Harara v. Conocophillips Co.

• Decision Date: 29 April 2005
• Docket Number: No. C04-0515 BZ.,C04-0515 BZ.
• Parties: Marwan Ahmed HARARA, Plaintiff(s), v. CONOCOPHILLIPS COMPANY, et al., Defendant(s).
• Court: U.S. District Court — Northern District of California

Page 779

377 F.Supp.2d 779

Marwan Ahmed HARARA, Plaintiff(s), v. CONOCOPHILLIPS COMPANY, et al., Defendant(s).

No. C04-0515 BZ.

United States District Court, N.D. California.

April 29, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Marwan Ahmed Harara, pro se.

Adam Friedenberg, Glynn & Finley, LLP, for defendant ConocoPhillips Company.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT ON PLAINTIFF'S CLAIMS

ZIMMERMAN, United States Magistrate Judge.

On September 23, 2004, I granted in part and denied in part defendant's motion to dismiss plaintiff's second amended complaint ("SAC") against defendant ConocoPhillips Company ("Conoco") and dismissed plaintiff's claims against Dean Masterton, a Conoco Account Representative. Now before me are the parties' cross motions for summary judgment with respect to plaintiff's remaining claims against Conoco. For the following reasons, plaintiff's motion is denied and defendant's motion is granted.¹

Plaintiff purchased the goodwill and leasehold of the 76-branded franchise gasoline retail station in Oakland, California (the "Station") from Tosco Marketing Company ("Tosco"), predecessor in interest to Conoco, in February 1999. SAC, ¶¶ 1, 2, 17. He qualified as a dealer and franchisee and began operating the Station with his brother, Murad Harara. In late 1999, plaintiff made improvements to the Station, including remodeling the snack shop and restroom. See Decl. of Marwan A. Harara in Supp. of his Mot. for Summ. J. ("Harara Decl."), Ex. C at 83-94. Tosco approved the improvements in advance, based on blueprints submitted by plaintiff, on the condition that the improvements conform to specifications set forth in its Snack Shop Improvement Manual.² Id. at 88-89, 95, Ex. E-10.

On January 16, 2001, plaintiff renewed the franchise for a three-year period pursuant to a Dealer Station Lease and Motor Fuel Supply Agreement (the "Franchise Agreement") that expired on April 30, 2004. Decl. of Dean Masterton in Supp. of Conoco's Mot. for Summ. J. or, in the Alternative, Summ. Adjudication as to Pl.'s Claims for Relief ("Masterton Decl."), Ex. A. In June or July 2002, defendant placed plaintiff on "Cash in Advance" status, which required him to prepay for all gasoline deliveries.³ Harara Decl. ¶¶ 15-16 Ex. B; Decl. of Paul Curtis in Supp. of Conoco's Mot. for Summ. J. or, in the Alternative, Summ. Adjudication as to Pl.'s Claims for Relief ("Curtis Decl.") ¶ 4.

In early 2003, following the merger of Conoco and Philips Petroleum Corporation, defendant decided to divest itself of approximately 100 petroleum service stations in California. Decl. of Philip Bonina in Supp. of Conoco's Mot. for Summ. J. or, in the Alternative, Summ. Adjudication as to Pl.'s Claims for Relief ("Bonina Decl.") ¶ 3. Plaintiff's station was among those identified for sale, and on April 2, 2003, defendant sent him a Notice of Nonrenewal. Id. The notice advised plaintiff that defendant would not renew the Franchise Agreement upon its expiration on April 30, 2004, and stated, "The reason for this nonrenewal is CONOCOPHILLIPS's determination made in good faith and in the normal course of business to sell CONOCOPHILLIPS's interest in the marketing premises." Id., Ex. A. Defendant also sent plaintiff a letter, dated April 2, 2003, that stated, "In accordance with the provisions of the Petroleum Marketing Practices Act, [Conoco] offers to sell the Marketing Premises to you pursuant to the terms set forth in the enclosed Real Estate Sales Contract." Id. at ¶ 4, Ex. A. The Real Estate Sales Contract ("Sales Contract") attached to the letter contained the relevant terms of defendant's offer to sell the premises to plaintiff for $1,120,000. Id. According to defendant, the purchase price was based on a third-party appraisal of the Station by Valuation Research that reflected a January 25, 2003 valuation date. Id. at ¶ 4, Ex. C. On June 6, 2003, following discussions with Richard Mathews, Conoco's Northern California Real Estate Manager, plaintiff accepted defendant's offer. Harara Decl. ¶ 3, Ex. U; Mathews Decl. ¶¶ 1, 3, Ex. A. While the Sales Contract specified a closing date of September 15, 2003, defendant extended the deadline at plaintiff's request on at least four occasions, and agreed to a final closing date of December 19, 2003. Decl. of Richard Mathews in Supp. of Conoco's Mot. for Summ. J. or, in the Alternative, Summ. Adjudication as to Pl.'s Claims for Relief ("Mathews Decl.") ¶ 6. On November 12, 2003, plaintiff's lender responded to his original loan application for $1,120,000 and requested that he reduce his loan application by $300,000. Harara Decl. ¶ 7, Ex. D. Plaintiff subsequently amended his loan application by reducing the amount by $300,000. Id. ¶ 8, Ex. D.

