Transbay Auto Serv., Inc. v. Chevron USA Inc.

• Decision Date: 30 November 2015
• Docket Number: Nos. 13–15439,14–15297.,s. 13–15439
• Citation: 807 F.3d 1113
• Parties: TRANSBAY AUTO SERVICE, INC., a California corporation, Plaintiff–Appellee, v. CHEVRON USA INC., a Delaware corporation, Defendant–Appellant. Transbay Auto Service, Inc., a California corporation, Plaintiff–Appellee, v. Chevron USA Inc., a Delaware corporation, Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

807 F.3d 1113

TRANSBAY AUTO SERVICE, INC., a California corporation, Plaintiff–Appellee,

v.CHEVRON USA INC., a Delaware corporation, Defendant–Appellant.

Transbay Auto Service, Inc., a California corporation, Plaintiff–Appellee,

v.Chevron USA Inc., a Delaware corporation, Defendant–Appellant.

Nos. 13–15439

14–15297.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 10, 2015.

Filed Nov. 30, 2015.

David S. Ettinger (argued) and Mitchell C. Tilner, Horvitz & Levy LLP, Encino, CA; Robert C. Phelps, Glynn & Finley, LLP, Walnut Creek, CA, for Defendant–Appellant.

Samuel T. Rees (argued) and Martin R. Fox, Bleau Fox, Los Angeles, CA, for Plaintiff–Appellee.

Appeal from the United States District Court for the Northern District of California, Susan Illston, Senior District Judge, Presiding. D.C. No. 3:09–cv–04932–SI.

Before: ALEX KOZINSKI and RICHARD C. TALLMAN, Circuit Judges, and LAWRENCE L. PIERSOL,^* Senior District Judge.

Opinion by Judge TALLMAN

; Dissent by Judge PIERSOL.

OPINION

TALLMAN, Circuit Judge:

The dispute before us stems from the multi-million dollar purchase of a gasoline service station in the West Portal neighborhood of San Francisco. Chevron USA Inc. contends the station's $2.375 million price tag constituted a "bona fide offer" under the Petroleum Marketing Practices Act ("PMPA"). Transbay Auto Service, Inc. rejects this argument and urges us to preserve the jury verdict awarding it almost half a million dollars as compensation for overpaying for the property. We must decide whether the district court erred in excluding at trial a third-party appraisal of the property that valued it significantly higher than either of the appraisals commissioned by the parties. We find this appraisal should have been admitted as an adoptive statement under Federal Rule of Evidence 801(d)(2)(B), and we reverse.

I

Beginning in the late 1930s, Chevron owned the land located at 301 Claremont Boulevard in San Francisco, California (the "property"). While the oil company initially operated its own Chevron-branded service station there, over the years it leased the service station to independent dealers who continued to operate under the Chevron banner. These independent dealers, known as franchisees, paid rent to Chevron in exchange for the right to operate the service station on the property.

In 2001, Chevron and Transbay—which is solely owned by Mike Tsachres—entered into a service station franchise relationship. At the time they entered into the franchise, Chevron informed Transbay it intended to sell the property sometime in the near future. In May 2008, Chevron communicated to Transbay its intent to do so. Chevron solicited bids from interested purchasers. Transbay submitted a bid in addition to two other companies. These bids ranged from $1.2 to $1.9 million, with Transbay's $1.8 million bid falling in between.¹ Ultimately, none of these bids resulted in a completed transaction for the disposition of the property. Chevron therefore opted to make what it deemed to be a "bona fide offer" to sell the property to Transbay in accordance with the PMPA. See 15 U.S.C. § 2802(b)(3)(D)(iii). "[A] bona fide offer under the PMPA is measured by an objective market standard. To be objectively reasonable, an offer must approach fair market value." Ellis v. Mobil Oil, 969 F.2d 784, 787 (9th Cir.1992) (quotation omitted).

To determine the property's fair market value, Chevron employed Deloitte Financial Advisory Services to conduct an appraisal of the property. After learning that buildings in the West Portal neighborhood are generally restricted to a height limitation of twenty-six feet, Deloitte revised its initial appraisal from $3.24 million to $2.386 million as the property's "highest and best use" for retail or commercial space. In its revised appraisal, Deloitte deemed the property worth $1.5 million if it continued to be operated as a service station (a "going concern" valuation).

