Petroleum Sales, Inc. v. Valero Refining Company-California et al

Filing 96

ORDER by Judge ARMSTRONG granting 56 Motion for Summary Judgment (lrc, COURT STAFF) (Filed on 12/14/2006)

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Petroleum Sales, Inc. v. Valero Refining Company-California et al Doc. 96 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 1 of 34 1 2 3 4 5 6 7 8 9 10 v. VALERO REFINING COMPANY CALIFORNIA; VALERO MARKETING AND SUPPLY COMPANY; and DOES 1 through 20, Defendants. / PETROLEUM SALES, INC., Plaintiff, No. C 05-3526 SBA ORDER IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This matter comes before the Court on Defendants' Motion for Summary Judgment [Docket No. 56]. Having read and considered the arguments presented by the parties in their moving papers, the Court finds this matter appropriate for disposition without a hearing. BACKGROUND This case arises out of a dispute between Defendant Valero,1 which operates a network of gas service stations in the United States, and Plaintiff Petroleum Sales, Inc. ("PSI"), which owns and operates four Valero-branded service stations in the Bay Area, regarding the system used by PSI to process credit card transactions. PSI was formed by Ben Shimek in 1980, and the corporation is wholly owned by Shimek and his wife. Phelps Decl. Ex. J (Shimek Depo. at 19, 57). Shimek has been in the service station business for 36 years. Id. at 12. PSI has approximately 250 employees, and its total revenue in 2005 was approximately $10 million. Phelps Decl. Ex. L (Paul Depo. at 22-23). The four service stations at issue were formerly Exxon stations. Skellie Decl. at 2. Exxon Defendants in this action are Valero Refining Company California; Valero Marketing and Supply Company; and Does 1 through 20. Except where necessary, they will be referred to collectively as "Valero" or "Defendants." 1 Dockets.Justia.com Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 2 of 34 1 2 3 4 5 6 7 8 9 10 sold its gas stations in the Bay Area to Valero Energy Corp. in 2000, and Shimek signed franchise agreements with Valero Refining on behalf of PSI on June 14, 2000. Shimek Decl. at 10-11. In July 2000, Valero offered Shimek the option to purchase the service stations. Plaintiff's Ex. 7. The letter stated "[t]his offer must be accepted as and when described above. Returning changed or altered Purchase Agreements will be deemed a rejection even if returned by the deadline and signed." Id. In May 2001, PSI purchased the land and improvements at the service station sites. Skellie Decl. at 2. Shimek signed standard form dealer agreements with Valero. Shimek Decl. at 18. The dealer agreements consist of two parts, the Contract Dealer Account Supply Agreement (the "Supply Agreement") and the Contract Dealer Account Identifications and Equipment Agreement (the "Equipment Agreement"). See Phelps Decl. Ex. R. These agreements were originally entered into between Valero Refining Company and PSI. In May 2002, Valero Refining Company assigned all of its rights and obligations under the agreements to Valero Marketing and Supply Company. Skellie Decl. at 3. The Equipment Agreement provides that "DEALER agrees to be bound by and comply with all terms and conditions of any card guide or agreement under which VALERO or THIRD PARTY ISSUER agrees to process and pay for Valero Cards and other card sales tickets. The terms of such card guide or agreement may be amended and/or supplemented at any time by VALERO or THIRD PARTY ISSUER(S)." Id. at PSI0000077. In other words, the terms of the Credit Card Sales Guide are incorporated by reference into the dealer agreement. Blair Skellie, Valero's West Coast Region Director, declares that Valero requires its branded retailers to accept a "slate" of credit cards, which is set forth in the Credit Card Sales Guide. Skellie Decl. at 6. Valero retailers are charged a fee for each transaction using a non-proprietary credit card. Id. at 7. "Since September 2003, Valero dealers have not been charged a fee for processing transactions using the Valero proprietary credit card." Id. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 3 of 34 1 2 3 4 5 6 7 8 9 10 The Credit Card Sales Guide2 states, under the heading "What Cards You Can Accept," that transactions at all Valero stations "must be processed through the Valero Credit Card Processing Network, which operates on a computer switching system and communication network ("Network") which is currently offered by EFS Concord/BuyPass ("BuyPass") as our approved third party system provider." Phelps Decl. Ex. N. According to Skellie, "[V]alero Marketing's goal is to provide a consistent retail offering to consumers . . . [a]llowing retailers to make their own separate deals with credit card processors threatens Valero Marketing's ability to offer that consistent retail experience." Skellie Decl. at 9. The Supply Agreement provides that Valero may, "at its sole option" pay the dealer a Facilities Allowance to assist with maintenance, repair and replacement obligations. Phelps Decl. Ex. R at PSI0000042. The Facilities Allowance was set at three cents per gallon on gas purchased from Valero. Valero reserved the right, "in its sole discretion, to periodically change, reduce or eliminate, the FACILITIES ALLOWANCE, or to revise the timing, schedule or method of paying the FACILITIES ALLOWANCE." Further, "VALERO will cease payment of the FACILITIES ALLOWANCE if VALERO decides, in its sole discretion, that TENANT is not fulfilling all of its responsibilities under the SUPPLY AGREEMENT . . . or under any EQUIPMENT AGREEMENT." Id. The Supply Agreement also contains a waiver of any claim for consequential damages. Section 18.7 states: "Neither party will make any claim relating to this SUPPLY AGREEMENT for special or consequential damages except that VALERO may make any claim relating to this SUPPLY AGREEMENT for consequential damages to the extent covered by DEALER'S insurance." Phelps Decl. Ex. R at PSI0000055. Shimek testified that he signed the agreements with Valero without reading them. Phelps Decl. Ex. J (Shimek Depo. at 86). He also testified that his then-attorney, Mr. Daskal, represented United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The version of the Credit Card Sales Guide discussed herein is dated June 1, 2003. See Phelps Decl. Ex. N. As will be discussed, there is some dispute with regard to when revisions were made to the Guide, and when PSI was notified of such revisions. 