Chevron U.S.A. v. M & M Petroleum Services

Under 15 U.S.C. § 2805(d), a franchisee can open itself up to liability for attorney’s fees by filing a frivolous counterclaim.

M&M Petroleum (“M&M”) is an independent dealer that operated a Chevron brand station under franchising agreements. M&M paid Chevron the greater of either the fixed monthly rent or the percentage of its daily sales. After learning that M&M was altering its books to avoid payments, Chevron brought a declaratory judgment action against M&M under the Petroleum Marketing Practices Act (“PMPA”), seeking to terminate the franchise agreement. M&M then filed a counter claim, alleging that attempting to terminate the franchise did not comply with the PMPA. The district court found that termination was proper. Chevron then brought an action for attorney’s fees and costs. The district court found that M&M’s counterclaims were frivolous and thus Chevron could recover attorneys fees under 15 U.S.C. § 2805(d)(3). On appeal, M&M argued that the district court erred in ruling that the PMPA allowed Chevron to recover attorneys fees, because 15 U.S.C. § 2805(d) does not allow franchisors to recover fees unless the franchisee files a frivolous initial complaint. The Ninth Circuit held that M&M opened itself up to liability for attorney’s fees when it filed a frivolous counterclaim against Chevron. The Ninth Circuit further held that M&M’s counterclaim was, in fact, frivolous. AFFIRMED.