Opinion ID: 674617
Heading Depth: 2
Heading Rank: 1

Heading: The Preemptive Scope of the PMPA

Text: 41 The MFIL prohibits fraudulent practices in connection with the offer, sale, and purchase of franchises. James v. Whirlpool Corp., 806 F.Supp. 835, 842 (E.D.Mo.1992). Unlike the PMPA, which applies only to petroleum marketing franchises, 15 U.S.C. Sec. 2801(2), the MFIL is a generic franchise relationship law, which applies to all Michigan franchise agreements without regard to subject matter. MICH.COMP.LAWS ANN. Sec. 445.1504(1). Generic franchise relationship laws like the MFIL address a perceived inequality of bargaining power among the parties to the franchise agreement by providing franchisees with a variety of rights designed to prevent abuses. See Pitegoff, Franchise Relationship Laws: A Minefield for Franchisors, 45 BUS.LAW. 289, 314 (Nov.1989). 42 16 states and the District of Columbia have enacted generic franchise relationship laws. See GARNER, FRANCHISE AND DISTRIBUTION LAW AND PRACTICE Sec. 10:01 n. 1 (1990) (collecting statutes). In enacting the PMPA, Congress expressed concern that petroleum franchisors were potentially subject to a maze of varying state regulations because the distribution of motor fuel commonly involves a nationwide network of franchises. To avoid exposing petroleum marketers to inconsistent and unduly burdensome franchise regulation, Congress invoked federal supremacy, U.S. CONST. Art. VI, cl. 2, expressly to preempt state laws which derogate from the PMPA. See 15 U.S.C. Sec. 2806(a). 5 This preemption represents an effort [t]o provide certainty and uniformity in franchise relationships which permeate a nationwide motor fuel distribution and marketing network. S.REP. NO. 95-731, 95th Cong., 2d Sess. 16 (1978), reprinted in 1978 U.S.C.C.A.N. 873, 874. 43 It is beyond question that Congress may remove segments of interstate commerce from the scope of state legislative power. See, e.g., FMC Corp. v. Holliday, 498 U.S. 52, 56-57, 111 S.Ct. 403, 406-07, 112 L.Ed.2d 356 (1990); Louisiana Public Serv. Comm'n v. FCC, 476 U.S. 355, 368-69, 106 S.Ct. 1890, 1898-99, 90 L.Ed.2d 369 (1986); Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152-53, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982). To determin[e] whether federal law pre-empts a state statute, we look to congressional intent. FMC Corp., 498 U.S. at 56, 111 S.Ct. at 407. Thus, the question before us today is whether Congress wanted the PMPA to govern Geib's Certicare Agreement to the exclusion of any state regulation. 44 Section 2806(a) of the PMPA, supra note 5, provides a clear textual expression of Congress' preemptive intent. By forbidding enforcement of any provision of state law with respect to termination of a motor fuel sales franchise, the language of section 2806(a) indicates that the appropriateness of preemption in any particular case depends upon two factors. First, a court must conclude that the challenged state law applies to a motor fuel sales franchise. State laws which have no application in the context of motor fuel sales are not preempted by the PMPA. See Smith v. Atlantic Richfield Co., 533 F.Supp. 264, 267 (E.D.Pa.1982), aff'd, 692 F.2d 749 (3d Cir.1982) (no preemption of state franchise law as applied to convenience store franchise). Secondly, the court must ascertain whether the challenged law regulates an aspect of the franchise relationship pertaining to termination. State laws having no impact on the termination of franchise agreements are also not preempted by the PMPA. See Esso Standard Oil Co. v. Department of Consumer Affairs, 793 F.2d 431, 434-36 (1st Cir.1986) (no preemption of state rent control law as applied to gas franchise). 45 If Geib's MFIL claim sought to challenge the nonrenewal of his Dealer Supply Agreement, the argument favoring preemption would be strong, because 15 U.S.C. Sec. 2806 prohibits Michigan from regulating the nonrenewal of a gas franchise. Consumers Petroleum Co. v. Texaco, Inc., 804 F.2d 907, 915-16 (6th Cir.1986). But Geib's MFIL claim is based solely upon the termination of his Certicare franchise, which by its own terms pertains exclusively to [Geib]'s automotive maintenance and repair service business. Geib argues, and we agree, that an MFIL claim based upon the termination of the Certicare franchise does not fall within the PMPA's preemptive grasp, because the Certicare franchise does not involve the sale of motor fuel. Amoco has identified no provision of the PMPA, no portion of its legislative history, and no appellate precedent which would justify the extension of exclusive federal regulation to automobile repair franchises. To the contrary, the PMPA expressly preserves state discretion to regulate non-gas franchises. Section 2806(a) only preempts state franchise law to the extent that any provision of [the PMPA] applies to a disputed franchise termination. Since the PMPA only regulates the termination of motor fuel marketing franchises, 15 U.S.C. Sec. 2801(2), the termination of a non-gas franchise does not implicate its preemption clause. As the legislative history explains, [t]o the extent that the provisions of [the PMPA] do not apply to an aspect of the franchise relationship, State laws dealing with such aspects of the relationship are not preempted. S.REP. NO. 731 at 42, 1978 U.S.C.C.A.N. at 900. 