Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Franchise termination damages claims against ConocoPhillips preempted by Petroleum Marketing Practices Act, (Dec 3, 2013)

By Linda O’Brien, J.D., LL.M.

A service station franchisee’s breach of contract and tort claims against a petrochemical company were preempted by the Petroleum Marketing Practices Act as damages claims for the wrongful termination of a petroleum franchise, the California Court of Appeal for the Third Appellate District has held (Arbabian v. ConocoPhillips Company, November 26, 2013, Robie, R.). Accordingly, the judgment of dismissal by the superior court was affirmed.

In 2004, Nick Arbabian and ConocoPhillips Company, a multi-national petrochemical company, entered into a franchise agreement for Arbabian to sell Union 76 brand gasoline at a service station. The agreement required Arbabian to comply at his expense with certain “minimum image requirements” established by ConocoPhillips “as in effect from time to time.” Subsequently, ConocoPhillips modified the image requirements for Union 76 stations. A dispute arose between Arbabian and ConocoPhillips over the timing of the installation of the image improvements and the party responsible for paying for those improvements. ConocoPhillips agreed to pay Arbabian two cents more per gallon as compensation for the cost of the improvements.

In 2007, ConocoPhillips notified Arbabian that it was terminating his rights to be a reseller for ConocoPhillips due to the dispute relating to the image requirements and the resultant delay in installation. Arbabian met with two representatives of ConocoPhillips, who verbally agreed that if Arbabian complied with the new image requirements, the termination letter would not be effective and the franchise would not be terminated. Arbabian commenced making the improvements and, after paying for approximately half of the new signs, ConocoPhillips terminated the franchise agreement with Arbabian. Arbabian filed a suit for damages against ConocoPhillips alleging breach of contract and several state law tort causes of action.

ConocoPhillips demurred on the ground that Arbabian’s suit was preempted by the Petroleum Marketing Practices Act (Act), which governs the termination and renewal of petroleum marketing franchises and prohibits states from adopting, enforcing, or continuing any law with respect to the termination or nonrenewal of such franchises that is inconsistent with the Act. The superior court sustained the demurrer and dismissed the action.

The two main objectives of the Act were to protect petroleum marketing franchisees against arbitrary or discriminatory terminations or nonrenewals of their franchises and to provide flexibility for franchisors to initiate changes in their marketing activities in response to changing market conditions and consumer preferences, according to the court.

Arbabian’s claim for breach of an oral agreement not to terminate his franchise agreement asserted the wrongful termination of his agreement. The Act provided, however, that a franchisor may terminate a franchise if the notice requirements and specified grounds in the Act were met. A damage award under state law for breach of an oral promise not to terminate would conflict with the Act provisions, the court noted. The court also found that Arbabian’s state law tort claims were in effect causes of action for the improper termination of a petroleum franchise. Thus, the court found no error in the superior court’s determination that Arbabian’s suit was preempted by the Act as every claim he alleged was based on ConocoPhillip’s termination of his franchise agreement and for the improper termination of his petroleum franchise.

The case is No. C069308.

Attorneys: Michael F. Babitzke (Michael F. Babitzke Inc.) for Nick Arbabian. Adam D. Friedenberg (Glynn & Finley, LLP) for ConocoPhillips Company

Companies: ConocoPhillips Company

Cases: FranchisingDistribution CaliforniaNews