Supreme Court Backs Shell

Rules that Mass. station owners can't sue over rent changes, increases

WASHINGTON -- The Supreme Court on Tuesday ruled that Massachusetts gas station owners cannot sue Shell Oil Co. and Motiva Enterprises LLC for changing their franchise rental terms, reported the Associated Press. Several Shell station owners sued the company for damages after it stopped providing a rent subsidy it to franchisees, saying Shell Oil had effectively terminated their contracts.

The station owners said Shell and Motiva used rent increases to try to end their franchise arrangements so the companies could take over operation of the stations, added a Bloomberg report.[image-nocss]

But Justice Samuel Alito said for the Supreme Court that Shell Oil was not violating the U.S. Petroleum Marketing Practice Act (PMPA), a 1978 law that l gave independent station owners more power in their dealings with oil companies and that limits the way companies can terminate agreements with stations.

Alito said the contracts were not terminated because the owners immediately signed new agreements with Shell and kept operating.

The station owners at one point won a $3.3 million jury verdict. A federal appeals court upheld part of the award and both sides appealed to the Supreme Court.Shell Oil dealers in Massachusetts cannot sue the company under the PMPA, the Supreme Court ruled, because the franchisees never abandoned their gas stations after the oil company hiked their rent, said a report by the Courthouse News Service.

"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."

The decision is a victory for Shell Oil, which pointed out that none of the dealers abandoned their franchises in response to its elimination of rent subsidies or the terms of its new franchise agreements.

Shell had raised the rent in 2000 after forming joint venture Motiva Enterprises LLC, with two other oil companies, to manage its East Coast petroleum-marketing operations. The dealers sued Shell and Motiva in federal court, and a jury ruled against the oil companies after a two-week trial.

The district court affirmed, and the 1st Circuit partially reversed, saying a franchisee cannot sue for unlawful nonrenewal if it "has signed and operates under a renewal agreement complained of."

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, said the report.

"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," Alito wrote. "Without a clearer indication that Congress intended to federalize such a broad swath of the law governing petroleum franchise agreements, we decline to adopt an interpretation of the Act that would have such sweeping consequences. We therefore hold that a necessary element of any constructive termination claim under the PMPA is that the complained-of conduct forced an end to a franchisee's use of the franchisor's trademark, purchase of the franchisor's fuel or occupation of the franchisor's service station."The cases are Mac's Shell Service v. Shell Oil Products, 08-240, and Shell Oil Products v. Mac's Shell Service, 08-372.

Click hereto view a transcript of the proceedings.

Click here to view the opinion.