October 06, 2025|Franchise Frontlines
October 6, 2025 | U.S. District Court for the Eastern District of Pennsylvania | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Cynthia M. Rufe of the Eastern District of Pennsylvania denied a preliminary injunction sought by Rehoboth Petroleum, Inc. under the Petroleum Marketing Practices Act (PMPA) to prevent termination of a Commission Agent Agreement governing its operation of a Gulf-branded gas station. The court held that Rehoboth failed to show it was a PMPA “franchisee” entitled to statutory protections, relying heavily on the Eleventh Circuit’s Farm Stores doctrine and related authorities. However, the court simultaneously granted an injunction preserving Rehoboth’s continued operation of the adjacent Circle K convenience store, concluding that Rehoboth’s rights to occupy the store premises did not rise or fall with PMPA fuel-franchise status. The court further criticized the contractual strategy employed by Petroleum Marketing Group (PMG) to disclaim franchise protections, granted leave to amend the complaint, and signaled that additional claims relating to the convenience store may proceed.
Relevant Background
The plaintiff, Rehoboth Petroleum, operated a Gulf-branded gas station and a Circle K convenience store at a single location in Devon, Pennsylvania. According to the allegations and evidence presented at the preliminary injunction hearing, Rehoboth paid $360,000 to acquire the going business, an additional $67,000 for inventory, a $50,000 initial fee to PMG, and an additional fee to Circle K. These expenses were made after Rehoboth encountered an advertisement offering the station and store for sale as a single business entity. Rehoboth secured approvals from both PMG and Circle K before assuming operations on February 1, 2022.
The business relationship was governed by a Commission Agent Agreement drafted entirely by PMG. Under this arrangement, Rehoboth did not purchase gasoline for resale. Rather, PMG retained title to the motor fuel at all times, paid all related taxes and permit fees, insured the fuel and the premises, bore the risk of loss, set all gasoline prices, and assumed all market risks from price fluctuations. PMG further owned the point-of-sale equipment for fuel transactions, paid for fuel-related equipment replacements, and controlled the branding, signage, lighting, and tank systems. Rehoboth received a fixed commission of five cents per gallon and paid approximately $10,000 per month in rent for the combined gas station and store complex, with annual increases. It also bore responsibility for maintenance, landscaping, cleaning, and utilities.
On July 30, 2024, the parties executed a three-year Commission Agent Agreement set to expire January 31, 2028. The Agreement, however, contained two provisions that ultimately animated this dispute. First, PMG inserted express language stating that the relationship was not a PMPA franchise and could not create any rights under federal or state franchise acts. Second, PMG drafted a termination-at-will clause under which PMG could terminate the Agreement “at any time and without cause” on thirty days’ notice. The Agreement also contained a secondary termination mechanism allowing either party to terminate after a five-day notice-and-cure period. Rehoboth signed the Agreement without consulting an attorney.
In spring 2025, a PMG district manager conducted routine site visits and identified concerns about overgrown vines, overflowing garbage, stale inventory, loose pump toppers, and insufficient landscaping. Although Rehoboth addressed some concerns, others persisted. On May 3, 2025, the PMG manager notified Rehoboth’s shareholder that if certain items were not corrected “today,” PMG would consider termination. PMG ultimately hired its own landscaper to address the outstanding issues. Two months later, on July 7, 2025, PMG issued a termination notice purporting to end the Agreement effective August 6, 2025, pursuant to the thirty-day-at-will clause.
Rehoboth responded by filing suit and seeking a preliminary injunction under the PMPA, asserting that the termination was unlawful because the relationship was, in substance, a petroleum franchise. Before the court held a hearing, the parties agreed to temporarily extend the Agreement to October 6, 2025. The court then held a multi-witness evidentiary hearing, during which both sides presented testimony and exhibits regarding the Agreement, Rehoboth’s investment, PMG’s control over fuel operations, and the condition of the site.
Decision
Judge Rufe denied the PMPA-based preliminary injunction but granted injunctive relief preventing PMG from evicting Rehoboth from the convenience store portion of the business. The Decision section is unusually comprehensive and provides a detailed framework for determining whether a business relationship falls within PMPA protections.
The court began by assessing the modified PMPA preliminary injunction standard, which requires a showing that the franchise was terminated, that serious questions exist going to the merits, and that the hardship to the franchisee outweighs the hardship to the franchisor. Judge Rufe found that Rehoboth clearly met the hardship and public-interest prongs—the court credited testimony that Rehoboth invested more than half a million dollars into acquiring and operating the business and that the loss of the station and convenience store would be devastating. Relying on Sixth Circuit authority, the court recognized that irreparable harm is commonly established when a franchisee’s business faces imminent loss.
However, the court concluded that Rehoboth failed to satisfy the threshold requirement of showing it was a PMPA franchisee. To conduct this analysis, Judge Rufe looked to the PMPA’s statutory definition of “franchise,” which requires a contract between a distributor and a retailer whereby the retailer purchases motor fuel for resale. Because Rehoboth conceded that it never purchased fuel—and because the Agreement explicitly preserved PMG’s ownership of all motor fuel—the court turned to the “constructive retailer” doctrine developed in Farm Stores v. Texaco, an Eleventh Circuit case that serves as the foundation for the broader inquiry into independence and entrepreneurial risk. Relying on Farm Stores, Hardwick v. Nu-Way Oil, and Johnson v. Mobil Oil, the court explained that constructive-retailer status applies only when an operator bears meaningful entrepreneurial responsibility and risk specifically with respect to the sale of gasoline.
