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Valvoline Instant Oil Change Franchising v. RFG Oil, Inc.

United States District Court, S.D. California

June 27, 2014

VALVOLINE INSTANT OIL CHANGE FRANCHISING, et al., Plaintiffs,
v.
RFG OIL, INC., Defendant. AND RELATED COUNTERCLAIM

ORDER RE JOINT MOTION FOR DETERMINATION OF DISCOVERY DISPUTE

KAREN S. CRAWFORD, Magistrate Judge.

Before the Court is the parties' Joint Motion for Determination of Discovery Dispute. [Doc. No. 83.] In the Joint Motion, defendant RFG Oil, Inc. ("RFG") seeks an order compelling plaintiffs to supplement their responses to various requests for production of documents and to produce all responsive documents. For the reasons outlined below, the Court finds that defendant RFG's request must be GRANTED in part and DENIED in part.

Procedural and Factual Background

Plaintiffs Valvoline Instant Oil Change Franchising, Inc. ("VIOCF"); Ashland Consumer Markets, a commercial unit of Ashland, Inc. ("Ashland"); Ashland Licensing and Intellectual Property LLC ("ALIP"); Henley Enterprises, Inc.; Henley Pacific, LLC; Henley Pacific LA LLC; and Henley Pacific S.D. LLC ("Henley") filed a Complaint against RFG on February 8, 2012. [Doc. No. 1.] On September 5, 2012, RFG answered the Complaint and filed a Counterclaim against all plaintiffs. [Doc. No. 47.] On October 10, 2012, plaintiffs filed a First Amended Complaint. [Doc. No. 59.] RFG filed an Answer to the First Amended Complaint and a Counterclaim on October 19, 2012. [Doc. No. 63.] RFG filed a First Amended Counterclaim on August 26, 2013. [Doc. No. 75.]

A. The First Amended Complaint.

The First Amended Complaint alleges: (1) trademark infringement of the We Feature marks in violation of 15 U.S.C. § 1114; (2) trademark infringement of the VIOCF marks in violation of 15 U.S.C. § 1114; (3) unfair competition in violation of 15 U.S.C. § 1125(a); (4) violation of California Business & Professions Code section 17200; (5) declaratory judgement that the We Feature Agreement is terminated; (6) declaratory judgment that the Valvoline Group Agreements are terminated; (7) breach of contract for liquidated damages under the We Feature Agreement; (8) breach of contract for compensatory damages under the Valvoline Group Agreements; (9) tortious interference with business expectancy as to Ashland and VIOCF; (10) tortious interference with business expectancy as to Henley; and (11) injunctive relief. [Doc. No. 59, at pp. 14-26.]

According to the First Amended Complaint, plaintiff VIOCF and defendant RFG entered into certain renewable License Agreements and Sign and Equipment Leases that became effective in 1990. These agreements allowed RFG to establish and operate a number of Valvoline Instant Oil Change centers using the Valvoline Instant Oil Change name and certain VIOCF trademarks. [Doc. No. 59, at p. 4.] At the same time, plaintiff Ashland entered into related Supply Agreements with RFG to purchase Valvoline products for use in operating the Valvoline Instant Oil Change centers. All of these agreements are collectively referred to in the First Amended Complaint as the "Valvoline Group Agreements." [Doc. No. 59, at p. 5.]

Plaintiffs VIOCF/Ashland terminated all of the Valvoline Group Agreements as of November 30, 2011 for failure to pay amounts due under the Supply Agreements. [Doc. No. 59, at p. 6.] As a result of this termination, RFG was no longer a Valvoline franchisee. [Doc. No. 59, at p. 6.] However, at the time they terminated the Valvoline Group Agreements, plaintiffs allege that RFG was offered a "new arrangement" known as a "We Feature National Sales Account" in order to avoid litigation and other problems. [Doc. No. 59, at pp. 7-8.] According to plaintiffs, the new We Feature Agreement went into effect in December 2011. [Doc. No. 59, at p. 7.]

