In Their Opinion : Seventh Circuit Court of Appeals Commentary : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

AL'S SERVICE CENTER v. BP PRODUCTS NORTH AMERICA (March 26, 2010)

Al's Service Center was a gasoline service station and a franchisee of BP Products North America. In 2002, the State of Illinois decided to condemn a portion of the service station property. Although the portion of the premises subject to condemnation was small, the impact on the property was large. It would affect two of the five entrances and increase congestion. BP notified Al's of its intent to terminate the franchise relationship when the condemnation occurred. The condemnation went forward in June of 2005. Al's franchise contracts expired a month later -- BP asked Al’s to vacate the premises. Notwithstanding the condemnation, the expiration of the agreements, and BP's request to vacate, the parties continued to do business as usual. In the summer of 2006, Al's alleges that at BP failed to deliver gasoline for a period of twelve days. Later that same summer, Al’s asked BP to replace its roadside sign that that state had removed during construction. BP refused. Al's eventually abandoned its business in May 2008. It brought suit against BP for compensatory and punitive damages under both the Petroleum Marketing Practices Act and state law. The district court granted summary judgment to BP after denying Al’s request to add the state law claims. Al’s appeals.

In their opinion, Judges Posner, Rovner, and Sykes affirmed. The Court addressed the PMPA claims. Under the PMPA, a dealer is protected from termination of his franchise under certain circumstances. The Court looked for the termination. It concluded that the franchise was not terminated by the 2003 letter (there was no change in the relationship), it was not terminated by the demand to vacate the premises after the actual condemnation (although the Court concluded that BP could have terminated at that time), it was not terminated by the alleged supply interruption (although it may have been a breach of contract), and it was not terminated by the refusal to replace the sign (it did not meet the Mac’s Shell test for constructive termination). Thus, the Court concluded that the franchise came to an end when Al’s abandoned the premises on its own volition – not a violation of the PMPA. The Court also concluded that the lower court correctly refused to allow the state law claim amendments.

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FMS, INC. v. VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, INCORPORATED (March 4, 2009)

In 1997, FMS and Samsung entered into a dealer agreement under which FMS was authorized to sell Samsung construction equipment in Maine. The next year, Samsung sold its construction equipment business to Volvo. Volvo acquired the division, the factory, the design, and the franchise relationships -- but not the name. It was only authorized to sell under the Samsung name for three years. Volvo did manufacture and sell equipment under the Samsung name. In short order, however, it redesigned the equipment and rebranded it with the Volvo name. It then terminated the agreements with most of the Samsung dealers. FMS and other dealers brought an action against Volvo, alleging a breach of contract and wrongful termination. The District Court granted summary judgment to Volvo. On appeal, the Seventh Circuit affirmed in large part but reversed with respect to FMS's Maine franchise law claim. The Court held that there was a genuine factual dispute about whether Volvo had "good cause" under the Maine statute to terminate the franchise. On remand, a jury found for FMS. Volvo appeals.

In their opinion, Judges Flaum, Rovner and Sykes reversed and remanded. The court first considered the Maine franchise law. That law requires "good cause" for a manufacturer to terminate a franchisee. A manufacture’s discontinuation of the production of the franchise goods constitutes good cause under the statute. Volvo argued that it's redesign and rebranding of the equipment constituted a discontinuation of the franchise goods. The Court turned its analysis to the statutory definition of “franchise goods.” It found that the definition centered on the grant of a license to use a trademark or trade name. Considering that definition in conjunction with the dealer agreement, which defined the target of the franchise to be “all Samsung construction equipment,” the Court concluded that the contract only covered equipment that was branded Samsung. The Court then addressed whether the contractual inclusion of "later improved or superseding models" in its definition of “product” was enough to include the Volvo equipment. The Court cited the contract interpretation principle that when a contract refers to items “including” other items, the latter must be a subset of the former. It therefore concluded that that phrase included only later models that were branded Samsung. Concluding that the franchise covered only Samsung branded equipment, the Court had little difficulty in finding that Volvo met the good cause requirement when it discontinued the production of Samsung-branded equipment. Volvo is therefore not liable for improper termination under the Maine franchise statute and was entitled to summary judgment in its favor.

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