Judge Rufe methodically compared the factors identified in Farm Stores—including whether the operator takes title to the fuel, pays taxes on the fuel, sets prices, assumes market risk, bears risk of inventory loss, or retains proceeds from the sale of gasoline. The court found that Rehoboth satisfied none of these criteria. PMG held title, set prices, paid taxes, insured the property, bore market risk, owned all equipment, and maintained control over all aspects of fuel operations. Rehoboth’s significant financial investment related to acquiring the convenience store and overall business, but the court emphasized that, under Farm Stores and Hardwick, entrepreneurial risk must relate specifically to motor fuel, not ancillary business components. The court noted that even operators who take on substantial risk in convenience-store operations are not PMPA franchisees unless they bear fuel-related entrepreneurial responsibilities.
Judge Rufe then examined decisions such as A&L Auto Repair v. Hudson Petroleum and Sigmon v. Widenhouse Service, which held that operators of dual businesses—such as gas stations combined with convenience stores, car washes, or mechanic shops—do not qualify as franchisees unless they have fuel-related independence. Even in situations where an operator briefly took title to fuel in the process of pumping, courts have denied constructive-retailer status unless the operator clearly bore the economic and market risks associated with the sale of fuel. The judge further cited DG Gas v. TA Franchise Systems for the proposition that even future plans to purchase motor fuel are insufficient when the operator has not yet assumed those risks.
Based on this precedent, Judge Rufe concluded that Rehoboth did not qualify as a PMPA franchisee. Because Rehoboth was neither a retail purchaser of motor fuel nor a constructive retailer, it could not invoke PMPA protections. As a result, Rehoboth could not obtain a preliminary injunction to prevent PMG from terminating its fuel operations under the Commission Agent Agreement.
Nevertheless, the court made clear that it did not endorse PMG’s contractual practices. Judge Rufe expressed concern about PMG’s attempt to contract around statutory protections by inserting waiver language disclaiming any PMPA rights. While the language did not alter the legal analysis, the court described PMG’s efforts as “contrived,” noting that the PMPA prohibits waivers of statutory rights. Because PMG’s conduct raised unresolved contractual questions—particularly regarding Rehoboth’s operation of the Circle K store—the court granted Rehoboth leave to amend its complaint to assert additional claims.
Finally, the court concluded that the relationship governing the convenience store was distinct from the fuel component of the business. The convenience store was leased, stocked, operated, and maintained independently by Rehoboth, and PMG did not control store inventory, pricing, sales, or profit allocation. Because the convenience-store tenancy depended on a different contractual structure, and because PMG did not show harm from temporarily preserving the status quo, the court granted a preliminary injunction prohibiting PMG from evicting or otherwise removing Rehoboth from the store while litigation proceeds.
Looking Forward
This decision may provide franchisors, dealers, multi-unit operators, and brand licensors with significant insights into drafting, risk allocation, and termination practices. The ruling underscores that contractual disclaimers designed to avoid franchise statutes may not carry weight when courts analyze operational realities. Even though the court ultimately held that Rehoboth was not a PMPA franchisee, the opinion reflects skepticism of overt contractual strategies aimed at suppressing statutory protections. Brands that operate in regulated sectors—including petroleum, hospitality, automotive, and restaurant licensing—may wish to ensure that their agreements clearly reflect the economic and operational structure of the relationship, without relying on disclaimers that courts may view critically.
The court’s reasoning also illustrates that entrepreneurial risk remains a key determinant in franchise-status cases. For franchisors, this offers an instructive parallel to disputes under the FTC Franchise Rule or state franchise acts: courts often focus on core revenue-generating components when determining whether a franchise relationship exists. Here, because PMG retained all economic risk and control over fuel, Rehoboth’s substantial investment in the larger business did not convert the fuel operation into a franchise. This serves as a reminder that brand owners should understand and clearly delineate who owns the core product, who bears inventory and market risks, and who controls pricing.
The decision also highlights how hybrid business models can result in split outcomes. Although Rehoboth did not qualify for PMPA protections for the fuel portion, the convenience store operation involved different rights, profit structures, and control mechanisms. Courts may separate distinct business units and grant injunctive relief for one aspect even when relief is not warranted for another. Franchisors overseeing mixed-use businesses—such as fuel-plus-retail, hotel-plus-restaurant, or carwash-plus-convenience-store models—may wish to structure agreements carefully so that each component reflects its proper regulatory category.
Finally, the decision signals that courts may scrutinize termination practices that appear abrupt or that threaten operators with significant investment-backed expectations. While the PMPA outcome here favored PMG, the court nevertheless signaled that Rehoboth could plead alternative claims related to the convenience store or PMG’s contractual practices. Brand owners should ensure that termination processes remain compliant with applicable statutes, clearly supported by contractual provisions, and sensitive to the magnitude of the operator’s investment. Although outcomes will vary by jurisdiction and statutory scheme, this decision offers a reminder that courts may consider both legal and equitable dimensions when termination disputes intersect with mixed business structures.
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 report and opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC 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.
