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AJIR v. EXXON CORP.

June 8, 1994

KAMBIZ AJIR, et al., Plaintiffs,
v.
EXXON CORPORATION and EXXON COMPANY, U.S.A., et al., Defendants.



The opinion of the court was delivered by: RONALD M. WHYTE

 Defendant Exxon Corporation's ("Exxon" or "defendant") motion for partial summary judgment came on for hearing on June 3, 1994. The court has read the moving and responding papers and heard the oral argument of counsel. For the reasons discussed below, the court hereby grants in part defendants' motion for partial summary judgment.

 I. Background

 Each of the thirteen plaintiffs in the above-entitled action has or had a franchise agreement with Exxon whereby the plaintiffs purchased motor fuel from Exxon for resale to the public. At some point prior to the inception of this litigation, twelve of the plaintiffs received a notice of non-renewal from Exxon. After sending the notices of non-renewal, Exxon offered to sell the premises on which each of these plaintiffs' stations is located. The offers required plaintiffs to make earnest money payments by certain dates. The sale prices, earnest money amounts, and earnest money due dates vary from plaintiff to plaintiff. *fn1" Exxon made the offers between April, 1992 and November, 1993, and the offers originally expired between July, 1992 and January, 1994.

 On October 29, 1993, plaintiffs filed this action seeking damages and injunctive relief for alleged violations of the petroleum Marketing practice Act ("PMPA"), 15 U.S.C. § 2801 et seq., and violations of California law. Specifically, claim one of the complaint alleges that Exxon's offers to sell were not "bona fide" offers to sell as required under section 2802 (b)(3)(D) of the PMPA.

 After the plaintiffs filed their complaint, the parties continued to negotiate extensions of the earnest money due dates and franchise expiration dates. Later, after Exxon apparently refused to grant further extensions, eight of the plaintiffs applied to the court for a temporary restraining order. On January 26, 1994, the court issued a temporary restraining order and on March 3, 1994, the court granted plaintiffs' motion for a preliminary injunction restraining Exxon from terminating or not renewing the franchise relationships pending trial on the conditions that after each of the plaintiffs' franchise agreements expired they would agree to operate under the provisions of Exxon's new standard franchise agreements, and that Exxon would continue to hold the plaintiffs' earnest money payments made prior to or as a result of this court's January 26, 1994 order in an interest bearing account.

 After the complaint was filed, but prior to the expiration of plaintiffs Shahkarami, Andary and Gamch's franchise agreements, Exxon sent letters to those three plaintiffs withdrawing the previous notices of non-renewal and extending offers to renew these three plaintiffs' franchise relationships with Exxon for three years. (Exxon's statement of Undisputed Facts at PP 1 and 2). The letters stated that Exxon had recently re-classified these plaintiffs' stations and therefore decided to retain them. The re-classification decisions were apparently made in late 1993, and Exxon orally informed at least one of the three dealers of that fact prior to plaintiffs' application for a temporary restraining order. (See Declaration of Albert G. Andary in support of Application for Temporary Restraining Order at P 9). The letters also indicated that Exxon would rescind the contract to sell and return the franchisee's earnest money unless the franchisee desired to continue with the purchase, in which case Exxon would honor the purchase contract. (Exhibit D to Declaration of Nancy Perham).

 II. Legal Standards

 "The overriding purpose of Title I of the PMPA is to protect the franchisee's reasonable expectation of continuing the franchise relationship." Ellis v. Mobil Oil, 969 F.2d 784 (9th Cir. 1992) (quoting Slatky v. Amoco Oil Co., 830 F.2d 476, 484 (3d Cir. 1987)). Therefore, the Act is to be liberally construed consistent with the goal of protecting franchisees. Hilo v. Exxon Corp., 997 F.2d 641, 643 (9th Cir. 1993).

 The PMPA prohibits a franchisor from terminating or not renewing a "franchise relationship" except for specifically enumerated reasons and under the notice requirements set forth in the Act. The terms "franchise" and "franchise relationship" have two distinct meanings under the PMPA. A "franchise" includes the particular lease and sales contracts between the franchisor and franchisee. 15 U.S.C. § 2801(1)(b). "In contrast, a franchise relationship is 'an entity separate from, but defined by, the franchise, or contractual arrangement existing between the parties.'" 15 U.S.C. § 2801(2); Svela v. Union Oil Co. of California, 807 F.2d 1494, 1500 (9th Cir. 1987). The significance of this distinction is that it is the "franchise relationship" rather than the terms of a specific contract that the PMPA requires the franchisor to renew. Svela, supra, 807 F.2d at 1500.

 Under the PMPA, a franchisor's good faith decision to sell the premises is a permissible ground for non-renewal of the franchise relationship if certain conditions are met, including proper notice to the franchisee and a bona fide offer to the sell the premises to the franchisee. 15 U.S.C. § 2802(b)(3)(D)(iii); Ellis, supra, 969 F.2d at 785; Lauro v. Mobil Oil Corp., 825 F. Supp. 994, 995 (M.D.Fla. 1992); LCA Corp. v. Shell Oil Co., 916 F.2d 434, 437 (8th Cir. 1990).

 Another proper ground for non-renewal arises when the franchisor offers to renew the franchise relationship but the franchisor and franchisee fail to agree on changes or additions to the franchise terms. 15 U.S.C. § 2802(b)(3)(A). However, the failure to agree is only a proper ground for non-renewal if the changes or additions to the franchise are the result of "determinations by the franchisor in good faith, in the normal course of business and not for the purpose of preventing the renewal of the franchise relationship." Valentine, supra, 830 F.2d at 1391; 15 U.S.C. § 2802(b)(3)(A).

 The Ninth Circuit has repeatedly held that section 2802(b)(3)(D), and its requirement that a franchisor make a bona fide offer to sell, applies only when the franchisor unilaterally wishes to terminate the franchise relationship. On the other hand, where the franchisor wants to maintain the franchise relationship but wants material changes in the franchise terms, section 2802(b)(3)(A) applies. ...


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