|
|
|
Lawletter No. 199 Appeals court says Exxon's oral promise legally worthless In Lawletter No. 183, we warned against relying on oil company promises that it will keep a station open (See article titled "10 questions service station franchise buyers should ask"). A recent ruling by a federal appeals court in the case of Calhoun v. Exxon Corp. (4th Cir. 1995), CCH Bus. Fran. Guide, Para. 10,731 illustrates the danger graphically. In effect, the court said that in certain circumstances Exxon could deliberately lie to a dealer about the future of his station and get away with it. Facts: In the mid 1980's, Randy Calhoun became the dealer at an Exxon station in Richmond, Virginia. His franchise agreement disclosed that Exxon did not own the station property, but leased it from a third party. It also said the master lease expired in 1992, and that Exxon might not exercise its 10-year renewal option. In 1988, Calhoun sold his business to a third party. In 1990, Calhoun became interested in buying the business back. He asked Exxon's regional Sales Representative whether the company was going to exercise its option to renew its master lease for another 10 years. Calhoun claimed that the Sale Rep. said "yes." Calhoun bought the business back. The documents given to Calhoun by Exxon at the time repeated all of the disclosures set forth above. In 1992, Exxon did not renew its master lease. The station was closed. Calhoun filed suit in federal court under the Petroleum Marketing Practices Act and for fraud and negligent misrepresentation under state law. The trial court dismissed his suit, and the dealer appealed. Appeals court ruling: The U.S. Court of Appeals for the Fourth Circuit affirmed the trial court's ruling against the dealer, holding that: 1. The PMPA does not require a franchisor to exercise its option to renew an underlying or master lease. 2. The PMPA only obligates the franchisor to disclose the existence and expiration date of the master lease. The disclosure must be made prior to the commencement of the franchise agreement that is being nonrenewed. Exxon complied with the letter of the law. 3. Even if the Exxon employee deliberately lied to him, the dealer has no legal rights against the company. The PMPA "preempts" or overrules state fraud or misrepresentations claims based on alleged lies about the company's intention to extend or renew its master lease. Calhoun had no legal right to rely on the Rep.'s statement. Recommended procedures: We suggest the following: 1. Reliance on oral promises: It is almost always 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 may incur substantial expenses in reliance on what you are told. Occasionally a dealer will win a case based on an oral promise or misrepresentation because he is able to prove fraud or "detrimental reliance" (e.g., see Lawletter No. 172). But such claims arise under state law. The federal PMPA "preempts" or overrides nearly all such claims based on an oral promise or representation concerning an oil company's future decision as to whether to extend or renew (by the unilateral exercise of an option or otherwise) a master lease. 2. Master lease provisions of PMPA: When considering whether to take over a station located on leased land, make sure that you know how the master lease provisions of the PMPA apply to your situation. For more details, see Lawletter No. 187. 3 . Notes on oral promises: 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. 4. New leases: 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. |
|
|