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Lawletter No. 173 Court lets unsuccessful buyer proceed with his PMPA claim A Pennsylvania federal court has refused to dismiss a claim by an unsuccessful franchise buyer in the recent case of Crofts v. Atlantic Refining & Marketing Corp. (D.C. EPa, No. 93-1896, 9/8/93) 65 BNA Antitrust & Trade Reg. Rptr. 450. The franchisor exercised its first refusal right and kept the buyer from getting the station. Facts: Harold Crofts claimed that Atlantic Refining wrongfully terminated a February 21, 1992 oral agreement to assign a franchise to him by dealer Richard Anderson. Crofts sued Atlantic under the federal Petroleum Marketing Practices Act. Crofts claimed that Atlantic had orally approved the transaction, then changed its mind. Atlantic's agreement with Anderson granted it a right of first refusal, which it took. Ruling: The court held that Atlantic's motion to dismiss on the grounds that there was no franchise relationship under PMPA between it and Crofts was premature. Analysis and recommended procedures: We suggest that you note the following: (1) Know California law: Under the California service station franchise assignment law, the franchisor has an automatic right of first refusal on any sale or transfer of a service station business. Not only have oil companies been known to assert this right, in some cases they have assigned their right to a favored dealer who wanted the station. (2) Use written agreement: Have the buyer sign a written contract of sale as soon as you have reached an agreement. Make the contract subject to the franchisor's approval of the assignment, so you take no risks. (3) Accurate disclosure of purchase price: Keep in mind that if you understate the purchase price, and the refiner exercises its right of first refusal, you may very well be stuck with accepting the purchase price from the oil company that you state in the written contract. (4) Avoiding first refusal right: If for any reason you do not want the franchisor to take the deal, bring this fact up when you first consult your lawyer about the proposed transaction. It may be possible in some cases to at least reduce the chances that the oil company will try to transfer its first refusal right to another party by careful planning. |
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