On the one hand, large distributors need to control a great deal of the franchise operations in order to assure the kind of representation for their products commensurate with the nationwide image they create. On the other hand, the franchisers invest their own money in their stations and strive to develop a loyal clientele. Together, the distributor and franchiser have given the driving public good service and the availability of products that are uniform in quality and sold under brand names that are easily identifiable.

Unfortunately, there has been a tendency to lift franchises without giving the businessman-investor adequate opportunity to demonstrate good faith, and without definite provisions for legal recourse after the franchise is canceled.

Since this problem is nationwide and affects a vital service to the American public, Congress needs to define the rights, both of process and redress, for these franchisers. Injunctive and civil action relief should be available for franchisers who believe they are being unfairly treated.

I am sure that after reviewing the facts, the distinguished members of this subcommitte will take the appropriate action necessary to resolve this problem. Thank you, Mr. Chairman.

Mr. SHARP. The committee will now hear from Mr. Charles Binsted, who is accompanied by several gentlemen, I believe. Identify the other gentlemen with you for the record and state your title with the National Congress of Petroleum Retailers.

STATEMENT OF CHARLES L. BINSTED, EXECUTIVE DIRECTOR, NATIONAL CONGRESS OF PETROLEUM RETAILERS, ACCOMPANIED BY CHARLES SHIPLEY, MEMBER, LEGISLATIVE COMMITTEE; JERRY COHEN, GENERAL COUNSEL; AND LEWIS HASKELL, PRESIDENT

Mr. BINSTED. I am Charles Binsted, executive director of the National Congress of Petroleum Retailers.

On my far right is Mr. Charles Shipley, executive director, Michigan Service Station Dealers' Association, and a member of our legislative committee.

On my immediate right is Mr. Jerry Cohen, general counsel, National Congress of Petroleum Retailers.

On my left is Mr. Lewis Haskell, president, National Congress of Petroleum Retailers.

The National Congress of Petroleum Retailers represents branded service station dealers in 47 States, Puerto Rico, and Washington, D.C.

On behalf of our membership I want to thank you, Mr. Chairman, and this committee for your cooperation in scheduling these hearings to consider legislation which is of vital importance to the service station dealer, a truly small businessman.

The National Congress of Petroleum Retailers has proposed and supported legislation similar to H.R. 13000 over the past several years. Extensive records before the Senate Commerce Committee, the House Commerce Committee and the House Small Business Com

mittee detail the urgent need for such legislation. In addition, many States have recognized the need for franchise legislation in the petroleum industry although in most cases the legislation passed has been inadequate.

The abuses continue, and at this point in time we believe it makes no sense to present the horror stories of individual dealers in their unequal struggles with their suppliers unless requested to do so by this subcommittee.

The Senate has already passed a Dealer-Day-in-Court bill and the bill before this committee represents the input of all parties concerned. The need has been demonstrated beyond all doubt. The remaining question is the appropriate language for a bill that will solve the basic problems and be fair and equitable to all concerned. Therefore, we will direct our remarks only to the bill before this committee. Simply, it provides for a more balanced relationship between the dealer and the supplier. The courts have already recog⚫nized that the relationship between dealer and supplier in the petroleum industry transcends the usual relationship because in this industry, the supplier generally is the landlord as well. The dealer then is in the position of not only satisfying his obligations as a tennant but has the added obligation of satisfying the supplier's marketing objectives. To do this he must often act in a manner which is more beneficial to his supplier-landlord than to his own business interests. If he does not, he faces the real possibility that his lease will not be renewed.

The short-term leases of adhesion are, of course, inherently coercive; a mailed fist in a velvet glove; instruments which for all practical purposes forbid the dealer from exercising independent judgment. Independent judgment is seldom possible when tenure depends upon the whim of the company employee responsible for sales and whose opinion also controls, to a large degree, renewal of a lease.

You will hear from some suppliers that the instances of nonrenewal are not great. However, it is the threat of nonrenewal or termination which destroys the capability to act in a free and independent manner. A gun at the head does not have to be fired to achieve the desired results.

