Nasar Enters., Inc. v. BP W. Coast Prods. LLC

Decision Date02 May 2018
Docket Numberc/w B276380,c/w B269104,B269096
PartiesNASAR ENTERPRISES, INC., et al., Plaintiffs and Appellants, v. BP WEST COAST PRODUCTS LLC, Defendant and Appellant. DHILLON PARTNERS LLC, Plaintiff and Appellant, v. BP WEST COAST PRODUCTS LLC, Defendant and Appellant.
CourtCalifornia Court of Appeals

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. Nos. BC494169, BC460880

APPEALS from a judgment and order of the Superior Court of Los Angeles County, Elihu Berle, Judge. Affirmed.

Kasowitz, Benson, Torres, & Friedman, Charles Freiberg, Brian Brosnahan, David A. Thomas, Jacob N. Foster, George Chikovani and Danielle Pierre for Plaintiffs and Appellants Nasar Enterprises, Inc., Ganesh Group Corporation, KJYT Visions, Inc., and Dhillon Partners LLC.

Arnold & Porter, Sean M. SeLegue, John D. Lombardo, Ryan Light, and Elizabeth St. John, for Defendant and Appellant BP West Coast Products, LLC.

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Nasar Enterprises, Inc. (Nasar), Ganesh Group Corporation (Ganesh), KJYT Visions, Inc. (KJYT), and Dhillon Partners, LLC (Dhillon) (collectively the ARCO dealers) are franchisees of BP West Coast Products LLC (BPWCP). They operate franchise gasoline stations at various locations in California. In 2013, the ARCO dealers sued BPWCP alleging it had failed to set gasoline prices in good faith pursuant to an open price term in their franchise agreement. The ARCO dealers also alleged that BPWCP breached the franchise agreement, the implied covenant of good faith and fair dealing, and the impliedwarranty of merchantability by selling them defective computer systems.

A jury found that BPWCP had not set prices in bad faith or at commercially unreasonable levels, defeating the ARCO dealers' claim based on the implied covenant of good faith and fair dealing. The ARCO dealers argue the trial court improperly instructed the jury regarding the content of BPWCP's obligation to set prices in good faith. Specifically, they challenge the court's instruction that prices comparable to those charged to other similarly situated purchasers in the industry are, as a matter of law, commercially reasonable prices. We conclude the trial court's instruction regarding the commercial reasonableness of BPWCP's prices was correct.

The jury found for the ARCO dealers on their implied warranty of merchantability claim. In its cross-appeal, BPWCP argues the jury's verdict in favor of the ARCO dealers is not supported by substantial evidence. We disagree and affirm.

In a consolidated appeal, Nasar and Ganesh argue the trial court erred in denying their postjudgment motion for contractual attorney fees under Civil Code section 1717. BPWCP cross-appeals, arguing the court erred in denying its motion for contractual attorney fees. We disagree with both parties, finding the trial court did not err in determining that no party prevailed in the underlying litigation.

FACTUAL AND PROCEDURAL SUMMARY
A. Implied Covenant of Good Faith and Fair Dealing Claim

Plaintiffs, the ARCO dealers, are four gasoline dealers who purchase ARCO-branded gasoline from BPWCP, a gasolinerefiner that owns the ARCO brand. Between 2006 and 2009, the ARCO dealers each entered into identical franchise agreements with BPWCP. These agreements require ARCO dealers to purchase gasoline exclusively from BPWCP for 20 years. They include an open price term which allows BPWCP to set the price the ARCO dealers pay for its gasoline. The price term reads, in relevant part: "5. Prices. For [gasoline] delivered hereunder, Buyer will pay the price specified by BPWCP in effect at the time and place of delivery for purchasers in Buyer's class of trade."

In 2013, plaintiffs Nasar, Ganesh, and KJYT sued BPWCP, alleging breach of the implied covenant of good faith and fair dealing with respect to gasoline price setting, as well as breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of the implied warranty of merchantability with respect to the sale of point-of-sale computer systems. That year, plaintiff Dhillon Partners, LLC sued BPWCP on the same grounds. The plaintiffs alleged that BPWCP breached the implied covenant of good faith and fair dealing by setting prices for its gasoline at commercially unreasonable levels. These two lawsuits were consolidated and tried together.

