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BP Products North America, Inc. v. Hillside Service, Inc.

2011 WL 4343452 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

FRANCHISES — Under the New Jersey Franchise Practices Act, a franchisor cannot refuse to renew a franchise agreement without good cause even if it argues that its franchisee should not have expected a renewal right.

Franchisees sold their oil company franchisor’s products throughout New Jersey. The Commissioner Marketer Agreement (CMA) between them explicitly stated that the agreement between the franchisee and franchisor was for a term of four years and that the franchisee had the option of renewing for two additional terms of four years each. At one point, the franchisor told the franchisees that it was not going to extend the CMA at the expiration of the term of each individual agreement. The franchisor gave them two alternatives: (1) an opportunity to purchase their service stations and act as dealers who purchase fuel products from the franchisor and sell them to customers; or (2) becoming company-owned, dealer operated stations. Under either of these alternatives, the franchisee and franchisor would no longer be operating as a franchise under the New Jersey Franchise Practices Act (NJFPA).

The franchisor sued for a declaration from the Court that it had no obligation to continue business with the franchisees and that it had no obligation to renew their CMAs, nor was it responsible for the lost value of its franchisees’ businesses. The franchisees responded by seeking a declaration that the franchisor’s failure to renew the underlying CMA would be a violation of the NJFPA. Both parties moved for summary judgment.

Under the NJFPA, a franchisor cannot refuse to renew a franchise agreement without good cause. Here, the franchisor argued that under the explicit terms of the CMA, the franchisees should not have expected a right to renew. However courts in New Jersey have previously held that “once a franchise relationship begins [under the NJFPA], all that a franchise must do is comply substantially with the terms of the agreement in return for which he receives the benefit of an infinite franchise – he cannot be terminated or refused renewal.” Therefore the terms of a franchise agreement cannot circumvent the protections provided by the NJFPA. Further, the Court found that the franchisor did not show good cause for terminating the relationship; something it needed to do. Therefore, the franchisor was held liable to the franchisees for damages in accordance with the NJFPA.

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