Lawletter No. 153 

Customer complaints nonrenewal upheld

A federal appeals court has interpreted the Customer complaints section of the PMPA in a way that may make it easier to cancel a dealer's franchise in the recent case of Early v. Texaco Refining and Marketing Inc. (9th Cir. 12-13-91) CCH Bus. Fran. Guide, Para. 9925. Dealers should therefore take great care in dealing with such complaints.

Facts: Texaco served a nonrenewal notice on dealer Michael T. Earley. The company asserted it had received twelve customer complaints, which he had not remedied. Earley filed suit under the PMPA. The company cited instances of dealers in similar locations that had received fewer complaints. Texaco further asserted that even if the dealer had repaired the customers' vehicles properly, the complaints of poor service, disinterest, insensitivity and unprofessional conduct, rendered the complaints bona fide.

The dealer compared his record to that of a nearby station which had received 48 complaints over a two-year period. He further pointed to the fact that most of the complaints were from out-of-town residents.

The dealer claimed that the complaints were not bona fide. He produced evidence that some of the customers were advised of repair options and chose a quick, less expensive and temporary solution. The station is located near a mountain pass.

Earley claimed that many people had mechanical problems due to the difficult drive over the summit on a narrow road. The dealer disputed that the customers received poor service. He also claimed that some of the customers continued to patronize his station.

The trial court granted a the dealer an injunction against termination of the franchise, damages of $10,000, attorneys fees of $43,887 and costs of $1,592. Texaco appealed.

PMPA provision on customer complaints: The federal Petroleum Marketing Practices Act provides generally that a franchisor may not terminate or nonrenew a dealer's franchise without specific grounds for such action.

Section 2802(b)(3)(B) permits nonrenewal based on the receipt of numerous bona fide customer complaints concerning the franchisee's operation of the marketing premises if:

(i) the franchisee was promptly advised of the existence and nature of such complaints; and

(ii) if such complaints related to the condition of such premises or to the conduct of any employee of such franchisee, the franchisee did not promptly take action to cure or correct the basis of such complaints.

Appeals court ruling: The federal appeals court reversed the trial court judgment, and held for Texaco. The court ruled that:

(1) To constitute a basis for nonrenewal, the customer complaints must be sincere and have a reasonable basis in fact. But the franchisor does not have to prove that each case the circumstances complained of did in fact exist and that the franchisee was culpable.

(2) In some cases, a complaint may be bona fide even if it is not proved that the dealer was not guilty of fraud or other wrongdoing. For example, in one case, a customer stopped to have his tire chains installed. Early told him that his chains were too short and sold him a far more expensive pair. The customer was later told by the dealer who sold him the original chains that they were the proper size.

The customer thought he had been defrauded and complained to Texaco. But apparently the dispute was never resolved. Nevertheless, this was a bona fide complaint. It was sincere and it had a reasonable basis in fact.

(3) Texaco's marketing personnel testified that the average complaint about a Texaco station in the marketing region was less than one complaint per year.

Recommended procedures: In light of the customer complaints section of the PMPA provisions and the attitude of courts and suppliers toward customer complaint cases, we strongly advise that any dealer take such complaints very seriously. More specifically, we suggest:

(1) Reply to any complaint: The worst thing you can do is to ignore complaints by customers to your supplier, even if you feel that the complaints are not justified. Reply to each one in writing, and keep copies of your correspondence for your files.

(2) Correcting the problem: If it turns out that the complaint is justified, do your best to rectify the problem. Keep in mind that appropriate corrective action would include steps to make sure that the problem does not come up again--not merely compensating the particular customer complaining.

(3) Disputes over fault: If you plan to make such an assertion when dealing with the company concerning a particular complaint, it would probably be best to see your lawyer first to make sure you are on solid legal ground.