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Federal District Court Extends PMPA Constructive Termination Rules to State Franchise Law
By Daniel Garner on April 1, 2014 at 6:43 PM

j0399041In 2010, the United States Supreme Court famously ruled that in cases under the Petroleum Marketing Practices Act (“PMPA”), 15 U.S.C. § 2801 et seq., a franchisee could not state a claim for constructive termination unless the franchisor’s actions actually caused the franchisee to abandon its franchise. Mac's Shell Service v. Shell Oil Prods. Co., 559 U.S. 175 (2010). Earlier this month, relying on this rule from Mac’s Shell, a federal district court in New Jersey ruled that two urgent care franchisees likewise could not state a claim for constructive termination under the New Jersey Franchise Practices Act where their franchisor’s challenged conduct did not actually cause them to abandon their franchises. See Pai v. DRX Urgent Care, LLC, Nos. 13–4333, 13–3558, 2014 WL 837158 (D. N.J. March 4,2014).

In granting the franchisor’s motion to dismiss, the court rejected the franchisee’s claims that the Mac’s Shell rule was not binding simply because it was a federal PMPA case, whereas their claims were based on New Jersey’s state franchise law. The court first noted that “Plaintiffs have asserted no reason why the statutes should be interpreted or applied differently, particularly where both statutes share the same purpose of protecting franchisees from termination without cause.” Id. at *8. The court then held explicitly that, “based on the Supreme Court’s holding in Mac’s Shell, a claim for constructive termination requires that a franchisee no longer be operating.” Id. at *9.

The Pai decision is at least the second federal district court decision extending the Mac’s Shell rule to state franchise law claims for constructive termination. See Bell v. Bimbo Foods Bakery Distribution Inc., Case No. 11–C–3343, 2012 WL 2565849 (N.D. Ill. July 2, 2012). Thus, it appears possible a trend may be growing to apply the Mac’s Shellreasoning to state law claims for constructive termination, even outside the PMPA context, thereby giving franchisors a new, potentially outcome determinative defense against state law claims for constructive termination.

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