Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05627/USCOURTS-cand-3_07-cv-05627-0/pdf.json

Parties Involved:
ConocoPhillips Company
Counter-claimant
Houtan Petroleum, Inc
Counter-defendant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

HOUTAN PETROLEUM, INC.,

Plaintiff,

 v.

CONOCOPHILLIPS COMPANY, a Texas

Corporation and DOES 1 through 10,

Inclusive,

Defendants.

 

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Case No. 07-5627 SC

ORDER DENYING

PLAINTIFF'S MOTION

FOR PRELIMINARY

INJUNCTION

I. INTRODUCTION

This matter comes before the Court on the Ex Parte

Application for a Temporary Restraining Order and Preliminary

Injunction ("Application") by the plaintiff Houtan Petroleum, Inc.

("Plaintiff" or "Houtan"). See Docket No. 3. The Court issued a

Temporary Restraining Order and an Order to Show Cause regarding

the preliminary injunction on November 6, 2007. See Docket No. 8

("TRO"). The defendant ConocoPhillips Company ("Conoco" or

"Defendant") then filed a Response and Plaintiff submitted a

Reply. See Docket Nos. 11, 16. For the following reasons, the

Court DENIES Plaintiff's Application for Preliminary Injunction.

II. BACKGROUND

Houtan operated a Union 76 gas station ("the Station") as a

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1 Ed Haddad is the President of Houtan. His declaration was

submitted with Houtan's Application. 

2

 This lease will be referred to as the Master Lease.

3

 Richard Mathews is an independent contractor for the Real

Estate Department of Conoco. His declaration was submitted with

Conoco's Response.

4

 Unless otherwise noted, all further dates are from 2007.

5

 Dan Pellegrino is an Account Representative for Conoco. 

His declaration was submitted with Conoco's Response.

6

 Although Haddad states in his declaration that the

Agreement was executed on March 30, the dates contained in the

actual agreement all reflect that it was executed on July 6. See

Haddad Decl. Ex. A at 80.

2

Conoco franchisee at the same location for approximately 10 years. 

Compl., Docket No. 1, at 1; Haddad Decl. ¶ 3.1 Conoco did not own

the Station property but instead leased it from a third-party,

V.O. Limited Partners ("V.O. Limited").2

 Mathews Decl. ¶ 3.3

Conoco owns the structures, equipment and improvements at the

Station. Id.

The previous franchise agreement between Houtan and Conoco

was set to expire on August 31, 2007.4 Pellegrino Decl. ¶ 3.5 The

Master Lease between Conoco and V.O. Limited was set to expire on

October 31. Id. On July 6, Houtan and Conoco executed a new

franchise agreement ("the Franchise Agreement") that would begin

September 1. Haddad Decl. Ex. A.6 The Franchise Agreement was to

be for a term of three years, expiring on August 31, 2010. Resp.

at 3. The Franchise Agreement was executed, however, with the

understanding by both Houtan and Conoco that Conoco's Master Lease

for the Station property was set to expire on October 31, just two

months after the new Franchise Agreement was set to begin. Resp.

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at 2. Thus, if Conoco was unable to renew the Master Lease with

V.O. Limited, the Franchise Agreement would terminate as Conoco

would lose any right to occupy or sublease the Station. 

Pellegrino Decl. ¶ 3. As Pellegrino stated: "In the event

ConcoPhillips was unable to renew its underlying lease [the Master

Lease] of the Station property, there was obviously no way it

would be able to continue to sublease the Station to Houtan

Petroleum. ConocoPhillips had no further right to renew or extend

the underlying property lease." Id.

Not only did Conoco explain this situation to Houtan as early

as May, but the Agreement itself, which was executed on July 6,

contained express language putting Houtan on notice that Conoco's

inability to renew the Master Lease with V.O. Limited would

necessarily result in termination of the Agreement. The Agreement

states, in part:

There is a possibility that the term of

the underlying lease [the Master Lease]

to the Station might expire and not be

renewed upon the underlying lease's

expiration date. DEALER [Houtan] hereby

acknowledges CONOCOPHILLIPS' disclosure

to DEALER that this Agreement and the

Station herein are subject to all terms

and conditions of an underlying lease

held by CONOCOPHILLIPS in the property

and premises, which underlying lease

expires on October 31, 2007 and that such

underlying lease may expire and may not

be renewed during the Term of this

Agreement. Thereby, the DEALER [Houtan]

is hereby on notice that this Agreement

is hereby terminated on the date the

underlying lease expires . . . .

