15 U.S.C. § 2802 — Franchise relationship

Page 1947 TITLE 15—COMMERCE AND TRADE § 2802 under the law of any State (or subdivision thereof). (14) The terms ‘‘fail to renew’’ and ‘‘non- renewal’’ mean, with respect to any franchise relationship, a failure to reinstate, continue, or extend the franchise relationship— (A) at the conclusion of the term, or on the expiration date, stated in the relevant fran- chise; (B) at any time, in the case of the relevant franchise which does not state a term of dura- tion or an expiration date; or (C) following a termination (on or after June 19, 1978) of the relevant franchise which was entered into prior to June 19, 1978, and has not been renewed after such date. (15) The term ‘‘affiliate’’ means any person who (other than by means of a franchise) con- trols, is controlled by, or is under common con- trol with, any other person. (16) The term ‘‘relevant geographic market area’’ includes a State or a standard metropoli- tan statistical area as periodically established by the Office of Management and Budget. (17) The term ‘‘termination’’ includes can- cellation. (18) The term ‘‘commerce’’ means any trade, traffic, transportation, exchange, or other com- merce— (A) between any State and any place outside of such State; or (B) which affects any trade, transportation, exchange, or other commerce described in sub- paragraph (A). (19) The term ‘‘State’’ means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Is- lands, American Samoa, Guam, and any other commonwealth, territory, or possession of the United States. (Pub. L. 95–297, title I, § 101, June 19, 1978, 92 Stat. 322; Pub. L. 103–371, § 6, Oct. 19, 1994, 108 Stat. 3486; Pub. L. 110–140, title II, § 241(c)(1), Dec. 19, 2007, 121 Stat. 1540.) Editorial Notes AMENDMENTS 2007—Par. (13)(C). Pub. L. 110–140 aligned margins. 1994—Par. (13)(C). Pub. L. 103–371 added subpar. (C). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2007 AMENDMENT Amendment by Pub. L. 110–140 effective on the date that is 1 day after Dec. 19, 2007, see section 1601 of Pub. L. 110–140, set out as an Effective Date note under sec- tion 1824 of Title 2, The Congress. SHORT TITLE OF 1994 AMENDMENT Pub. L. 103–371, § 1, Oct. 19, 1994, 108 Stat. 3484, pro- vided that: ‘‘This Act [amending this section and sec- tions 2802, 2805, and 2806 of this title] may be cited as the ‘Petroleum Marketing Practices Act Amendments of 1994’.’’ SHORT TITLE Pub. L. 95–297, § 1, June 19, 1978, 92 Stat. 322, provided: ‘‘That this Act [enacting this chapter and provisions set out as a note under section 2822 of this title] may be cited as the ‘Petroleum Marketing Practices Act’.’’ § 2802. Franchise relationship (a) General prohibition against termination or nonrenewal Except as provided in subsection (b) and sec- tion 2803 of this title, no franchisor engaged in the sale, consignment, or distribution of motor fuel in commerce may— (1) terminate any franchise (entered into or renewed on or after June 19, 1978) prior to the conclusion of the term, or the expiration date, stated in the franchise; or (2) fail to renew any franchise relationship (without regard to the date on which the rel- evant franchise was entered into or renewed). (b) Precondition and grounds for termination or nonrenewal (1) Any franchisor may terminate any fran- chise (entered into or renewed on or after June 19, 1978) or may fail to renew any franchise rela- tionship, if— (A) the notification requirements of section 2804 of this title are met; and (B) such termination is based upon a ground described in paragraph (2) or such nonrenewal is based upon a ground described in paragraph (2) or (3). (2) For purposes of this subsection, the fol- lowing are grounds for termination of a fran- chise or nonrenewal of a franchise relationship: (A) A failure by the franchisee to comply with any provision of the franchise, which pro- vision is both reasonable and of material sig- nificance to the franchise relationship, if the franchisor first acquired actual or construc- tive knowledge of such failure— (i) not more than 120 days prior to the date on which notification of termination or non- renewal is given, if notification is given pur- suant to section 2804(a) of this title; or (ii) not more than 60 days prior to the date on which notification of termination or non- renewal is given, if less than 90 days notifi- cation is given pursuant to section 2804(b)(1) of this title. (B) A failure by the franchisee to exert good faith efforts to carry out the provisions of the franchise, if— (i) the franchisee was apprised by the franchisor in writing of such failure and was afforded a reasonable opportunity to exert good faith efforts to carry out such provi- sions; and (ii) such failure thereafter continued with- in the period which began not more than 180 days before the date notification of termi- nation or nonrenewal was given pursuant to section 2804 of this title. (C) The occurrence of an event which is rel- evant to the franchise relationship and as a re- sult of which termination of the franchise or nonrenewal of the franchise relationship is reasonable, if such event occurs during the pe- riod the franchise is in effect and the franchisor first acquired actual or construc- tive knowledge of such occurrence— (i) not more than 120 days prior to the date on which notification of termination or