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Franchisor BP Can Keep Vendor Rebates

Judge Highberger strikes again. A California appellate court has upheld Highberger's ruling in favor of oil giant BP, permitting the franchisor of AMPM gas stations to keep debit card surcharges and vendor kickbacks.

Debit Card Surcharges

Customers using debit cards are charged 45 cents per transaction, and BP was keeping the fee. The franchisees claimed a violation of the provisions of the state franchise law requiring disclosure of:

  • A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases.
  • A statement describing any payments or fees other than franchise fees that the franchisee . . . is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.

The court held that since the surcharge was paid by the customer and not the franchisee, there was no violation.

Vendor Monies

Franchisees claimed violation of the state Unfair Competition Law because the franchisor was keeping the money which the vendors were kicking back to the franchisor. They also claimed that the payments were required to be disclosed.

The court noted language in the franchise contract:

In executing this Agreement, Operator assigns to BPWCP Operator's rights to directly receive marketing, advertising, promotional, volume and retain display and placement allowances offered by any manufacturers or suppliers of products to Operator, excluding volume discounts given off invoice by any manufacturer or supplier and payment for magazine rack placement. . . .

That was sufficient to permit the franchisor to keep the vendor kickbacks, the court held.

On the matter of disclosure of the kickbacks, the court said that state law:

requires the disclosure of the franchise fee charged to franchisees. "Franchise fee" is defined as "any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement...

But the court held that:

Vendor rebates are not franchise fees that plaintiffs are required to pay to defendants for the right to enter into a business under their franchise agreements. Rather, vendor rebates are paid directly to BPWCP under the Contract Documents pursuant to an express assignment by plaintiffs.

The court noted that state law:

requires disclosure of "any payments or fees other than franchisee fees that the franchisee . . . is required to pay to the franchisor, including royalties and payment or fees which the franchisor collects in whole or in part on behalf of a third party or parties.

But the court held that:

A vendor rebate is not a royalty, payment or fee that BPWCP collects on behalf of any third party. Under the terms of the Contract Documents, vendor rebates are paid directly to BPWCP and used by BPWCP for promotional and marketing efforts in its network of am/pm stores.

Some might disagree with the court. For example, attorney Michael Webster has written about how vendor kickbacks (particularly those tied to the quantity of raw materials purchased) can be de facto royalties, however well-disguised.  Webster's argument is an interesting one, but for the time being even the California courts are not persuaded.

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RNR Oils v. BP West Coast OPN 6Jan2011.pdf54.54 KB
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