Lawletter No. 179

Court upholds Exxon first-refusal offer

A Maryland federal court has upheld an oil company's right to offer to sell service station property to the highest bidder, as long as the dealer is offered a right of first refusal in the recent case of Keener v. Exxon Co., U.S.A. (D. Md. 1994) CCH Bus. Fran Guide Para. 10,382.

Facts: Exxon leased a station to its dealer, Alston Keener in 1985. In 1988, the dealers lease and franchise agreements were renewed. In 1991, Exxon decided to switch from dealer-based to jobber-based operations in the market area.

In 1992, Exxon sent Keener a notice of nonrenewal. The company told him that he would be given an opportunity to purchase the station premises.

Exxon invited six jobbers to bid for the property, on the condition that the bids be not less than $547,000, its appraised value. The refiner also required the bidders to agree to grant it an opinion to repurchase the station if at any time during the next twenty-one years Exxon products were no longer offered for sale at the station.

Defazio, an Exxon jobber, submitted the highest bid--$1.2 million. The company offered Keener a 60-day right of first refusal to buy the station for $1.2 million. However, Exxon did not require the dealer to grant it the repurchase option. Keener could not afford the price. He moved out when the jobber bought the station.

Keener sued Exxon under the PMPA.

Ruling: The court ruled for Exxon and against the dealer, holding that:

(1) Nothing in the PMPA prohibits a franchisor's putting a station up for the highest bid or converting to jobbers.

(2) The company complied with section 2802(b)(3)(D) of the Act. This section requires that the Oil Company make a bona fide offer to sell the property to the dealer, or in the alternative, grant him a right-of-first-refusal.

(3) If the right-of-first-refusal is legitimate and bona fide, the fact that the dealer cannot match the price is irrelevant. The intent of the PMPA is to allow the Oil Company to recover the value of the property while giving the dealer a chance to be treated the same as any other potential buyer.

(4) Since the exclusion of the repurchase option benefited the dealer, he had no legitimate complaint.

Recommended procedures: The foregoing illustrates some of the technical problems that franchisors have with taking the first refusal option under the PMPA when closing or selling a station. In appropriate cases, these problems may furnish the dealer with some ammunition to force the franchisor to take the "bona fide offer" option instead.