Failures by Franchisee in Making Petroleum Payments Leads to Forfeiture Under Petroleum Marketing Practices Act

The U.S. Court of Appeals for the Seventh Circuit in Chicago has affirmed a decision by a trial judge that led to the forfeiture of an oil and gas franchise. Emmanuel Joseph operated a British Petroleum (BP) service station in Chicago.  Sasafrasnet, LLC was the authorized distributor of BP products.  Joseph was the franchisee with Sasafrasnet being the franchisor. 

In November 2010, Sasafrasnet served Joseph with notice of its intent to terminate the franchise. The termination was based on the three occasions when Sasafrasnet’s attempt to debit Joseph’s bank account to pay for fuel deliveries was declined because of insufficient funds. 

In May 2011, Joseph sought a preliminary injunction to stop the termination. The U.S. District Court judge denied the request finding that Joseph chose not to show “sufficiently serious questions going to the merits to make such questions fair ground for litigation.” Joseph appealed the denial to the Seventh Circuit Court of Appeals. The appeals court first returned the matter to the trial judge for additional findings and conclusions on whether Joseph’s insufficient funds denials amounted to “failures” under the Petroleum Marketing Practices Act (PMPA). PMPA is a federal law that regulates the sales of many petroleum products by producers of oil and gas products to franchised dealers who sell to the public.

Under PMPA, a franchisor is allowed to terminate a franchise if an event occurs that is relevant to the franchise relationship. The act lists several types of events that meet that criteria. One of those is a “failure by the franchisee to pay the franchisor in a timely manner when due all sums to which the franchisor is legally entitled.” The definition of failure under the PMPA is that it must not be one that is technical or unimportant to the relationship between the parties. 

When the case was remanded to the district court to consider those questions, it found that two of Joseph’s insufficient funds denials should count as failures under the PMPA.  Joseph then appealed a second time.

The appellate court first decided that Joseph’s argument that the franchisor had the burden of proof was incorrect.  The court noted that under 15 U.S.C. §2805(b)(2)(A)(ii), the burden of proof was on Joseph. In addition, the court found that the insufficient funds denials were within Joseph’s control and thus the finding that the district court made was correct. And last, since Joseph had a history of late payments for amounts that were substantial, his delinquent payments were not “technical” or “unimportant” to the relationship.

Accordingly, the district court’s decision was affirmed and the franchise terminated.

Emmanuel Joseph v. Sasafrasnet, LLC, No. 13-1202 (Nov. 4, 2013).

Kreisman Law Offices has been handling contract disputes, franchise litigation and business corporate litigation for individuals, families and businesses for more than 37 years in and around Chicago, Cook County and its surrounding areas, including Carol Stream, LaGrange, Villa Park, Northlake, Park Ridge, Dolton, Chicago (Gresham, Chatham, Avalon Park, Hyde Park), LaGrange, Lyons, Justice and Blue Island, Ill.

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