PMPA Does Not Pre-Empt All State Law Claims

Can a franchisee avoid the PMPA and sue his franchisor in state court? Yes, says the 5th Circuit in reversing the Southern District of Texas.

In Bellfort Enterprises v. Petrotex Fuels (30 July 09) the US Court of Appeals addressed the question. Franchisee (Belfort) and franchisor (Petrotex) entered into a franchise agreement covered by the Petroleum Marketing Practices Act (PMPA).

When Bellfort sued the franchisor, the complaint alleged various claims under Texas law but did not claim PMPA violations.This was important because the PMPA is a federal statute, and therefore any litigation under the PMPA would raise a "federal question" which would have to be resolved in federal (not state) court.

The franchisor moved the suit to federal district court, and the franchisee moved to return the matter to state court. The district court initially agreed with the franchisee, but then changed its mind and held that the PMPA preempted the state law claims.

On appeal, a 3-member panel of the Court of Appeals reversed the district court. The panel distinguished between "ordinary" preemption and "complete" preemption; holding that PMPA was not complete preemption of state law.

In analyzing the applicability of PMPA to the specific case, the court noted that a plaintiff is "master of its complaint" and the plaintiff had chosen to only raise claims under Texas (and not federal) law.

The court distinguished between a "well-pleaded complaint" where the attorney had properly set forth state law claims only, and the "artful pleading doctrine" where the facial causes of action might be state law claims but in reality the claims implicated federal law. Where a court finds "artful pleading" it may hold that there is a federal question even though one is not explicitly stated (Rivet v. Regions Bank of Louisiana).

Often the most important claim a franchisee can make is one regarding improper termination or non-renewal, and such claims have been held to be completely preempted by the PMPA (C.A.L.L. v. ExxonMobil, D. NH, memorandum of Aug 14, 2009). In such a case the most significant element of damages would therefore necessitate a federal venue.

The lesson for franchisees is to plead carefully; it may be in the interests of the franchisee to be in a particular forum (in this case, state court) and so the franchisee might chose to forego legally-supportable causes of action which would result in being sent to a less-desirable forum.