Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—WDWash: Franchisor Could Eject Terminated Franchisee from Service Station Premises, (Oct 19, 2012)

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

Gasoline franchisor BP West Coast Products was entitled to eject terminated franchisee SKR Inc. from the Beaverton, Oregon service station premises it subleased, the federal district court in Seattle has ruled (BP West Coast Products LLC v. SKR Inc., October 17, 2012, Pechman, M.).

BP West Coast filed suit alleging (1) that it terminated the sublease on October 28, 2011, after it expired on September 30, 2011, and (2) that SKR terminated the lease by sending a November 14, 2011 notice, purporting to terminate the franchise agreement.

In its answer to BP West Coast’s complaint, SKR agreed that the franchise agreement was terminated but claimed that the franchise agreement and sublease were not one in the same and that the sublease was never terminated. BP West Coast moved for summary judgment on its right to eject SKR and to regain possession of the service station premises.

The only dispute in this case involved the continuing validity of the sublease and the right to present possession of the property. If the sublease was terminated, BP West Coast had both legal estate and the right to present possession, and SJR should be ejected, the court stated.

Under Oregon law, rules applying to the construction of written contracts in general are applicable to written leases. A contract must be considered as a whole, rendering all provisions harmonious, so as to carry out the actual purpose and intention of the parties.

The federal Petroleum Marketing Practices Act, which governs the parties’ agreement, has been interpreted by the Ninth Circuit to require a franchise agreement containing both a lease of real property and a motor fuel supply agreement to be construed together. Thus, if part of the lease/franchise agreement was terminated, the whole agreement was terminated.

On November 14, 2011, a letter was sent on behalf of SKR to BP entitled “Notice of Failure to Cure Events of Defaults and Termination of Gasoline Dealer Agreement for Failure to Cure and for continued violation of Washington, California, and Oregon State Law.” This letter purported to terminate the “Gasoline Dealers Agreement.” BP correctly maintained that there was no separate “Gasoline Agreement,” but an integrated contract including both the franchise obligations and the sublease of franchise premises.

“The sublease agreement integrates the use of the land and the other franchise obligations in such a way that the document must be taken as a whole,” the court held. Based on SKR’s letter and answer in this case, it agreed that no franchise agreement existed. “If no valid franchise relationship exists, the sublease has been terminated, leaving no remaining question of fact.”

Thus, the court granted summary judgment on BP West Coast’s right to franchise premises and ejected SKR from the property.

The case is No. C11-6074 MJP.

Daniel J. Oates (Graham & Dunn) for BP West Coast Products LLC. Adam T. Birnbaum (The Birnbaum Law Offices) for SKR Inc.

Cases: FranchisingDistribution WashingtonNews