3 2 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 4 of 34 1 2 3 4 5 6 7 8 9 10 that the supply agreement was offered on a "take it or leave it" basis. Shimek relied on that representation and signed the agreement. Id. Shimek states that "Valero Refining instructed PSI that the terms of those agreements were not negotiable. No Card Guide was attached to any of those agreements. I was not aware that these agreements contained waivers of consequential or special damages when I signed them. Neither Valero Energy nor defendants brought those waivers to my attention." Shimek Decl. at 18. Further, Shimek states that the agreements were "more unfairly one-sided than other dealer contracts in the petroleum industry in the Bay Area. . . . I am aware of no other agreement that gave a supplier discretion to charge an individual dealer more for petroleum products simply because the supplier claimed that a dealer had committed a breach of a dealer agreement. I am aware of no other agreement that contained a waiver of consequential and special damages . . . I have been familiar with the terms of dealer contracts with major oil refiners and independent distributors in the Bay Area because I have routinely reviewed and signed them since about 1980." Shimek Decl. at 20. However, Shimek states that he decided to sign the agreements because his only other alternative was to remain a franchisee and pay three cents more per gallon, "since only dealers who purchased their stations would receive Facilities Allowances." Id. at 18. "I decided to purchase the stations, in part, because Valero Refining represented that it would lower gasoline prices and would not lower PSI's Facilities Allowances (3 cpg) without 'careful consideration.'" Id. at 17. Shimek states that between October 2000 and July 2003, he had several discussions with Valero employees Roberto Barrantes and Blair Skellie regarding his concern that the Valero credit card network authorized cards too slowly. Shimek Decl. at 16. "On many occasions, I asked them to upgrade or to allow PSI to upgrade the system to satellite or high-speed communications systems. . . . Defendants did not respond to my requests and concerns. Instead, defendants insisted (for no stated reason) that all dealers must use the Valero dialup system." Id. Shimek asked Michael Trimble, a consultant for retail gas stations, to determine whether the speed of credit card authorization at PSI's Valero-branded stations could be improved. Trimble Decl. at 6. Trimble United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 5 of 34 1 2 3 4 5 6 7 8 9 10 timed credit card authorizations and observed that they ranged between 15 and 30 seconds. He also observed that customers became frustrated by the delay. Id. In addition to the speed of transactions, PSI was concerned about delays in settlement with Valero's system (i.e. that the dealer would not get paid in a timely manner), and about high credit card fees. Phelps Decl. Ex. K (Trimble Depo. at 81). Trimble determined that the cause of the problems was Valero's authorization procedures and telephone communication network, and advised Shimek that "the most reliable, efficient, and cost effective way to improve credit card authorization times" was to change from telephone to satellite communications. Trimble Decl. at 7-8. Trimble discussed this option with a representative of Valero, who stated that "satellite communications was not something that was offered by Valero at that time. He stated that Valero was considering several options for the credit card network. . . . No one at Valero responded to my recommendation." Id. at 8. Barrantes, Valero's Branded Sales Manager, testified in his deposition that he had several conversations with Shimek in which Shimek threatened to stop using the Valero system. Phelps Decl. Ex. G. at 52-54. In 2003, after Valero began issuing proprietary credit cards, Shimek asked Trimble to determine whether it was feasible for PSI to continue to process Valero cards if PSI used satellite communications. Trimble Decl. at 11. Trimble gave Shimek various options, each of which required Valero's approval. Id. In early July 2003, Shimek asked Barrantes to identify all writings that would preclude PSI from using another credit card processing network, and Barrantes faxed PSI Section 5.2 of the Equipment Agreement, which required PSI to follow the Card Guide. Shimek Decl. at 22. On July 18, 2003, Shimek signed agreements with Petroleum Card Services, Inc. to have Valero's processor (EFS Concord BuyPass) process PSI's credit card transactions for lower fees. Id. at 23. On July 23, 2003, Skellie sent a letter to all Bay Area Valero dealers, stating that Valero was in the process of reviewing its credit card requirements and that dealers could expect to see major changes to the Credit Card Sales Guide. Phelps Decl. Ex. P. However, the letter stated that "Valero is aware of certain discussion being held among its branded dealers related to the removal of United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 6 of 34 