Rao v. Bp Products North America, Inc.

Decision Date09 December 2009
Docket NumberNo. 07-2065.,07-2065.
Citation589 F.3d 389
PartiesSalik RAO, Plaintiff-Appellant, v. BP PRODUCTS NORTH AMERICA, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Peter Ordower, Attorney (argued), Chicago, IL, for Plaintiff-Appellant.

J. Andrew Langan, Attorney (argued), Kirkland & Ellis, Chicago, IL, Stephen A. Gorman, Attorney (argued), Chicago, IL, Shelly B. Kulwin, Jeffrey R. Kulwin, Attorney (argued), Kulwin, Masciopinto & Kulwin, Chicago, IL, for Defendants-Appellees.

Before BAUER, FLAUM, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

After BP Products North America, Inc. ("BP") determined that Salik Rao had secretly paid a BP manager to influence the award of operating agreements in Rao's favor, BP told Rao it was terminating its franchise relationship with him at his two BP gas stations. Rao maintains that BP failed to give him timely notice of early termination as required by the Petroleum Marketing Practices Act. We conclude that BP acquired knowledge of Rao's failure to comply with a franchise provision when Rao stopped cooperating with BP's investigation, so the notice was timely. Rao had maintained all along that he had been the victim of extortion, and BP reasonably decided to continue investigating instead of immediately terminating the franchise. Summary judgment was also proper on Rao's breach of contract claim because the franchise agreement allowed for early termination upon the commission of any fraudulent act. We further affirm the dismissal of Rao's claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and for common-law fraud because the allegations in the complaint did not sufficiently state a claim on either count. As a result, we affirm the judgment of the district court.

I. BACKGROUND

In accordance with a local rule, the district court justifiably deemed the factual assertions in BP's Rule 56.1(a) Statement in support of its motion for summary judgment admitted because Rao did not respond to the statement. See N.D. Ill. R. 56.1(b)(3)(C) ("All material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party."); Cracco v. Vitran, Exp., Inc., 559 F.3d 625, 632 (7th Cir.2009); Raymond v. Ameritech Corp., 442 F.3d 600, 608 (7th Cir.2006). We recount the narrative that follows with that in mind.

Salik Rao began operating as a BP dealer in 1992. The twelve or so BP gas stations he has operated include the two relevant in this case: a station in Morton Grove, Illinois and another in Franklin Park, Illinois. Rao began operating the Morton Grove station in 1997 and the Franklin Park station in 1999. Stephen Yarr was a BP regional sales manager until he was fired in November 2003. As the regional sales manager, Yarr had significant control over the award of franchises and dealerships in Chicago's northern and western suburbs.

From 1993 to 2003, Rao paid Yarr approximately $100,000 in cash and gifts, including a computer, big-screen television, and other electronics—all in an attempt to influence decisions regarding BP franchises. During that time, Yarr allowed Rao to purchase interests in two downtown Chicago stations at a good price, and Rao secretly gave Yarr an interest in the stations. One was sold about eighteen months after Rao purchased it for a profit of over $1 million.

In 1997, Rao purchased a BP station in Wilmette, Illinois. Although BP did not know it at the time, Rao and Paige Thomason, a BP area representative, each put up half the purchase price for the station. As a BP employee, however, Thomason was prohibited from owning an interest in any BP station. To get around this ban, Rao agreed to form a corporation for the acquisition that fronted Brad Schumacher, Thomason's husband, as its corporate officer. After Thomason stopped working for BP, Rao agreed to sell his interest in the Wilmette station to her. Concerned that BP might exercise its right of first refusal, Thomason and Rao submitted a false letter of intent to BP that represented the station's purchase price and value at $700,000 when it was actually worth only $500,000. BP did not exercise its right of first refusal, and Thomason bought Rao's interest in the station for $250,000.

Rao also introduced his cousin, Ateeq Khan, to Yarr while Yarr was the BP regional sales manager. Rao arranged for Khan to meet Yarr in connection with a BP station in Lockport, Illinois. Khan admitted that he negotiated a payment of $10,000 to Yarr related to the sale of the Lockport station before the FBI became involved in an investigation into money and gifts given to Yarr.

