Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Wash.: Gasoline station franchisor granted summary judgment on franchisee’s counterclaims, (Oct 23, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Seattle has granted summary judgment to the franchisor of ARCO gasoline stations and amp/pm convenience stores in Oregon and Washington on declaratory judgment, state statutory, and state common law counterclaims brought by a franchisee (BP West Coast Products LLC v. SKR Inc., October 22, 2013, Pechman, M.).

The counterclaims included causes of action for declaratory judgments of deed restriction invalidity and right to terminate the dealer agreement; violations of Washington’s Consumer Protection Act (CPA), Franchise Investment Protection Act (FIPA), and Gasoline Dealer Bill of Rights Act (GDBRA); violation of Oregon’s Motor Fuel Franchise Act (OMFFA); fraud; negligent misrepresentation; and breach of contract.

SKR Inc. and its principals, operators of an ARCO gas station independent dealership and am/pm convenience store franchise in Beaverton, Oregon, sought to purchase a second ARCO dealership from BP West Coast Products in 2007. One of the principals claimed that BP’s then-regional sales manager informed her at a seminar that she could estimate her future profits using a margin of 9 cents per gallon and a 30-32 percent margin on in-store sales, although the manager and the seminar’s records indicated that he did not attend the seminar. SKR also received store-specific information about certain properties, but the information did not include data on the profitability of the gas stations, and contained a disclaimer stating that it did not “constitute a suggestion, representation or warranty of future sales.”

SKR and the principals entered into an agreement with BP to buy a Vancouver, Washington property, contingent on their agreement to enter into an am/pm franchise agreement and an ARCO gasoline dealer agreement (GDA) giving BP the exclusive right to supply gasoline to the station. Both agreements had 20-year terms, and title to property was acquired by way of a warranty deed imposing deed restrictions. SKR later ceased ordering gasoline from BP and began selling unbranded gasoline in violation of the GDA and the deed restrictions, but claimed that BP had failed to abide by its covenant to sell SKR gas at a competitive price.

BP filed suit, and SKR filed counterclaims. BP moved to dismiss certain counterclaims, and the court granted that motion. BP then moved for summary judgment on its claims for breach of franchise agreement, breach of guarantees, and declaratory judgment, and on the remaining counterclaims. On September 17, 2013, the court granted the motion as to BP’s claims. In the present decision, the court addressed the motion as to SKR’s counterclaims.

Motions to voluntarily dismiss and to amend. The court first denied SKR’s motions to voluntarily dismiss their counterclaims and to amend that motion to reflect that it was submitted by SKR’s counsel of record rather than pro se. The court denied the motion to amend as futile because the motion to voluntarily dismiss could not succeed on its merits. BP would “suffer plain legal prejudice if voluntary dismissal [was] allowed” because SKR was “very dilatory” in seeking dismissal nearly a year and a half after bringing the counterclaims, and because granting the request could subject BP to inconsistent rulings, since some of the counterclaims were in direct opposition to claims that the court had already decided in BP’s favor. Moreover, the motion to dismiss “appear[ed] disingenuous” because the sole reason for bringing the motion was abandonment by counsel, and SKR’s attorney had later moved to amend the motion so it would be considered as brought by counsel.

Declaratory judgment on deed restriction. The court found BP was entitled to summary judgment on SKR’s challenge to the validity of the deed restrictions because that issue had already been decided in BP’s favor in its previous order, which found the restrictions to be valid and enforceable.

CPA, FIPA, GDBRA, OMFFA claims. BP was also entitled to summary judgment on SKR’s claim for violation of the Consumer Protection Act based on alleged discrimination between fuel retailers in violation of the Franchise Investment Protection Act and the Gasoline Dealer Bill of Rights Act. SKR did not allege that it was treated differently from other am/pm-ARCO dealerships, instead claiming that BP treated gasoline-only dealers better because they did not have to pay a $70,000 am/pm fee, did not pay a 14 percent royalty on inside sales, and did not participate in mandatory sales programs. The court found that SKR could not “make an antidiscrimination claim on grounds others did not enter into the same franchise agreement and were thus treated differently.”

The court also granted summary judgment to BP on SKR’s claim that BP violated the FIPA and the GDBRA by charging unreasonable prices for gas, beer, soda, salty snacks, and tobacco. Although SKR claimed that third-party vendors, such as Costco, charged SKR higher prices than it would pay if it bought the products directly from the vendors, SKR provided no facts or evidence to support that claim. Moreover, SKR had waived its reasonable price claims with respect to gasoline prices by failing to notify BP of price nonconformities within 30 days of delivery, as required by the gasoline dealer agreement.

The court found BP was entitled to summary judgment on SKR’s claims that BP violated the vertical price fixing provisions of the GDBRA and the Oregon Motor Fuel Franchise Act by allegedly taking retaliatory actions when SKR refused to comply with BP’s pricing scheme, under which BP allegedly set the profit margin that would be charged by its franchisees based on prices offered by competitors in a particular zone. SKR’s claims were contradicted by the principals’ testimony that that they determined the profit margin and set the princes based on their cost and the prices of surrounding stations.

Right to terminate. SKR was not entitled to a declaratory judgment that it properly terminated the gasoline dealer agreement because it made no successful allegations that the agreement was unenforceable or in violation of state law, or that BP breached the agreement.

Fraud, negligent misrepresentation. The court also granted summary judgment to BP on SKR’s claims for fraud and negligent misrepresentation. The principals had testified that their lender had provided a projected 32 percent profit margin, that they had made their own profit calculations with a 19 percent profit margin, and that it was “common knowledge” that profits margins in Washington were around 30 percent for ARCO stores and around six cents per gallon. Therefore, the principals did not detrimentally rely on any profit estimates by BP’s sales manager. Moreover, any such reliance would not be justified because the franchise agreements contained a clause, of which the principals were aware, that stated that BP provided no representation as to profit or income. Finally, the alleged profit estimates were not representations of an existing fact, and therefore could not be the basis for a fraud claim.

Equitable counterclaims. Because SKR’s fraud and misrepresentation claims failed, and because the contracts were valid, SKR’s equitable counterclaims also failed.

Breach of contract. Finally, BP was entitled to summary judgment on SKR’s breach of contract claim. The contract stated that BP would “use its best efforts” to supply gasoline to SKR, “subject only to allocation of product by [BP] in a manner determined in [BP’s] sole discretion.” SKR alleged that BO breached this provision by delaying deliveries and permitting SKR to run out of gasoline. The court found that the “best efforts” language did not create a duty for BP “to be timely or to prevent SKR from having empty tanks.”

The case is No. C11-6074 MJP.

Attorneys: Daniel J. Oates (Graham & Dunn) for BP West Coast Products LLC. Adam T. Birnbaum (The Birnbaum Law Offices) for SKR Inc.

Companies: BP West Coast Products LLC; SKR Inc.

Cases: FranchisingDistribution Antitrust StateUnfairTradePractices WashingtonNews