Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03276/USCOURTS-cand-3_05-cv-03276-6/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:2801 Petroleum Marketing Practices Act

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 In the complaint, plaintiff also asked for a judgment requiring defendant to surrender the service

station to plaintiff by November 8, 2005. Time has made this issue moot. Plaintiff also requested an award of

attorney’s fees and costs. It did not, however, pursue this issue in its motion for summary judgment. 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CHEVRON U.S.A., INC., 

Plaintiff, 

 v.

SSD & ASSOCIATES, 

Defendant. /

No. C 05-03276 WHA

ORDER GRANTING IN PART

AND DENYING IN PART

PLAINTIFF’S MOTION FOR

SUMMARY JUDGMENT

INTRODUCTION

In this declaratory judgment action, plaintiff Chevron U.S.A., Inc., moves for summary

judgment. Plaintiff Chevron and defendant SSD & Associates had a franchise agreement by

which defendant operated a Chevron-brand service station. Chevron claims SSD seriously

breached the agreement, entitling Chevron to terminate the franchise. SSD did breach material

terms of the agreement. There are, however, material issues of fact as to whether those

breaches were serious enough to warrant termination. For this reason, summary judgment on

Chevron’s entitlement to terminate the franchise is DENIED. The complaint also requested a

judgment that SSD breached material terms of the franchise agreements. Defendant concedes

this point. The motion on this issue therefore is GRANTED.

1

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 1 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

STATEMENT

Plaintiff and defendant entered into a series of agreements to govern the franchise

relationship by which defendant operated a Chevron-brand service station in San Ramon from

October 1, 2002, through September 30, 2005. The agreement required SSD to pay rent based

in part on its sales volume. Chevron and SSD also agreed that the dealer would use a computer

system to collect sales data from the cash registers and automatically deliver it to Chevron via

satellite. To give Chevron a way to double-check the accuracy of the electronic data, the

agreement required SSD to maintain certain business records and to allow Chevron to audit

them (Phelps Decl., Exh. A (Dealer Lease, Optional Temporary Partial Rent Waiver and

Electronic Transaction Authorization Agreement, Dealer Supply Contract (Lessee Dealer),

RAN System Amendment to Dealer Lease, various ancillary agreements, and amendments)

(collectively, the “agreement”)). 

In a letter delivered August 9, 2005, Chevron notified defendant that it would terminate

the franchise in ninety days (Phelps Decl, Exh. B (Not. of Termination) and Exh. D (Dhillon

Dep. (Apr. 6, 2006) (acknowledging receipt of notice on Aug. 9, 2005). The notice stated that,

during an audit, defendant had failed to produce the following documents for 2002 to 2004: (1)

purchase journals summarizing food mart inventory purchases, (2) financial statements, and (3)

income tax returns (Phelps Decl., Exh. B). It claimed that the failure to produce these records

was a violation of section 4(d) of the Dealer Lease. Section 4 of the Dealer Lease is entitled

“RENT.” Subsection (d) provides that:

In order to confirm Dealer’s performance of Dealer’s obligations

under the Lease, Chevron shall have the right . . . to audit all books

and records relating to Dealer’s operation of the Premises . . . . 

Dealer shall within the time specified in [the audit notice] produce

such books and records for inspection and/or copying by Chevron. 

Dealer shall maintain such books and records relating to Dealer’s

operation of the [gasoline station] as may be specified by Chevron

from time to time in Chevron’s Rental Accounting Guide . . . . 

Dealer acknowledges receipt of Chevron’s Rental Accounting

Guide

(Phelps Decl., Exh. A). The stated purpose of the audit is thus to verify rent. 

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 2 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

Two days after giving notice of the termination, Chevron filed its complaint in the

instant action. Later, defendant created all the records that were missing and gave them to

plaintiff (Dhillon Decl. ¶ 18). 

ANALYSIS

Summary judgment is proper where the evidence shows that “there is no genuine issue

as to any material fact and that the moving party is entitled to judgment as a matter of law.” 

FRCP 56(c), (e). The nonmoving party has the burden of identifying with reasonable

particularity the evidence that precludes summary judgment. Keenan v. Allen, 91 F.3d 1275,

1279 (9th Cir. 1996). A genuine dispute as to a material fact exists if there is sufficient

evidence for a reasonable finder of fact to return a verdict for the nonmoving party. On

summary judgment, the “evidence of the non-movant is to be believed, and all justifiable

inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,

255 (1986). 

