BP Products North America Inc. v. Grand Petroleum, Inc.

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 BP PRODUCTS NORTH AMERICA INC., Case No. 4:20-cv-0901-YGR

9 Plaintiff, ORDER GRANTING IN PART AND DENYING 10 v. IN PART CROSS MOTIONS FOR SUMMARY JUDGMENT 11 GRAND PETROLEUM, INC., et al., 12 Defendants, Re: Dkt. Nos. 82, 95 _________________________ 13 14 AND RELATED CROSS CLAIMS

15 Plaintiff BP Products North America Inc. (“BP”) brings this action against corporate 16 defendant Grand Petroleum, Inc. (“Grand”) and individual defendants Amin Salkhi, Banafsheh S. 17 Salkhi, Ali Salkhi, Souri Salkhi, and Ajang Salkhi. BP alleges four counts: (1) breach of contract 18 concerning violations of deed restrictions; (2) breach of contract for failure to pay amounts due; 19 (3) breach of contract concerning personal guarantees; and (4) permanent injunctive relief. 20 Collectively defendants assert four counter claims: (1) a declaration of Grand’s rights regarding 21 unlawful material modification of franchise under the California Franchise Investment Law, Cal. 22 Corp. Code § 31000 et seq. (“CFIL”); (2) injunctive relief and damages caused by unilateral 23 enforcement of an unlawful material modifications of Grand’s mini market agreements; (3) 24 declaratory relief that BP’s termination of the franchise agreements was a wrongful termination 25 that is unenforceable and authorizes termination of the use restrictions; and (4) injunctive relief 26 and damages for wrongful termination in violation of the Petroleum Marketing Practices Act, 15 27 U.S.C.§ 2801 et seq. (“PMPA”). 1 Before the Court are cross motions for summary judgment. Having carefully considered 2 the papers and exhibits submitted, the pleadings in this action, and upon further consideration after 3 oral argument which occurred on October 12, 2021, the Court ORDERS as follows and as is 4 explained more fully below: 5 1. BP’s motion for summary judgment on its breach of contract claims related to a failure to 6 pay amounts due and the personal guarantees is DENIED. BP’s motion for summary 7 judgment on counts 1 and 2 of Grand’s counter claim is DENIED. Grand’s cross-motion 8 for summary judgment related to these claims is DENIED. 9 2. BP’s motion for summary judgment on its breach of contract claim related to the use 10 restrictions is GRANTED IN PART on the issue of liability. The Court RESERVES on the 11 issue of remedies. Defendants’ cross-motion on these issues is DENIED. 12 I. BACKGROUND 13 This action arises out of the termination of franchise agreements at two gas stations located 14 in Los Altos and Oakland, California. BP and Grand entered into two essentially identical set of 15 contracts for each of the two stations: an ampm Mini Market Agreement and a Contract Dealer 16 Gasoline Agreement (“Gasoline Agreement”). (Dkt. Nos. 85-4, 85-5, 85-6, 85-7.)1 17 Around 2012 BP announced an opt-in “Luminate” program for franchisees at various 18 franchise locations. While the substance of the Luminate program is disputed, it is not disputed 19 that the Luminate program was initially a voluntary program and that the relevant agreement 20 controlling the program is the Gasoline Agreement. At a subsequent point, BP made the program 21 mandatory and on July 31, 2018, informed Grand that effective March 31, 2019, Grand had to 22 comply with the Luminate program requirements. (Dkt. Nos. 91-12, 91-13.) 23 24