Haddad Decl., Ex. A at 63 (emphasis in original). Houtan

acknowledged this language in the Agreement by placing initials

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immediately following the above-cited language. See id. In

addition, Conoco, on several occasions, verbally advised Houtan of

the ramifications of nonrenewal of the Master Lease. See

Pellegrino Decl. ¶ 4 (stating "Throughout 2007, I explained all of

this to Mr. Hadad [sic] in numerous conversations during routine

meetings and visits to the Station. Mr. Hadad [sic] told me that

Houtan Petroleum still wanted to continue its franchise

relationship with Conoco . . . ."). With this understanding, the

parties executed the Franchise Agreement on July 6. Haddad Decl.,

Ex. A at 80.

The Master Lease between Conoco and V.O. Limited for the

Station property was initially for a 25 year term, beginning March

1, 1966, and expiring February 28, 1991. Mathews Decl. ¶ 4. A

subsequent modification extended the expiration date to October

31, 2002, and granted Conoco an option for an additional five year

term. Id. Conoco exercised that option and the Master Lease

expired October 31, 2007. Id. Conoco has submitted evidence

indicating that it made several attempts to renew or extend the

Master Lease beyond the October 31 date. Id. ¶ 5. According to a

sworn declaration submitted by Conoco, V.O. Limited never provided

a substantive response to Conoco's request to extend the Master

Lease and V.O. Limited eventually stopped responding to Conoco's

communications. Id. On September 17, Conoco advised V.O. Limited

that if V.O. did not respond by September 21 to Conoco's request

to extend the Master Lease, Conoco would consider such silence a

rejection. Id. V.O. Limited did not respond to this letter. Id.

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On September 18, Conoco informed Houtan in writing that it

would be terminating the Franchise Agreement effective October 31. 

Haddad Decl., Ex. B. The letter stated that the reason Conoco was

terminating the Franchise Agreement was because of Conoco's

inability to renew the Master Lease with V.O. Limited. Id. On

October 16, Houtan entered into an agreement with V.O. Limited to

lease the Station property beginning November 1, the day after

Conoco's Master Lease ended. Haddad Decl. ¶ 8. On October 18,

Houtan sent Conoco a letter indicating that Houtan had entered

into a lease agreement with V.O. Limited for the Station property. 

Id. ¶ 9; Ex. C, Ex. D. In the same letter Houtan demanded that

Conoco sell its improvements and equipment on the Station property

to Houtan. Id.

On October 22, Conoco sent a letter to Houtan stating that

Conoco would sell the improvements and equipment to Houtan for

$340,000 if the offer was accepted by October 29, and if Houtan

paid the full amount by certified check by October 31. Haddad

Decl., Ex. E. Houtan refused to make this payment, believing it

to be in excess of fair market value. Haddad Decl. ¶ 21.

On October 31, Conoco sent bulldozers to the premises to

begin removal of its equipment and improvements. Id. ¶ 12. 

Houtan refused to permit Conoco to enter the premises and Conoco

subsequently cut off fuel to the Station. Id. ¶ 15. Houtan was

able to obtain a fuel supply from another supplier. Pellegrino

Decl. ¶ 7.

On November 5 Houtan filed a Complaint in this Court seeking

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damages, injunctive relief, equitable relief and declaratory

relief pursuant to the Petroleum Marketing Practices Act ("PMPA"),

15 U.S.C. § 2801, et seq. On the same day Houtan filed an Ex

Parte Motion for a Temporary Restraining Order and Application for

Preliminary Injunction. On November 6 the Court granted the

Temporary Restraining Order and enjoined Conoco from taking

further action to interfere with Houtan's immediate assumption of

control of the Station. See TRO. The TRO prevented Conoco from

removing any equipment or improvements and compelled Conoco to

resume its franchise relationship with Houtan by supplying fuel

and processing credit card sales from the Station. Id.

