Opinion ID: 471762
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Heading Rank: 1

Heading: The Petroleum Marketing Practices Act

Text: 2 The PMPA was enacted by Congress in 1978 to protect gasoline franchisees from arbitrary or discriminatory termination or nonrenewal of their franchises. S.Rep. No. 95-731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.Code Cong. & Ad.News 873. Congress noted that the disparity of bargaining power existing between franchisors and franchisees sometimes resulted in franchise agreements that amounted to contracts of adhesion. Id. at 876. A number of states had already enacted legislation to address the petroleum franchise problem, and Congress sought to establish a single, uniform set of rules to govern the grounds for the termination or nonrenewal of franchises. Id. at 877. 3 Title I of the PMPA prohibits termination or nonrenewal of any franchise relationship except on the basis of specifically enumerated grounds and upon compliance with certain notification requirements. 15 U.S.C. Secs. 2802-04. One of the acceptable grounds for nonrenewal, relevant to this case, is failure by the franchisee and franchisor to agree on changes to the franchise. The changes must be the result of determinations made by the franchisor in good faith and in the normal course of business, and must not be made solely for the purpose of forcing the nonrenewal of the franchise. 15 U.S.C. Sec. 2802(b)(3)(A). Congress specifically decided that the test should be whether the franchisor had acted in subjective good faith in requesting the changes, and not whether the demanded changes were the result of reasonable business judgments on the part of the franchisor. 1978 U.S.Code Cong. & Ad.News at 895-96. As the Senate Report to the bill explained, [t]hese tests provide adequate protection of franchisees from arbitrary or discriminatory termination or nonrenewal, yet avoid judicial scrutiny of the business judgment itself. Id. at 896. See also Palmieri v. Mobil Oil Corp., 529 F.Supp. 506, 509-11 (D.Conn.1982) (discussing legislative history of PMPA), aff'd, 682 F.2d 295 (2d Cir.1982); Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1118-20 (D.Conn.1980) (same). 4 Because the good faith requirement requires merely that a franchisor not act with evil motive or discriminate[ ] selectively against franchisees, Palmieri, 529 F.Supp. at 511, courts have upheld franchisor demands for rent increases ranging from 100% to 300% when those demands were made in accord with established rental formulas applied to all franchisees and not for the purpose of selectively terminating a particular franchisee. See Palmieri, 529 F.Supp. at 509-11; Munno, 488 F.Supp. at 1118-20; Bellmore v. Mobil Oil Co., 524 F.Supp. 850, 853-54 (D.Conn.1981); Ferriola v. Gulf Oil Corp., 496 F.Supp. 158, 162-63 (E.D.Penn.1980); Pearman v. Texaco, 480 F.Supp. 767, 772 (W.D.Mo.1979); Kesselman v. Gulf Oil Corp., 479 F.Supp. 800, 803-04 (E.D.Pa.1979). The courts noted that the PMPA gave the franchisees no cause of action even when such radical increases in rent appeared objectively or commercially unreasonable. Bellmore, 524 F.Supp. at 853-54; Ferriola, 496 F.Supp. at 162-63; Pearman, 480 F.Supp. at 772. As one court pointed out, the demands of the marketplace and a franchisor's economic incentive to limit franchise turnover should encourage franchisors to offer reasonable franchise agreements. Palmieri, 529 F.Supp. at 511. If abuses in franchise demands continued, the court commented, the legislature may decide to regulate the franchise relationship more closely, but the PMPA as enacted does not vest the courts with authority to review the objective reasonableness ... of each franchise agreement. Id.