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Lawletter No. 172 Court says Shell dealer can sue for fraudulent C-store promise A Maryland federal court has ruled that a Shell dealer may go to trial in his suit against the company in the recent case of Koehler Enterprises, Inc. v. Shell Oil Co. (D. Md. 1993) CCH Bus. Fran. Guide at Para. 10,253. The dealer claims that Shell broke its oral promise to install a convenience store at his station. Facts: Kenneth Koehler was a Maryland Shell dealer. Shell renovated his station to include a convenience store. Shell's area manager, James Kozak, approached Koehler with a proposal that he buy out another Shell dealer's business (the "Stemmers Run" station). Koehler claimed that Kozak told him that Shell planned to renovate Stemmers Run, a gas-only operation, to include a convenience store. But the company wanted a new dealer first. Koehler asserted that Kozak had shown him blueprints for the C-store installation. Several months later, Koehler began negotiations to take over the Stemmers Run facility. The dealer alleged that during the course of those negotiations, Shell area manager Kozak had shown him an "Estimated Dealer Profitability Analysis." Koehler testified that the Shell's projections specifically contemplated operation of the station with a C-store. Koehler's station manager, Robert Ehasz, testified that Kozak said Shell would probably build a C-store at the Stemmers Run station within six months after he finished the Shell management training program. The dealer claimed that he questioned Shell's use of its standard lease form when he took over, since it did not cover a convenience store. He alleged that the Shell area manager pointed to a term in one of the contracts to assure him that the contract provided that the store would be built. Koehler took over the station. Shell applied for building permits for the C-store. When the dealer discovered that Shell would have to obtain zoning variances, he told Shell he wanted to terminate. But Shell convinced him to stay, he claimed, by assuring him that the difficulties would be resolved. Shell eventually got the permits. Meanwhile, Shell changed personnel in the territory. The new Shell manager decided not to renovate the Stemmers Run station. The dealer gave the station back to Shell. He then sued Shell for fraud and breach of an oral contract. Shell moved to dismiss the case on the grounds that the station lease Koehler signed expressly invalidated any oral representations or promises. Ruling: The court ruled against Shell and held that the dealer could take his case to trial. More specifically, the judge held that: (1) As a general rule, a complete written contract cannot be changed by oral promises or representations. (2) However, it appears that there is a factual dispute as to whether Shell misrepresented its intent when it leased the station to Koehler; and (3) Furthermore, the general rule does not apply where the dealer incurs substantial out-of-pocket losses as a result of his reliance on the oral promise or misrepresentations. Recommended procedures: We suggest the following: (1) It is often a mistake to rely on oral promises or representations from franchisor personnel. We realize that in many cases, all the dealer can do is to hope that the company will do what its employees say it will. But most franchise agreements contain clauses which invalidate such promises. The time to ask that something be put in writing or to consult with your lawyer is when you are may incur substantial expenses in reliance on what you are told. (2) As we have frequently stressed in these pages, keep a record in writing of any important promises or representations that oil company personnel make to you. Note how important the details of Shell's course of dealing were in this case; (3) Anytime that you are signing a new lease you may want to carefully consider whether or not there are any outstanding promises that have been made to you that have not been kept. If this is the case, you may want to consider talking to your lawyer before signing. Otherwise you may lose any right to enforce the promise; and (4) For another illustration of the importance of the "detrimental reliance" rule, see the following article. |
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