September 19, 2025|Publications
July 31, 2025 | U.S. District Court for the Northern District of California | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Maxine Chesney of the Northern District of California granted in part and denied in part Peninsula Petroleum LLC’s motion to dismiss a Petroleum Marketing Practices Act (“PMPA”) claim brought by Edwards and Anderson, Inc. (“E&A”). E&A alleged that Peninsula effectively terminated thefranchise relationship by assigning certain elements of it to a third party, and later attempted to seize control of its stations through bad faith nonrenewals. Peninsula countered that its transfers were permissible and preserved the franchise relationship, and that its nonrenewal notices were made in good faith and in the normal course of business. The court held that the assignment of a trademark agreement and a supply contract to a third party did not constitute a termination or nonrenewal of the franchise. However the could allowed thePMPA claims regarding the two nonrenewal notices issued by Penninsula could proceed.
Relevant Background
E&A operated three Shell-branded gasoline stations in Salinas, Seaside, and Freedom, California under a franchise arrangement with Peninsula. The franchise relationship consisted of three core elements: (i) a contract for the supply of Shell-branded gasoline, (ii) a trademark license to use the Shell name, and (iii) leases to occupy the service stations.
In March 2024, Peninsula assigned the supply and trademark agreements to a third party, H&S, but retained control of the leases. E&A alleged that this partial assignment amounted to a termination or nonrenewal of the franchise under the PMPA because Peninsula provided no statutory notice or explanation. Peninsula, maintained that the arrangement preserved the franchise relationship because E&A continued to operate its stations under the Shell brand and with Shell-branded fuel.
Nearly a year later, in February 2025, Peninsula issued formal notices of nonrenewal for the Salinas and Seaside stations. The notices explained that the parties’ “good faith efforts to renew” the franchise relationship had failed and cited E&A’s refusal to agree to proposed new lease terms, which Peninsula described as offered “in good faith and in the normal course of business.” E&A alleged that Peninsula’s true motive was to take over the stations for its own use. As for the Freedom station, E&Aspeculated that based on its other non renewal notices, Penninsula would later non-renew the Freedom station as well ((although that lease remained and remains in effect until December 2025).
The litigation thus required the court to decide two central issues: whether Peninsula’s March 2024 partial assignment destroyed the franchise relationship, and whether the February 2025 nonrenewal notices complied with the PMPA’s requirements.
Decision
Judge Chesney first addressed the March 2024 assignment. The court explained that under the PMPA, a termination occurs only when a franchise is “put to an end or annulled or destroyed.” Mac’s Shell Serv., Inc. v. Shell Oil Prods. Co., 559 U.S. 175, 184 (2010). If the franchisee “continues operating a franchise—occupying the same premises, receiving the same fuel, and using the same trademark—[it] has not had the franchise terminated.” Id. Relying on Fresher v. Shell Oil Co., 846 F.2d 45, 46–47 (9th Cir. 1988), the court held that Peninsula’s assignment of the supply and trademark rights to H&S did not constitute termination or nonrenewal because E&A continued to occupy the stations, sell Shell-branded fuel, and use the Shell trademark. The court dismissed this portion of the claim with prejudice.
The court then considered the February 2025 nonrenewal notices for the Salinas and Seaside stations. The PMPA permits nonrenewal when a franchisee refuses to accept changes “proposed in good faith and in the normal course of business” that are not designed to convert the station to direct franchisor operation. 15 U.S.C. § 2802(b)(3)(A); Mac’s Shell Serv., 559 U.S. at 192. Peninsula argued that its proposed lease terms fit this statutory exception. The court held, however, that dismissal was not appropriate at the pleading stage. The burden of proof rests on the franchisor to establish an affirmative defense of good faith and normal business practice. See Svela v. Union Oil Co., 807 F.2d 1494, 1497 (9th Cir. 1987). The court further held that dismissal of a PMPA non renewal claim at the pleading stage “is proper only if the defendant shows some obvious bar to securing relief on the face of the complaint”, citing ASARCO, LLC v. Union Pac. R.R. Co., 765 F.3d 999, 1004 (9th Cir. 2014)The court found that nothing on the face of the complaint demonstrated Peninsula’s proposals met this standard, and E&A had alleged facts to the contrary, including that Peninsula intended to assume control of the premises for its own benefit. Accordingly, the court denied Peninsula’s motion to dismiss as to the Salinas and Seaside stations.
Finally, the court turned to the Freedom station. Because the lease for that location does not expire until December 2025, the court found the claim unripe. A PMPA nonrenewal action requires an actual failure to renew after expiration. Mac’s Shell Serv., 559 U.S. at 191. Since the lease was still in effect, the court dismissed this portion of the claim without prejudice.
Looking Forward
This case demonstrates how the PMPA sets a federal baseline while leaving room for courts to probe the franchisor’s motives and practices. Three key lessons emerge for franchisors:
- Grounds and Documentation: Any termination or nonrenewal must rest on a statutory basis under the PMPA, and franchisors must be able to prove that basis with contemporaneous documentation. Without a clear record of the grounds, courts may be reluctant to uphold the decision.
- Good Faith and Ordinary Course of Business: Courts will look closely at whether proposed lease or contract changes were advanced in good faith and consistent with the franchisor’s usual practices. Allegations of pretext—particularly suggestions that a franchisor sought to take over the station for itself—can complicate the defense of a nonrenewal.
- State-Specific Overlay: While the PMPA provides uniform national standards, state contract and landlord-tenant laws often affect how those standards apply. Franchisors must consider both federal and state law when structuring renewals or drafting notices.
The Edwards decision also highlights a practical reality: franchisees often respond to termination or nonrenewal notices by seeking preliminary injunctions to preserve the status quo. Because courts may grant such relief if they see even a plausible PMPA violation, a franchisor’s business plans can be tied up for months or longer. The surest way to minimize that risk is to build a paper trail, follow the statute’s notice requirements to the letter, and apply renewal and termination practices consistently across the system.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. Matthew Covington is the Managing Shareholder of Buchalter’s San Francisco Office, and a member of the firm’s Litigation and Energy and Natural Resources groups. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com and Matt at mcovington@buchalter.com.
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