Rather than providing for additional government interference, this bill would simply give the service station dealer his day in court through his own private initiative. He will have the opportunity to utilize the courts as a referee in his struggle with an unequal partner.

We neither ask for nor do we want a guarantee of success. We neither ask for nor do we want a guarantee of life tenure in the business. Rather, we simply ask for and want an opportunity to succeed based on our own ability, not subject to the unilateral selfinterest and sometimes arbitrary judgment of our suppliers.

Present laws and remedies are totally inadequate to deal with the problems the dealer faces in his relationship to his supplier. Success in the courts has been rare simply because present laws are not directed to the peculiar kind of relationship in which the dealer finds himself-a tenant-purchaser for a distributor-landlord. After years of litigation the record is now clear that insofar as the vast majority of dealers are concerned, this kind of legislation is necessary. Fur

ther, the Justice Department has been totally inactive and the Federal Trade Commission has stated openly it has neither the budget nor the desire to handle individual cases. This legislation then is the dealer's last chance.

Turning to the bill, it is, we believe, the very minimum necessary to achieve some equity in the relationship between dealer and supplier. In addition, we believe certain changes are necessary.

In title I we suggest the following:

In section 102 (2) (A) the words "of material significance" should be stricken and the word "essential" should be substituted.

Words such as "of material significance" and/or "materially related" are words which have vague and indefinite meaning in the law. I am advised that the use of "material" and "relevant" have become words of art in relation to evidentiary matters but have been accorded no precise meanings in the area of substantive law.

The word "essential," on the other hand, has been defined by the courts and is a word of precision when related to the purposes of this title; namely, the business relationship existing between a dealer and his supplier.

Black's Law Dictionary gives as the legal definition for essential: "indispensably necessary" and "important in the highest degree. These are precisely the concepts with which we are attempting to deal in determining the basis for terminating or non-renewing a dealer. The term has been interpreted in such cases as Solter v. MacMillan, 147 M.D. 580, 128 (A) 356, 358; City of Kalamazoo v. Balkema, 252 Mich. 308, 233 N.W. 325, 326.

In addition, we believe the following language should be added to section 202 (2) (A): "The question of whether the terms of a franchise are essential and reasonable shall be a question of fact for the court or jury, any language in such franchise agreements to the contrary notwithstanding." We believe this is both an essential and reasonable addition in view of the reaction of several major oil companies to such language in State statutes. For instance, we have submitted to this committee both a Shell lease and marketing agreement and an Exxon lease and marketing agreement. In both cases the company requires the dealer to agree to the statement that all terms of the lease or marketing agreement are essential and reasonable.

To allow the companies to escape liability by forcing dealers to assent to such a statement in a contract of adhesion would undermine the purpose and intent of dealer-day-in-court legislation and should not be tolertaed. This simple amendment, therefore, would put a stop to the attempts of major petroleum companies to circumvent the clear intent and purpose of such legislation.

Further, in regard to title I, we suggest a new section 109 that would permit the franchisee to sell his business and provide that the franchisor will not unreasonably withhold his consent to such sale. Certainly any businessman who has spent years building a successful business should not be denied the right to sell that business if, in fact, it has a market value to a buyer capable of meeting the reqiurements of the franchise agreement.

Several States have already recognized that business independence requires the alientation of one's business if one so desires. We feel

this to be an essential business freedom which should be available to any businessman as a matter of public policy regardless of any specific language in his franchise agreement to the contrary.

In this regard we are disturbed with section 104 which, in effect, states that the bill would not be applicable to the initial term of the franchise. In most cases this will be a year.

What this requirement means practically is that a dealer would in fact find it difficult to sell a station to anyone who was not or who had not been a dealer, including highly qualified individuals who may have been managers for dealers. The reason is that a potential purchaser paying out a substanial sum for the business would be subject to the whim of the company the first year of his relationships. If the company for any reason decided not to keep him, he would in fact lose his investment. In our opinion this is simply a backdoor approach to restricting the ability of a dealer to freely sell his business to qualified purchasers and would inhibit the entry of many qualified purchasers.

