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Supreme Court Justice Samuel Alito ruled Tuesday that Shell Oil dealers in Massachusetts cannot sue their franchisor under the Petroleum Marketing Practices Act, which restricts franchisors from terminating gas station franchise agreements.The court argued that franchisees were not forced to abandon (terminate) their gas stations after franchisor Shell raised their rent. The Courthouse News Service reports from the ruling:
"We hold that a franchisee cannot recover for constructive termination under the (Act) if the franchisor's allegedly wrongful conduct did not compel the franchisee to abandon its franchise," Justice Samuel Alito wrote for the unanimous court.
"Additionally, we conclude that a franchisee who signs and operates under a renewal agreement with a franchisor may not maintain a claim for constructive nonrenewal."
Shell had raised the rent in 2000 after it entered into a joint venture with two other oil companies to manage its East Coast petroleum-marketing operations. After the dealers sued Shell and joint venture firm Motiva Enterprises in federal court, a jury ruled in their favor. But the victory was short-lived. Although the district court affirmed, the 1st Circuit Court of Appeals partially reversed the decision, saying a franchisee can’t sue for unlawful nonrenewal if it “has signed and operates under a renewal agreement complained of.”
The Courthouse News report states:
The Supreme Court agreed with that part of the 1st Circuit ruling and took it a step further, saying a franchisee must abandon its franchise in order to recover for constructive termination under the Act.
Justice Alito wrote, "Reading the Act to prohibit simple breaches of contract ... would be inconsistent with the Act's limited purpose and would further expand federal law into a domain traditionally reserved for the states."