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Lawletter No. 150 How cleanup cost liability can affect a dealer's PMPA rights In Lawletter No. 148, we presented an overview of the subject of dealer liability for cleanup costs. We noted that the federal Petroleum Marketing Practices Act (the "PMPA") does not directly regulate cleanup cost liability. However, the contamination issue can significantly affect dealer rights under the Act in certain situations. Court rulings: When a franchisor bases a franchise nonrenewal on its decision to sell the station property, the PMPA requires the supplier to either make a bona fide offer to sell the property to the dealer or to offer him a right of first refusal on an offer to buy made by a third party. As a general rule, the courts have held that the franchisor must include the underground tanks in the offer. Roberts v. Amoco Oil Co. (8th Cir. 1984) 740 F.2d 602. However, the courts have also held that the franchisor may remove old steel tanks, which might pose an environmental hazard. Atlantic Avenue Oil & Gas, Ltd. v. Texaco Refining & Marketing, Inc. (No. 88 C 3131, DC ENY, 11-7-88);Tobias v. Shell Oil Co. (No. 84-1231-A, ED Va., 4/9/85) In Gooley v. Mobil Oil Corp. No. 87-0150-Z, (D. Mass. 11/4/87), the oil company nonrenewed a dealer's franchise on the basis of its decision to sell the station property. The company offered to sell the property to the dealer for $202,500. The dealer could not obtain financing because the property was contaminated. Instead of filing a PMPA suit at that time, the dealer took no action. A year later, a third party offered to buy the property from the franchisor for $375,000. The company offered the dealer a right of first refusal. The dealer filed a PMPA suit to stop the sale. The court ruled against him. Unresolved issues: The few reported PMPA rulings concerning environmental issues do not resolve some of the key issues. Among the most important is exactly how the company should handle the contamination issue when it offers the property to the dealer. The courts have held that a "bona fide offer" should be made at a price at or near the property's actual market value. Property which is contaminated may be valueless if the potential cleanup costs are equal to or greater than the probable value of the property when it is clean. In theory, the dealer might be able to argue that the company should either: (a) Offer it to the dealer for nothing; or (b) Clean it up, pay the cost of cleanup, and offer the property to the dealer clean and at fair market value. We are not aware of any court ruling on whether the oil company may or may not require the dealer to pay cleanup costs plus the market value of the property when clean in a PMPA sale situation. Under the PMPA, the issue is not necessarily who caused the contamination or who must pay for cleanup. The question is simply whether the franchisor has made a "bona fide offer." The dealer's argument is that the franchisor obviously could not go into the open market and locate a buyer who would pay the market value of the property when clean plus the cost of cleanup. The dealer can further argue that the question of liability for cleanup costs must be determined in a separate lawsuit. That separate suit could take several years to resolve. However, the PMPA requires the franchisor to make the bona fide offer within 90 days after it issues the nonrenewal notice. If the dealer files a PMPA suit for a preliminary injunction, the court must determine whether the offer meets the requirements of the Act within a few months after it is made. Although no court has so ruled, we think the dealer has a fairly strong argument here. We do not know of any case in which a franchisor has insisted that the dealer pay both the market value of the property when clean and the cost of cleanup. Recommended procedures: We suggest the following here: (1) Plan in advance: If you have reason to believe that your franchisor may sell your station property, do not wait until you actually receive a written nonrenewal notice to take appropriate action. For example, determine the approximate market value of your property. Find out whether it may be contaminated. Determine your rights and liability under California law. Talk to your lawyer about your rights. A review of Lawletter Nos. 136, 147 and 148 should be helpful here. (2) Responding to offer: You will especially need some expert advice when you respond to the offer. Do not ignore it or reject it before talking to your lawyer. You may want to obtain your own appraisal. You may want to accept it under protest, so that you can open escrow and obtain a bank appraisal. Act promptly. The steps to be taken will depend on the circumstances of each particular case. |
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