Termination of a gasoline-station franchise is governed by Title I of the Petroleum

Marketing Practices Act, as amended, 15 U.S.C. 2801–2806. The Act was adopted to protect

“franchisees from arbitrary or discriminatory termination . . . of their franchises. [A]s remedial

legislation, the Act must be given a liberal construction consistent with its goal of protecting

franchisees.” Khorenian v. Union Oil Co. of Cal., 761 F.2d 533, 535 (9th Cir. 1985) (internal

citations and quotation marks omitted). 

The Act bars refiners and distributors from terminating franchises except under certain

circumstances. 15 U.S.C. 2802(a). One of these is the “failure by the franchisee to comply

with any provision of the franchise,” so long as the provision “is both reasonable and of

material significance to the franchise relationship.” 15 U.S.C. 2802(b)(2)(A). A “failure” to

comply, however, has a limited definition under the statute. “The term ‘failure’ does not

include . . . any failure which is only technical or unimportant to the franchise relationship . . . .” 

15 U.S.C. 2801(13)(A). Therefore, a refiner or distributor only can terminate an agreement if

(1) the franchisee’s breach is more than merely technical and (2) the breach was important to

the “franchise relationship.” As the Ninth Circuit put it: “[i]n making determinations in

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 3 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2 Termination also is proper if it is reasonable, based on some event that is relevant to the franchise

relationship. 15 U.S.C. 2802(b)(2)(C). Such events include fraud or crime by the franchisee, or failure by the

franchisee to comply with federal, state or local laws or regulations, provided such actions or laws are relevant

to the operation of the gas station. 15 U.S.C. 2802(c)(1), (c)(11). Although this justification for ending the

franchise was given in the termination notice, Chevron is not pursuing it in the instant motion. 

4

franchise termination cases under the [Petroleum Marketing Practices Act], we look not only at

the nature of the provision allegedly violated, but also at the nature and effect of the alleged

breach.” Khorenian, 761 F.2d at 536.2

 

Chevron cites DiNapoli v. Exxon Corp., 549 F. Supp. 449, 453 (D. N.J. 1982), for the

proposition that the “focus of section 2802(b)(2)(A) is the reasonableness of the contract

provision, not of the franchise termination” (Br. 8). In fact, the Ninth Circuit and Congress

effectively require an inquiry into the reasonableness of the termination. A court assessing the

propriety of termination under section 2802(b)(2)(A) must decide whether the breach was

significant enough to warrant ending the franchise. Termination is improper if the breach was

not serious. In other words, the franchisor’s reaction must be proportionate to the breach. A

finding that they were proportionate is tantamount to holding that the termination was

reasonable. A finding to the contrary is, for all practical purposes, a holding that the

termination was unreasonable. DiNapoli does not make this point clear. To the extent

DiNapoli contradicts binding Ninth Circuit precedent, it is rejected. 

This order turns first to Chevron’s claim that it is entitled to a judgment that defendant

breached material terms of the franchise agreements. After that, it considers the requested

judgment that Chevron is entitled to terminate the franchise. 

1. BREACH OF MATERIAL TERMS OF FRANCHISE AGREEMENTS.

Chevron claims that defendant violated section 4(d) of the Dealer Lease. Defendant

“does not dispute that . . . it did not have all of the required business records at the time of the

examination” (Opp. 9). By this statement and others, defendant concedes that it breached

section 4(d) of the Dealer Lease by failing to produce the records at the appointed time. This

order therefore considers the breach of the agreement as conceded. 

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 4 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

The next question is whether the provisions that defendant violated were “material” to

the overall agreement. Throughout its opposition brief, defendant claims repeatedly that its

breach of the agreements was not material (Opp. 2). Nowhere does defendant claim that the

provisions that it violated were immaterial to the agreement generally. Defendant thus

concedes that the provisions it violated were material. Plaintiff therefore is entitled to summary

judgment on this issue.