A jury trial began in July 2015. At trial, plaintiffs and defendant presented expert opinion testimony indicating that the term "class of trade" is a standard trade usage in the gasoline industry. Expert testimony defined this term as a channel of distribution of refined gasoline to a group of purchasers that share certain characteristics.

One type of class of trade in the gasoline industry is the "branded, direct dealer-supplied" class of trade. The purchasers in this class of trade share the characteristics of purchasing branded gasoline, receiving gasoline deliveries directly fromrefiners, and purchasing relatively smaller quantities of gasoline than some other classes of purchasers. Examples of members of this class of trade are Shell and Chevron dealers. ARCO dealers are members of the branded, direct-supplied class of trade.

Other classes of trade, such as "unbranded jobbers" and "hypermarketers," have different characteristics. Unbranded jobbers purchase unbranded gasoline and deliver it themselves. Hypermarketers, such as Safeway and Costco, often purchase unbranded gasoline in very large quantities and pay separately to store and deliver it.

BPWCP used a pricing model called "streetback pricing," in which prices are compared to a station's competitors, to determine prices charged to the ARCO dealers. Expert testimony established that this pricing model is common in the gasoline industry.

The ARCO dealers generally were charged lower prices for wholesale gasoline compared to other branded, direct-supplied dealers. Hypermarketers were charged lower prices than the ARCO dealers and hence were able to charge consumers comparatively low prices.

In its pricing model, BPWCP assumed that its ARCO dealer purchasers would operate with an eight-cent per gallon margin of profit. The ARCO dealers' economic expert testified this margin is too low for an ARCO station to be profitable. BPWCP presented evidence that the ARCO dealers' stations were profitable, with each plaintiffs' gross profits exceeding industry averages.

BPWCP submitted proposed special instruction four, entitled "Implied Covenant of Good Faith - Safe Harbor": "If you find that the wholesale prices that BPWCP charged to any givenPlaintiff for ARCO-branded gasoline were within the range of wholesale prices being charged by other refiners in the branded direct supply class of trade, based on the evidence presented, you must find that BPWCP's wholesale gasoline prices to that Plaintiff were commercially reasonable."

Plaintiffs objected to this instruction, arguing that E. S. Bills v. Tzucanow (1985) 38 Cal.3d 824 (E.S. Bills) established that commercial reasonableness should be based on "whether the prices allow [plaintiffs] to earn a reasonable profit." The court gave BPWCP's proposed instruction and the jury found that BPWCP did not set prices in bad faith and that its prices were not commercially unreasonable. The ARCO dealers appeal from the ensuing judgment.

B. Implied Warranty of Merchantability Claim

Along with the gasoline franchise agreement, the ARCO dealers also signed ampm franchise agreements in which they gained the right to operate ampm convenience stores alongside their gasoline stations. These agreements also required the ARCO dealers to purchase and install an approved point-of-sale computer system. Some dealers later signed purchase or financing agreements specifying the terms of sale for the point-of-sale computer system.

Each of the dealers purchased and installed an approved point-of-sale computer system (referred to as Retalix) from BPWCP. Each experienced problems with the Retalix system, the majority of which occurred within the first year and a half following its installation. These issues included various software and hardware problems that interfered with the system's ability to operate gasoline pumps and accept credit and debit card transactions. A representative of each dealer testified that thedealer had experienced complete shutdowns due to problems with the Retalix system, which prevented it from transacting business for periods of time. Mr. Dhillon, representing plaintiff Dhillon, stated he had experienced a shutdown lasting at least three days. Each dealer also testified to experiencing partial shutdowns at times, which included the inability to operate one or more gasoline pumps, the inability to accept credit or debit cards, or the inoperability of one or more point-of-sale terminals. Many of the problems the plaintiffs described were fixed by rebooting the Retalix system, a process that took between 30 minutes and several hours. The dealers testified that customers would leave, complain, or seem dissatisfied when these problems occurred.

The ARCO dealers presented an accounting expert, Maryellen Sebold, who testified based on her analysis of credit and debit card transaction data from plaintiffs' gasoline stations. She compared the number of transactions from the 2009-2010 period, as to which the ARCO dealers testified the Retalix software problems were more severe, with the period from 2011 to 2014, when the problems were mostly resolved. She projected the number of transactions the ARCO dealers had lost during the period when the Retalix system's problems were more severe and multiplied this figure by the average profit per...

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