Both parties also contacted third parties regarding the sale of the Station. In November 2003, defendant secured from Khalid and Romana Usman an offer to purchase the property for $1,120,000. Bonina Decl., Ex. D. In December 2003, plaintiff entered into two separate form contracts with Wurn Waa Phan to purchase the Station, "including equipment, fixtures, goodwill ... inventory ... and improvements," from plaintiff. Id. ¶ 9; Exs. F, G. One contract was for $1,120,000, and was conditioned on Conoco transferring or assigning the Sales Contract. Id., Ex. G. The other contract was for $180,000. Id., Ex. F.

On January 6, 2004, defendant delivered gasoline to plaintiff on credit, pursuant to a one-time exception authorized by Conoco's Credit Department. Curtis Decl. ¶ 6. When plaintiff failed to pay for the shipment, Conoco placed him on a "credit hold" that required him to pay all outstanding amounts on his account prior to any further gasoline deliveries. Id. Plaintiff subsequently requested delivery of gasoline. Harara Decl. ¶ 13, Ex. P. Conoco did not respond. Id. at ¶ 13. In January or February 2004, plaintiff ran out of 89 and 91 octane gasoline. Id.; Decl. of David Vann in Supp. of Conoco's Mot. for Summ. J. or, in the Alternative, Summ. Adjudication as to Pl.'s Claims for Relief ("Vann Decl.") ¶ 2; Masterton Decl. ¶¶ 12-13.

Plaintiff did not close the escrow with Conoco on schedule, and on January 16, 2004, Conoco instructed the escrow agent to cancel escrow. Mathews Decl. ¶ 6; Harara Decl., Ex. E-6. Two days later, plaintiff sent Mathews a letter requesting consent to assign the Sales Contract to a third party purchaser. Harara Decl., Ex. E-8. The following day, Mathews sent plaintiff an email denying consent, and informing plaintiff that Conoco had cancelled escrow. Id., Ex. E-6. On January 20, 2004, the escrow company contacted plaintiff and requested that he execute a release agreement so that it could return his $5,000 deposit. Id., Ex. N. Two days later, Khalid and Romana Usman signed a contract to purchase the Station. The contract was effective March 4, 2004 and would have closed about 5 months later. Bonina Decl., Ex. D. On January 26, 2004, Mathews sent plaintiff a notice informing him that unless closing occurred within ten days, the Sales Contract would be null and void. Harara Decl., Ex. E-2. Plaintiff sent Mathews a letter rejecting the notice, and on February 6, 2004, plaintiff filed this lawsuit against defendant. Id., Ex. O.

On February 11, 2004, Conoco sent plaintiff a notice of default informing him that he was in violation of the Franchise Agreement by failing to maintain a complete inventory of motor fuel. See Masterton Decl., Ex. C. On February 20, 2004, Conoco served Harara with written notice of termination based on his failures to stock 76-branded motor fuel, to pay $13,163.18 in rent and other charges, and to take reasonable steps to control the operations of the station. Harara Decl., Ex. S; Masterton Decl. ¶ 14, Ex. D. Conoco eventually terminated the Franchise Agreement and plaintiff surrendered possession of the Station.

I. PMPA Claims

In his first and second claims plaintiff contends that defendant's decision not to renew the franchise violated the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801, et seq. Plaintiff first argues that Conoco's decision not to renew the Franchise Agreement was not made in good faith in the normal course of business.⁴ A franchisor may choose not to renew the franchise relationship where the determination is made in good faith and in the normal course of business. 15 U.S.C. § 2802(b)(3)(D). "The good faith requirement looks to whether the franchisor's actions are designed to conceal selective discrimination against individual franchises." Unocal Corp. v. Kaabipour, 177 F.3d 755, 767 (9th Cir.1999). The test for determining good faith is subjective, and the court should look to the franchisor's intent rather than the effect of the franchisor's actions. Svela v. Union Oil Co., 807 F.2d 1494, 1501 (9th Cir.1987). "A franchisor meets the `normal course of business' requirement if the determination was the result of the franchisors' normal decision making process." BP West Coast Products LLC v. Greene, 318 F.Supp.2d 987, 996 (E.D.Cal.2004) (citing Beck Oil Co. v. Texaco Ref. & Mktg., Inc., 25 F.3d 559, 562 (7th Cir.1994)); see also Sandlin v. Texaco Ref. and Mktg., Inc., 900 F.2d 1479, 1481 (10th Cir.1990).

Defendant has presented evidence that its decision to sell the Station was based on a determination by senior management, following the merger of Conoco and Phillips Petroleum Company, to divest a number of petroleum service station sites throughout the country. Bonina Decl. ¶ 1. Plaintiff's station was one of approximately 100 stations in California that defendant identified for divestment. Id. While this evidence establishes that defendant's divestment decision was made in good faith and in the normal course of business, it is less clear why defendant chose to divest plaintiff's station in particular. In making divestment decisions defendant considered a number of factors, including volume of gasoline sales, dealer rent structure, ground lease...