Opinion ID: 764207
Heading Depth: 2
Heading Rank: 4

Heading: Preemption of California Law

Text: 48 The Kaabipour Group asserts that California law applies to this market withdrawal and, as a result, Union Oil was required to offer its members the right to purchase their premises before they were transferred to Tosco. See Cal. Bus. & Prof.Code § 20999.25(a). 9 In a related claim, the Hindi Group asserts that because its members' franchises did not terminate at the exact time that the transfer to Tosco became effective, California law applies. The district court held that California law was preempted to the extent that it attempted to add terms and conditions to the market withdrawal by Union Oil beyond those required by the PMPA itself. We agree with the result reached by district court. 49 In enacting the PMPA, Congress attempted to provide national uniformity of petroleum franchise termination law. Atlantic Richfield Co. v. Herbert (In re Herbert), 806 F.2d 889, 892 (9th Cir.1986). That uniformity would be frustrated if the PMPA did not preempt all inconsistent state law. Id. Section 2806(a) of Title 15 provides for preemption of all state law with respect to termination of a petroleum franchise which is inconsistent with the PMPA. 50 The preemptive scope of the PMPA is limited; it does not reach any state laws which only incidentally affect franchise termination or nonrenewal. See Pride v. Exxon Corp., 911 F.2d 251, 257-58 (9th Cir.1990) (finding that state law regarding fraud in the formation of contracts was not preempted by the PMPA because it did not implicate the grounds for, procedures for or notification requirements of termination and nonrenewal under the [PMPA]); see also Esso Standard Oil Co. v. Dept. of Consumer Affairs, 793 F.2d 431, 434 (1st Cir.1986) (restrictive view of PMPA preemption); Bellmore v. Mobil Oil Corp., 783 F.2d 300, 304 (2d Cir.1986) (same); O'Shea v. Amoco Oil Co., 886 F.2d 584, 592-93 (3d Cir.1989) (same); Consumers Petroleum Co. v. Texaco, Inc., 804 F.2d 907, 915 (6th Cir.1986) (same). But see Jimenez, 853 F.2d at 272-74 (expansive view of PMPA preemption, rejecting Bellmore ); Continental Enters., Inc. v. American Oil Co., 808 F.2d 24, 27-28 (8th Cir.1986) (same, rejecting Esso Standard Oil Co.). See also Theresa L. Kruk, Annotation, Pre-emptive Scope of § 106(a) of Petroleum Marketing Practices Act (15 U.S.C.A. § 2806(a)), 103 ALR Fed. 698, 704-05 (1991). On its face, however, that offers little succor to these groups because this clearly was a market withdrawal by Union Oil and a termination of the franchises. 51 California Business & Professions Code § 20999.25(a) was prompted by a concern that major oil companies were reducing the number of independently-operated service stations in California. Forty-Niner Truck Plaza, Inc. v. Union Oil Co., 58 Cal.App.4th 1261, 1272, 68 Cal.Rptr.2d 532, 537 (1997). It parallels the PMPA in seek[ing] to protect the franchisee's reasonable expectation of continuing its business while allowing the franchisor adequate flexibility to respond to changing market conditions. Id. at 1273, 68 Cal.Rptr.2d at 538. 52 While § 20999.25 parallels the PMPA, it does not invade the PMPA sphere. In Forty-Niner, the court said, [T]he PMPA covers franchise termination and nonrenewal while section 20999.25(a)'s scope encompasses a situation where the franchisor is going to sell the service station premises but will assign rather than end the franchise arrangement. Id. at 1276-77, 68 Cal.Rptr.2d at 540. It noted that [t]he sponsor of [section 20999.25(a) ], ... states that the bill is intended to address circumstances not covered under the [PMPA]. Id. at 1275, 68 Cal.Rptr.2d at 539 (internal quotation marks and citations omitted). It concluded that [s]ection 20999.25(a) is not designed to cover franchise termination or nonrenewal in a way different than the PMPA, and must be construed to be the same as the PMPA with respect to franchise termination or nonrenewal. Id. and n. 6. 53 The franchisor in Forty-Niner, which was also Union Oil, had sold truck stop properties it had leased to franchisees to a third party, but had assigned the franchise agreements to that third party rather than terminate or nonrenew them. Because there was no termination or nonrenewal, the PMPA was not implicated. The court concluded that [t]he PMPA and section 20999.25(a) occupy different spheres. Id. at 1276, 68 Cal.Rptr.2d at 539-40. [S]ection 20999.25(a) facilitates the purchase of the service station by the franchisee leasing and operating it (outside the PMPA context of termination or nonrenewal ). 