25 1 Other agreements are relevant. BP’s predecessor in interested conveyed the Los Altos property to defendants Amin Salkhi and Banafsheh Salkhi in August 2009 and the Oakland 26 property was conveyed to defendants Amin Salkhi, Banafsheh Salkhi, Souri Salkhi, Ali Salkhi, Arash Salkhi, Nooshin Salkhi, and Ajang Salkhi in October 2009. (Dkt. Nos. 85-2, 85-3.) 27 Defendant Amin Salkhi signed an Unconditional Guaranty guaranteeing certain of Grand’s 1 In or around 2016 or 2017, BP announced another program called “MOJO A.” Again, the 2 substance of the MOJO A program is disputed.2 Initially, the MOJO A program was voluntary, 3 and then converted to a mandatory program. On January 26, 2018, BP informed Grand that 4 effective December 31, 2018, Grand had to comply with the MOJO A requirements. (Dkt. Nos. 5 91-8, 91-9.) The parties agree that the relevant agreement for the MOJO A program is the Mini 6 Market Agreement. 7 By letters dated October 3, 2019, BP gave notice of the impending terminations with a 8 period to cure and ultimately terminated Grand’s Mini Market and Gasoline Agreements for both 9 stations effective January 15, 2020. (BP SOF #11-13.) Thereafter, both stations have been 10 branded “Grand Gasoline” and it is undisputed that Grand has operated a convenience store and 11 gas station without BP products. (BP SOF #14-17.) 12 II. LEGAL STANDARD 13 The parties do not dispute the summary judgment standard which is well-known and well- 14 established, including the inferences to be given and the burdens. Fed. R. Civ. P. 56; Celotex 15 Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 16 1288-89 (9th Cir. 1987). 17 III. ANALYSIS 18 A. Termination Under The PMPA 19 This action centers on BP’s termination of the franchise agreements based upon Grand’s 20 failure to comply with both the Luminate and MOJO A programs. 21 “The PMPA generally prohibits early termination of a franchise agreement ‘except as 22 provided in subsection(b) of 15 U.S.C. § 2802.’” Chevron U.S.A. v. El-Khoury, 285 F.3d 1159, 23 2 The disputes concerning the Luminate and MOJO A program requirements were 24 discussed on the record at the October 12, 2021 hearing. The Court noted that many documents were missing that would permit it to grant summary judgment as a matter of law, such as the 25 “Manual.”

26 The Court instructed the parties to submit a chart outlining specific program requirements with pincites to the record showing compliance or non-compliance. In light of this Order, the 27 parties are not required to submit a chart. However, the Court suggests to the parties that it would 1 1162 (9th Cir. 2002). “The burden of proving termination is upon the franchisee. 15 U.S.C. § 2 2805(c). The franchisor then ‘bear[s] the burden of going forward with evidence to establish as an 3 affirmative defense that such termination . . . was permitted.’” Little Oil Co. v. Atl. Richfield Co., 4 852 F.2d 441, 444 (9th Cir. 1988). 5 The parties do not dispute which provisions BP invoked to justify its termination, namely 6 15 U.S.C. §§ 2802(b)(2)(A) and (B). Section 2802(b)(2)(A) provides that a franchisor may 7 terminate a franchise upon “failure by the franchisee to comply with any provision of the 8 franchise, which provision is both reasonable and of material significance to the franchise 9 relationship.” 15 U.S.C. § 2802(b)(2)(A) (emphasis supplied).3 Section 2802(b)(2)(B) provides 10 that a franchisor may terminate a franchise upon a “failure by the franchisee to exert good faith 11 efforts to carry out the provisions of the franchise.” 15 U.S.C. § 2802(b)(2)(B) (emphasis 12 supplied). Because each statutory provision invoked includes the term “failure,” the purported 13 breach must not be technical or unimportant to the franchise agreement. See Chevron U.S.A., 285 14 F.3d at 1163 (citation omitted). 15 To support the statutory provisions invoked, BP identified eight violations of each of the 16 two sets of franchise agreements in its October 3, 2019 Notice of Termination and Demand For 17 Payment, namely: 18 1. Paragraph 14.1 of the Contract Dealer Gasoline Agreement 2. Paragraph 17.1(n) of the Contract Dealer Gasoline Agreement 19 3. Paragraph 17.1(r) of the Contract Dealer Gasoline Agreement 20 4. Paragraph 3.01 of the ampm Mini Market Agreement 5. Paragraph 6.02 of the ampm Mini Market Agreement 21 6. Paragraph 10.02 of the ampm Mini Market Agreement 7. Paragraph 18.03(a) and (b)(2) of the ampm Mini Market Agreement; and 22 8. Paragraph 18.05 of the ampm Mini Market Agreement 23 (Dkt. Nos. 91-30 at 5, 91-31 at 5.) BP then broadly identifies Grand’s “failure” as not 24 “compl[ying] with the Luminate standards. . . . [and] not updat[ing] [the stations] to the Luminate 25

