BP Products North America Inc. v. Grand Petroleum, Inc.

Background

BP Products North America, Inc. sought a preliminary injunction based on its claim that it had lawfully terminated Grand’s franchise agreements. BP also moved to dismiss Claims 1, 2, 3, and 5 of Grand’s counterclaim.

Grand argued that BP’s Luminate and MOJO A marketing programs required Grand to incur substantial expenses for new lighting, fixtures, and signage. Grand contended that imposing those requirements was a material change to the franchise agreements and violated the Petroleum Marketing Practices Act, the California Franchise Relations Act, and the California Franchise Investment Law.

BP did not dispute that it had not made a California Franchise Investment Law disclosure specifically concerning the Luminate and MOJO A programs and their costs. BP instead argued that the franchise agreements already gave it discretion to impose those requirements at Grand’s expense. The court noted that BP’s earlier disclosure stated that Grand was not required to purchase services, supplies, products, fixtures, or other goods from BP or its designees, except for specified fuel and petroleum products.

Preliminary injunction

The court denied BP’s motion for a preliminary injunction. It held that BP had not established a likelihood of success on its claim that it lawfully terminated the franchise agreements. The court found that the record and Grand’s arguments raised serious factual and legal questions about whether the termination complied with the governing laws.

The court discussed the Petroleum Marketing Practices Act’s requirements for terminating a petroleum franchise, including compliance with notice requirements and permissible termination grounds. It also discussed the California Franchise Relations Act’s good-cause requirement. The court noted that the timing requirements under the federal statute might also undermine BP’s position, although the parties had not addressed those requirements.

The court further found a significant issue concerning whether imposing the marketing programs and their costs was a material modification requiring disclosure under the California Franchise Investment Law. It rejected BP’s argument that its contract interpretation avoided that disclosure requirement. The court also rejected BP’s statute-of-limitations argument at this stage, explaining that illegality may be raised as a defense and that factual issues remained about when Grand discovered the alleged violation.

Motion to dismiss counterclaim

The court granted in part and denied in part BP’s motion to dismiss Claims 1, 2, 3, and 5 of Grand’s counterclaim.

Claims 1, 2, and 3. The court denied BP’s request to dismiss these claims as untimely. It concluded that the alleged contract-based wrongful-termination claim fell within the applicable four-year period and that factual issues prevented resolving the timing question for the declaratory-relief claims on the pleadings.

The court also denied BP’s request to dismiss Claims 1, 2, and 3 on the ground that the marketing programs could not constitute a material modification under the California Franchise Investment Law. The court found that material modification had been sufficiently alleged to avoid dismissal as a matter of law. It explained that the cited statutory provisions suggested disclosure could be required when a changed term substantially affected the franchisee’s obligations or responsibilities.

Claim 5. The court granted BP’s motion as to the Fifth Cause of Action for declaratory relief. It held that the claim was precluded by prior litigation because the allegations challenged land-use restrictions as unlawful restraints on competition, while the earlier litigation had reached a contrary determination. The court dismissed the Fifth Claim without leave to amend, finding that amendment would be futile. The court stated that it could address the matter differently if the prior judgment were later reversed, but the claim as pleaded could not proceed in this action.

Other orders

The court ordered BP to file its answer to the counterclaim within 21 days of the order. It also advanced the case-management conference from July 13, 2020, to June 1, 2020, at 2:00 p.m.

Classification basis

This order is mixed because the court reached the merits-related question of whether BP was likely to establish that the franchise terminations were lawful when deciding the preliminary-injunction request, while disposing of the Fifth Counterclaim on the threshold ground of claim preclusion. The court’s partial Rule 12 ruling on Claims 1, 2, and 3 is procedural, but the order also contains the merits-related preliminary-injunction ruling.