After Deloitte issued its revised appraisal, Chevron offered to sell the property to Transbay as a branded station for $2.386 million, or as an unbranded station for a slight haircut at $2.375 million. On behalf of Transbay, Tsachres accepted the unbranded offer under protest. In order to fund this purchase, Tsachres sought financing from a bank. While he faced rejection from almost all of the sixteen lenders he approached, Tsachres obtained some traction with American California Bank. This bank commissioned Property Sciences Group to appraise the property, which valued it at $2.52 million as a going concern ("PSG Appraisal"). Tsachres acknowledged the PSG Appraisal was conducted "for the purposes of [his] loan application." And he personally participated in the process by providing financial information and submitting to an interview with PSG's appraiser. Although American California Bank ultimately declined to extend a loan to Transbay, it provided Tsachres with a copy of the PSG Appraisal.

Transbay then sought financing from California Pacific Bank ("CPB"). CPB's chairman instructed Tsachres, "[w]hatever you have, bring them to me." The parties dispute whether Tsachres ever looked at the PSG Appraisal. But there is no dispute that when Tsachres went to the bank to apply for the loan, he provided the chairman with an envelope containing the PSG Appraisal. According to Tsachres's testimony at trial, the chairman offered to make the loan on the spot without looking at the envelope's contents. Nevertheless, Tsachres did not obtain the final paperwork approving his $1.782 million loan until three days later. After purchasing the property from Chevron, Transbay entered into a new partnership with Valero to re-brand the service station.

II

In 2009, Transbay filed a single cause of action against Chevron for violating the PMPA by failing to make a bona fide offer to sell the property. The district court denied Chevron's motion for summary judgment. In doing so, the district court made evidentiary rulings to determine the evidence it could consider in support of each party. After finding the facts "conflicting as to whether Tsachres read, understood, and acceded to the PSG Appraisal," the district court held:

For purposes of ruling on this evidentiary objection, the Court need only decide whether there is enough evidence for a jury reasonably to conclude that the plaintiff adopted the statement. On this record, there is enough such evidence, albeit disputed. The Court finds that the PSG Appraisal is admissible as an adoptive admission and plaintiff's objections are overruled.

The district court adhered to this ruling during a colloquy regarding the parties' opening arguments when Transbay said it would object to Chevron's introduction of the PSG Appraisal. Chevron referenced the district court's previous adoptive admission summary judgment ruling, after which the district court stated, "I think that's right." When Chevron argued that nothing had changed between the summary judgment order and trial, the district court overruled Transbay's objection. As a result, Chevron discussed the PSG Appraisal during its opening argument to the jury.

Critically—after a mid-trial voir dire of Tsachres outside the presence of the jury—the district court changed its ruling and did not permit Chevron to introduce the PSG Appraisal. During the voir dire, Tsachres testified he never reviewed the PSG Appraisal before giving it to CPB. The district court rejected Chevron's efforts to impeach Tsachres with his deposition testimony:² "[T]he only evidence is that he didn't read these materials.... There's no contrary evidence.... I don't think the deposition said that he read those materials, if that's what you're saying." The district court consequently deemed the PSG Appraisal inadmissible, ruling that "I just think on the state of this record it doesn't come in as an adoptive admission."

Without the PSG Appraisal, the parties presented the jury with three valuations: (1) Chevron's revised $2.386 million appraisal if the property was operated at its "highest and best use"; (2) Transbay's $1.8 million appraisal—created for litigation purposes—if the property continued to operate as a service station; and (3) Chevron's revised $1.5 million appraisal if the property continued to operate as a service station.³ In addition, Transbay proffered an attorney land use expert who testified that the process to convert the property from a service station to a retail or commercial use would cost approximately $500,000 and take several years due to a specific San Francisco zoning ordinance.⁴ The jury also learned about the various bids submitted on the property.

After a four-day trial, the jury returned a verdict in favor of Transbay and awarded it $495,000 in damages. Chevron subsequently filed a motion for, among other relief, a new trial based on the district court's exclusion of the PSG Appraisal. The district court's denial of this motion reiterated its bench order, finding that no evidence "indicated that Mr. Tsachres actually read the contents of the PSG Appraisal." It justified the departure from its earlier admission ruling on the basis that at the summary judgment stage there had not yet been an evidentiary hearing. The propriety of the district court's denial of Chevron's post-verdict motion is now before us on appeal.

III

"[W]e review de novo the district court's construction of hearsay rules, but review for abuse of discretion the court's determination to admit hearsay evidence." United States v. Marguet–Pillado, 560 F.3d 1078, 1081 (9th Cir.2009). With respect to adoptive admissions, "the district court must first find that sufficient foundational facts have been introduced for the jury reasonably to conclude that the defendant did actually [adopt] the statement." United States v. Monks, 774 F.2d 945, 950 (9th Cir.1985) (addressing adoptive admission by silence). "[I]t's not a question of the court weighing the evidence at this time and deciding whether the showing is strong...