Lawletter No. 187 

Termination of ARCO franchise for customer complaints upheld

A federal appeals court has upheld ARCO's termination of a dealer about whom it received numerous customer complaints in the recent case of Gasparian v. Atlantic Richfield Co. (9th Cir. 1994), CCH Bus. Fran. Guide, Para. 10,536

Facts: ARCO received 31 customer complaints about its southern California ARCO dealer Vanik Gasparian over a 34-month period. ARCO terminated his franchise. This was more than the company had received about any other of its dealers in the Los Angeles area during that time.

Gasparian sued ARCO under the federal Petroleum Marketing Practices Act ("PMPA"), claiming that his franchise had been terminated without good cause. The lower court dismissed his suit, and the dealer appealed.

PMPA provision on customer complaints: The PMPA 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.

Ruling: The federal appeals court affirmed the trial court's ruling, holding that the complaints were "numerous."

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.