Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Cal.: Gasoline station franchisor’s termination of Right of First Refusal it provided to franchisee was “appropriate”, (Aug 1, 2013)

By Peter Reap, J.D., LL.M.

Gasoline station franchisor Equilon Enterprises, LLC, was entitled to a declaration that its termination of a Right of First Refusal (ROFR) it provided to its franchisee Youstine, Inc., was proper, the federal district court in Oakland has decided (BSD, Inc. v. Equilon Enterprises, LLC, July 26, 2013, Armstrong, S.). In addition, the franchisor was entitled to summary judgment on the franchisee’s three claims, all of which were predicated on the contention that Equilon violated a California statute by failing to provide a “bona fide” ROFR.

Termination of the ROFR

Equilon contended that it properly terminated Youstine's ROFR as a matter of law because "it issued Youstine a PMPA-compliant Notice of Termination of the Franchise Agreements." Article 4(a) of the ROFR states, in relevant part:

(a) Equilon may terminate this Offer if, prior to the 'Closing' (as defined in the Third Party Offer): (1) Equilon has issued a notice of termination of the Facility Agreements in accordance with the Petroleum Marketing Practices Act, 15 U.S.C. Section 2801 et seq. ('PMPA'); or (2) if, on or before the Closing, [Youstine] has not satisfied all debts owed to Equilon under this or any other agreement entered into between the parties. . .

The term "Closing" is defined to mean "(a) the execution and delivery to 'Title Company' . . . of all documents required by this agreement and Title Company, (b) the delivery to Title Company by Purchaser of the balance of all funds due herein by cashier's check, certified check or wired funds ('Good Funds'), and (c) the closing of escrow by the Title Company in connection with the transaction contemplated by this agreement."

Equilon properly terminated Youstine's ROFR, the court ruled. Following Youstine's acceptance of the ROFR under protest, Equilon terminated the Franchise Agreements prior to "Closing" due to Youstine's continued failure to timely pay Equilon all sums to which it is legally entitled under the agreements. On March 11, 2013, the Court found that Equilon's April 28, 2011 Notice of Termination and June 9, 2011 Supplemental Notice of Termination complied with § 2802 and § 2804 of the PMPA as a matter of law.

Youstine argued that Equilon's termination of its franchise did not comply with the PMPA's 120/60 day rule. In addition, Youstine argued that Equilon waived its right to terminate the ROFR, or is equitably estopped from rescinding the ROFR based on Equilon's acts and omissions.

PMPA’s 120/60 day rule. The court previously determined that Equilon's termination of Youstine's franchise complied with § 2802 and § 2804 of the PMPA as a matter of law, including the PMPA's 120-day and 60-day rules concerning notice. Specifically, the court found that the Notice of Termination complied with the PMPA's 120-day rule because "[i]t was sent to Youstine within 120 days from when Equilon acquired knowledge of an occurrence that justifies termination, i.e., Equilon's failure to pay all sums to which Equilon is entitled, including rent payments for July 2010 through April 2011."

The court further found that to the extent the 60-day rule applies, Equilon had complied with this rule because it sent the Supplemental Notice of Termination within 60 days from when Equilon acquired knowledge of Youstine's failure to pay Equilon in a timely manner when due all sums to which Equilon is legally entitled, including monthly rent for June 2011.

Moreover, even if the court were inclined to construe Youstine's opposition as a motion for leave to file a motion for reconsideration, Youstine's "motion" did not comply with the Civil Local Rules, according to the court. Youstine merely repeated arguments which the court has already considered and rejected in direct contradiction to Local Rule 7-9(c).

Waiver. Next, Youstine contends that Equilon waived its right to terminate the ROFR because Equilon tendered the ROFR "knowing that it had failed to draft [rent from Youstine's] account."

Youstine failed to establish a genuine dispute for trial on the issue of whether Equilon waived its right to terminate the ROFR, the court determined. Youstine did not argue that Equilon expressly waived its right to terminate the ROFR. Rather, Youstine contended that Equilon's waiver is implied based on Equilon's conduct. However, Youstine failed to adduce any evidence of a "clear, decisive and unequivocal" intent on the part of Equilon to relinquish its right to terminate the ROFR. In fact, the evidence in the record demonstrated the opposite; Equilon timely exercised its right to terminate the ROFR in accordance with the terms of the ROFR.

Equitable estoppel. Youstine contended that Equilon should be estopped from terminating the ROFR. Equitable estoppel is a doctrine adjusting the relative rights of parties based upon consideration of justice and good conscience. The elements of estoppel are that: (1) the party to be estopped knows the facts, (2) he or she intends that his or her conduct will be acted on or must so act that the party invoking estoppel has a right to believe it is so intended, (3) the party invoking estoppel must be ignorant of the true facts, and (4) he or she must detrimentally rely on the former's conduct.

Youstine's estoppel defense was without merit, the court held. First, as discussed above, Youstine did not adduce any evidence showing that Equilon was aware that Youstine had failed to pay rent for several months prior to Youstine's acceptance of the ROFR. Second, Youstine did not show that it reasonably relied to its detriment on Equilon's conduct. Youstine did not offer any argument or evidence demonstrating that Equilon's failure to draft several rent payments prior to Youstine's acceptance of the ROFR led Youstine to reasonably believe that Equilon did not intend to enforce its right to the rent payments and/or to terminate the ROFR in the event Equilon issued a notice of termination based on Youstine's failure to timely pay all sums owed to Equilon. Finally, Youstine did not contend, let alone demonstrate, that it was ignorant of the true facts.

The Franchisee’s Claims for Relief

Youstine alleges three claims for relief against Equilon. Youstine's first claim asserts that Equilon violated § 20999.25(a)1 by failing to provide a "bona fide" ROFR. Youstine's second claim alleges that Equilon engaged in "unfair and/or fraudulent business practices" by violating § 20999.25(a). Finally, Youstine's third claim seeks, among other things, a declaration regarding whether the ROFR is a bona fide offer within the meaning of § 20999.25(a), and a declaration regarding "[w]hether Equilon should be enjoined from selling the subject premises and whether Anabi should be enjoined from purchasing the subject premises pursuant to California Business and Professions Code § 20999.3 until the conclusion of this action."

Summary judgment in favor of Equilon on all three claims was appropriate, the court held. Equilon sustained its initial burden on summary judgment by pointing out that Youstine cannot demonstrate that the ROFR violated § 20999.25(a). Accordingly, because all of Youstine's claims are predicated on a violation of § 20999.25(a), summary judgment in favor or Equilon was warranted.

Moreover, summary judgment is also warranted in favor of Equilon because Equilon's termination of the franchise and the ROFR before Equilon's interest in the franchise was sold, transferred or assigned to another person forecloses the remedies sought by Youstine. Here, because Equilon properly terminated the franchise and the ROFR before Youstine purchased the Station pursuant to the ROFR, the injunctive, equitable, and declaratory relief Youstine seeks is no longer available. Youstine's entitlement to such remedies is predicated on the existence of a franchise relationship and the ROFR.

The case is No. C 10-05223 SBA.

Attorneys: Thomas P Bleau (Bleau Fox) for BSD, Inc. Hubert Kim (Wilson Turner Kosmo LLP) for Equilon Enterprises, LLC.

Companies: BSD, Inc.; Equilon Enterprises, LLC.

Cases: FranchisingDistribution CaliforniaNews