Chevron, U.S.A., Inc. v. Mebtahi

• Citation: 148 F.Supp.2d 1019
• Decision Date: 30 November 2000
• Docket Number: No. CV 99 08266FMC(RZX).,CV 99 08266FMC(RZX).
• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
• Parties: CHEVRON, U.S.A., INC., Plaintiff, v. Babak MEBTAHI, Defendant.

148 F.Supp.2d 1019

CHEVRON, U.S.A., INC., Plaintiff, v. Babak MEBTAHI, Defendant.

No. CV 99 08266FMC(RZX).

United States District Court, C.D. California.

November 30, 2000.

Robert C. Phelps, Richard P. Rados, Skjerven Morrill MacPherson, San Francisco, CA, for plaintiff.

Kenneth P. Roberts, John J. Stifter, IV, Kenneth P. Roberts Law Offices, Woodland Hills, CA, for defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT; ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

COOPER, District Judge.

This matter is before the Court on Plaintiff's Motion for Summary Judgment filed on September 12, 2000. This matter is also before the Court on Defendant's Motion for Summary Judgment filed on September 8, 2000. For the reasons set forth below, the Court hereby DENIES Plaintiff's Motion for Summary Judgment and hereby GRANTS Defendant's Motion for Summary Judgment.

The present dispute arises out of a franchise relationship between Plaintiff Chevron, U.S.A., Inc. ("Chevron" or "Plaintiff") and Defendant Babak Mebtahi ("Mebtahi" or "Defendant"). Plaintiff seeks to terminate certain agreements between the parties and asks the Court to declare its rights under the Petroleum Marketing Practices Act of 1979 ("PMPA"), to do so. Plaintiff further seeks an order from this Court requiring Defendant to surrender to Plaintiff control of a service station located in Harbor City.¹ Defendant, for his part, also seeks to have his rights under the PMPA declared. Defendant asks the Court to enjoin Plaintiff from terminating the agreements between the parties. Both parties seek damages, attorney's fees, and costs.

I. Uncontroverted Facts

A. Background: The Relationship Between the Parties and the Dealer Agreements

Chevron U.S.A., Inc. ("Chevron" or "Plaintiff") leases a Chevron brand service station located at 25800 Western Avenue, Harbor City, CA, to Defendant Babak Mebtahi ("Mebtahi" or "Defendant"). Defendant, from 1990 to 1996, worked at several Chevron service stations operated by his brother-in-law. In September, 1996, Defendant purchased his own franchise and leased the service station from Chevron.² In September, 1997, Plaintiff and Defendant entered into a written Dealer Lease, Dealer Supply Contract, and related agreements ("Dealer Agreements"). The Dealer Agreements were signed on or about September 3, 1997, and became effective December 1, 1997.

The Dealer Agreements established that the rent Defendant pays to Plaintiff is based on a graduated percentage of motor fuel sales and a graduated percentage of sales at the convenience store portion of the service station. Chevron determines the "convenience store" portion of the rent by monitoring sales data that are collected via "Electronic Point of Sale" equipment.³

Section 2(c) of the Dealer Lease requires Defendant to comply with all applicable Federal, state, and local laws and regulations. Section 4(f) of the Dealer Lease gives Chevron the right, upon 72 hours' notice, to audit all books and records relating to Defendant's operations. Section 4(e) requires Defendant to maintain books and records regarding sales information in the form specified by Chevron.

Some time prior to the September 3, 1997, execution of the Dealer Agreements, Defendant received a letter from William Berghoff that outlined a new rent program and stated that any reference to the dealer's tax returns and bank records would be deleted from the audit clause.⁴

B. The Audit

The parties agree that the present dispute arose out of an audit of Defendant's records that Plaintiff ordered pursuant to Paragraph 4(f) of the Dealer Lease. Stephen Willer, Chevron's Manager, Dealer Affairs-Retail, described the process by which dealers are "nominated" for audit. Chevron's "Dealer Affairs" group solicited nominations of Chevron lessee dealers to be audited. Retail Marketing Managers (later called Retail Team Leaders) nominated dealers within their geographic areas of responsibility. Generally, each Retail Marketing Manager nominated two dealers per quarter to be audited. Significantly, only stations that pay rent as a percentage of sales are subject to audit.