non- renewal is given, if notification is given pur- suant to section 2804(a) of this title; or Page 1948 TITLE 15—COMMERCE AND TRADE § 2802 (ii) not more than 60 days prior to the date on which notification of termination or non- renewal is given, if less than 90 days notifi- cation is given pursuant to section 2804(b)(1) of this title. (D) An agreement, in writing, between the franchisor and the franchisee to terminate the franchise or not to renew the franchise rela- tionship, if— (i) such agreement is entered into not more than 180 days prior to the date of such termination or, in the case of nonrenewal, not more than 180 days prior to the conclu- sion of the term, or the expiration date, stated in the franchise; (ii) the franchisee is promptly provided with a copy of such agreement, together with the summary statement described in section 2804(d) of this title; and (iii) within 7 days after the date on which the franchisee is provided a copy of such agreement, the franchisee has not posted by certified mail a written notice to the franchisor repudiating such agreement. (E) In the case of any franchise entered into prior to June 19, 1978, and in the case of any franchise entered into or renewed on or after such date (the term of which is 3 years or longer, or with respect to which the franchisee was offered a term of 3 years or longer), a de- termination made by the franchisor in good faith and in the normal course of business to withdraw from the marketing of motor fuel through retail outlets in the relevant geo- graphic market area in which the marketing premises are located, if— (i) such determination— (I) was made after the date such fran- chise was entered into or renewed, and (II) was based upon the occurrence of changes in relevant facts and cir- cumstances after such date; (ii) the termination or nonrenewal is not for the purpose of converting the premises, which are the subject of the franchise, to op- eration by employees or agents of the franchisor for such franchisor’s own account; and (iii) in the case of leased marketing prem- ises— (I) the franchisor, during the 180-day pe- riod after notification was given pursuant to section 2804 of this title, either made a bona fide offer to sell, transfer, or assign to the franchisee such franchisor’s inter- ests in such premises, or, if applicable, of- fered the franchisee a right of first refusal of at least 45 days duration of an offer, made by another, to purchase such franchisor’s interest in such premises; or (II) in the case of the sale, transfer, or assignment to another person of the franchisor’s interest in such premises in connection with the sale, transfer, or as- signment to such other person of the franchisor’s interest in one or more other marketing premises, if such other person offers, in good faith, a franchise to the franchisee on terms and conditions which are not discriminatory to the franchisee as compared to franchises then currently being offered by such other person or fran- chises then in effect and with respect to which such other person is the franchisor. (3) For purposes of this subsection, the fol- lowing are grounds for nonrenewal of a franchise relationship: (A) The failure of the franchisor and the franchisee to agree to changes or additions to the provisions of the franchise, if— (i) such changes or additions are the result of determinations made by the franchisor in good faith and in the normal course of busi- ness; and (ii) such failure is not the result of the franchisor’s insistence upon such changes or additions for the purpose of converting the leased marketing premises to operation by employees or agents of the franchisor for the benefit of the franchisor or otherwise pre- venting the renewal of the franchise rela- tionship. (B) The receipt of numerous bona fide cus- tomer complaints by the franchisor con- cerning the franchisee’s operation of the mar- keting premises, if— (i) the franchisee was promptly apprised of the existence and nature of such complaints following receipt of such complaints by the franchisor; and (ii) if such complaints related to the condi- tion of such premises or to the conduct of any employee of such franchisee, the franchisee did not promptly take action to cure or correct the basis of such complaints. (C) A failure by the franchisee to operate the marketing premises in a clean, safe, and healthful manner, if the franchisee failed to do so on two or more previous occasions and the franchisor notified the franchisee of such fail- ures. (D) In the case of any franchise entered into prior to June 19, 1978, (the unexpired term of which, on such date, is 3 years or longer) and, in the case of any franchise entered into or re- newed on or after such date (the term of which was 3 years or longer, or with respect to which the franchisee was offered a term of 3 years or longer), a determination made by the franchisor in good faith and in the normal course of business, if— (i) such determination is— (I) to convert the leased marketing premises to a use other than the sale or distribution of motor fuel, (II) to materially alter, add to, or re- place such premises, (III) to sell such premises, or (IV) that renewal of the franchise rela- tionship is likely to be uneconomical to the franchisor despite any reasonable changes or reasonable additions to the pro- visions of