Tuesday, June 16, 2009

High Court to Consider Class Arbitration in Price Fixing Case, Constructive Nonrenewal under PMPA

This posting was written by Jeffrey May, Editor of CCH Trade Regultion Reporter.

The U.S. Supreme Court on June 15 agreed to take up two important issues facing antitrust and trade regulation practitioners.

In one case, the Court agreed to decide whether the Federal Arbitration Act (FAA) permits the imposition of class arbitration when the parties’ agreement is silent on the issue.

The Court granted a petition filed by international shipping companies seeking review of a decision of the U.S. Court of Appeals in New York City (2008-2 Trade Cases ¶76,355) holding that purchasers of the shipping services could proceed with class arbitration of their price fixing claims against the shipping companies.

The federal appellate court held that class arbitration was permissible, even though the arbitration clauses in the underlying maritime agreements did not specifically provide for it.

The petitioners argued that review was appropriate in light of a split among the circuits on the issue, and because the case was free of threshold issues that previously thwarted review of the question.

Moreover, the petitioners contended that “the Second Circuit’s decision that class arbitration may be imposed on parties whose arbitration contract does not provide for it cannot be reconciled with [the Supreme] Court’s FAA precedents.”

The petition is Stolt-Nielsen SA v. v. Animalfeeds International Corp. Dkt. 08-1198.

On the same day, the Court agreed to review of a decision of the U.S. Court of Appeals in Boston (Business Franchise Guide ¶13,890), rejecting the constructive nonrenewal claims brought by Shell gasoline station operators under the Petroleum Marketing Practices Act (PMPA).

The appellate court held that the PMPA did not support a claim for constructive nonrenewal where a franchisee had signed and continued to operate under the renewal agreement complained of. The Court granted the petition of the franchisees and Shell.

The franchisees asked the Court to consider “the scope of the protections afforded by the PMPA to franchisees who face termination or nonrenewal of their franchise agreements unless they accept onerous contract terms.’’

According to the petitioners—gasoline station operators—the circuits “are fundamentally split over whether a franchisor can lawfully present its franchisees with the Hobson’s choice of accepting unlawful contract terms or risking their livelihoods on a chance that a court will grant a preliminary injunction.”

There is a split between the First and Ninth Circuits on the issue. The franchisees contended that, under the First Circuit decision in Marcoux v. Shell Oil Products Co, LLC, a dealer presented with a questionable lease must either sign the lease and forgo the claim that the lease violates the Act or refuse to sign, receive a notice of termination, and risk the franchise on a chance that a district court will grant injunctive relief.

The franchisees contend that the Ninth Circuit, on the other hand, recognized the Catch -22 situation, and rejected such a requirement on the franchisee. In Pro Sales, Inc. v. Texaco, U.S.A. (Business Franchise Guide ¶8604), the U.S. Court of Appeals in San Francisco rejected a reading of the PMPA that would force a franchisee to choose between accepting an unlawful and coercive contract in order to stay in business or rejecting the contract and going out of business.

The petitions are Mac's Shell Service, Inc. v. Shell Oil Products Co., Dkt. 08-240, and Shell Oil Products Co. v. Mac's Shell Service, Inc., Dkt. 08-372.

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