Defendant's business was to be audited because rent was determined as a percentage of sales, because sales data were collected by Chevron via "Electronic Point of Sale" equipment, and because Chevron expected the Defendant to be engaging in a larger volume of sales than the rent payments reflected.

In April, 1999, Chevron's independent auditor, Carson & Associates, performed an audit of Defendant's records regarding the service station. Plaintiff was not present at the audit. The auditors issued a report to Chevron dated May 15, 1999. The audit concluded that Defendant had under-reported and underpaid his sales tax for 1998 by several thousand dollars. The report also noted several records were not provided, including federal income tax returns for 1998 and state sales tax returns. The report did not conclude that Defendant failed to pay all the rent due to Plaintiff.⁵

C. The Decision to Terminate

Chevron's employee, Stephen Willer on or about August 7, 1999, issued a Termination Notice to Defendant, stating that Chevron intended to terminate the Dealer Agreements based on: 1) Defendant's failure to maintain or produce for audit his state and federal income tax returns; 2) Defendant's failure to comply with the law in filing his sales tax returns; and 3) Defendant's "unlawful, fraudulent, and deceptive" failure to properly report all of his sales to the relevant taxing authorities. The Termination Notice stated that Defendant's franchise would terminate ninety days after Defendant's receipt of the notice.⁶

Willer did not discuss this decision to terminate the Dealer Agreements with anyone else at Chevron. Prior to issuing the termination notice, Willer had not met Defendant nor had Willer visited Defendant's operations.

D. Defendant's Payment of Sales Taxes

Defendant explains the admitted underreporting and underpayment of his sales tax in 1998. During the first years of his operations Defendant paid sales taxes by approximating the amount he owed rather than by actually calculating it. Sometime before 1998, Defendant was advised by his accountant that he was paying too much in sales taxes. (Daneshmand Dep. 111-112.) Defendant was advised that he could either seek a refund from the State Equalization Board or understate his current sales taxes to recoup the overpayment. (Id.) Because seeking a refund would result in an audit and the accompanying inconveniences, Defendant chose the latter method, one which his accountant later stated was not the best advice. (Id.)

Defendant had, in fact, overpaid his prior years' sales tax, as confirmed by an audit by the State Board of Equalization. After receiving the Notice of Termination, Defendant requested a formal audit of his service station by the California Board of Equalization in order to request a refund of overpaid taxes. The California State Board of Equalization audited Defendant's operations for the period from October 1996 through June 1999.⁷ That audit concluded that Defendant was due a refund and Defendant was issued a sales tax refund in the amount of approximately $2,600 after the State Board of Equalization.

E. Parties' Positions

Chevron seeks to terminate the franchise because Defendant failed to comply with applicable tax laws. Defendant contends that the Petroleum Marketing Practices Act precludes such termination because the Defendant did not violate a material provision of the Dealer Agreements.

Specifically, the parties assert the following claims seeking declaratory relief, injunctive relief, damages, attorney's fees, and costs. Plaintiff seeks a declaration of its rights under the PMPA to terminate the Dealer Agreements pursuant to 15 U.S.C. §§ 2802(b)(2)(A), 2802(b)(2)(C), and 2802(c)(11), asks the Court to find that Defendant has breached a material term of the Dealer Agreement, and seeks an Order compelling Defendant to surrender control of the service station to Plaintiff. Additionally, Plaintiff seeks damages for breach of contract.

Defendant asserts a counterclaim for damages, attorney's fees, and costs, based on violations of the PMPA. Defendant also seeks declaratory relief under the PMPA; specifically, Defendant seeks declaration of his rights and liabilities under the PMPA, asks this Court to find that no material breach has been committed, and seeks an Order precluding Plaintiff from revoking the Dealer Agreements. Defendant further seeks an injunction under California Bus. & Prof.Code § 17200.

II. Summary Judgment Standard

Summary judgment is proper only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. Rule Civ. Pro. 56(c); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Whether a fact is material is determined by looking to the governing substantive law; if the fact may affect the outcome, it is material. Id. at 248, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202.

If the moving party meets its initial burden, the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). Mere disagreement or the bald assertion that a genuine issue of material fact exists does not preclude the use of summary judgment. Harper v. Wallingford, 877 F.2d 728 (9th Cir.1989).

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