The Court now addresses whether to issue a preliminary

injunction. For the following reasons, the Court finds that a

preliminary injunction is not "necessary to remedy the effects of

any failure to comply with the requirements of section 2802 or

2803 . . . ." 15 U.S.C. § 2805(b).

III. DISCUSSION

A. Legal Standard

"The PMPA is intended to protect gas station franchise owners

from arbitrary termination or nonrenewal of their franchises with

large oil corporations and gasoline distributors . . . ." 

DuFresne's Auto Serv., Inc. v. Shell Oil Co., 992 F.2d 920, 925

(9th Cir. 1993). The PMPA states that if "a franchisor fails to

comply with the requirements of section 2802 or 2803 of this

title, the franchisor may maintain a civil action against such

franchisor." 15 U.S.C. § 2805. The PMPA also provides for

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preliminary injunctions, stating:

[T]he court shall grant a preliminary

injunction if (A) the franchisee shows:

(i) the franchise of which he is a party

has been terminated or the franchise

relationship of which he is a party has

not been renewed, and (ii) there exist

sufficiently serious questions going to

the merits to make such questions a fair

ground for litigation; and (B) the court

determines that, on balance, the

hardships imposed upon the franchisor by

the issuance of such preliminary

injunctive relief will be less than the

hardship which would be imposed upon such

franchisee if such preliminary injunctive

relief were not granted.

Id. "The franchisee bears 'the burden of proving the termination

of the franchise . . . .' The franchisor then bears 'the burden

of going forward with evidence to establish as an affirmative

defense that such termination . . . was permitted under section

2802(b) or 2803.'" BP W. Coast Prods. LLC v. May, 447 F.3d 658,

663 n.1 (9th Cir. 2006) (citing 15 U.S.C. § 2805(c)).

B. Analysis

1. Termination of Franchise Agreement

Both parties concede that the Franchise Agreement was

terminated on October 31.

2. Sufficiently Serious Questions Going to the Merits

Houtan alleges that Conoco violated PMPA in three respects:

(1) terminating the Franchise Agreement without good faith or in

the normal course of business, as required by § 2802; (2) failing

to give 90 days notice before terminating the franchise, as

required by § 2804(a)(2); and (3) failing to make a bona fide

offer to sell the equipment and improvements of the Station to

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Houtan, as required by § 2802(c)(4)(C)(i). The Court addresses

the merits of each claim in turn.

a. Termination of Agreement 

Houtan alleges that Conoco has "wrongfully terminated the

Plaintiff's Franchise Agreement and that said termination was not

made in good faith and/or in the normal course of business." 

Compl. ¶ 27. "Section 2802(b)(2) of the PMPA provides several

permissible grounds for termination or nonrenewal of a franchise." 

Hifai v. Shell Oil Co., 704 F.2d 1425, 1428 (9th Cir. 1983). 

Specifically, § 2802 states that "the following are grounds for

termination of a franchise or nonrenewal of a franchise: . . .(C)

[t]he occurrence of an event which is relevant to the franchise

relationship and as a result of which termination of the franchise

or nonrenewal of the franchise relationship is reasonable . . . ." 

15 U.S.C. § 2802(b)(2)(C). "Section 2802(c)(4) provides that the

term 'event' as used in section 2802(b)(2)(C) includes 'loss of

the franchisor's right to grant possession of the leased marketing

premises through expiration of an underlying lease.'" Hifai, 704

F.2d at 1428 (citing 15 U.S.C. § 2802(c)(4)).

Under the evidence submitted by the parties, the Court cannot

conclude that Conoco's termination of the Franchise Agreement was

not in good faith. To the contrary, Conoco terminated the

Franchise Agreement based on the fact that Conoco was unable to

renew the Master Lease with V.O. Limited for the Station property. 

As § 2802 states, "loss of the franchisor's right to grant

possession of the leased marketing premises through expiration of

an underlying lease," is grounds for termination of a franchise. 

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15 U.S.C. § 2802.

