Rethinking the U.S. Supreme Court's Abandonment Requirement in Mac's Shell Service, Inc. V. Shell Oil Products

Assume a franchisor takes destructive economic actions toward his franchisee in order to force the latter to give up the franchise. The franchisee, in turn, sues the franchisor for constructive termination of the franchise contract. Can the franchisee file such a suit before actually abandoning the franchise unit? This central question was recently discussed by the U.S. Supreme Court in Mac's Shell Services Inc. v. Shell Oil Products. The Supreme Court ruled that a franchisee must abandon her franchise before suing for constructive termination of the franchise contract. This ruling was based on one central factual assumption: that franchisee abandonment costs – namely the costs and risks borne by a franchisee in exiting a franchise relationship – are not uniquely high. This article will argue that such an assumption is problematic. Normally, franchisee abandonment costs are in fact exceptionally high. They often include loss of significant relationship-specific investments, lack of available attractive alternatives, significant switching costs, and severe legal uncertainty. Since abandonment costs are typically highly burdensome, many franchisees may be unlikely to abandon their franchise prior to suit, as required by the Supreme Court, rendering such a requirement unreasonable