In regard to title II, a moratorium is absolutely essential to the realization of a free and competitive gasoline marketing system. With the lifting of the controls by the FEA imminent, it is now apparent the floodgates will open and suppliers and refiners will pour into branded and secondary brand retail operations, not unlike the opening of the Oklahoma Territory to land grabbers.

Examples which are already taking place are Mobil's moves in North Carolina and the Southwest; Gulf's marketing strategy to achieve 20 percent company operations in branded and secondary brands; Shell's conversion to company operations in the Cleveland area; Citgo's conversion operations; and Marathon's conversion of some 400 stations to secondary brands. And these are only some of the more obvious examples which are harbingers of things to come.

No dealer fears competition at the retail level when he is competing with his equals. However, it is impossible to remain in a market with a competitor who is also your supplier, except on his own terms. The last 18 months of gasoline surplus have pointed up this problem.

Branded service station dealers have been locked into their branded supplier and cannot shop for a less expensive product. The result is that the dealer tank wagon price has remained high. Indeed, branded dealers have found that price to be high or higher than that at which their own suppliers and other competitors are selling the same gasoline at retail.

However, as strongly as we favor moratorium, we are concerned with the rather complex provisions of the present title II. It places administrative burdens on the FEA and the FTC which are unnecessary and can only lead to delay both in promulgation of regulations and to delay and confusion in their enforcement.

More important, by allowing a supplier to continue and expand its program of station ownership until it achieves the 1972 national average, the bill would invite many of the majors to increase significantly their retail market shares and outlets. Instead of a moratorium, the present language is an open invitation to many majors to do precisely what the moratorium is designed to stop. Therefore,

we suggest instead such clear and concise language as: "Upon_enactment of this Act it shall be unlawful for any distributor or refiner to operate either directly or indirectly any retail establishment which it did not operate prior to January 1, 1976."

Finally, we had hoped that this committee would be able to consider legislation to deal with the immediate problem of predatory pricing and disruptive marketing practices which, as we have stated, finds dealers paying higher wholesale prices than the retail prices of their own competing suppliers. Certainly a moratorium will stop an acceleration of this problem to some extent. However, it will not alleviate the problem which now exists.

We have not suggested that our suppliers increase the retail price at their own outlet. Rather, we have suggested that they reduce the wholesale price to their captive dealers so that each enters the retail market with the same basic cost of product. We also insist that upstream profits of distributors must not be used to subsidize their own retail operations.

Predatory pricing has caused the attrition rate of dealers to mount rapidly while at the same time the FEA has done nothing to carry out its responsibility under section 4(b) of EPPA to provide for equitable pricing. Certainly, the FTC study called for in this bill is a step in the direction of correcting that problem but two years may be too late.

On the whole, however, with the few minor changes we have suggested we believe that H.R. 13000 is long overdue and well drafted legislation that will improve the quality of competition in the retail sale of gasoline. What this means ultimately is that the consumer will benefit as well as the dealer. We commend its early enactment.

I might add, Mr. Chairman, that while we didn't have a written comment on title III we certainly support title III and we hope that it will result in some clear understanding of octane posting among all of those concerned, and I am sure that is what it is designed to do and to provide the necessary information to the consumer.

Mr. DINGELL. Mr. Binsted, the subcommittee thanks you for your very, very helpful testimony. We are delighted to see your associates at the witness table with you. Mr. Shipley is an old friend of mine and Mr. Cohen has been a dear friend of mine for more years than either he or I would like to count.

Gentlemen, we thank you for a most helpful and informative

statement.

The Chair is going to recognize the Members for questions. The gentleman from Indiana, Mr. Sharp.

Mr. SHARP. Thank you, Mr. Chairman.

I have no questions now. I think we are going to run into some votes here on the floor of the House in a few minutes. I will withhold so we will, I hope, get all our testimony in.

Mr. DINGELL. The Chair recognizes the gentleman from Connecticut, Mr. Moffett.

Mr. MOFFETT. Thank you, Mr. Chairman.

I would like to begin by asking if some of my perceptions are correct on this particular subject. We have a franchise law in Connecticut, as you may know.