Nonetheless, a franchisor must adhere to certain statutory

requirements in terminating a franchise agreement based on the

loss of the underlying lease for the land. "A franchisor can rely

on section 2802(c)(4) to justify nonrenewal only if: 

[T]he franchisee was notified in writing,

prior to the commencement of the term of

the then existing franchise-

(A) of the duration of the

underlying lease, and 

(B) of the fact that such underlying

lease might expire and not be

renewed during the term of such

franchise (in the case of

termination) or at the end of the

term (in case of nonrenewal)."

Hutchens v. Eli Roberts Oil Co., 838 F.2d 1138, 1142-43 (11th Cir.

1988) (citing 15 U.S.C. § 2802(c)(4)).

In the present case, Conoco has satisfied both of these

requirements. As noted above, the Franchise Agreement signed by

both parties on July 6 contains the following language:

There is a possibility that the term of

the underlying lease [the Master Lease]

to the Station might expire and not be

renewed upon the underlying lease's

expiration date. DEALER [Houtan] hereby

acknowledges CONOCOPHILLIPS' disclosure

to DEALER that this Agreement and the

Station herein are subject to all terms

and conditions of an underlying lease

held by CONOCOPHILLIPS in the property

and premises, which underlying lease

expires on October 31, 2007 and that such

underlying lease may expire and may not

be renewed during the Term of this

Agreement. Thereby, the DEALER [Houtan]

is hereby on notice that this Agreement

is hereby terminated on the date the

underlying lease expires . . . .

Haddad Decl., Ex. A at 63 (emphasis in original).

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In addition, Conoco has submitted evidence indicating that it

repeatedly attempted to renew the Master Lease with V.O. Limited. 

See Mathews Decl. ¶ 5. Furthermore, as Conoco was attempting to

renew the Master Lease, Houtan was in contact with V.O. Limited

and eventually negotiated a direct lease for the Station property. 

The Franchise Agreement provided a single monthly rent for

Houtan's use of the Station property, the Union 76 trademarks and

the equipment and improvements. Haddad Decl. Ex. A. Considering

that the Franchise Agreement between Houtan and Conoco was

premised on Conoco's Master Lease with V.O. Limited, Houtan could

reasonably have expected that by negotiating directly with V.O.

Limited to take over the Master Lease, the Franchise Agreement

with Conoco would be terminated. For the foregoing reasons, the

Court finds that there are not sufficiently serious questions

going to the merits of Houtan's claim that termination of the

Agreement was not made in good faith such that a preliminary

injunction is warranted. 

b. 90-Day Notice of Termination Under § 2804(a)

Houtan asserts that the notice provided by Conoco was

defective under § 2804(a). Section 2804(a) states, in part:

Prior to termination of any franchise or

nonrenewal of any franchise relationship,

the franchisor shall furnish notification

of such termination or nonrenewal to the

franchisee . . . not less than 90 days

prior to the date on which such

termination or nonrenewal takes effect.

15 U.S.C. § 2804(a).

Houtan argues that because Conoco informed Houtan in writing

on September 18 that it would be terminating the franchise

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Agreement on October 31, Conoco failed to provide the requisite

90-day notice of termination. This argument ignores the fact that

Houtan was on notice as early as July 6 that the Franchise

Agreement would be terminated in the event that Conoco was unable

to secure a renewal of the Master Lease. Houtan executed the

renewed Franchise Agreement on July 6, and, as detailed above, the

Agreement contained express language indicating that Conoco's

inability to renew the Master Lease would necessarily require

termination of the Franchise Agreement. The Court therefore finds

that there are not sufficiently serious questions going to the

merits of Houtan's claim that Conoco failed to give 90 days notice

of termination such that a preliminary injunction would be

warranted. 

In the alternative, Conoco also argues that even if the

notice did not comply with the 90 day notice requirement of §

2804(a), the notice was in compliance with § 2804(b) and was

therefore permissible. Section 2804(b) provides:

In circumstances in which it would not be

reasonable for the franchisor to furnish

notification, not less than 90 days prior

to the date on which termination . . .

takes effect, as required by subsection

(a)(2) of this section, such franchisor

shall furnish notification to the

franchisee . . . on the earliest date . .