the franchise which may be ac- ceptable to the franchisee; (ii) with respect to a determination re- ferred to in subclause (II) or (IV), such deter- mination is not made for the purpose of con- verting the leased marketing premises to op- eration by employees or agents of the Page 1949 TITLE 15—COMMERCE AND TRADE § 2802 franchisor for such franchisor’s own account; and (iii) in the case of leased marketing prem- ises such franchisor, during the 90-day period after notification was given pursuant to sec- tion 2804 of this title, either— (I) made a bona fide offer to sell, trans- fer, or assign to the franchisee such franchisor’s interests in such premises; or (II) if applicable, offered the franchisee a right of first refusal of at least 45-days du- ration of an offer, made by another, to pur- chase such franchisor’s interest in such premises. (c) Definition As used in subsection (b)(2)(C), the term ‘‘an event which is relevant to the franchise rela- tionship and as a result of which termination of the franchise or nonrenewal of the franchise re- lationship is reasonable’’ includes events such as— (1) fraud or criminal misconduct by the franchisee relevant to the operation of the marketing premises; (2) declaration of bankruptcy or judicial de- termination of insolvency of the franchisee; (3) continuing severe physical or mental dis- ability of the franchisee of at least 3 months duration which renders the franchisee unable to provide for the continued proper operation of the marketing premises; (4) loss of the franchisor’s right to grant pos- session of the leased marketing premises through expiration of an underlying lease, if— (A) the franchisee was notified in writing, prior to the commencement of the term of the then existing franchise— (i) of the duration of the underlying lease; and (ii) of the fact that such underlying lease might expire and not be renewed during the term of such franchise (in the case of termination) or at the end of such term (in the case of nonrenewal); (B) during the 90-day period after notifica- tion was given pursuant to section 2804 of this title, the franchisor offers to assign to the franchisee any option to extend the un- derlying lease or option to purchase the marketing premises that is held by the franchisor, except that the franchisor may condition the assignment upon receipt by the franchisor of— (i) an unconditional release executed by both the landowner and the franchisee re- leasing the franchisor from any and all li- ability accruing after the date of the as- signment for— (I) financial obligations under the op- tion (or the resulting extended lease or purchase agreement); (II) environmental contamination to (or originating from) the marketing premises; or (III) the operation or condition of the marketing premises; and (ii) an instrument executed by both the landowner and the franchisee that ensures the franchisor and the contractors of the franchisor reasonable access to the mar- keting premises for the purpose of testing for and remediating any environmental contamination that may be present at the premises; and (C) in a situation in which the franchisee acquires possession of the leased marketing premises effective immediately after the loss of the right of the franchisor to grant possession (through an assignment pursuant to subparagraph (B) or by obtaining a new lease or purchasing the marketing premises from the landowner), the franchisor (if re- quested in writing by the franchisee not later than 30 days after notification was given pursuant to section 2804 of this title), during the 90-day period after notification was given pursuant to section 2804 of this title— (i) made a bona fide offer to sell, trans- fer, or assign to the franchisee the interest of the franchisor in any improvements or equipment located on the premises; or (ii) if applicable, offered the franchisee a right of first refusal (for at least 45 days) of an offer, made by another person, to purchase the interest of the franchisor in the improvements and equipment. (5) condemnation or other taking, in whole or in part, of the marketing premises pursuant to the power of eminent domain; (6) loss of the franchisor’s right to grant the right to use the trademark which is the sub- ject of the franchise, unless such loss was due to trademark abuse, violation of Federal or State law, or other fault or negligence of the franchisor, which such abuse, violation, or other fault or negligence is related to action taken in bad faith by the franchisor; (7) destruction (other than by the franchisor) of all or a substantial part of the marketing premises; (8) failure by the franchisee to pay to the franchisor in a timely manner when due all sums to which the franchisor is legally enti- tled; (9) failure by the franchisee to operate the marketing premises for— (A) 7 consecutive days, or (B) such lesser period which under the facts and circumstances constitutes an un- reasonable period of time; (10) willful adulteration, mislabeling or mis- branding of motor fuels or other trademark violations by the franchisee; (11) knowing failure of the franchisee to comply with Federal, State, or local laws or regulations relevant to the operation of the marketing premises; and (12) conviction of the franchisee of any fel- ony involving moral turpitude. (d) Compensation, etc., for franchisee upon