Although Rao knew the money and gifts he was providing to Yarr were improper, he did not say anything to anyone at BP until the summer of 2003. That summer, Rao told Yarr's boss that he was having problems with Yarr. BP then had Rao meet with its regional security advisor, Ronald Benhart. During a meeting in August 2003, Rao told Benhart that he and other dealers had provided gifts and benefits to Yarr over a long period of time, and that he had been extorted by Yarr. In response to the allegation of extortion, Benhart began an internal investigation that had Yarr as its principal focus. Benhart asked Rao to provide any documentation or evidence he had to substantiate his allegations. Benhart also contacted the FBI in August 2003 and asked for its cooperation in the investigation. On November 7, 2003, with Rao's cooperation, the FBI conducted a sting in which Rao paid Yarr $10,000. That month, Benhart conducted multiple interviews with Yarr, and Yarr admitted that he had received money and gifts for facilitating transactions with dealers. BP fired Yarr on November 17, 2003.

The termination of Yarr's employment did not end BP's investigation. Benhart continued to investigate after November 2003, and he did so because Rao was still maintaining that Yarr had coerced him into providing benefits. On November 4, 2003, Rao gave Benhart a seventeen-page statement listing and explaining the gifts he gave to Yarr. The statement repeated his assertion that he had been the victim of Yarr's extortion. Therefore, Benhart continued to seek any evidence of extortion. To that end, he also continued to contact Rao in an attempt to set up meetings. Rao stated that he would meet with Benhart, although he did not do so after the fall of 2003. Benhart last spoke with Rao in May or June of 2004, and Rao's attorney told Benhart in June that Rao would no longer cooperate with BP's investigation.

After Benhart was told that Rao would not cooperate any further, Benhart informed BP management that no further information would be forthcoming from Rao. BP management then made the decision to end its relationship with Rao. On July 14, 2004, BP notified Rao via letter that effective October 15, 2004, it was ending its franchise relationship with him because it concluded that he had engaged in bribery and fraud. It sent similar letters to other dealers who had been involved in comparable activities with Yarr. At the time, Rao was operating two BP stations under franchise agreements, one in Morton Grove with an agreement that expired in 2005, and another in Franklin Park that expired in 2006. BP subsequently extended the effective date of its terminations until December 13, 2004, then to February 18, 2005, and then to May 2, 2005, to allow Rao more time to sell his interests in the Morton Grove and Franklin Park stations.

Rao filed suit in federal court against BP, Yarr, Thomason, and Schumacher alleging Petroleum Marketing Practices Act ("PMPA"), RICO, fraud, breach of contract, and extortion claims. After Rao filed a motion for a preliminary injunction to enjoin BP from terminating his franchises, a magistrate judge conducted a four-day evidentiary hearing. The magistrate judge recommended denying Rao's motion because "Rao was actively engaged in bribery and fraud" and "BP acted in good faith and was justified in terminating Rao as a BP dealer." The district court agreed and denied the preliminary injunction motion. It later granted the defendants' motion to dismiss Rao's RICO, fraud, and breach of contract claims and granted the defendants' motion for summary judgment on the remaining claims. Rao appeals.

II. ANALYSIS
A. Notice Timely Under Petroleum Marketing Practices Act

Rao maintains that the notice BP gave that it was ending its relationship with him was not timely under the PMPA. We review the district court's grant of summary judgment on this issue de novo. See Breneisen v. Motorola, Inc., 512 F.3d 972, 977 (7th Cir.2008). Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Hobbs v. City of Chi., 573 F.3d 454, 460 (7th Cir.2009).

The PMPA prohibits a franchisor from terminating a motor fuel franchise prior to the completion of its term unless the franchisor does so: (1) on the basis of a ground provided in the statute, and (2) with the notice the statute requires. 15 U.S.C. § 2802(a); Jet, Inc. v. Shell Oil Co., 381 F.3d 627, 629 (7th Cir.2004). In doing so, the statute protects gas station franchisees from the arbitrary termination or nonrenewal of their franchises by large corporations, as well as from the threat of termination or nonrenewal. See Marcoux v. Shell Oil Prods. Co. LLC, 524 F.3d 33, 39 (1st Cir.2008) (citing S.Rep. No. 95-731, at 17-19 (1978), U.S.Code Cong. & Admin.News 1978, pp. 873, 876); DuFresne's Auto Service, Inc. v. Shell Oil Co., 992 F.2d 920, 925 (9th Cir.1993). The PMPA provides a civil cause of action for motor fuel franchisees terminated or not renewed in violation of its provisions. 15 U.S.C. § 2805; Rawoof v. Texor Petroleum Co., 521 F.3d 750, 755 (7th Cir.2008).

Although the PMPA generally prohibits the early termination of a franchise, there are...

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