. such notification is reasonably

practicable.

15 U.S.C. § 2804(b)(1).

In the present case, Conoco was unable to renew the Master

Lease. On September 18 Conoco sent notice to Houtan indicating

that the Franchise Agreement would not be renewed. This qualifies

as "the earliest date on which furnishing of such notification is

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reasonably practicable." Id. Thus, even if Conoco's notice was

not within the 90 day statutory period, it very likely was within

the alternative statutory period of § 2804(b)(1).

Finally, the Court's finding that there is not a sufficiently

serious question going to the merits of Houtan's notice claim is

supported by the decisions of other courts. See, e.g., Harara v.

ConocoPhillips Co., 377 F. Supp. 2d 779, 792 (N.D. Cal. April 29,

2005) (finding that "defendant was justified in terminating the

franchise with ten days notice"); Murphy Oil USA, Inc. v. Brooks

Hauser, 820 F. Supp. 447, 443 (D. Minn. 1993) (stating "14 days

notice of termination is not an unreasonable amount of time" given

that plaintiff had failed to pay for gasoline and rent); Smoot v.

Mobil Oil Corp., 722 F. Supp. 849, 855 (D. Mass. 1989) (holding

that four weeks was reasonable notice for termination).

For these reasons, the Court finds that there are not

sufficiently serious questions going to the merits of Houtan's

claim that Conoco failed to give the requisite notice of

termination. 

c. Bona Fide Offer Under § 2802(c)(4)(C)(i)

The heart of Houtan's Complaint is that Conoco did not make a

bona fide offer to sell Conoco's equipment and improvements on the

Station property to Houtan. "When a franchisor decides for

legitimate business reasons not to renew a franchise relationship,

the franchisor must give the franchisee a bona fide offer to

purchase the station." Ellis v. Mobil Oil, 969 F.2d 784, 788 (9th

Cir. 1992). This is premised on § 2802, which states: 

In a situation in which the franchisee

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acquires possession of the leased

marketing premises, . . . the franchisor

(if so requested) . . . [shall make] a

bona fide offer to sell, transfer, or

assign to the franchisee the interest of

the franchisor in any improvements or

equipment located on the premises . . . .

15 U.S.C. § 2802(c)(4)(C)(i).

In the present case, it is undisputed that Conoco made an

offer to sell the equipment and improvements of the Station to

Houtan. Houtan instead argues that the offer was not bona fide

because the price that Conoco asked was too high and because

Houtan was given only 7 days to accept the offer and only 9 days

to make full payment. 

i. Price

"It is settled law that a bona fide offer under PMPA is

measured by an objective market standard." Ellis, 969 F.2d at

787. "To be objectively reasonable, an offer must approach fair

market value." Id. (internal quotation marks and alterations

omitted). Nonetheless, "Congress' decision not actually to use

the term 'fair market value' but instead the term bona fide . . .

suggests some degree of deference." Slatky v. Amoco Oil Co., 830

F.2d 476, 485 (9th Cir. 1987). Thus, in deciding "what manner

courts should scrutinize the distributor's offer to determine

whether it complies with the requirement . . . [Congress's] choice

indicates . . . a recognition that the word 'value' almost always

involves a conjecture, a guess, a prediction, a prophesy." Id.

(internal quotation marks and citations omitted). Accordingly,

"[t]he facts of each case will set the terms of what constitutes a

bona fide offer." Ellis, 969 F.2d at 788.

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In the present case, Conoco has offered to sell its equipment

and improvements to Houtan for $340,000. Haddad Decl., Ex. E. 

This price was based on an independent, third-party appraisal

prepared by a licensed appraiser. Mathews Decl. ¶ 7; Ex. E. 

Houtan claims that this amount vastly exceeds fair market value

and argues instead that the equipment and improvements are worth

no more than $120,000. Haddad Decl. ¶ 22. In support of this

Houtan submitted the declaration of its president, Ed Haddad.

The Court cannot conclude from the evidence before it whether

the price contained in the offer by Conoco was bona fide. That

said, the parties' disagreement as to the value of the equipment

and improvements is not grounds for a preliminary injunction. 

