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Lawletter No. 180 The 120-day rule under the PMPA The Petroleum Marketing Practices Act requires an oil company in most cases to give notice of franchise termination or nonrenewal within 120 days of the occurrence of the event on which the notice is based. The purpose of this rule is to prevent the company from relying on old and long forgotten events as a basis for franchise cancellation. It can be important in some situations for the dealer to know that the franchisor may not hold a particular grounds for franchise termination over his head indefinitely. However, dealers should realize that many events which justify termination or nonrenewal are legally treated as "continuing" occurrences. Each day that such a "continuing" event occurs starts a new 120 day period running. Governing law: Section 2802 of the PMPA states that an oil company may not rely on a breach of the franchise agreement, the receipt of numerous bona fide customer complaints, or certain other events to justify franchise termination or nonrenewal unless the company issues a notice of termination or nonrenewal within 120 days after the company knew or should have known about the event. Application of the rule to "continuing events": The 120 day rule has in many cases eliminated the practice of relying on old and long forgotten events to justify termination or nonrenewal, but the rule should not lull dealers into a false sense of security. The courts have interpreted the law to mean that the 120 day rule only applies to true "one-time only" situations, such as a single breach of the franchise agreement which is subsequently cured. The following cases are examples of situations in which the courts held that the event involved was "continuing" and rejected the contention that the 120 day rule precluded franchise cancellation: 1. Failure to maintain premises in clean, safe and healthful manner: Courts have held that a dealer's failure to maintain the premises in a clean, safe and healthful manner is lawful grounds for termination. It has also been held court ruled that each day the station is untidy started a new 120 day period running. Therefore, the fact that the unsanitary conditions continue over a period of several years before the company served a termination notice could not be used as a defense by the dealer. 2. Violation of personal attendance clause: Some franchise agreement require a dealer's physical presence at the station a specified number of hours or days per week. It has been held that each day that the dealer violates it starts a new 120 day period running. 3. Violation of use clauses in lease: One court held that each day on which the dealer had junk cars on the premises in violation of the franchise agreement constituted a separate breach of contract. 4. Failure to make payments: Courts have repeatedly held that each day that a dealer fails to cure his failure to pay sums due to the franchisor constituted a separate violation of the franchise agreement. Therefore, the courts ruled, the fact that the debt was more than 120 days old when the company issued the termination notice did not constitute a defense. 5. Repeated trademark violations: The dealer's repeated trademark violations, e.g., commingling, have been held to be a continuing event. When the franchisor acquires knowledge: At least one court has held that the franchisor need not necessarily issue a send a cancellation notice the moment it suspects that grounds for termination exist. A franchisor is entitled to take a reasonable time to investigate the facts. Master lease expiration cases: The courts have also held the 120 day rule to be inapplicable to master lease expiration cases. In other words, as long as the franchisor complies with the written disclosure requirements of the PMPA, it need not inform the dealer within 120 days of its decision to allow the master lease to expire. Grabber v. Mobil (D.N.J. 1985) 614 F.Supp. 268, 272. Recommended procedures: To protect your rights under the 120 day rule, we recommend that you: (1) Determine whether event is "continuing": A good test is to ask yourself this question: Is there anything which can be done which would end the dispute with the company? If the answer is "yes," the event is probably "continuing." This means that until the dispute is resolved, the franchisor's 120 days to terminate has not yet started running. (2) Save and file default notices: A notice of default shows when the oil company knew about the relevant event, which starts the 120-day period running. (3) Keep a diary: Diary situations in which company personnel orally advise you that you violated the franchise agreement, or that other grounds for termination or nonrenewal might exist. If the company later attempts to rely on such an event for franchise cancellation, you will have a record of when the company knew of the event. |
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