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Key takeaways from the Petroleum Marketing Attorneys’ Meeting
By Franchising & Distribution Group on April 22, 2016 at 3:59 PM

The American Bar Association’s annual Petroleum Marketing Attorneys’ Meeting took place on April 14 and 15, 2016. Greensfelder, Hemker & Gale attorneys Dan Garner, David Harris, Dawn Johnson, John Petite and Abby Risner attended the program in Washington, D.C, where industry speakers presented programs on important topics and emerging trends in the petroleum marketing industry. Click here to see a copy of the conference brochure.

As program chair, John Petite presided over the two-day event. Petite has been named to serve as program chair for the 2017 Petroleum Marketing Attorneys’ Meeting as well. He has served on the PMA Planning Committee for the past three years and also for the past three years has authored the Petroleum Marketing Committee Report Environment, Energy, and Resources Law: The Year in Review (YIR). The YIR is an annual summary of important developments in environmental, energy and resources law and is published online by the American Bar Association.

Abby Risner spoke at one of the program’s sessions, in a presentation titled “Commercial Litigation and PMPA Update.” Her presentation discussed developments in Petroleum Marketing Practices Act cases, as well as other cases impacting the petroleum marketing industry. Among other cases, Risner’s presentation included a discussion of the Hogan v. BP West Coast Products LLC case, handled by Greensfelder attorneys. She also addressed the recent developments in class action cases before the U.S. Supreme Court. Click here to see the PowerPoint presentation.

Some key takeaways from this year’s PMA sessions include:

Recent Petroleum Marketing Practices Act Cases

  • Where a franchisor is terminating under 15 U.S.C. § 2804(c) for loss of the underlying ground lease, the franchisee’s right to assignment of the underlying ground lease can be limited by an ability to secure from the landlord a release of the franchisor, and it is irrelevant that if a franchisor provides notice to the landlord that it would not renew before offering to assign the option to the franchisee. Amphora Oil & Gas Corp. v. Cumberland Farms, Inc. (E.D.N.Y. 2015).
  • A shorter period of notice of a termination is reasonable where a franchisee fails to operate a motor fuel station and fails to pay the franchisor for fuel and rent. Wynn v. Lukoil N.A., LLC (E.D. Pa. 2015); Hillmen, Inc. v. Lukoil N.A., LLC (E.D. Pa. 2015).

Customer Loyalty Programs

  • Remember that the terms and conditions for any loyalty program will constitute the contract between you and the retail consumer. If you promise something or say the program works a certain way but don’t deliver, you risk serious liability, including potential class actions. Thus, a reservation of rights clause allowing you to change the terms and conditions of the loyalty program becomes important.
  • For franchisors, it is key to be aware of all marketing and advertising materials for the loyalty program. Franchisees may want to develop their own advertising for a loyalty program. That can often be effective, but the franchisor must first ensure that such advertising is consistent with the terms and conditions for the program as well as the franchisor’s overall strategic direction for the marketing of the program. A franchisor should never allow a franchisee to advertise a loyalty program unilaterally unless the franchisor has first reviewed and approved the materials.
  • Always consider whether a loyalty program poses any “below cost” sales risk, particularly if the program provides any kind of cent-per-gallon discount off the pump price. State law varies widely on what constitutes a below-cost sale, so the sponsor of the program needs to analyze the laws of each state where any program will run.
  • The marketing/business team developing the program needs to be in touch with the site operators. Ultimately, the program won’t be successful if it doesn’t connect with the retail consumer at the site, and no one knows those retail consumers better than the people working at the site every day.

Antitrust Issues in the Petroleum Marketing Industry

  • Motor fuel pricing continues to be a source of private litigation, focusing on the now-blurred lines in the supply chains: a traditional refiner-dealer model (now representing less than 10 percent of current retail sites), jobber model of supply (which is now well over 50 percent of retail sites) and the emergence of hybrid commercial contracts for supply principally to large end users such as hypermarketers (representing over 15 percent of retail sites).
  • Traditional legal doctrines built up around older models of distribution are giving way to a new round of litigation brought by consumers, dealers and wholesalers challenging the distinctions between sales of branded and unbranded fuel, rack and dealer pricing, spot formula pricing and rack and dealer pricing, and the traditional distributive models.
  • Whether it is under the Robinson-Patman Act, UCC Section 2-305 or state motor fuel laws, motor fuel sellers must now scrutinize their pricing practices against the new paradigm of a market that is unbundled, rather than relying on traditional defenses such as branded and unbranded fuels not being comparable, and spot, rack and dealer prices as separate points of reference. 

Joint Employer Issues

The issue of “joint employment” liability has been a continuing hot topic since decisions by the Department of Labor and the NLRB that expanded the standard for joint employment. (Click here and here for previous coverage on this topic.) In January, the DOL’s Wage and Hour Division Administrator issued an interpretation for new standards for joint employment under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act. 

One of the most interesting developments is that the DOL appears to be trying to catch up with growth in the sharing economy, also known as the “gig” economy, where consumers request online and on-demand services through their cellphones or online. The DOL is considering whether to create a new classification of “dependent” employee that would capture this type of worker that is not included in employee or independent contractor categories. On Thursday, it was announced that Uber has settled the class action lawsuits brought against it by its drivers who wanted to be treated more like traditional employees. If the settlements are approved by the courts, the question of classifying app-based on-demand workers remains an open question. For more detail on the settlements, find news coverage here and here.

In addition to liabilities petroleum marketers face under the Petroleum Marketing Practices Act and federal and state laws, areas that may be impacted by the new standards are training, hiring and screening employees, and mystery shopping and non-compliance reviews and audits of retail outlets. Potential considerations include indemnity clauses that allocate costs if the franchisor is found liable, or requiring insurance coverage for actions in which the franchisor may be found liable. 

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