26 3 “A [contract] provision is reasonable and material if it ‘is both conscionable—that is, not absurd, ridiculous, extreme, or excessive—and of real importance or great consequence to the 27 franchise relationship.’” Texaco Red. & Mktg. Inc. v. Davis, 835 F. Supp. 1223, 1228 (D. Or. 1 Marks and Graphics.” (Id.) The Luminate program would fall within items 1 through 3. Next, 2 BP also advised Grand that it was not “comply[ing] with the MOJO A program requirement[s].” 3 (Id.) The MOJO A program would fall within the context of items 4 through 8. Thus, the letters 4 indicate that both programs served as bases for termination. 5 Notwithstanding the foregoing, there is no dispute that Grand did largely comply with the 6 MOJO A program. The only potential areas of non-compliance concerned the operation of fly 7 fans at both facilities as well as cooler graphics at the Oakland station. (Dkt. No. 106 at 55-57, 8 70.) Evidence in the record shows that both facilities had fly fans as contemplated by the MOJO 9 A program and that Grand purchased the cooler graphics from BP’s preferred vendor, however, 10 those graphics did not conform to the MOJO A program requirements. (Id.; Salkhi Depo. 126:11- 11 127:8; Lemons Depo. 122:16-124:8.) 12 As to the Luminate program, it is also undisputed that Grand had implemented LED 13 lighting that complied with the Luminate program and that Grand made efforts to secure permits 14 for the Los Altos station. (Salkhi Depo 58:4-59:5; Lemons Depo. 150:21-151:5; Farhangdoost 15 Depo. 106:4-107:8; BP SOF #88.) That said they were obtained on the last day of the deadline 16 and nothing was done with respect to the Oakland station. 17 Viewing the evidence in the light most favorable to the non-moving party, a genuine 18 dispute of material fact exists as to whether Grand’s alleged breaches were material and not in 19 good faith. First, despite its termination letters, BP now concedes a measure of compliance on the 20 identified issues. Second, the record provided to the Court does not demonstrate the amount of 21 “lumination” that was installed so it is impossible to determine the level of compliance. Third, a 22 dispute remains whether the general guidelines that were provided by BP to Grand were 23 reasonably sufficient to permit performance and completion of the Luminate changes at the two 24 stations.4 Thus, a dispute remains as to whether that which remained, or the time to accomplish 25 the same, was material. Against this backdrop, many of the identified requirements do not appear 26 to be material. Perhaps collectively they are, but without a more complete record, the totality of 27 1 the circumstances merely creates a genuine dispute of material fact. 2 These are questions of fact for trial. See Chevron U.S.A., 285 F.3d at 1164 (recognizing 3 “[w]hether a violation is a ‘failure’ that is serious enough to warrant termination can be a question 4 of fact for trial”); see also Khorenian v. Union Oil Col., 761 F.2d 533, 536 (9th Cir. 1985) (noting 5 “that all of the relevant factors should be explored fully at trial before any final determination is 6 made as to whether there was a contractual violation that undermined the franchise relationship”). 7 The Court cannot as a matter of law hold that BP’s termination was lawful under the PMPA under 8 either statutory provisions. Accordingly, BP’s motion seeking summary judgment on counts two 9 and three, as well as its request for summary judgment on Grand’s first and second counterclaims, 10 are DENIED. Defendants’ related cross motion is DENIED. 11 B. Material Modification Under The CFIL 12 Defendants’ motion to find that the Luminate and MOJO A programs create a material 13 modification of the franchise agreements and thereby violate California law is denied as 14 premature. 15 Relevant to the arguments in the cross-motions, the CFIL requires that a franchisor 16 disclose in writing sixteen categories of specific information to a prospective franchisee, referred 17 to as an Information Statement or Information Disclosure. The section requires in pertinent part: 18 *** (G) A statement describing any payments or fees other than franchise fees that the 19 franchisee or subfranchisor is required to pay to the franchisor, including royalties 20 and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties. 21 *** 22 (I) A statement as to whether, by the terms of the franchise agreement or by other 23 device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his or her designee services, supplies, products, fixtures, or other goods 24 relating to the establishment or operation of the franchise business, together with a description thereof. 25 26 Cal. Corp. Code § 31101(c)(1)(G), (I). “In the case of a material modification of an existing 27 franchise, the franchisor discloses in writing to each franchisee information concerning the 1 information as may be required by rule or order of the commissioner.” Cal. Corp. Code § 2 31101(c)(2). 3 The Court finds that a dispute remains as to whether the programs constituted a “material 4 modification” of the existing franchise. Material modification is not defined in the CFIL. 5 However, as one indication of its bounds, the CFIL exempts from liability modifications that are 6 “offered on a voluntary basis and does not substantially and adversely impact the franchisee’s 7 rights, benefits, privileges, duties, obligations, or responsibilities under the franchise agreement.” 8 Cal. Corp. Code § 31125(d) (emphasis supplied). By extension, modifications which do 9 substantially and adversely impact the franchisee may be modifications. 10 Here, the “BP West Coast Products LLC Information Disclosure Pursuant to California 11 Code Section 31101,” states:

