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Gas Station Lease Dispute Will Get U.S. Supreme Court Scrutiny

By Greg Stohr

June 15 (Bloomberg) — The U.S. Supreme Court will use a case involving Shell Oil Co. to determine how much leverage oil companies have to change their leases with tens of thousands of independent service station owners.

The justices today agreed to consider a bid by Massachusetts gas station owners to sue Shell and Motiva Enterprises LLC. A group of station owners say Shell and Motiva used rent increases to try to end their franchise arrangements so the companies could take over operation of the stations.

The station owners at one point won a $3.3 million jury verdict. A federal appeals court upheld part of the award and both sides appealed to the Supreme Court.

The justices agreed to intervene at the suggestion of the Obama administration, which backs Shell and Motiva on the legal issues.

The case centers on the U.S. Petroleum Marketing Practices Act, a 1978 law that gave independent station owners more power in their dealings with oil companies. The station owners are suing under provisions in the law barring improper lease terminations.

Shell and Motiva contend the station owners can’t invoke those provisions because they accepted new lease terms and continued to operate their franchises.

Joint Venture

Houston-based Motiva is a refining and marketing joint venture owned by Shell and Saudi Refining Inc. Shell, a unit of Royal Dutch Shell Plc, transferred its franchising rights to Motiva when the venture was created in 1998.

The case before the high court concerns eight of more than 50 Massachusetts station owners pressing lawsuits. The station owners object to Motiva’s decision to phase out a rent subsidy that had been tied to gasoline sales and to begin calculating rent based on the value of the station’s real estate.

The federal appeals court in Boston said the station owners could press claims for “constructive termination” even though they continued to operate their franchises. The court reached the opposite conclusion on the owners’ allegations of “constructive non-renewal,” saying they forfeited those claims by signing new leases.

The cases are Mac’s Shell Service v. Shell Oil Products, 08-240, and Shell Oil Products v. Mac’s Shell Service, 08-372.

To contact the reporter on this story: Greg Stohr in Washington at[email protected].

Last Updated: June 15, 2009 10:10 EDT 

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1 Comment on “Gas Station Lease Dispute Will Get U.S. Supreme Court Scrutiny”

  1. #1 willem
    on Jun 16th, 2009 at 13:36

    Instead of operating according to their “General Business Principles, i e. honesty, integrity, openess and respect……and to comply with applicable laws and regulations….” Shell simply pushes new lease agreements through the system, in order to further their goal to total vertical integration in the oil industry. In South Africa it went so far already that the Department of Minerals and Energy put a moratorium on Shell in opening of new gas stations, nor can any Shell gas station change hands. I wonder if Queen Beatrix and other shareholders are aware of the arrogant way Shell’s management is using all means to their disposal to bend the regulations of engagement in South Africa’s oil industry, circumnavigate around laws and destroy goodwill in the process. Or do they see South Africa, its people, laws, regulations and sound business principles as just another African country that they can bully into what they think is right !

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