Under the new We Feature Agreement, RFG was allowed an opportunity to repay the amounts owed under the prior Valvoline Group Agreements and to "feature" the Valvoline brand at its service centers but without operating under the franchisee name "Valvoline Instant Oil Change." [Doc. No. 59, at p. 6.] The We Feature Agreement required RFG to "purchase one-hundred percent (100%) of its requirements of bulk motor oil" from Ashland for a period of three years. In addition, RFG was not permitted to use or sell "any bulk products that are competitive with the Valvoline brand." [Doc. No. 59, at pp. 8, 12.] However, plaintiffs discovered soon after the We Feature Agreement went into effect that RFG was purchasing bulk products from other entities, commingling these non-Valvoline oil products with Valvoline products in bulk storage tanks, and then telling customers they were selling "genuine Valvoline product." [Doc. No. 59, at p. 8.] As a result, plaintiffs claim they had a right to terminate the We Feature Agreement immediately. [Doc. No. 59, at p 12-13.]

By letter dated February 3, 2012, RFG was notified that it was in breach of the We Feature Agreement and was advised to "cease and desist" from commingling non-Valvoline oil with Valvoline oil. [Doc. No. 59, at pp. 13-14.] RFG thereafter indicated on February 7, 2012 that it intended to continue its practice of selling non-Valvoline oil to customers. [Doc. No. 59, at p. 14.] As a result, plaintiffs believe they were entitled to immediately terminate the We Feature Agreement. [Doc. No. 59, at p. 19-20.]

Plaintiff Henley also has a franchisee relationship with VIOCF and Ashland and has a large number of Valvoline franchise sites in various parts of the United States. [Doc. No. 59, at p. 24-25; Doc. No. 84, at p. 3; Doc. No. 75, at p. 5.] In 2008, Henley became interested in acquiring 72 EZ Lube stores that had previously been in bankruptcy. [Doc. No. 84, at p. 3.] In 2010, Henley began negotiating with Goldman Sachs to acquire these EZ Lube stores. [Doc. No. 84, at p. 3; Doc. No. 84-1, at p. 8.] In December 2011, Henley agreed to purchase the EZ Lube stores, and the transaction closed in March 2012. [Doc. No. 84, at p. 4; Doc. No. 84-1, at pp. 8-9.]

The First Amended Complaint alleges that RFG "maliciously" interfered with Henley's business relationships with EZ Lube, Ashland, and VIOCF. [Doc. No. 59, at pp. 9-10, 24-25.] Specifically, it is alleged that on February 3, 2012, RFG "maliciously interfered" with Henley's business expectancy with Ashland and VIOCF by sending a letter to Ashland and VIOCF demanding that they "cease and desist from any and all further communications with Henley regarding the purchase and operation of the EZ Lube service centers." [Doc. No. 59, at pp. 24-25.] In addition, on February 6, 2012, it is alleged that RFG "maliciously interfered with Henley's contractual relationship with EZ Lube and its business expectancy with Ashland and VIOCF by sending a letter to Henley demanding that Henley cease and desist from any and all further communications with Ashland, VIOCF and EZ Lube regarding the purchase and operation of the EZ Lube service centers." [Doc. No. 59, at pp. 24-25.]

B. Plaintiffs' Motion for Partial Summary Judgment.

On March 31, 2014, plaintiffs filed a Motion for Partial Summary Judgment. [Doc. No. 87.] In this Motion, plaintiffs sought summary adjudication of the fifth and six causes of action in the First Amended Complaint. [Doc. No. 96, at p. 2.] These causes of action seek a declaration by the District Court that plaintiff VIOCF and Ashland properly terminated the Valvoline Group Agreements (Count VI) and the We Feature Agreement (Count V) because defendant RFG breached various terms of these agreements. [Doc. No. 59, at pp. 19-20.]

Defendant RFG opposed plaintiffs' Motion for Partial Summary Judgment, arguing that: (1) the Valvoline Group Agreements were improperly terminated because RFG cured any breach by making weekly payments toward outstanding invoices; and (2) the We Feature Agreement is unenforceable because it was never fully and completely executed. [Doc. No. 96, at pp. 7, 10, 12.] On June 4, 2014, the District Court issued an Order denying plaintiffs' Motion for Partial Summary Judgment, because plaintiffs failed to demonstrate there were no material issues of fact for trial on these two causes of action for declaratory relief. [Doc. No. 96, at p. 14.]