2. PLAINTIFF’S ENTITLEMENT TO TERMINATE THE FRANCHISE.

Defendant argues that the instant motion must be denied because there are “genuine

issue[s] as to [] material fact[s],” FRCP 56(c). The material facts allegedly in dispute are

whether defendant’s failure to produce the documents on time was sufficiently important to

justify terminating the franchise, despite defendant’s late delivery of the documents to plaintiff. 

In support of this argument, defendant produced a declaration by Surinder Dhillon, its chief

executive officer, in which he stated that, after the audit, defendant prepared all the missing

documents using valid source material, such as cancelled checks and purchase invoices, then

provided the documents to Chevron (Opp. 18). He stated: 

In September 2005, SSD provided the required tax returns to

Chevron, in October 2005, SSD provided Chevron the requested

financial statements and in December 2005, SSD provided

Chevron with the food mart purchase journals. . . . [T]he numbers

used for these reports did not come from Mr. Oseguera’s [the

Chevron auditor’s] report. Instead, these reports were prepared

from the source documents [][(i.e., journal tapes, end of shift Zreports, end of day Z-reports, cancelled checks, purchase invoices,

bank records, contemporaneous back office computer reports and

department and group reports[][)] . . . that would be the basis for

such reports even when they are prepared currently 

(Dhillon Decl. ¶ 18). 

This evidence only can be evaluated properly in light of the reason why defendant was

required to maintain the records and produce them for audits. Chevron conducted audits to

confirm that dealers were paying enough rent. Rent was based on each dealer’s sales (Phelps

Decl., Exh. A (Dealer Lease, Section 4(d); Optional Temporary Partial Rent Waiver and

Electronic Transaction Authorization Agreement)). Without being able to determine if the

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 5 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

electronic sales figures reported to plaintiff were correct, it had no way of verifying that proper

rent was being paid. Plaintiff underscores this purpose in its brief:

Because the system relies on self-reporting by Defendant, the

Dealer Lease requires Defendant to maintain contemporaneous

financial records of its operations, to give Chevron a way to verify

that sales have been properly reported. The Dealer Lease also

gives Chevron the right to audit those records, to make sure

Defendant is in compliance with its obligations under the

Lease. . . . [T]he requirement that Defendant keep

contemporaneous records of its sales and make them available for

audit permits Chevron to verify that the station’s sales were

properly reported and, therefore, the proper rent was charged

(Br. 3, 10 (internal citations omitted)). 

On the instant motion, all evidence produced by defendant must be credited and all

justifiable inferences in its favor must be made. See Anderson, 477 U.S. at 248, 255. The

Dhillon declaration therefore must be accepted as proving that although defendant gave plaintiff

the records late, the documents eventually were created using valid data, resulting in disclosure

to Chevron of the required records. Based on this evidence, the Court at trial justifiably could

conclude that Chevron eventually was able to verify rent amounts and suffered no significant

harm as a result of the delay. The ability to verify rent is, after all, the very purpose of the audit

and recordkeeping requirements. If the Court at trial were to conclude that Chevron suffered no

significant harm, it also could conclude that the breaches were unimportant to the franchise

relationship and therefore did not justify termination. 

Of course, it is conceivable that Chevron could point to enough evidence to make these

inferences in SSD’s favor unreasonable. Chevron then would prevail on the instant motion. 

Chevron has submitted evidence that the records produced were deficient in certain respects. 

This evidence, however, is not so strong as to make it unreasonable for a finder of fact to infer,

at trial and from Mr. Dhillon’s testimony, that the lapses were not serious enough to undermine

the franchise relationship. 

Plaintiff points to the following evidence in support of its contention that the “records

Defendant ultimately provided were worthless to verify the sales data” that previously had been

reported automatically (Reply Br. 8). 

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 6 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

 Plaintiff argued that there were two distinct income statements both for 2003 and for 2004. Only one

income statement for 2003, however, was submitted into evidence with the motion. The argument about the

2004 statements is therefore unavailing. If plaintiff introduced it into evidence at the hearing, that was too late

because it failed to give defense counsel any time to prepare a response. 

4

 Plaintiff objects to evidence not mentioned in this order. The results of this order are based only on

evidence mentioned in it. All objections to evidence not mentioned here are therefore moot. 