46 The district court provided the following justification for its finding that Geib's automotive service franchise was governed by the PMPA: 47 It appears to the Court that the provisions of the Michigan franchise law have indeed been preempted by the PMPA under the circumstances of this case. The franchise agreement is integrally related to the PMPA agreement, and the terms of the PMPA would be infringed upon by application of plaintiff's interpretation of the franchise law, the Michigan franchise law. 48 The district court's reasoning seems to follow Atlantic Richfield Co. v. Brown, Bus. Franchise Guide (CCH) p 8455, at 15,798 (N.D.Ill.1985). In that case, the PMPA was found to preempt the application of Illinois franchise law to a convenience store franchise because the store was operated on the same premises as a gas franchise. Without offering any textual, historical, or precedential justification, the Atlantic Richfield court declared that the PMPA governs any non-gas franchise which is inextricably linked to a gas franchise. Id. at 15,803. The inextricable link in Atlantic Richfield was the sharing of a single parcel of real estate for the operation for both franchises. The Atlantic Richfield court defended its unprecedented ruling on the grounds that any state regulation of the convenience store franchise threatened indirectly to undermine exclusive federal regulation of the gas franchise. Id. 49 We decline to follow the Atlantic Richfield court's extension of exclusive federal regulation to non-gas franchises. The Atlantic Richfield court's reasoning has not been embraced by any court of appeals, and we find it unpersuasive for several reasons. First, a healthy respect for state legislative prerogatives cautions against the expansive construction of preemptive provisions. When Congress enters a field which the States have traditionally occupied, we assum[e] that the historic police powers of the States were not to be superseded unless we are convinced that such preemption was the clear and manifest purpose of Congress. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); Darling v. Mobil Oil Corp., 864 F.2d 981, 986 (2d Cir.1989) (explaining that a finding of preemption under the PMPA should be reached in a careful and judicious manner to avoid unwarranted disruption of important state policies). 50 Our second reason for rejecting the rule of Atlantic Richfield is a textual one: 15 U.S.C. Sec. 2801(2) expressly restricts the scope of PMPA regulation to motor fuel marketing franchises. We construe statutory terms according to their ordinary meanings, Richards v. United States, 369 U.S. 1, 9, 82 S.Ct. 585, 591, 7 L.Ed.2d 492 (1962), and the phrase motor fuel marketing franchise plainly does not describe an automotive service franchise, or any other non-gas franchise for that matter. 51 Thirdly, we hesitate to disregard Congress' clear delineation of the types of state laws preempted by the PMPA. By specifying with such precision when the states must stand aside in favor of federal regulation, Congress implicitly marked out the bounds of the power it intended to exercise. Exxon Corp. v. Georgia Ass'n of Petroleum Retailers, 484 F.Supp. 1008, 1017 (N.D. Ga.1979), aff'd, 644 F.2d 1030 (5th Cir.), cert. denied, 454 U.S. 932, 102 S.Ct. 430, 70 L.Ed.2d 239 (1981); Esso Standard, supra, 793 F.2d at 434. To find preemption in areas that Congress left to the control of the states would frustrate the will of Congress. Bellmore v. Mobil Oil Corp., 783 F.2d 300, 305 (2d Cir.1986). 52 Finally, we fail to see how the PMPA is undermined by a requirement that Amoco repurchase equipment acquired by Geib to operate the Certicare franchise. The repurchase provision does not seek to penalize Amoco for terminating the franchise--it simply seeks to compensate Geib for an investment made at Amoco's prompting, probably in anticipation of a longer tenure as a Certicare franchisee. In marked contrast to a penalty which presumably would target only bad faith terminations, section 27(d) would subject all franchisors to the repurchase requirement, without regard to their reason for terminating the franchise. As the Bellmore court explained while upholding a similar state law requiring franchisors to repurchase good will: 53 We cannot accept [the franchisor]'s argument that the payment of good will is a remedy or penalty for termination and thus preempted.... The good will portion of the Connecticut Act is no more than a recognition of the good will value that [the franchisor] would otherwise receive because of the effort of the deposed franchisee.... The payment of good will is mandated by [the state] simply as one element of the compensation to be paid on termination, an element [the state] expressly considers worthy of compensation if there had not been a sufficiently long period (one year) in which to recoup that good will. 54 783 F.2d at 305 (citation omitted). Accordingly, we do not agree with the district court that Geib's MFIL claim is preempted by the PMPA.