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Lawletter No. 171 Ruling shows dangers of false dealer applications False dealer applications can come back to haunt you later in a variety of ways, as the recent case of Whitney v. Getty Petroleum Corp.. DC Maine, No. 92-249-P-H, 6/10/93, 65 BNA Antitrust & Trade Reg. Rptr. 109 shows. The case also emphasizes the importance of understanding your franchise rights under both federal and state law. Facts: In 1989, Kevin & Jody's, Inc. (K&J) leased a Getty station in Topsham, Maine. In their application to Getty, Jody and Kevin Whitney falsely indicated that they had never been convicted of a crime other than a minor traffic violation. K&J sold Getty Brand gasoline for a management fee of 5 cents per gallon. The agreements said nothing about price. Getty required K&J to survey and report local competitive retail prices daily. Getty then told K&J what to charge. Maine law required replacement of the underground storage tanks because of their age. But Getty declined to do so for financial reasons. The company stopped deliveries of gasoline as of October 1, 1991. Citing the state tank removal regulations, Getty terminated its agreement with K&J's, effective February 8, 1992. K&J sued Getty, claiming that the company had violated Maine's Motor Fuel Distribution and Sales Act by: (1) failing to include mandatory anti-price fixing language in the contractor agreements; (2) fixing the price at which K&J's had to sell gasoline; (3) terminating the franchise relationship without good cause; and (4) failing to give the required advance written notification of the termination. Both parties asked the trial court to make pretrial rulings on the validity of the other's case. Ruling: The court ruled as follows: (1) The contract did violate the Maryland state law requiring it to contain anti-price fixing language. But it is not clear what damages K&J suffered from this violation. Damages, if any, will be determined by a trial. (2) It is still an unanswered question as to whether Getty unlawfully "fixed" K&J's retail prices. It is not unlawful to suggest or counsel on the price question. Therefore, a trial is necessary to resolve this question. (3) The state law forbidding franchise termination without good cause does not require an oil company to continue to operate a service station at a loss. Getty was therefore entitled to terminate. (4) The state franchise law required 120 days notice of termination for economic reasons. Getty did not give the required notice. However, the same law allows termination on only seven (7) days notice if the dealer is guilty of fraud. (5) Getty claims that if it had discovered the fraud earlier, it would have terminated the franchise on or before October 1, 1991. Therefore, Getty may have been entitled to give short notice of termination. This issue will have to be resolved at trial. Recommended procedures: We suggest the following in this area:
(1) Consignment agreements: Be aware that gasoline consignment agreements or contracts under which the dealer is paid a fee or commission for pumping gasoline are usually not covered by the federal Petroleum Marketing Practices Act. In such cases, the dealer must rely on any protections that state law may give him. Maryland appears to have some unusually strong state laws. Make sure you know which category you will fall into before entering into any such contract, and how California law will affect you. (2) Save copy of your dealer application: Be sure to save a complete copy of your dealer application for your files. (3) Realize consequences of false application: Anytime you consider submitting a false dealer application, realize that there may be future consequences. Even if the application is approved, the franchisor may take action against you at a later date. (4) Keep a diary of marketing personnel's statements: If you made false statements at the urging of the franchisor's marketing personnel, preserve any evidence that you can that such personnel knew the application was inaccurate. (5) New credit application: You may be asked to submit another credit application at a later time for a variety of reasons. If your original application was inaccurate, you may want to seek legal advice before submitting a second false application. For example, it may be that too much time has passed for the franchisor to take action against you based on the first application. But the second one may provide the franchisor with new ammunition to use against you. (6) Default or termination notice: If you receive a default notice, franchise termination or nonrenewal notice or any other accusation that you made false statements on your credit application, see your lawyer before you do anything else. |
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