Historical Review of Franchise Fees: Litigating the Franchise Fee Element in 2012

And the saga continues . . .

 

In BP West Coast Products, LLC v. Shalabi, No. C11-1341MJP, 2012 WL 441155, at *1 (W.D. Wash. Feb. 10, 2012), plaintiff filed suit against defendant alleging that defendant violated certain franchise agreements. Defendant counterclaimed, arguing that plaintiff violated the Washington Franchise Investment Protection Act (“FIPA”).

 

In its counterclaim, defendant argued that plaintiff used a zone price scheme to set the wholesale price of gasoline at a level intended to ensure that its franchisees would not make over a certain profit. Defendant also argued that plaintiff would “routinely and intentionally” speed up or delay its gasoline deliveries to certain franchisee stations depending on the gas price fluctuations—taking advantage of the fluctuations to the disadvantage of its franchisees.

 

After defendant filed these counterclaims, plaintiff moved to dismiss on the basis that FIPA was inapplicable to the relationship between the parties.

 

Zone Pricing Scheme

 

First, plaintiff argued that FIPA was inapplicable because defendant was never required to pay more than a bona fide wholesale price for gasoline. The court found this argument unpersuasive, stating that defendant made a showing that it had, in fact, been required to pay more than a reasonable wholesale price for gasoline because of the zone pricing scheme and faulty deliveries (mentioned above). “Similar allegations of purchasing gasoline and related products at inflated prices were sufficient to state a claim under FIPA in Blanton [Blanton v. Mobil Oil Corp., 721 F.2d 1207 (9th Cir. 1983)] and it is enough here.”

 

Ampm Store

 

Second, plaintiff argued that FIPA was inapplicable because defendant never paid a franchise fee. The court, similarly, found this argument unpersuasive. Because defendant was required to operate an ampm store—that had a $70,000 franchise fee—in conjunction with the gas station, and because one could not operate a gas station without also having an ampm minimart, defendant had paid a franchise fee to enter into the gasoline agreement and to operate the gas station. The court stated that “although the agreements are distinct, they are dependent agreements.”

 

Legislative Intent

 

Finally, plaintiff argued that dismissal was appropriate because the legislature did not intend for FIPA to apply to gas stations. The court similarly found this argument unpersuasive, stating that “whatever the legislature may have had in its ‘mind,’ it did not put into law.” Because there was no provision in FIPA precluding its application in the context of a gasoline station, the court rejected plaintiff’s argument.

 

Finding that defendant had stated sufficient factual allegations to sustain the FIPA counterclaim, the court ultimately denied plaintiff’s motion to dismiss.

 

Takeaway: Under Washington law, a franchisee has a cause of action under FIPA if it is required to purchase items at inflated prices, and if it is required to pay a franchise fee under one agreement that is dependent upon another agreement.

 

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