7

First, there are two income statements for 2004 (Br. 15–16, Reply Br. 8–9).3 One was

provided to plaintiff by defendant’s counsel. The other was provided by defendant’s tax

preparer (Ray Decl. ¶¶ 26, 32). There are differences between the statements. This raised a red

flag that defendant might be maintaining double books in an attempt to defraud plaintiff. The

Court held an evidentiary hearing at which plaintiff’s bookkeeper and tax preparer, a certified

public accountant, both testified. They both testified that one version of the income statement

was a draft prepared by the bookkeeper and that the second was the final version submitted to

the Internal Revenue Service after revisions by the tax preparer. This testimony was supported

by a declaration submitted by the bookkeeper (Davis Decl. ¶ 3). The testimony and the

bookkeeper’s declaration create, at least, a material issue as to whether the differences between

the two versions cast suspicion on their reliability, or are merely the result of fine-tuning by the

CPA. 

Plaintiff objects to the bookkeeper’s statement that “it is a common practice for the CPA

to make adjustments to finalize the tax returns.” Plaintiff contends this statement lacked

foundation because the bookkeeper stated she was not a CPA yet rendered “an opinion

regarding ‘common practice[s]’ followed by CPAs” (Pl.’s Objections to Evidence Submitted by

Def. at 4). The bookkeeper’s statement did not refer to common practice among CPAs

generally. She referred only to the common practice of the CPA who prepared defendant’s tax

returns. She had a foundation to make this statement because she worked with that particular

accountant. The objection is overruled. Plaintiff also objects that the evidence is an improper

opinion in violation of FRE 701 and 702. The bookkeeper’s statement was not an opinion. It

was a statement of a fact that she observed personally. These objections also are overruled.4

 In

any case, the live testimony standing alone was enough to raise a triable issue of material fact. 

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 7 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

Second, Chevron claims that the “order in which the documents were produced is

inherently suspicious” (Reply Br. 9). Even if the order in which the documents were produced

is suspicious, the Dhillon declaration meets this objection by stating that the documents were

created from underlying source documents such as cancelled checks. His statement thus might

give rise to a reasonable inference that the documents were reliable. The order in which the

documents were produced does not overcome this inference. 

Third, Chevron alleges that the “balance sheets are wrong and contain suspicious,

unexplained entries” (ibid). Plaintiff’s expert states that 2002 retained earnings were

miscalculated on a balance sheet, although he states that it “is unknown at this time how this

number was calculated.” The same expert reports another apparent miscalculation that resulted

in retained earnings for 2003 being underreported to the IRS by $106. If this miscalculation

were fixed, “the balance sheet would not balance” (Ray Decl. ¶¶ 34–35). As the expert

conceded, the first discrepancy is of unknown origin. It is therefore of limited value in

undercutting the reasonableness of inferring, based on Mr. Dhillon’s testimony, that defendant’s

documents eventually were produced properly. The second discrepancy, of $106, is too small

to carry plaintiff’s burden. 

Fourth, Chevron notes that defendant’s books contain a reference to a “suspense

account” containing more than $1 million for each year from 2000 to 2004 (Reply Br. 9; Ray

Decl. ¶ 37). Plaintiff’s expert stated that a suspense account is normally temporary. He called

its long and consistent balance “quite extraordinary” (Ray Decl. ¶ 37). Defendant provided no

explanation for this fact. As an initial matter, the contents of the records from 2000 and 2001

are irrelevant, because the only stated basis for termination was the missing records for 2002 to

2005. Furthermore, given that all justifiable inferences on the instant motion must be drawn in

defendant’s favor, the unusual nature of the suspense-account item on the 2002 through 2005

balance sheets does not, in and of itself, render unreasonable the inferences that may be based

on the Dhillon declaration. 

Fifth, Chevron claims that defendant’s balance sheets from 1999 to 2004 “claim

inconsistent costs for fixtures and equipment[,] and depreciation expenses in excess of 100% of

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 8 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

 The bookkeeper characterized her estimates as “reasonable” (Davis Decl. ¶ 5). Chevron objects to

her characterization of the figures as “reasonable,” on the ground that this statement lacks foundation and is

improper opinion testimony (Pl.’s Objections at 4). This order assumes, without deciding, that these objections

would be sustained. It therefore considers the evidence with the word “reasonable” stricken from the

declaration. 

