Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—NDCal: Jury’s Finding that Oil Company Violated PMPA by Failing to Provide Dealer with “Bona Fide” Offer to Buy Station Upheld, (Feb 11, 2013)

By Peter Reap, J.D., LLM

A reasonable jury would have had a legally sufficient basis for finding Chevron U.S.A., Inc. failed to provide its franchisee, Transbay Auto Service, Inc., with a “bona fide” offer to buy the service station property in question from Chevron under the meaning of the Petroleum Marketing Practices Act (PMPA), the federal district court in San Francisco has decided (Transbay Auto Service, Inc. v. Chevron U.S.A., Inc., February 7, 2013, Illston, S.). Moreover, Chevron’s grounds in support of its motion for a new trial of the parties’ dispute were without merit. Thus, the oil company’s motion for judgment as a matter of law (JMOL) or, in the alternative, for a new trial, was denied.

Background. Transbay sued Chevron, alleging a violation of the Petroleum Marketing Practices Act (PMPA). The complaint alleged that Chevron failed to provide Transbay a “bona fide” offer to buy the service station property in question from Chevron at a price that approached fair market value. At the heart of the parties’ dispute is the impact of a San Francisco conversion Ordinance on the fair market value of the property.

At trial, the jury was presented with evidence that in September 2008, Chevron offered to sell Transbay its interests in the service station property, including the real property, improvements, fixtures, underground storage tanks and lines, and personal property for $2,375,700, without the right to use the Chevron brand, or for $2,386,000 with the right to use the Chevron brand. Transbay elected to purchase the service station, under protest, without the branding right.

Transbay provided the jury with testimony from two expert witnesses, Mr. Plaine and Mr. Junius. Mr. Plaine, a certified general appraiser, testified that the value of the service station property, as a service station, was $1,800,000. Chevron provided the jury with an appraisal prepared by Deloitte Financial Advisory Services LLP, which valued the service station property at $2,386,000. The July Deloitte Appraisal was the basis for Chevron’s September 2008 offer. In performing the appraisal, and making the offer to Transbay based on that appraisal, Chevron assumed that the Ordinance presented no significant barrier to converting the property to an alternate “highest and best use.”

The jury determined that Chevron did not make a bona fide offer that approached fair market value, and awarded Transbay $495,000—an amount which approximates the difference in value between the purchase price and the Plaine Appraisal.

Motion for judgment as a matter of law. The only issue for which the jury returned a verdict and for which Chevron sought JMOL, was whether Chevron’s September 2008 offer to sell the service station property to Transbay constituted a “bona fide” offer under the PMPA. A bona fide offer under the PMPA is measured by an objective market standard.

Chevron contended that Transbay’s experts relied on a false hypothetical assumption that the service station could not be converted to another use. Chevron argued that the “highest and best use” of the service station property was for something other than a service station and its July Deloitte Appraisal valuing the property at $2,386,000 assumed as much.

Although Transbay did not present evidence of the value of the property as something other than a service station, Transbay did present evidence as to the impediments to achieving that alternative use and how those impediments impacted fair-market value, the court explained. Transbay’s land use attorney expert, Mr. Junius, testified that based upon his substantial experience, securing the necessary permit required by the Ordinance could take two to three years and cost more than $500,000.

From this evidence, a reasonable jury could conclude that the Ordinance lowered the fair market value by burdening any potential redevelopment efforts. Thus, the jury could have found that Chevron’s offer, which excluded consideration of the impediments to achieving the costly alternate use, was not bona fide, the court ruled.

Chevron also argued that JMOL was appropriate because the crux of Transbay’s overcharge claim assumed that the Ordinance depressed the value of the service station property, but Transbay failed to demonstrate the actual economic effect on the value of the property. In support, Chevron cited Mr. Junius’ testimony that he had not attempted to estimate the extent to which the Ordinance reduced the value of the property, and even if he had, that it would likely be “impossible to calculate.”

Chevron mischaracterized Mr. Junius’ testimony, the court held. Mr. Junius in fact testified that the economic effect of the Ordinance would be difficult to calculate because the Ordinance was just one part of the larger Planning Code that must be satisfied before any redevelopment project could be approved. Therefore, rather than suggest that the Ordinance had no appreciable economic effect on the market value of the property, Mr. Junius actually testified that its impact was broad.

In light of the heavy burden imposed on the moving party to set aside a jury verdict, a reasonable jury would have a legally sufficient basis to find that Chevron’s offer to Transbay—which excluded consideration of the burdens of conversion—did not approach fair market value, and was therefore not bona fide as required by the PMPA.

Motion for a New Trial

Testimony from Transbay’s experts. Chevron argued in its motion for a new trial that the testimony and evidence presented by Transbay’s experts should have been excluded from evidence. Responding to the same argument in its summary judgment order, the court held that the constraint Transbay put on its experts, requiring them to appraise the service station property for continued use as a service station rather than considering the highest and best use, went to the weight, not the admissibility, of the evidence.

In particular, Chevron now argued that the expert testimony, and the accompanying reports, were based on a unrealistic limitation imposed by Transbay’s counsel for purposes of litigation that made the expert opinions unreliable in contravention of Daubert principles.

To the contrary, Transbay’s experts sufficiently explained their methodology and fully disclosed the fact that their appraisals were made under a hypothetical condition that the highest and best use of the subject property be disregarded and the subject property be valued as a service station facility, according to the court. Neither of Transbay’s experts testified that the property could not be redeveloped for another use, and their reports stated no such conclusion. Therefore, this evidence was properly admitted at trial; Chevron’s objections to the evidence presented by Transbay’s experts went to the weight, not the admissibility of the evidence, according to the court.

The Appraisal. Chevron argued that an appraisal, which was used to obtain financing to purchase the service station property, constituted an adoptive admission under Federal Rule of Evidence 801(d)(2)(B), and therefore should have been admitted into evidence. Seeing no new information indicating that the court erred, the court declined to reverse its position and determined that the appraisal was properly excluded as inadmissible hearsay.

The case is No. C 09-04932 SI.

Attorneys: Samuel Tasker Rees (Bleau Fox) for Transbay Auto Service, Inc. Adam Friedenberg (Glynn & Finley, LLP) for Chevron U.S.A. Inc.

Companies: Chevron U.S.A., Inc.; Transbay Auto Service, Inc.

Cases: FranchisingDistribution CaliforniaNews