March 19, 2026|Franchise Frontlines
March 19, 2026 | United States District Court for the Central District of California
Executive Summary
In a recent decision, Judge Walter of the Central District of California granted summary judgment in favor of Circle K Stores, Inc. in a dispute arising from the nonrenewal of a petroleum franchise relationship. The franchisee alleged that the franchisor wrongfully refused to renew the franchise despite ongoing negotiations and a later willingness to accept the proposed terms. Circle K argued that it issued a valid notice of nonrenewal after the franchisee failed to agree to revised lease terms, including a rent increase, and that its actions complied with the Petroleum Marketing Practices Act (“PMPA”). The court agreed, concluding that the franchisor’s nonrenewal was supported by a valid statutory ground, was made in good faith, and was not undermined by subsequent negotiations or extensions of the underlying agreements.
Relevant Background
The case arises from a petroleum franchise relationship between Circle K and Indo-Phili, Inc., a family-operated business that ran a Mobil-branded service station and convenience store on property the Court stated was owned by Circle K. The parties entered into a series of agreements in 2021 governing the operation of the station, which undisputedly constituted a franchise relationship under the PMPA.
As the initial term approached expiration, Circle K issued a renewal offer that included revised terms, most notably an increase in rent based on an appraisal-driven formula and higher gasoline volume requirements. The renewal offer also included a mechanism allowing the franchisee to challenge the appraisal through a defined process.
Rather than accepting the renewal offer, the franchisee raised concerns about the proposed rent and volume requirements and sought to negotiate alternative terms. The franchisee also explored converting the relationship to a different operational model under which Circle K would assume control of fuel sales while the franchisee would operate certain aspects of the business for a per-gallon fee.
During this period, the parties engaged in ongoing communications, including phone calls and emails, in which Circle K representatives indicated they were reviewing the franchisee’s requests. The franchisee continued operating the station and paying rent under the existing agreements while awaiting a response.
Shortly after the initial exchange regarding the renewal terms, Circle K issued a notice of nonrenewal pursuant to the PMPA, citing the franchisee’s failure to agree to changes in the lease, specifically the increased rent. The parties continued to communicate after that notice, and Circle K issued temporary extensions of the agreements while discussions continued. Months later, the franchisee indicated it was willing to accept the original renewal terms, but Circle K declined to renew and instead proceeded toward termination and conversion of the site to a company-operated location.
The franchisee filed suit alleging wrongful nonrenewal under the PMPA and sought injunctive relief compelling renewal. Circle K counterclaimed for declaratory relief confirming that the nonrenewal was valid.
Decision
The court granted summary judgment in favor of Circle K, concluding that the nonrenewal complied with the PMPA as a matter of law.
The court first found that Circle K satisfied the statutory notice requirements by issuing a written notice of nonrenewal with the required timing and content. It was undisputed that the notice complied with the procedural requirements of the statute.
Turning to the substantive basis for nonrenewal, the court held that the franchisee’s failure to agree to revised lease terms—specifically, the increased rent—constituted a valid ground for nonrenewal under the PMPA. The court emphasized that the statute permits franchisors to propose changes at renewal and to decline renewal if the parties cannot reach agreement, provided the changes are made in good faith and in the normal course of business.
The court rejected the franchisee’s argument that it had effectively accepted the renewal or that a formal signature was unnecessary. The governing agreements required written execution to effectuate renewal or modification, and the undisputed record showed that the franchisee neither signed nor otherwise complied with the terms of the renewal offer.
The court also concluded that the rent increase was proposed in good faith. The increase was based on a non-discriminatory appraisal formula, and the renewal offer included an option to challenge the appraisal through a formal process. The franchisee did not utilize that option. The court declined to second-guess the business judgment underlying the rent determination, noting that the PMPA preserves franchisor flexibility in adjusting economic terms at renewal.
The court further rejected the argument that Circle K acted in bad faith by allegedly intending to convert the station to a company-operated model. The court found no evidence that such a decision had been made prior to the issuance of the nonrenewal notice, and emphasized that speculation regarding future plans was insufficient to defeat summary judgment.
Finally, the court held that subsequent events—including continued negotiations, temporary extensions of the agreements, and a later notice of nonrenewal—did not invalidate the original nonrenewal notice. Under the PMPA, a valid notice of nonrenewal remains effective even if the parties continue discussions or extend the contract for operational purposes.
Looking Forward
This decision reinforces several core principles governing franchise renewal under the PMPA and provides practical guidance for franchisors navigating renewal negotiations.
The ruling underscores that franchisors may propose revised economic terms at renewal, including rent increases, without violating the statute, so long as those changes are made in good faith and in the normal course of business. Courts may be reluctant to second-guess appraisal-based or formula-driven rent determinations where the process is applied consistently and without discriminatory intent.
The case also highlights the importance of clear acceptance mechanics. Where renewal agreements require written execution, a franchisee’s continued operation, negotiation, or informal expressions of willingness to proceed may not be sufficient to establish acceptance. Failure to timely execute renewal documents may itself provide a basis for nonrenewal.
In addition, the decision illustrates that franchisors may issue nonrenewal notices upon a franchisee’s failure to agree to revised terms without waiting until the end of the contractual term. Subsequent negotiations or temporary extensions, standing alone, may not waive or invalidate a previously issued notice.
At the same time, the case reflects how renewal discussions can create competing narratives regarding intent and expectations. While the court ultimately resolved those issues in favor of the franchisor based on the evidentiary record, the dispute underscores the importance of documenting communications and maintaining clarity regarding the status of renewal offers and deadlines.
More broadly, the decision reflects the balance embedded in the PMPA between protecting franchisees from arbitrary nonrenewal and preserving franchisor flexibility to adjust business terms in response to market conditions. As this case demonstrates, where the statutory requirements are satisfied and the record supports a good faith business rationale, courts may enforce nonrenewal decisions even in the face of ongoing negotiations or late-stage attempts to accept revised terms.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