9

the cost of the fixtures and equipment” (Reply Br. 9). The first inconsistency was in 1999 alone

(Ray Decl. ¶ 36). The termination of the franchise was based only on the failure to produce

documents covering 2002 through 2005 (Phelps Decl., Exh. B (Not. of Termination)). Plaintiff

provides no reason why a discrepancy from 1999 is relevant. Furthermore, Chevron’s Rental

Accounting Guide only requires retention of documents for three calendar years (Phelps Decl.,

Exh. C (Rental Accounting Guide at 4-7). As to the depreciation exceeding the cost of the

fixtures and equipment, the difference is just $5,743 (Ray Decl. ¶ 37). This amount is too small

for it to overcome the justifiable inference, based on Mr. Dhillon’s declaration, that the

documents defendant produced were reliable enough to allow proper calculation of rent owed. 

Sixth, plaintiff notes that the ending value of the gas station’s inventory for each year

was identical for 2002 through 2004 (Reply Br. 9; Ray Decl. ¶ 30). Plaintiff casts this

consistency as suspicious. SSD’s bookkeeper states that the figures were “a[n] . . . estimate of

the Station’s closing inventory for 2002–2004” (Davis Decl. ¶ 5).5

 Any inquiry into whether

the estimates were accurate and reliable enough to allow Chevron to verify the rent is a factintensive inquiry. The answer to this question is in legitimate dispute. The bare suspicions of

Chevron’s expert witness are therefore not enough to support a grant of summary judgment in

its favor. This is particularly true in light of Mr. Dhillon’s declaration, which permits the

justifiable inference that the figures were reliable. 

Seventh, plaintiff raises the contention that the “annual financial statements Defendant

produced are no substitute for the monthly financial statements required” by the franchise

agreement. Plaintiff argues that these annual statements are insufficient because rent is

calculated on a monthly basis (Reply Br. 10). The only evidence that Chevron cites in support

of this argument are sections 1(b)–(d) of the Optional Temporary Partial Rent Waiver and

Electronic Transaction Authorization Agreement (Phelps Decl., Exh. A). None of these

sections relate to recordkeeping. Instead, they address how rent is to be calculated. 

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 9 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

Furthermore, plaintiff cites to no evidentiary support for its contention that SSD supplied it only

with annual statements. These evidentiary deficiencies defeat this aspect of Chevron’s motion. 

In addition, Chevron did not raise this issue until its reply brief. New issues may not normally

be raised in a reply brief. 

Even considered as a whole, Chevron’s contentions about discrepancies and

irregularities in defendant’s records would not make it unreasonable for a finder of fact to find

for defendant based on Mr. Dhillon’s testimony. The Court at trial reasonably could reject

plaintiff’s objections as a potpourri of quibbles that would not undermine the franchise

relationship enough to warrant termination. Chevron may, however, prove its case at trial. At

this stage, however, there is a sufficient factual dispute to bar summary judgment on the issue of

Chevron’s entitlement to terminate the franchise. 

Chevron also raises a legal argument related to the records that were produced late. It

claims that defendant “has no right to cure its breaches” (Reply Br. 7). The dispositive issue,

however, is not whether defendant cured breaches of the agreement. Instead, the issue is

whether those breaches were significant enough to justify terminating the franchise. Under the

Act, dealers do not need to cure unimportant and merely technical breaches of the franchise in

order to avoid termination. If the breaches are that insignificant, termination is barred and any

right to “cure” is a nonissue. 

Chevron cites Wisser Company, Inc. v. Mobil Oil Corp., 730 F.2d 54 (2d Cir. 1984). In

Wisser, a gasoline dealer brought an action seeking to enjoin Mobil from completing

termination of the franchise. Mobil had based its termination on the dealer selling non-Mobil

gasoline under the Mobil trademark. A district judge denied a motion for a preliminary

injunction, based on its findings that there was a probability that Mobil would be able to prove

that the dealer was selling misbranded gasoline and that Mobil would succeed on the merits. 

