Opinion ID: 1467769
Heading Depth: 2
Heading Rank: 1

Heading: Davis' PMPA Defense

Text: In 1978, Congress enacted PMPA in an effort to protect automotive service station franchisees from arbitrary or discriminatory termination or non-renewal of their franchises. S.REP. No. 731, 95th Cong., 2d Sess. 15, reprinted in 1978 U.S.CODE CONG. & AD.NEWS 873, 874. Congress concluded that federal regulation was necessary because of the typical disparity of bargaining power between franchisors and franchisees in the petroleum industry, S.REP. No. 731, supra, at 17, [2] and because of the need [t]o provide certainty and uniformity in franchise relationships which permeate a nationwide motor fuel distribution and marketing network. Id. at 16, U.S.CODE CONG. & ADMIN.NEWS 1978, p. 874. Although the principal motivation underlying PMPA was to protect the interests of service station franchisees, Congress clearly intended the Act to strike a balance between the at times conflicting interests of the parties to the relationship. Id. at 15, U.S.CODE CONG. & ADMIN.NEWS 1978, p. 874. Accordingly, in addition to considering the interests of service station franchisees in not having their businesses arbitrarily terminated, Congress declared it [p]articularly important to recognize the significance of providing adequate flexibility so that franchisors may initiate changes in their marketing activities to respond to changing market conditions and consumer preferences. Id. at 19, U.S.CODE CONG. & ADMIN.NEWS 1978, p. 877; see, e.g., Munno v. Amoco Oil Co., 488 F.Supp. 1114, 1120 (D.Conn.1980) (PMPA legislative history reflects a sensitivity to the legitimate needs of both the franchisees and the franchisors). PMPA provides two types of protection to franchisees. First, it prohibits a franchisor from terminating a franchise during the course of the parties' agreement, or from nonrenewing a franchise at the conclusion of such an agreement, unless the franchisor's decision is based upon a ground enumerated in the statute. 15 U.S.C. § 2802(b)(1)(B) (1982). Second, the Act requires a franchisor to provide the franchisee with notice of a decision to terminate or nonrenew the franchise, id. at § 2802(b)(1)(A), and it sets forth standards governing the content and timing of the required notification. Id. at § 2804. On appeal, Davis does not argue that Gulf based its decision to cancel his franchise on improper grounds. Nor does he contend that the content of Gulf's notice was inadequate. Instead, he maintains that if the parties' ten-week lease extension is properly voidable as induced by frauda premise which we must accept for purposes of this appealthen Gulf's notification of nonrenewal on December 3, 1982 was untimely and could not serve to nonrenew the last valid lease, which expired on December 31, 1982. Davis' argument relies on PMPA § 104(a)(2), which provides that, except in certain limited circumstances not relevant here, notification of nonrenewal must be furnished not less than 90 days prior to the date on which such termination or nonrenewal takes effect. 15 U.S.C. § 2804(a)(2) (1982). Davis reads this provision to require that notification of nonrenewal be delivered 90 days before the date on which a franchise agreement expires. Thus, according to Davis, Gulf's December 3 notification of nonrenewal was ineffective under § 2804(a)(2) because it was received less than 90 days before December 31, 1982. In its brief, Gulf argues that Davis has misinterpreted § 2804(a)(2). Gulf contends that this provision requires only that notice be given 90 days before the date on which the franchisee is required to forfeit possession of the premises. Under this interpretation, Gulf argues that Davis' allegations of fraud are immaterial, because the effectiveness of Gulf's notice of nonrenewal under PMPA is totally independent of the extension of the lease. We therefore must determine whether a notice of nonrenewal, delivered less than 90 days before the expiration of the franchise agreement, but more than 90 days before the franchisor sought to retake possession, complies with PMPA. The few courts which have considered this issue are divided in their interpretation of PMPA. Several courts expressly have held that § 2804(a)(2) requires that notice be given 90 days before the date on which termination is to `take effect,' not 90 days before the expiration date listed in the franchise agreement. Day Enterprises, Inc. v. Crown Central Petroleum Corp., 529 F.Supp. 1291, 1299 (D.Md.1982); accord Ferriola v. Gulf Oil Corp., 496 F.Supp. 158, 161 (E.D.Pa. 1981); aff'd mem., 649 F.2d 859 (3d Cir.1981); Kesselman v. Gulf Oil Corp., 479 F.Supp. 800, 803 (E.D. Pa.1979), aff'd mem., 624 F.2d 1090 (3d Cir.1980); see Brach v. Amoco Oil Co., 677 F.2d 1213, 1219, 1225-26 (7th Cir. 