franchises. Equilon’s conversion claim did not relate to the Act’s regulation of termination or nonrenewal of petroleum franchises, the appeals court held.

Attorney Fees, Costs

The district court did not abuse its discretion in awarding attorney fees and costs of suit to Equilon, since the franchise agreement contained an explicit provision granting reasonable attorneys’ fees to the prevailing party in a lawsuit. The district court reviewed the attorneys’ time records and calculated fees using the lodestar method.

The case is No. 11-15645.

Thomas P. Bleau (Bleau Fox, A.P.L.C.) for Marilyn Jo Chinivasagam. Jocelyn D. Hannah (Wilson Turner Kosmo, LLP) for Equilon Enterprises, LLC.

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