The Franchise Memorandum

Meanwhile, a federal court in Nevada granted summary judgment in favor of a franchisor on franchisees’ claims for, among others, wrongful termination in violation of the Petroleum Marketing Practices Act (“PMPA”), breach of contract, and breach of the implied covenant of good faith and fair dealing. Nev. W. Petroleum, LLC v. BP W. Coast Prods., LLC, 2017 WL 4172269 (D. Nev. Sept. 20, 2017). The franchisees’ claims arose when BP allegedly took various actions to force them out of their businesses, which they claimed amounted to a constructive termination of their franchise rights. In rejecting the franchisees’ PMPA and breach of contract claims, the district court found that no constructive termination had occurred because BP had literally complied with the terms of the applicable franchise agreements.

The court also rejected the franchisees’ claims that BP had breached the implied covenant of good faith and fair dealing by refusing to extend credit to the franchisees for fuel and requiring them to pre-pay for inventory; overcharging for the point-of-sale system; refusing to refund the franchise fee for a planned, but abandoned, location; and not allowing for an extension of time to build a planned location. In reaching its decision, the court determined that BP reasonably exercised its discretion in making these decisions because the agreements gave it sole discretion to act. For instance, the agreements allowed BP to extend credit to franchisees in its sole discretion, and here, BP extended credit until the franchisees stopped timely repaying the debt. Likewise, the agreements provided BP with sole discretion to extend deadlines for new construction, which it did beyond what was contemplated by the agreements. With respect to the franchisees’ other implied covenant claims, the court found that the agreements expressly identified the cost of the point-of-sale system, and stated that the franchise fees were nonrefundable absent circumstances not present in the case before the court. In sum, the court found that no valid claim existed under the implied covenant because BP had complied with its express obligations under the franchise agreements.