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Recent Federal Court Decisions Relating To Price Gouging, Trial Franchises, and Contractual Limitation Periods

March 2011

Authors: Paul D. Sanson, Karen T. Staib

First Circuit Court Rejects Price Gouging and Price Fixing Claims Against Service Stations Following Hurricanes Katrina and Rita

In the first court case to address Massachusetts’ price gouging regulation, the First Circuit rejects a claim that a “gross disparity” in pre- and post-emergency gas prices could be established by changes in the retailer’s profit margins rather than price changes. The Court stated that a gross disparity required evidence that “knowing advantage was taken of consumers” and noted that the price gouging regulations “are not . . . meant to give the government control over the setting of petroleum product prices.” White v. R.M. Packer Co., No. 10-1130, 2011 U.S. Dist. LEXIS 3276 (1st Cir. Feb. 18, 2011). 

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Oral Statements Fail to Convert Trial Franchises to Regular, but Improper Notice Leads to Award of Lost Profits and Lost Future Business Value

The U.S. District Court for the Northern District of New York holds that statements by company representatives about a “long-term” relationship failed to convert Trial Franchise Agreements into regular agreements subject to the full termination procedures of the PMPA. But the Court also holds that the distributor’s failure to provide the notice required by PMPA § 2804 entitles the dealers to lost profits from the required 90-day notice period and lost future business value, even though the dealers’ damages calculations were seriously flawed and they failed to provide evidence that any terminated trial franchise with 90 days or less remaining on the term of its lease had ever been sold. Jimico Enterprises, Inc. v. Lehigh Gas Corporation, 1:07-CV-0578 (GTS/DRH), 2010 U.S. Dist. LEXIS 75763 (July 27, 2010); 2010 U.S. Dist. LEXIS 109394 (N.D.N.Y. Oct. 14, 2010) 

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Claim That Franchisor Fraudulently Concealed Defects Not Preempted by PMPA or Barred by One-Sided Contractual Limitation Period

The U.S. District Court for the District of Maryland holds that a claim that the franchisor fraudulently concealed defects in an electronic leak detector was not preempted by the PMPA because it did not relate to the termination of the franchise. The Court also refuses to dismiss the claim based on the franchise agreement’s one-year limitations period because that provision was binding only on the franchisee. While recognizing Maryland’s “strong public policy in favor of freedom to contract,” it concludes that a one-sided limitations period would be enforceable under Maryland law only if supported by “valid justification” which had not been established at the motion to dismiss stage. Storto Enterprises, Inc. v. ExxonMobil Oil Corporation, Civil No. WDQ-10-1630, 2011 U.S. Dist. LEXIS 6548 (D. Md. Jan. 24, 2011) 

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