10 Id. at 1274, 68 Cal.Rptr.2d at 538 (emphasis added). Thus, it fills gaps not covered by the PMPA. See, e.g., Patel v. Sun Co., Inc., 866 F.Supp. 871, 873 (E.D.Pa.1994) (where franchise rights were not sold, assigned, or otherwise affected, despite sale of premises, the franchisees' requests for injunctive relief and damages under the PMPA were denied, because the PMPA is not addressed to situations not involving termination or nonrenewal), aff'd on other grounds, 63 F.3d 248 (3d Cir.1995). In other words, the statutes are not really in conflict, and the PMPA controls in a termination or nonrenewal case. 54 We much prefer that reading of the statutes. It accords with the respectful approach of generally interpreting and applying legislation by harmonizing state and federal statutes where possible so as to avoid finding preemption. See California ARCO Distribs., Inc. v. Atlantic Richfield Co., 158 Cal.App.3d 349, 359, 204 Cal.Rptr. 743, 750 (1984) (State and federal laws should be accommodated and harmonized where possible so that preemption can be avoided.); see also Committee of Dental Amalgam Mfrs. and Distribs. v. Stratton, 92 F.3d 807, 811 (9th Cir.1996) (strong presumption against finding that state law is preempted by federal law). 11 55 In this case, Union Oil was expressly engineering a market withdrawal involving the termination of franchise agreements, and was selling its franchise business and the premises. Thus, because the federal and state provisions occupy different spheres, Forty-Niner, 58 Cal.App.4th at 1276, 68 Cal.Rptr.2d at 539-40, and this case is within the context of franchise termination or nonrenewal, the federal provision controls. 56 The Hindi Group attempts to avoid this result by asserting that California law applies because this really was not a nonrenewal or termination situation. Considering the fact that Union Oil did give notice of both nonrenewal and termination, together with the fact that Tosco did offer a new franchise agreement, that is a rather surprising argument. Like other group arguments in this case, it is based on a transaction technicality. 57 Union Oil notified the franchisees on December 26, 1996, that their franchises would be nonrenewed or terminated effective June 30, 1997. In the meantime, the sale to Tosco closed March 31, 1997, and Tosco offered new franchise agreements, which were to be effective July 1, 1997. During the period from March 1, 1997 to July 1, 1997, the franchisees were operating under their old franchise agreements. Thus, the Hindi Group argues, there was no PMPA termination at all. 58 The argument is not without a degree of elegance, but it is a grasp at a straw. The PMPA does not state that in a complex transfer situation everything must happen on one day. It merely provides that a franchisor may terminate or fail to renew a franchise, if it is withdrawing from the market, transfers the premises to a new franchisor, and the new franchisor makes a proper offer of a new franchise. See 15 U.S.C. § 2802(b)(2)(E)(iii)(II). That is precisely what occurred here. 59 As Tosco points out, it had to own the property before it could offer new franchises at those sites, which would not be subject to contingencies inherent in closing the sale. The approach used also gave the franchisees enough time to consider the new franchise agreements. Nothing argued by the franchisees suggests any defect in those considerations. Moreover, Tosco asserts, [t]his timing mechanism is a procedure generally utilized in market withdrawals where a new franchise will be offered to the franchisees by the purchasing franchisor. That assertion appears plausible, and is not refuted by the franchisees. We accept it. 60 The PMPA neither states nor implies that a complex transaction should be evaluated by parsing it moment by moment into each discrete component, rather than considering it as a single transaction. To so parse it would be particularly undesirable where, as here, the arrangement is consistent with the PMPA's purpose of stabilizing continuing franchise relationships, rather than causing discontinuities in the motor fuel marketing area. The Hindi Group's argument implies that if land is transferred a day before the franchise ends, state law applies, and if it transfers the day after the franchise ends, the PMPA is violated. Neither of those implications holds water. Rather, Union Oil and Tosco did comply with both the letter and the spirit of the PMPA when the former chose to withdraw from the market. The straw will not keep this claim afloat.