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Keith Fullington v. Equilon Enterprises

October 25, 2012

KEITH FULLINGTON, PLAINTIFF AND APPELLANT,
v.
EQUILON ENTERPRISES, LLC, ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from an order of the Superior Court of Los Angeles County, Emilie Elias, Judge. (Los Angeles County Super. Ct. No. BC296533)

The opinion of the court was delivered by: Suzukawa, J.

CERTIFIED FOR PUBLICATION

Reversed.

This appeal arises out of one of a series of suits between defendant Equilon Enterprises LLC (Equilon) and plaintiff Keith Fullington (Fullington), a former Equilon franchisee. Fullington appeals the summary adjudication for Equilon of causes of action for fraud and violation of Business and Professions Code section 21148. We reverse.

FACTUAL BACKGROUND

I. Prior Litigation Between the Parties

Equilon is the successor in interest to Shell Oil Company (Shell) and Texaco, Inc. (Texaco). Fullington is a former Shell lessee-dealer who operated a Shell-branded retail gas station in Rowland Heights, California (the Nogales station).

Equilon was formed in 1998, when Shell and Texaco merged their retail marketing and refining activities. Shell and Texaco contributed to Equilon all of their western refining and marketing assets, and assigned to Equilon all of their gas station leases and dealer agreements. In exchange, Shell and Texaco received 100 percent of the ownership interests in Equilon. Individual Shell and Texaco gas stations continued to sell company products under existing leases and agreements. (Abrahim & Sons Enterprises v. Equilon Enterprises, LLC (9th Cir. 2002) 292 F.3d 958 (Abrahim).)

After its formation, Equilon terminated a "variable rent program" (sometimes referred to as a "VRP") formerly offered to Shell's lessee-dealers. The termination of the variable rent program, as well as the transfer to Equilon of gas station leases and dealer agreements, generated a variety of lawsuits between Equilon and its lessee-dealers. Three such suits are relevant to the present appeal.

A. The HRN Litigation

In 1999, Fullington and other independent Shell lessee-dealers who operated Shell-branded service stations in the United States sued Shell, Equilon, and other defendants in Texas state court. That action was captioned HRN, Inc. v. Shell Oil Company (Harris County, Tex., 234th Jud. Dist. No. 1999-28202) (HRN). The operative tenth amended original petition, which is discussed in detail below, alleged that by the manner in which the defendants set wholesale gasoline prices and gas station rent, the defendants breached their contracts with the plaintiffs and committed a variety of torts.

The Texas court granted summary judgment for the defendants on December 14, 2000. The Texas Supreme Court affirmed the grant of summary judgment.

B. The Abrahim Litigation

After Shell and Texaco transferred their assets to Equilon, 43 independent dealers who operated Shell or Texaco gasoline stations in southern California filed suit in Abrahim.*fn1 The Abrahim plaintiffs contended that by transferring gas station leases to Equilon without offering the plaintiffs a chance to purchase the stations, Shell and Texaco violated Business and Professions Code section 20999.25, subdivision (a) (section 20999.25), which "prohibits a franchisor from selling, transferring, or assigning an interest in a premises to another person unless he or she first makes a bona fide offer to sell that interest to the franchisee. Alternatively, if the franchisor receives an acceptable offer from another party to buy the premises, the franchisor must offer the franchisee a right of first refusal." (Abrahim, supra, 292 F.3d at p. 960.)

The defendants moved for summary judgment, contending that Shell's and Texaco's contributions of gas stations to Equilon was not a sale, transfer, or assignment of the stations to "another person" within the meaning of section 20999.25, subdivision (a). The Ninth Circuit disagreed and reversed the district court's grant of summary judgment for the defendants. It held that Equilon was "another person," and Texaco's and Shell's contributions of assets to Equilon were "transfers," within the meaning of the statute. Thus, "the transaction at issue here was a transfer to another person, Equilon, which triggered the duty to offer the gas stations to the franchisees first." (Abrahim, supra, 292 F.3d at p. 963.)

C. The MarquezLitigation

On June 24, 2002, 21 Shell and Texaco dealers, including Fullington, filed suit in Marquez v. Shell Oil Company (L.A. Super. Ct. No. BC276367) (Marquez). The Marquez plaintiffs alleged that Shell and Texaco failed to offer them the opportunity to purchase their stations before transferring the stations to Equilon, as required by section 20999.25. After the Ninth Circuit's decision in Abrahim, Fullington settled his action against the Marquez defendants. Under the terms of the settlement, executed July 2, 2003, the defendants agreed to pay Fullington 77.5 percent of the increase in the value of the Nogales station between July 1, 1998, and October 29, 2001 (unless the October 2001 value exceeded 165 percent of the July 1, 1998 value, in which case a different formula would be substituted), plus the value of all rent Fullington paid between July 1, 1998, and May 31, 2001, plus interest, less Equilon's actual maintenance and tax expenses for the Nogales station between July 1, 1998, and May 31, 2001, plus interest. In exchange, Fullington agreed to release defendants from liability for all claims against defendants, "[e]xcept for any other lawsuits pending as of the date of this Agreement."