The Second Circuit upheld the order, holding that “the district court’s finding that Mobil

probably would be able to show at trial that [the dealer] was ‘passing off’ the non-Mobil

gasoline as Mobil gasoline is not clearly erroneous . . . .” The dealer argued that the notice of

termination was improper because it was not preceded by an earlier notice and by an

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 10 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

opportunity to cure the breach. The Second Circuit held that there was no such right to an

opportunity to cure under 15 U.S.C. 2802(b)(2)(A). Wisser Co., 730 F.2d at 56–59. In the

instant motion, Chevron justifies its termination on the same subsection of the Act. Beyond

that, the similarities end. SSD makes a different contention than did the dealer in Wisser. SSD

does not contend that it was entitled to an earlier notice and to an opportunity to cure before a

notice of termination could be given. Instead, SSD contends that its breach never rose to the

level of importance that would justify termination. 

Chevron also cites Reyes v. Atlantic Richfield Co., 12 F.3d 1464 (9th Cir. 1993), in

support of its statement that “courts have repeatedly upheld terminations under the [Act] based

on the dealer’s failure to maintain business records required by the franchisor (Br. 12). In

Reyes, the Ninth Circuit held that three facts, collectively, justified nonrenewal of the dealer’s

franchise: (1) the dealer stopped stocking the store with new merchandise, (2) the dealer let

required insurance lapse and (3) defendant failed to keep and produce proper records on time. 

That decision, however, was distinguishable from the instant case in one crucial way: unlike

SSD, the dealer in Reyes did not claim that the records were ever produced to Atlantic

Richfield. He therefore made no argument that the net result was a mere delay, as opposed to

an unmitigated failure to keep proper books. His only argument that termination was not proper

under section 2802(b)(2)(A) was that it was motivated by racial discrimination. 12 F.3d at

1468–69. Reyes is therefore not on point. 

Chevron also cites to two district court orders. The first, in Chevron, U.S.A. Inc. v.

Gulessarian, Bus. Franchise Guide (CCH) ¶ 11,975 (C.D. Cal. Nov. 22, 2000), is

distinguishable because defendant produced nothing to contradict Chevron’s evidence that the

dealer’s bookkeeping was improper. As the judge ruled: 

Defendant argues that termination [under section 2802(b)(2)(A)]

was not warranted because Plaintiff failed to provide Defendant an

opportunity to produce the requested records ‘and filed the subject

action in bad faith.’ Plaintiff correctly notes that the only evidence

Defendant offers with respect to the audit is a declarant’s statement

that the auditor spent one-and-a-half hours at the station on August

17, 1999. This is wholly insufficient to support Defendant’s

conclusory argument.

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 11 of 12
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

Id. (internal citations and footnote omitted). By contrast, SSD produced evidence that the

documents it eventually delivered to Chevron were prepared using proper underlying data. A

reasonable finder of fact could infer from this evidence that Chevron eventually could verify the

rent and, therefore, that SSD’s breaches were unimportant to the franchise. In addition, the

judge in Gulessarian held that the termination was justified under section 2802(b)(2)(A) based

on filing of false sales tax returns. Id. n.4. In the instant motion, by contrast, Chevron does not

pursue this justification for termination of the franchise. In short, Gulessarian does not

persuade the Court to grant Chevron’s motion. 

The other district court order was in Nahabet v. Chevron U.S.A., Inc., Bus. Franchise

Guide (CCH) ¶ 12,184 (C.D. Cal. Oct. 24, 2001). Like Gulessarian, Nahabet was a case over a

dealer’s unmitigated failure to provide important accounting documents to Chevron. As the

judge in Nahabet noted, “[I]t is undisputed that the missing Z Reports [summary sales reports

generated by the station’s automatic sales-reporting system] were either discarded or never

generated, and that Plaintiff never produced them; thus, Plaintiff was in no position to cure his

breach.” Id. & n.2. Nahabet therefore is distinguishable from the instant case, in which SSD

presents evidence that it eventually gave Chevron all the records it requested. Given this

important difference between the instant case and Nahabet, that order does not persuade the

Court to grant Chevron’s motion. 

CONCLUSION

For the reasons stated, plaintiff’s motion for summary judgment is GRANTED only as to

whether defendant breached material terms of the agreement. In all other respects, including

plaintiff’s entitlement to terminate the franchise, the motion is DENIED. 

IT IS SO ORDERED.

Dated: July 21, 2006 WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

Case 3:05-cv-03276-WHA Document 56 Filed 07/21/06 Page 12 of 12