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Bp West Coast Products LLC v. Crossroad Petroleum

April 19, 2012

BP WEST COAST PRODUCTS LLC,
PLAINTIFF AND COUNTER-DEFENDANTS,
v.
CROSSROAD PETROLEUM, INC. ET AL.,
DEFENDANTS AND COUNTER-PLAINTIFFS,
v.
THRIFTY OIL CO., COUNTER-DEFENDANT.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER DENYING MOTIONS FOR TEMPORARY RESTRAINING ORDER

AND RELATED CONSOLIDATED ACTIONS

Presently before the Court are three factually and legally similar motions for temporary restraining orders ("TRO") brought by Defendant/Counter-Plaintiff Franchisees against Plaintiff/Counter-Defendant BP West Coast Products, LLC ("BPWCP") and Counter-Defendant Thrifty Oil Co. ("Thrifty"), in two related cases, BP West Coast Products, LLC v. Crossroad Petroleum, Inc., 12cv665 JLS (KSC) [hereinafter "the lead case" or "665"], and BP West Coast Products, LLC v. Meetra, Inc., 12cv887 JLS (KSC) [hereinafter "the related case" or "887"].*fn1

Also before the Court are the associated oppositions and replies. A hearing on the motions was held on April 17, 2012. Having considered the parties' arguments and the law, the Court DENIES each of the motions.

BACKGROUND

1. Procedural Background

On March 18, 2012, BPWCP filed a complaint for declaratory relief under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801, et seq., in the Southern District of California,(Compl., 665 ECF No. 1), as well as every other judicial district in California.*fn2 The Franchisees filed their own complaints in the Central District of California as well, 2United Oil LLC v. BP West Coast Products, LLC, 12cv886 JLS (KSC) (many franchisee plaintiffs), and Crossroad Petroleum, Inc. v. BP West Coast Products, LLC, 12cv888 JLS (KSC) (Crossroad Petroleum, Inc. ("Crossroad") only), seeking relief against both BPWCP and Thrifty for violations of the PMPA. The three Central District cases were eventually consolidated into one action before the Honorable S. James Otero, and subsequently transferred to this district, where the earlier-filed 665 action was pending.

At the time the consolidated actions were transferred, the Franchisees had already filed a motion for a TRO, which is set before this Court. (TRO, 887 ECF No. 24) The Franchisees also filed a motion for a TRO in the 665 action, (Franchisee TRO, 665 ECF No. 17), and Crossroad eventually filed its own motion for a TRO in the 665 action as well, (Crossroad TRO, 665 ECF No. 31). All three motions were taken under submission following the April 17, 2012, hearing.*fn3

2. Factual Background*fn4

The instant case arises out of franchise and lease agreements between BPWCP and over one hundred*fn5 gasoline service station sites located throughout Southern California. BPWCP leases the service station sites from a third-party owner, Thrifty, and subleases the sites to each of the Franchisees. Beginning in April 2012, the individual ground leases between BPWCP and Thrifty will expire, and as a result BPWCP is terminating or declining to renew its franchise relationship with the sub-lessee Franchisees. In an effort to forestall their break-up, the Franchisees have filed the instant motions for a TRO to maintain the status quo until a decision on the merits of the PMPA claims can be reached.

A. BPWCP-Thrifty Leases

In March 1997, BPWCP leased from Thrifty a total of 261 service station sites. In conjunction with this master lease, BPWCP and Thrifty also entered into separate leases for each of the individual service station sites, and a license agreement for Thrifty's trademark whereby BPWCP was entitled to sublicense the Thrifty trademark to its franchisees.

Pursuant to the BPWCP-Thrifty leases, each site was leased for an initial fifteen- or seventeen-year term, with the option for BPWCP to extend the term of all 261 site leases for three consecutive five-year terms. To exercise the first five-year extension, BPWCP was required to notify Thrifty of its intention to do so by July 1, 2010. The leases further provided that any failure to timely exercise an extension option would constitute an irrevocable waiver of that option as well as any succeeding option.

Prior to the July 1, 2010, deadline, BPWCP decided not to exercise its options to renew. As a result, the leases between BPWCP and Thrifty are approaching expiration, and Thrifty has already arranged for a new lessee, Tesoro Refining and Marketing Company ("Tesoro"), to take over the service station premises. (Franchisee TRO ¶ 10, 665 ECF No. 17)

B. BPWCP-Franchisee Subleases & Franchise Agreements

BPWCP entered into sublease and franchise agreements with each of the Franchisees. Pursuant to those agreements, the Franchisees are licensed to operate as either ARCO-branded or Thrifty-branded gasoline service stations, and BPWCP subleases the service station sites to the Franchisees, subject to the terms and conditions of the underlying ground lease between BPWCP and Thrifty. The franchise agreements further provided that "BPWCP is not obligated to renew any underlying lease," (Compl. Ex. A, at 6,*fn6 665 ECF No. 1-1 (ARCO-brand Lessee PMPA Franchise Agreement); Compl. Ex. B, at 40, 665 ECF No. 1-1 (Thrifty-brand Lessee PMPA Franchise Agreement)), and each of the Franchisees allegedly signed an Acknowledgment of Master Lease setting forth the expiration date of the underlying ground lease, (Compl. Ex. C, at 71, ECF No 1-1).

Given BPWCP's decision not to exercise its options to renew the BPWCP-Thrifty leases, it eventually sent notices of nonrenweal/termination to the Franchisees. BPWCP indicated in those notices that the franchise relationship would end upon the expiration of the underlying BPWCP-Thrifty leases. That date varies per service station site, but the terminations begin to take effect on a rolling basis as of April 23, 2012. Hence the need for the Court to issue an Order on the Franchisees' request for interim equitable relief without the benefit of ample time to decipher these complicated issues with admittedly far-reaching consequences.

LEGAL STANDARD

"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, 788 (9th Cir. 1992) (internal quotation marks omitted); see also Humboldt Oil Co. v. Exxon Co., U.S.A., 695 F.2d 386, 388 (9th Cir. 1982) ("[In passing the PMPA,] Congress sought to reduce the disparity of bargaining power between the franchisee and the franchisor and prevent harsh consequences of sudden and unreasonable termination."). In furtherance of this purpose, "the Act must be given a liberal construction consistent with its goal of protecting franchisees." Id. at 389.

The PMPA "prohibits termination of any franchise except on the basis of specifically enumerated grounds and upon compliance with notice requirements." Id. at 388 (citing 15 U.S.C. § 2802(a), (b)(1)). The Act provides specific enforcement provisions, including interim equitable relief. See 15 U.S.C. § 2805. Relevant here, "[t]he test for the issuance of a preliminary injunction under the PMPA is more liberal than that in the general run of cases." Khorenian v. Union Oil Co., 761 F.2d 533, 535 (9th Cir. 1985). Thus, Section 2805(b)(2) of the PMPA makes the grant of a preliminary injunction mandatory if (A) the franchisee shows that the termination or non-renewal of its franchise raises questions that are "sufficiently serious" to provide "a fair ground for litigation," and (B) the court determines that the "balance of hardships" tips in favor of the franchisee - ...


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