Thus, the issue that remains in this action is whether the price

contained in the offer was reasonable, and, therefore, whether the

offer was bona fide. This is a factual dispute and, as such, is a

question for the jury.

ii. Time of Offer

Houtan also argues that the offer was not bona fide because

the time period given by Conoco to accept the offer was

unreasonably short. Conoco sent a letter on September 18 to

Houtan stating that the Franchise Agreement would terminate on

October 31 because of Conoco's inability to renew the Master

Lease. Haddad Decl. ¶ 6; Ex. B. On October 16, Houtan entered

into an agreement with V.O. Limited to lease the Station property

beginning November 1. Id. ¶ 8; Ex. C. On October 18, Houtan sent

Conoco a letter indicating that Houtan had entered into this lease

agreement and demanding that Conoco sell its improvements and

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7

 Section 2802 states that the franchisor must make a bona

fide offer only "if requested in writing by the franchisee . . . ." 

15 U.S.C. § 2804(c)(4)(C). Section 2802 also states that this

request by franchisee must be made "not later than 30 days after

notification was given . . . ." Id. In the present case, the

request was made exactly 30 days after the September 18 letter.

8

 On October 22, Conoco sent a letter to Houtan stating that

Conoco would sell the improvements and equipment if the offer was

accepted by October 29, and paid in full by October 31. Haddad

Decl. Ex. E.

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equipment on the Station property to Houtan. Id. ¶ 9; Ex. C, Ex.

D.

According to these facts, Houtan had notice on September 18

that the Franchise Agreement would not be renewed but waited until

October 18 to demand an offer for the equipment and improvements.7

Although unclear, it appears that Houtan waited these 30 days

because Houtan was negotiating with V.O. Limited to assume the

Master Lease of the Station property. Thus, the fact that Houtan

had only 7 days to accept Conoco's offer is, in part, Houtan's

doing.8

In addition, Conoco had compelling reasons why it needed to

complete the sale of the equipment and improvements before

November 1. The Master Lease Conoco has with V.O. Limited was set

to expire October 31. In the event that Houtan did not buy the

equipment and improvements, Conoco wanted the opportunity to

remove its improvements and equipment from the Station before the

Master Lease expired. 

For these reasons the Court finds that, under the

circumstances of the case, the time of the offer does not give

rise to sufficiently serious questions going to the merits of

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9 Under the Master Lease Conoco had 10 days after termination

of the lease to remove its equipment and improvements. Mathews

Decl. ¶ 8.

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Houtan's claim that Conoco failed to make a bona fide offer such

that a preliminary injunction would be warranted. 

The Court emphasizes that in reaching these conclusions

regarding the offer, the Court does not hold that the offer was

necessarily reasonable. Instead, the Court finds that the issue

of the offer is not, by itself, sufficient justification for a

preliminary injunction. This is especially true given that Conoco

has stipulated to leaving in place its equipment and improvements

pending the outcome of this action and pending Houtan's and V.O.

Limited's agreement to several issues, including an appropriate

interim rental payment, allocation of responsibility for

environmental compliance and an appropriate manner and time for

removal in the event Houtan ultimately decides not to purchase the

equipment and improvements.9

3. Balance of Hardships

The final factor in the determination of whether a

preliminary injunction should issue requires the Court to balance

the hardships to each party. Section 2805 states:

[T]he court shall grant a preliminary

injunction if . . . the court determines

that, on balance, the hardships imposed

upon the franchisor by the issuance of

such preliminary injunctive relief will

be less than the hardship which would be

imposed upon such franchisee if such

preliminary injunctive relief were not

granted.

15 U.S.C. § 2805(b)(2).

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In the present case Houtan knew as early as July 6 that the

Franchise Agreement would end on October 31 if Conoco were unable

to renew the Master Lease. On September 18 Houtan received

confirmation that Conoco was unable to renew the Master Lease. On

October 16 Houtan entered into a lease agreement for the Station

property with V.O. Limited. 