1983) (approving, without discussion of timeliness, nonrenewal notice furnished after expiration of the parties' written franchise agreement, but more than 90 days before franchisor demanded possession). Other courts have held that, for a notice of nonrenewal to be effective, the franchisee must receive it at least 90 days before the date on which the franchise agreement expires. Lasko v. Consumers Petroleum of Connecticut, Inc., 547 F.Supp. 211, 220-21 (D.Conn. 1981); Frankard v. Amoco Oil Co., 116 Wis.2d 254, 265, 342 N.W.2d 247, 252 (Wis. Ct.App.1983); see Clark v. Mobil Oil Corp., 1981-1 Trade Cas. (CCH) ¶ 63,903, at 75, 694 (E.D.Mo.1980) (dictum). [3] For the reasons discussed below, we adopt the courts' interpretation of § 2804(a)(2) in the first group of cases: Day Enterprises, Ferriola, and Kesselman. In interpreting PMPA, our `starting point' must be the language of the statute itself. Checkrite Petroleum, Inc. v. Amoco Oil Co., 678 F.2d 5, 7 (2d Cir.) (quoting Lewis v. United States, 445 U.S. 55, 56, 60, 100 S.Ct. 915, 916, 918, 63 L.Ed.2d 198 (1980)), cert. denied, 459 U.S. 833, 103 S.Ct. 74, 74 L.Ed.2d 73 (1982); see Peoples Drug Stores v. District of Columbia, 470 A.2d 751, 753 (D.C.1983) (en banc). On its face, § 2804(a)(2) requires only that notice be furnished at least 90 days before the date on which nonrenewal takes effect. 15 U.S.C. § 2804(a)(2) (1982) (emphasis added). These words, construed according to their ordinary sense, Peoples Drug Stores, 470 A.2d at 753 (citations omitted), appear to refer to the date after which the franchisee no longer is authorized by the franchisor to conduct business. See Day Enterprises, 529 F.Supp. at 1299; Ferriola, 496 F.Supp. at 161. [4] Therefore, regardless of when the franchise agreement is scheduled to expire, it would defy the common meaning of the words to say that nonrenewal has taken effect as long as the franchisor willingly permits the franchisee to maintain possession of the premises and continues to supply the franchisee with gasoline pursuant to the agreement. Moreover, the legislative history of PMPA simply states that [t]he notification requirements of the legislation mandate 90 days advance notice of termination or nonrenewal of a franchise in most cases. S.REP. No. 731, supra, at 15, U.S.CODE CONG. & ADMIN.NEWS 1978, p. 874. Although this statement adds little to the plain wording of the Act, it does support the logical inference that the purpose behind § 2804(a)(2) is to provide franchisees with a reasonable period of time in which to make arrangements to dissolve or relocate their businesses. This purpose of providing the franchisee with a 90-day winding-up period will be accomplished equally well whether the notice is required to be furnished 90 days before the franchise agreement expires or 90 days before the franchisor requests possession. [5] Furthermore, there is nothing in the legislative history to suggest that the purpose of § 2804(a)(2) was to roll back and rigidly fix the date by which the franchisor must either exercise the right to nonrenew the franchise or be deemed to have agreed to a complete renewal of the existing agreement. Indeed, such a construction of the statute would impede the negotiations of parties who wished to renew their franchise relationship: [T]he franchisor would be placed in a position of giving notice of intent to terminate at the same time it was negotiating terms for a renewal of the franchise agreement, to protect itself in the event that negotiations failed .... [T]he franchisee would then be negotiating under the gun .... Clearly a more reasonable construction is that if negotiations fail, the franchisee must be given at least ninety days notice in order to make whatever arrangements are necessary to cease doing business as a franchisee, regardless of when the agreement expired. Ferriola, 496 F.Supp. at 161. Any attempt to read § 2804(a)(2) to establish an unnecessarily rigid cutoff date after which the franchisor forfeits any right to nonrenew the franchise runs counter to PMPA's general policy of permitting the franchisor maximal flexibility in conducting its marketing activities, consistent with those interests of the franchisee which the Act attempts to protect. See S.REP. No. 731, supra, at 17-19. In summary, because we read PMPA to require only that notification of nonrenewal precede by 90 days the franchisor's termination of performance and demand for possession, Gulf's December 3, 1982 notification was timely. Davis received it more than 90 days before nonrenewal was to take effect on March 10, 1983. This is true irrespective of whether the ten-week lease extension was valid. Accordingly, Davis' allegations of fraud could not possibly serve as the basis of a successful PMPA defense to Gulf's action for possession.