PMPA Notice Period Does Not Start While Franchisor Is Investigating Conflicting Accounts
RAO v. BP PRODUCTS NORTH AMERICA (December 9, 2009)
Salik Rao operated as a BP gasoline service station dealer in the Chicago area. For 10 years beginning in the early 1990s, Rao gave over $100,000 worth of cash and gifts to a BP sales manager. In return, the sales manager performed many favors for Rao, to his great benefit. In 2003, Rao reported this improper activity to BP. However, he characterized it as extortion on the part of the sales manager. BP begin an investigation which ultimately led to the termination of the sales manager in November of 2003. BP continued its investigation, seeking to confirm the extortion. Although Rao promised to cooperate, he never met with BP after November of 2003 and affirmatively withdrew his pledge of cooperation in June of 2004. BP notified Rao in October 2004 that it was terminating its franchise relationship with him because of his improper activity. Rao brought suit under the Petroleum Marketing Practices Act ("PMPA"), as well as RICO, fraud, breach of contract and extortion. The court dismissed the counts based on RICO, fraud and breach of contract and granted summary judgment on the PMPA claim. Rao appeals.
In their opinion, Judges Bauer, Flaum and Williams affirmed. The principal issue on appeal was whether BP's notice of termination was sufficient under the PMPA. The PMPA, which protects service station franchisees, allows early termination of franchise agreements in certain circumstances, which Rao does not contest here. The PMPA requires the franchisor to give a notice of such early termination within 120 days of when it "first acquired actual or constructive knowledge" of the reason for the termination. Here, it is uncontested that BP knew of the improper conduct well over 120 days before providing termination notice. The Court focused, however, on what BP knew when and what BP did. From the fall of 2003 through the middle of 2004, Rao continued to insist that he was a victim of the sales manager's extortion. The sales manager, at the same time, insisted that the gifts were given voluntarily in exchange for his favors. The Court concluded that the statute did not require BP to give notice while it was still investigating the allegations. It was not until Rao ceased his cooperation that the clock started. BP's notification was sent within 120 days of that date and was therefore proper. The Court affirmed the rest of the lower court's judgment as well.