II. The Present Action

On May 29, 2003, Fullington and other lessee-dealers filed the present action against Equilon and four individuals (collectively, Equilon). As relevant to the present appeal, the operative third amended complaint, filed June 16, 2004, alleges as follows:

(1) Violation of Business and Professions Code section 21148. Business and Professions Code section 21148 (section 21148) prohibits a franchisor from withholding consent to the sale, transfer, or assignment of a franchise under certain circumstances. As discussed more fully below, Fullington alleged that Equilon violated section 21148 by intentionally interfering with Fullington's attempts to sell his franchise to two separate buyers with whom Fullington had entered escrow. As a direct result of Equilon's conduct, Fullington was not able to sell his franchise and lost his station and business.

(2) Fraud. Fullington alleged that before Equilon was formed, Shell routinely allowed its lessee-dealers to reduce their rent through the variable rent program. In 1998, Equilon eliminated the variable rent program and reverted to higher "contract rent." Thereafter, Equilon created the "interim rent challenge" (sometimes referred to as the IRC), by which a lessee-dealer could challenge the contract rent by obtaining an appraisal of the dealer's land, equipment, and improvements, and then using the appraisal to calculate a new fair market value rent. The interim rent challenge was supposed to be made available to all lessee-dealers who complained about their contract rents, but instead was arbitrarily made available to only some lessee-dealers.

In 1999 and 2000, Fullington complained to his Equilon sales consultant, Gary Kirner, about the contract rent. Kirner responded that there was nothing he could do because the rent "comes from Houston." Kirner's statements that he could do nothing and that the rent "comes from Houston" were false and Kirner knew them to be false when he made them. Consistent with a management directive, Kirner did not disclose the interim rent challenge to Fullington. As a result, Fullington alleged that he paid "commercially unreasonable and excessively high contract rent" for two years.

III. Equilon's Motions for Summary Judgment

A. Section 21148 Claim (Res Judicata)

Equilon moved for summary adjudication of Fullington's section 21148 claim, asserting that the claim was barred by res judicata because it arose from the same "transaction" as the claims litigated in HRN. Equilon urged that in both HRN and the present action, Fullington alleged that Equilon acted with the intent "to force the lessee-dealers to '"walk away" from their stations for nothing' or to 'substantially reduc[e] the franchisees' goodwill value in order to achieve "dealer buy outs"' at reduced prices. [Internal record reference omitted.]" Equilon therefore urged that Fullington's section 21148 claim was "related in 'time, space, origin, and motivation'" to the claims and allegations in HRN, and thus should have been litigated in a single action.

The court granted summary judgment for Equilon. It explained: "As in HRN, plaintiff Fullington alleges here that Equilon's interference with the sale of his station is demonstrative of Equilon's intent to force its lessee-dealers to '"walk away" from their stations for nothing' or to 'substantially reduc[e] the franchisees' goodwill value in order to achieve "dealer buy outs"' at reduced prices. [Internal record reference omitted.] As such, plaintiff Fullington's section 21148 claim is related in 'time, space, origin, and motivation' to the claims and allegations in HRN, and the claims therefore arise from the same 'transaction.' [Citation.]

"In support of his claim, Fullington alleges that the first incident of Equilon's interference occurred in 1999, followed by interference in 'the winter of 1999, early 2000.' [Internal record reference omitted.] Accordingly, plaintiff Fullington's section 21148 claim had accrued before December 2000, when judgment was rendered in HRN, such that he could have raised that cause of action there. [Citation.] Fullington's failure to raise his section 21148 claim in HRN bars him from raising it now."

B. Fraud Claim (Prior Settlement)

Equilon also moved for summary adjudication of Fullington's fraud claim. Equilon asserted that even if it had misrepresented the existence of the interim rent challenge, as Fullington alleged, the only damage Fullington could have suffered was the difference between the rent he actually paid and the lower fair market rent he allegedly would have paid had he known about the IRC. However, as part of the Marquez settlement, all of the rent Fullington paid after the IRC was implemented was refunded to him. Therefore, "[Fullington] cannot support an essential element of [his] case--that [he was] damaged by Equilon's failure to inform [him] of the existence of the IRC--and [his] fraud claims fail as a matter of law."

Fullington opposed the summary adjudication motion, contending that his fraud damages included not only rent overcharges, but also lost goodwill value and punitive damages. Thus, while he conceded that Equilon was entitled to an offset for the rent overcharges for which he had been compensated, he ...


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