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From Lawletter No. 184
Ruling against Mobil dealer shows dangers of waiting too long to sue
A recent ruling by a federal appeals court shows the dangers of waiting too long to
assert your legal rights. The case, Simmons v. Mobil Oil Corp. (9th Cir., July 15, 1994)
CCH Bus. Fran. Guide, Para. 10,493, also demonstrates how obscure legal rules can create
traps for the unwary.
Facts: In 1976, Hersell D. Simmons ("Simmons") took over a
Mobil station in Peoria, Arizona. The dealer lease and franchise were renewed in 1979,
1982 and 1985. In 1988, Mobil presented the dealer with a new lease which contained an
increase in rent. Simmons signed the lease, but at the same time he wrote to Mobil:
"Although I am agreeing to accept the new lease and contact, I do with reluctance and
under protest." The effective date of the new lease was August 2, 1988. Simmons
signed it on March 30, 1988. He operated under it for more than a year. On January 1,
1990, the dealer notified Mobil that he was exercising his right to terminate the lease,
effective April 10, 1990. In April, he gave the station back to Mobil. On June 1, 1990,
Simmons sued Mobil under the federal Petroleum Practices Act. He claimed that the rent
increase was so economically burdensome that Mobil had in effect terminated him without
good cause under the PMPA. The trial court dismissed the dealer's suit, and he appealed.
Ruling: The appeals panel ruled against the dealer and affirmed the
lower court's dismissal of the suit, ruling that:
- The PMPA requires that an action for damages for wrongful termination be filed within
one-year of the termination date.
- Where the dealer claims that a particular action by the franchisor had the effect of
terminating the franchise, he should file his suit within one year of that particular
action.
- In this case, the dealer's accountant told him that his business could not survive the
rent increase before he signed the new lease on March 30, 1988 He started paying the rent
on August 2, 1988. He did not file his lawsuit until more than one year after either of
the dates. Therefore, his lawsuit is barred by the PMPA's one-year statute of limitations.
- The dealer's abandonment of the station cannot be the "termination" that the
dealer is complaining about. He already knew about the effect of the rent increase 18
months before he left the station.
Recommended procedures: We suggest the following in this area:
- Assert your legal rights promptly: This case graphically illustrates the adverse of
effects of waiting too long to assert your legal rights. It is up to you what steps you
want to take or authorize your lawyer to take at any given time. But make sure you
understand the consequences of any delay.
- Never assume: Never assume that you can guess or tell what the law provides on matters
such as the time limit for filing a lawsuit. Unfortunately, the law does not always follow
"common sense."
- Signing under protest: The law does permits you to make a written protest at the time
you sign a new franchise agreement. Indeed, where you believe that there is a serious
possibility you might sue your franchisor, it may be highly advisable. But get legal
advice if you plan to do so.
- Constructive termination cases: Any time you have reason to believe that your franchisor
has taken or may take some action that will put you out of business, see your lawyer.
Determine the probable earliest and latest deadlines dates for taking legal action.
- Be wary of mutual termination agreements: It is practically never a good idea to sign a
mutual termination agreement with an oil company without first obtaining legal advice. For
example, suppose you want to claim that the company imposed unlawful terms on you when the
franchise agreement was renewed. You sign under protest. Then, a few months later, you
give the station back to the company. You plan on filing a lawsuit, within the applicable
statute of limitations period as required by the Simmons v. Mobil Oil Corp. case. But if
you sign a mutual termination when you turn back the station, you lost all rights to sue
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