|
|
|
From California Lawletter No 165 Dealer wins $110,000 award in Chevron transfer fee case An arbitrator has ordered Chevron to refund most of the transfer fee it charged a dealer when he sold his business in the recent case of In the Matter of the Arbitration between Steven G. Armanino and Chevron U.S.A., AAA Case No. 80-115-0058-92, February 18, 1993. The award totaled $110,977. The dealer was represented by SCSSA attorney Guy J. Gilbert. Facts: Steven Armanino bought a Chevron franchise in 1987, paying $446,000 in goodwill to the outgoing dealer. Chevron charged no transfer fee at the time. In 1988, Chevron renewed his lease. The disclosure statement accompanying the renewal package stated that Chevron might impose a transfer fee of an unknown percentage. In 1991, Armanino sold his dealership for $612,000, excluding equipment. Chevron charged a 20% transfer fee, in the amount of $122,400. The dealer then filed for arbitration as authorized by the Chevron lease. Governing law: California Business & Professions Code section 21148 permits an oil company to charge a transfer fee on the assignment of its franchises Òprovided the amount of the fee is reasonable when compared to the sale price of the franchise and provided the fee is not required in an effort to frustrate the proposed sale.Ó However, the law does not state what constitutes a ÒreasonableÓ transfer fee. Ruling: The arbitrator held that it would be unreasonable for Chevron to charge the 20% fee on that portion of the proceeds from the sale that represented a return of the dealerÕs original investment, i.e., $446,000. The dealer was therefore entitled to the return of the fee paid on that sum, i.e., $89,200. The arbitrator also awarded Armanino $14,540 in interest and costs and fees in the sum of $7,237. Analysis: Section 22 of the lease that Chevron started using in California sometime in 1986 or 1987 provides for arbitration of disputes related to the sale or assignment of the franchise. Section 22 provides that the arbitrator's decision is final. In other words, Chevron cannot challenge the merits of the decision in court. Binding arbitration can be much cheaper than going to court. Furthermore, Section 23 of the lease provides that the prevailing party shall recover attorney fees. Recommended procedures: We suggest the following in this area: (1) Dealers who have sold during the past four years: If you sold a Chevron station during the past four years, check your lease. If yours is one that provides for arbitration of matters related to a sale or assignment of the business, Section 22 should so state. If you paid a transfer fee of substantially more than $10,000, we suggest that you consider trying to recover the excess in an arbitration proceeding. For reports on other arbitration proceedings won by Chevron dealers. See Lawletter Nos. 137, 145 and 150.
(2) Dealers who sell stations in the future: If you sell a Chevron station anytime in the future, and if you pay a transfer fee substantially in excess of $10,000, we suggest that you consider trying to recover the excess in an arbitration proceeding. You may want to pay the transfer fee under protest. (3) Other dealers: Dealers who do not have arbitration clauses in their franchise agreements would have to go to court to challenge a transfer fee. This process is more expensive. See Lawletter No. 123. But the growing body of rulings against the oil companies may make a lawsuit practical in some situations. (4) Percentage fees: We strongly recommend against understating the actual purchase price in order to avoid large transfer fees for the reasons stated in Lawletter No. 123. (5) Comply with law: When selling or buying a station, be sure that you get good legal representation and that you comply with applicable law. |
|
|