Gasoline Franchisor’s Withdrawal from Market Did Not Violate PMPA

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In Santiago-Sepúlveda v. Esso Standard Oil Co. (Puerto Rico), Inc., (CCH Business Franchise Guide ¶14,604) the U.S. Court of Appeals in Boston held that a gasoline station franchisor did not violate the PMPA in connection with its withdrawal from the Puerto Rico market because its successor did comply with the PMPA’s requirement, for the most part, to offer franchises to the franchisees of the withdrawing franchisor in "good faith."

The argument by the franchisees that any term violating a state law in any respect comprised a violation of the PMPA’s good faith requirement was rejected. Such a per se rule would put at risk a vast number of market withdrawals. The court noted that the offered franchise agreements, comprising interrelated contracts spanning about 100 pages, included hundreds of clauses, of which the lower court invalidated only five in part.

Dealer Terminated for Good Cause for Poor Sales Performance

In Ralph Gentile, Inc. v. Division of Hearings and Appeals, (CCH Business Franchise Guide ¶14,626), a Wisconsin state appellate court held that a motor vehicle dealer materially breached its dealership agreement with a franchisor by failing to achieve satisfactory sales performance.

Under the Wisconsin Fair Dealership Law, "just provocation" for termination had four elements:

(1) The terminated dealer materially breached the agreement;

(2) The breached provision was reasonable and necessary;

(3) The breach was caused by matters within the dealer’s control; and

(4) The dealer failed to cure the breach within a reasonable time after receiving written notice of the breach.

The sales-effectiveness rating used by the franchisor for determining the performance of the dealer was ruled proper, and the facts clearly showed that the dealer’s sales performance was well below the sales-effectiveness ratings earned by its predecessor.

Understating Start-Up Costs in UFOC Could Be Fraud

In Love of Food I, LLC v. Maoz Vegetarian USA, Inc., (D. Md., CCH Business Franchise Guide ¶14,633) allegations of common law fraud based on the franchisor’s understatements of start-up costs in a UFOC survived a motion to dismiss. The initial costs were allegedly understated by 85% or more. The franchisor argued that cost projections were statements of opinion and could not constitute fraud because they were not susceptible to exact knowledge at the time they were made. However, the court held that erroneous projections could supply a basis for fraud under Maryland law.

Nexus Questionnaires Sent to Firms Doing Business in Philadelphia Without “Physical Presence”

Practitioners should be aware that an alert was issued by the Philadelphia Department of Revenue to notify taxpayers that the department's audit unit is currently working to find businesses having tax nexus with Philadelphia but located outside of the city. Nexus questionnaires are being sent out explaining business nexus and asking those businesses to report any activity they have in Philadelphia.

If a taxpayer's business has nexus with Philadelphia and is not filing and paying Philadelphia business taxes, taxpayers are advised to contact the department to bring the company into tax compliance by entering into the Voluntary Disclosure Program. Taxpayers who meet the conditions of the program may be eligible for a waiver of all penalties owed (Amnesty Support Group and Nexus Project, Philadelphia Department of Revenue, May 13, 2011).

-----------------------
Additional information on the issues discussed above is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.