The Franchise Agreement, while providing Houtan with a

limited license to use Union 76 trademarks, was primarily a

sublease of the Station property by Conoco to Houtan. Because the

Master Lease expired, Conoco has no ability to continue to

sublease the property to Houtan. To the contrary, Houtan has

negotiated with V.O. Limited to take over this lease. Therefore,

there is no dispute that the Franchise Agreement between Houtan

and Conoco had terminated, for there was no way that Conoco could

still perform under the Franchise Agreement in the absence of the

Master Lease.

Given these facts, it is difficult to see how the hardships

imposed upon Conoco by the issuance of the preliminary injunction

will be less than the hardship imposed upon Houtan if the

preliminary injunction were not granted. The Franchise Agreement

provided a single monthly payment for Houtan's use of the Station

property, the Union 76 trademarks and the equipment and

improvements. Haddad Decl., Ex. A. Houtan is now essentially

asking the Court to create a new franchise agreement that is

identical to the Franchise Agreement at issue save for the fact

that Houtan, rather than Conoco, controls the lease to the Station

property. The Court is unwilling to do this. The termination of

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the Master Lease was a valid reason for the termination of the

Franchise Agreement. See 15 U.S.C. § 2802(c)(4) (stating

"termination of the franchise . . . is reasonable . . . [due to]

loss of the franchisor's right to grant possession of the leased

marketing premises through expiration of an underlying lease . .

.").

Houtan has not presented compelling evidence that it will

face substantial hardships without the preliminary injunction. 

After the Franchise Agreement terminated but before the Court

issued the temporary restraining order, Houtan was able to

purchase fuel from another supplier and was able to continue

operating the Station. Furthermore, because Conoco has agreed to

leave its equipment and improvements in place pending party

negotiation or judicial determination of an appropriate purchase

price, Houtan will be able to continue operating the Station. The

primary hardship to Houtan will be the requirement that it stop

operating the station as a Union 76 station, as the Union 76

trademarks were licensed to Houtan by Conoco pursuant to the

Franchise Agreement and, as noted above, both parties agree that

this agreement terminated on October 31. 

Conoco, on the other hand, would suffer some hardship. 

Conoco would be forced to leave its fuel storage and dispensation

system at a station site over which it has no control and no right

of entry. In light of the environmental issues associated with a

gas station, Conoco would be exposed to risks if it were unable to

supervise or ensure prudent station practices and compliance with

applicable regulations. Accordingly, the Court cannot conclude

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10 The Court notes that Conoco has not filed a motion for an

injunction prohibiting Houtan from using the Union 76 trademarks. 

The Court, therefore, is not presented with an opportunity to rule

on this issue. 

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that, on balance, the hardships imposed upon Conoco by the

issuance of a preliminary injunction will be less than the

hardship which would be imposed upon Houtan if the preliminary

injunction were not granted.

Because the Court finds that a preliminary injunction is not

necessary under the more permissive standard of the PMPA, it need

not reach the issue of whether a preliminary injunction would be

appropriate under Federal Rule of Civil Procedure 65, which

requires a more substantial showing. See Dollar Rent A Car of

Wash., Inc. v. Travelers Indem., 774 F.2d 1371, 1374 (9th Cir.

1985) (stating that the granting of a preliminary injunction is

discretionary, compared with the mandatory language of § 2805, and

that a showing of irreparable injury is an essential

prerequisite); see also Khorenian v. Union Oil Co. of Cal., 761

F.2d 533, 535 (9th Cir. 1985) (stating that the "test for the

issuance of a preliminary injunction under the PMPA is more

liberal than that in the general run of cases").

4. Houtan's Use of Union 76 Trademarks

The Franchise Agreement states, in part: 

Upon expiration, termination, nonrenewal

or cancellation of this Agreement, for

any reason, DEALER shall immediately

cease and discontinue the use of said

Union 76 Marks . . . .

Haddad Decl., Ex. A at 20. By these terms, Houtan is no longer

entitled to use the Union 76 trademarks.10 

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IV. CONCLUSION

 For the foregoing reasons, Plaintiff's Application for a

Preliminary Injunction is DENIED and the Temporary Restraining

Order issued by the Court on November 6, 2007, is TERMINATED.

IT IS SO ORDERED.

Dated: November 16, 2007 

UNITED STATES DISTRICT JUDGE

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