The District Court's Order of June 4, 2014, denying plaintiffs' Motion for Summary Judgment states that the following facts are undisputed:

Plaintiffs and RFG were engaged in a franchisor/franchisee relationship for over 20 years where RFG branded its 44 oil change facilities with Valvoline trademarks and purchased Valvoline branded products. Each facility was governed by virtually identical sets of franchise agreements. (Dkt. No. 88, McKeown Decl., Exs. A, B.) The relevant agreements are the Licensee Supply Agreement between Ashland Consumer Markets and RFG; and the Renewal License Agreement between Valvoline Instant Oil Change Franchising, Inc. and RFG. ( Id. ) Pursuant to the Renewal License Agreement, VIOCF promised not to grant a license to another Valvoline franchisee within a two mile radius of the store to which the License Agreement pertained. ( Id., Ex. B., Renewal License Agreement § 1.3.)
From November 17, 2010 to November 24, 2010, RFG placed product orders that resulted in invoices totaling $387, 738.32. (Dkt. No. 87-4, Nolan Decl. ¶ 3, Ex. A.) Then between November 29, 2010 through December 22, 2010, RFG placed additional product orders with an invoice of $118, 415.35. ( Id. ) At that time, RFG was on a "Net 45-day" payment term which means that payments of orders are due on average 45 days after they are placed. (Id. ¶ 4.) Any products invoiced on or before the 25th of every month would be due the following month on the 25th. ( Id.; Dkt. No. 93-2, Gong Decl. ¶ 13.) As applied to RFG's invoices, orders placed from November 17-24, 2010 totaling $387, 738.32 were due by December 25, 2010 and orders placed from November 29-December 22, 2010 totaling $118, 415.34 were due on January 25, 2011. (Dkt. No. 87-4, Nolan Decl. ¶ 4.) It is undisputed that RFG did not make full payment of the amounts due on December 25, 2010. (Dkt. No. 93-2, Gong Decl. ¶ 20; Dkt. No. 84-4, Nolan Decl. ¶ 5.)
Consequently, on January 28, 2011, Plaintiffs issued a "Notice of Default and Potential Termination" letter to RFG. (Dkt. No. 88, McKeown Decl., Ex. C.) Without waiving any of its rights, VIOCF granted RFG additional time to cure its breaches by providing payment extensions, and other opportunities to cure. (Id. ¶ 7; Dkt. No. 93-3, Lea Decl., Exs. 6, 7.) Then on November 30, 2011, VIOCF sent RFG a Confirmation of Termination Notice, which was later revised on December 5, 2011. (Dkt. No. 88, McKeown Decl. ¶ 8, Exs. D, E.)
The Revised Confirmation of Termination terminated the license agreements effective November 30, 2011 and sought damages under the contract totaling over $14, 610, 680.10. ( Id., Ex. D.) However, Plaintiffs were willing to settle the matter and temporarily forego enforcement remedies, as well as forego early termination fees if RFG entered into a new "We Feature" Agreement and the required attached General Release. ( Id., Exs. D, F.) Under the We Feature agreement, RFG would continue to operate its various locations and would continue to sell exclusively Valvoline products, but would de-brand its facilities and no longer be required to pay royalties and other fees associated with being a franchisee. (Dkt. No. 88, McKeown Decl. ¶ 9.) RFG was required to buy specified products from Valvoline and not sell any bulk products which are not Valvoline brand bulk products.' ( Id., Ex. F. § 4.) It also required RFG to not alter in composition, commingle with products from other sources, or otherwise adulterate the Products.' ( Id., Ex. F § 8.) On February 8, 2012, Plaintiffs sent Defendant a Notice of Termination of the We Feature National Account Sales Agreement. ( Id., Ex. J.) The parties present different factual versions of the reasons for termination. ( Id., Ex. J; Dkt. No. 93-2, Gong Decl. ¶¶ 38-39.)

[Doc. No. 96, at pp. 3-6.]

As to the fifth and sixth causes of action for declaratory relief in the First Amended Complaint, the District Court concluded there were genuine issues of material fact as to the following: (1) whether the alleged default of the Valvoline Group Agreements was cured by RFG with payments made between January and March 2011 [Doc. No. 96, at p. 11]; (2) whether plaintiffs VIOCF and Ashland performed under the Valvoline Group Agreements when they required RFG to pay for supplies in advance; (3) whether plaintiffs VIOCF and Ashland breached the Valvoline Group Agreements by failing to provide RFG with promised financial incentives and funds for new signs and other equipment [Doc. No. 96, at pp. 11-12]; (4) whether plaintiffs properly terminated the ...


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