con- demnation or destruction of marketing prem- ises In the case of any termination of a franchise (entered into or renewed on or after June 19, 1978), or in the case of any nonrenewal of a fran- chise relationship (without regard to the date on which such franchise relationship was entered into or renewed)— Page 1950 TITLE 15—COMMERCE AND TRADE § 2803 (1) if such termination or nonrenewal is based upon an event described in subsection (c)(5), the franchisor shall fairly apportion be- tween the franchisor and the franchisee com- pensation, if any, received by the franchisor based upon any loss of business opportunity or good will; and (2) if such termination or nonrenewal is based upon an event described in subsection (c)(7) and the leased marketing premises are subsequently rebuilt or replaced by the franchisor and operated under a franchise, the franchisor shall, within a reasonable period of time, grant to the franchisee a right of first refusal of the franchise under which such premises are to be operated. (Pub. L. 95–297, title I, § 102, June 19, 1978, 92 Stat. 324; Pub. L. 103–371, §§ 2, 3, Oct. 19, 1994, 108 Stat. 3484.) Editorial Notes AMENDMENTS 1994—Subsec. (b)(3)(A)(ii). Pub. L. 103–371, § 2, inserted ‘‘converting the leased marketing premises to oper- ation by employees or agents of the franchisor for the benefit of the franchisor or otherwise’’ after ‘‘purpose of’’. Subsec. (c)(4). Pub. L. 103–371, § 3, redesignated por- tion of introductory language of par. (4) as subpar. (A), redesignated former subpars. (A) and (B) as cls. (i) and (ii), respectively, of subpar. (A), and added subpars. (B) and (C). § 2803. Trial and interim franchises (a) Nonapplicability of statutory nonrenewal provisions The provisions of section 2802 of this title shall not apply to the nonrenewal of any fran- chise relationship— (1) under a trial franchise; or (2) under an interim franchise. (b) Definitions For purposes of this section— (1) The term ‘‘trial franchise’’ means any franchise— (A) which is entered into on or after June 19, 1978; (B) the franchisee of which has not pre- viously been a party to a franchise with the franchisor; (C) the initial term of which is for a period of not more than 1 year; and (D) which is in writing and states clearly and conspicuously— (i) that the franchise is a trial franchise; (ii) the duration of the initial term of the franchise; (iii) that the franchisor may fail to renew the franchise relationship at the conclusion of the initial term stated in the franchise by notifying the franchisee, in accordance with the provisions of section 2804 of this title, of the franchisor’s inten- tion not to renew the franchise relation- ship; and (iv) that the provisions of section 2802 of this title, limiting the right of a franchisor to fail to renew a franchise rela- tionship, are not applicable to such trial franchise. (2) The term ‘‘trial franchise’’ does not in- clude any unexpired period of any term of any franchise (other than a trial franchise, as de- fined by paragraph (1)) which was transferred or assigned by a franchisee to the extent au- thorized by the provisions of the franchise or any applicable provision of State law which permits such transfer or assignment, without regard to any provision of the franchise. (3) The term ‘‘interim franchise’’ means any franchise— (A) which is entered into on or after June 19, 1978; (B) the term of which, when combined with the terms of all prior interim franchises be- tween the franchisor and the franchisee, does not exceed 3 years; (C) the effective date of which occurs im- mediately after the expiration of a prior franchise, applicable to the marketing prem- ises, which was not renewed if such non- renewal— (i) was based upon a determination de- scribed in section 2802(b)(2)(E) of this title, and (ii) the requirements of section 2802(b)(2)(E) of this title were satisfied; and (D) which is in writing and states clearly and conspicuously— (i) that the franchise is an interim fran- chise; (ii) the duration of the franchise; and (iii) that the franchisor may fail to renew the franchise at the conclusion of the term stated in the franchise based upon a determination made by the franchisor in good faith and in the normal course of business to withdraw from the marketing of motor fuel through retail outlets in the relevant geographic market area in which the marketing premises are located if the requirements of section 2802(b)(2)(E)(ii) and (iii) of this title are satisfied. (c) Nonrenewal upon meeting statutory notifica- tion requirements If the notification requirements of section 2804 of this title are met, any franchisor may fail to renew any franchise relationship— (1) under any trial franchise, at the conclu- sion of the initial term of such trial franchise; and (2) under any interim franchise, at the con- clusion of the term of such interim franchise, if— (A) such nonrenewal is based upon a deter- mination described in section 2802(b)(2)(E) of this title; and (B) the requirements of section 2802(b)(2)(E)(ii) and (iii) of this title are sat- isfied. (Pub. L. 95–297, title I, § 103, June 19, 1978, 92 Stat. 328.) § 2804. Notification of termination or nonrenewal of franchise relationship (a) General requirements applicable to franchisor Prior to termination of any franchise or non- renewal of any franchise relationship, the