12 Franchisee is not required by agreement or by other device or practices to 13 purchase from Franchisor or a designee of Franchisor any services, supplies, products, fixtures or other goods relating to establishment or operation of the 14 franchise business, except for ARCO branded motor vehicle fuels and other ARCO branded petroleum products in accordance with the attached agreements. 15 From time to time, Franchisor may offer Franchisee other services, supplies, products, fixtures or other goods relating to the operation of the franchise business, 16 including, but not limited to, point-of-sale equipment and advertising material, 17 which Franchisee may, but is not, required to purchase from BPWCP or a designee of BPWCP. However, Franchisee may be required to have certain 18 equipment that meets certain specifications, including POS and method of payment equipment, telecommunications equipment, video surveillance equipment, as set 19 forth in the attached agreements. Such equipment may only be available from the manufacturer or may be available to lease from BPWCP. 20 21 (Dkt. No. 91 ¶ 9; 91-1 ¶ 9) (emphasis supplied). 22 The parties dispute the meaning of the disclosure. Defendants focus on the bolded 23 language to argue that the programs are prohibited while BP focuses on the underlined language 24 for the contrary proposition. Given the dispute, lack of legal briefing on contract interpretation, 25 and the scant record presented, the Court cannot find as a matter of law that that the programs 26 were either permitted by the franchise agreement or unlawful material modifications. 27 1 Accordingly, the parties’ motions concerning the CFIL claims and defenses5 are DENIED. 2 The Court is not persuaded by BP’s argument that the material modification requirements 3 of the CFIL are preempted by the PMPA. The Ninth Circuit has held that state law concerning 4 fraud in the formation of contracts is not preempted because it does “not implicate the grounds for, 5 procedure for or notification requirements of termination and nonrenewal under the [PMPA].” 6 Pride v. Exxon Corp., 911 F.2d 251, 257-58 (9th Cir. 1990); see also Esso Std. Oil Co. v. Dep’t of 7 Consumer Affairs, 793 F.2d 431 (1st Cir. 1986) (regulating the substance of the contract did not 8 conflict with termination or nonrenewal). Here, the material modification provisions strike at 9 what terms were bargained for and do not concern grounds or procedures for termination. BP 10 offers no textual analysis to the contrary. The material modification provisions are not preempted. 11 C. Enforcement of the Use Restrictions 12 BP’s motion seeking summary judgment on count one of its first amended complaint is 13 GRANTED IN PART. All parties concede liability under the use restrictions. In light of the disputes 14 of fact concerning the lawfulness of the termination, the Court RESERVES issues concerning 15 equitable remedies, including the injunctive relief sought in count 4. Defendants’ cross motion 16 concerning these claims is DENIED.6 17 18 19 5 In a footnote, BP suggests that Grand’s material modification claims are time barred to 20 the extent they are affirmative claims as opposed to defenses. This Court has already held that the statute of limitations is not a bar to an illegality defense. With respect to whether claims are time 21 barred under California Corporate Code § 31303, the Court cannot decide the issue as a matter of law on this record. There are significant factual disputes concerning the scope of the programs at 22 issue and whether the specifications were known.

23 6 The individual defendant property owners do not have standing to challenge the lawfulness of the terminations and material modifications. These individuals are not parties to the 24 franchise agreements and concede that there is no privity. See, e.g., Kahn v. State Oil. Co., 907 F. Supp. 1202, 1206 (N.D. Ill. 1995), rev’d in part on other grounds by 93 F.3d 1358 (7th Cir. 1996) 25 (holding that a party lacked standing to challenge an unlawful termination where it was not a party to a contract within the scope of the PMPA); Chinivasagam v. Equilon Enters., No. C 09-03136 26 JW, 2010 U.S. Dist. LEXIS 164803, at *11 (N.D. Cal. July 13, 2010) (recognizing that cases “show that an individual and a corporation in which they have an ownership interest are treated as 27 separate and distinct entities under the PMPA”); Cal. Corp. Code §§ 31300, 31006 (providing 1 IV. CONCLUSION 2 Having denied summary judgment on most claims, the Court will reset the trial date based 3 on the discussion at the hearing by separate order. 4 This terminates Docket Nos. 82 and 95. 5 IT Is SO ORDERED. 6 Dated: October 14, 2021 7 Capen eg tfflees, YVONNE GONZALEZ ROGERS 8 UNITED STATES DISTRICT JUDGE 9 10 1]

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