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The Franchise Memorandum

Demand Letter Preserved PMPA Limitations Defense
Posted in Procedure

In Citgo Petroleum Corporation v. Ranger Enterprises, Inc., 2008 WL 3927470 (W.D. Wis. Aug. 27, 2008), the operator of 39 Citgo gas stations alleged that its franchisor failed to live up to its obligations by providing less fuel to the franchisee’s locations than was contractually required and because demand for Citgo branded fuel allegedly dropped when Venezuelan President Hugo Chavez began making hostile statements in the press about the United States. (Citgo is owned by the Venezuelan government).  When Citgo ultimately announced that it would not renew the franchise agreement at expiration, the franchisee “de-branded” its units and changed them to “Road Ranger” stations. In response, Citgo sued the franchisee, asserting that its de-branding and failure to buy the minimum fuel requirements breached the franchise agreements. The franchisee asserted counterclaims against Citgo for termination of the franchise in violation of the Petroleum Marketing Practices Act and for breach of contract. 

Citgo subsequently moved to dismiss the PMPA claim on the basis that it was filed after the expiration of the statute’s one-year limitations period. The franchisee argued that Citgo was equitably estopped from raising the limitations defense because one of the franchisor’s employees allegedly told the franchisee that Citgo would not seek damages if the franchisee would simply “leave quietly.” The court noted, however, that equitable principles do not apply to the PMPA and cannot be used to extend its limitations period. The court went on to comment that even if that were not the case and such statements were found to have “lulled” the franchisee into failing to assert its PMPA claim within the statutory limitations period, the lulling effects were “brought to an abrupt halt” by a subsequent demand letter the franchisee received from Citgo.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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