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

Background

BP Products North America Inc. sued Grand Petroleum, Inc. and individual defendants Amin Salkhi, Banafsheh S. Salkhi, Ali Salkhi, Souri Salkhi, and Ajang Salkhi. The dispute arose from two gas stations in Los Altos and Oakland, California, operated under ampm Mini Market Agreements and Contract Dealer Gasoline Agreements.

BP alleged four claims: breach of contract based on violations of deed restrictions, failure to pay amounts due, breach of contract involving personal guarantees, and permanent injunctive relief. The defendants asserted four counterclaims, including claims under the California Franchise Investment Law and the Petroleum Marketing Practices Act, a federal law governing termination and nonrenewal of petroleum franchises.

BP had initially offered the Luminate and MOJO A programs voluntarily, but later made them mandatory. BP notified Grand that it had to comply with Luminate requirements by March 31, 2019, and MOJO A requirements by December 31, 2018. BP later gave termination notices and terminated Grand’s agreements for both stations effective January 15, 2020. Grand thereafter operated the stations as “Grand Gasoline” without BP products.

Petroleum Marketing Practices Act termination claims

The Petroleum Marketing Practices Act permits termination for certain failures by a franchisee, including failure to comply with a reasonable and materially significant franchise provision or failure to make good-faith efforts to carry out the franchise provisions. BP relied on those provisions when terminating Grand based on alleged noncompliance with Luminate and MOJO A requirements.

The court found genuine disputes of material fact—meaning factual disputes that could affect the result—about whether Grand’s alleged breaches were material and whether Grand acted in good faith. The record showed that Grand largely complied with MOJO A, including having fly fans at both stations and purchasing cooler graphics from BP’s preferred vendor, although the graphics did not meet the program requirements. The record also showed that Grand installed compliant LED lighting and made efforts to obtain permits for the Los Altos station, but did not complete the Oakland station work.

The court also found that the record did not establish the amount of lighting installed, and that the parties disputed whether BP’s guidelines were sufficiently clear to allow Grand to complete the required changes. Because these questions were for a trial, the court could not rule as a matter of law that BP’s termination was lawful under either statutory provision. BP’s motion for summary judgment on the relevant breach-of-contract claims and Grand’s first and second counterclaims was denied. The defendants’ related cross-motion was also denied.

California Franchise Investment Law claims

The defendants argued that the Luminate and MOJO A programs were unlawful material modifications of the franchise agreements under the California Franchise Investment Law. The court denied the defendants’ motion as premature and denied the parties’ motions concerning the California Franchise Investment Law claims and defenses.

The court concluded that factual disputes remained about whether the programs materially modified the existing franchise. The statute does not define “material modification,” and the parties disputed the meaning of the written franchise disclosure. Because the record was limited and the parties had not adequately briefed contract interpretation, the court could not decide as a matter of law whether the programs were permitted by the agreements or were unlawful material modifications.

The court rejected BP’s argument that the California material-modification requirements were preempted—displaced by conflicting federal law—under the Petroleum Marketing Practices Act. The court said those requirements concern the terms agreed upon in the franchise contracts, not the federal law’s rules governing termination grounds, procedures, or notices.

Use restrictions and disposition

The parties conceded liability under the use restrictions. The court therefore granted in part BP’s motion for summary judgment on its use-restriction breach-of-contract claim, but only on liability. The court reserved the issues concerning equitable remedies, including the requested injunction, because factual disputes remained about whether the termination was lawful. The defendants’ cross-motion on these claims was denied.

BP’s motion for summary judgment on its claims concerning unpaid amounts and personal guarantees was denied. BP’s motion for summary judgment on the first and second counterclaims was denied, and Grand’s cross-motion concerning those claims was denied. The court also denied the defendants’ motions concerning the California Franchise Investment Law claims and defenses. The order terminated Docket Nos. 82 and 95 and stated that the trial date would be reset by separate order.

Judge Yvonne Gonzalez Rogers issued the order on October 14, 2021.