1 2 3 4 5 6 7 8 9 10 Valero's credit card processing system. . . As a Valero branded supplier, you agreed to use and promote Valero's Marks, and therefore any removal of Valero's credit card processing system, which may result in a station's inability to fully accept Valero's proprietary credit card, will be considered a violation of our agreements." Id. On August 15, 2003, Valero sent a letter to its distributors, announcing, among other things, a new pricing policy and satellite service. Phelps Decl. Ex. M. The letter concluded by stating that: "All of these changes are outlined in the Valero Credit Card Sales Guide. Changes have been made to pages 1-1, 3-3, 4-4, 9-2, 9-5, 9-6, and 10-2. You can obtain a copy of these pages by logging onto https://wp.valero.com under the Guides tab. . . . Please make sure these pages (revision date September 3, 2003) are inserted in place of the previous pages in all copies (including dealer copies) of your Credit Card Sales Guide." Id. Shimek testified that he did not recall receiving the letter. Phelps Decl. Ex. J (Shimek Depo. at 164). However, he admitted that it was in PSI's files. Id. PSI claims that Valero Marketing revised the Card Guide on September 3, 2003, but did not provide it with a written copy of this revision until November 18, 2003. Phelps Decl. Ex. X (Plaintiff's Response to Interrogatories at 13). Thus, PSI claims that its decision to start using its own processor "did not violate the only Card Guide that Valero had provided to PSI." Id. at 14. Defendants point out that PSI was advised of the changes to the Guide in the August 15, 2003 letter, which Shimek concedes was possessed by PSI. On August 27, 2003, Shimek signed agreements to connect PSI's credit card processing equipment to satellite communications. Shimek Decl. at 23. PSI's stations were connected to satellite communications in or around October 2003. Id. In late September 2003, as part of Valero's move to satellite communications, Barrantes sent out satellite service agreements to dealers and distributors, and was sent out to introduce the satellite system and equipment to retailers. Phelps Decl. Ex. G at 86-87. Around that time, Barrantes had conversations with Shimek in which Shimek said that the contract requiring PSI to use Valero's credit card processor was "a crock of shit. And there is nothing in the contract that will hold any United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 7 of 34 1 2 3 4 5 6 7 8 9 10 water because when we signed the supply contract, Valero did not have a credit card." Phelps Decl. Ex. J (Shimek Depo. at 184). Shimek also told Barrantes that he had declared war against Valero, and that even if Valero's satellite program was similar, he would use his own. Id. at 185. On November 4, 2003, Richard Murray, an attorney who was then representing PSI, sent Valero a letter stating that PSI was converting its credit card processing to a third-party processor. Phelps Decl. Ex. T. See also Phelps Decl. Ex. J (Shimek Depo. at 187-88). The letter further stated: "As PSI has already told Valero, PSI has confirmed with its processor that it can accept the Valero proprietary credit card for processing provided that Valero provides consent to do so. . . . To avoid any interruption in PSI's ability to accept Valero card charges we ask that you provide in writing the necessary consent to processing of Valero proprietary card charges at your earliest opportunity." Id. On November 13, 2003, Skellie sent a letter to Shimek regarding his "failure to comply with Valero Credit Card Sales Guide." Phelps Decl. Ex. O. The letter stated that Shimek's unilateral decision to cease using Valero's approved credit card processor was in contravention of their agreements. Further, Valero declined to give consent for PSI's third-party processor to accept the Valero card: "[a]lthough you may believe this is a viable option, we believe that we should not have to change our entire way of doing business at over 1500 locations throughout the United States so that four of your stations can accept Valero's proprietary cards. In addition, we have been informed by our processor that the costs to take on such a task are immeasurable both in time and money for both of us." Id. Finally, Skellie stated, "we would like to provide you with an opportunity to resolve this matter by resuming compliance with the Sales Guide within fifteen (15) days of the date of this letter. In the meantime, as of November 13, 2003, Valero has suspended payment of Facility Allowances related to the Stations. If, during the next 15 days it is your decision to resume compliance with the Sales Guide, we will end the suspension of such funds and reimburse such suspended amounts. If you fail to come into full compliance with the Sales Guide, we will end all Facility Allowance payments until such time you come into compliance. The choice to receive Facility Allowance payments is at your discretion." Id. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 8 of 34 1 2 3 4 5 6 7 8 9 10 Shimek testified that he made a conscious decision not to follow the directions in the above letter. Phelps Decl. Ex. J (Shimek Depo. at 195). He stated: "it wasn't clear to me that they could do this." Q: "As a matter of the contract?" A: "Plus I had already contracted with other people to do the processing that was a benefit to me. Valero's attempts were too little, too late." Id. Shimek acknowledged that he understood in November 2003 that it was his decision whether to receive Facilities Allowances based on doing what was asked in Valero's letter. Id. at 199. Because PSI was not using Valero's credit card processing system, and Valero did not give consent for PSI to have its own processor process transactions with Valero credit cards, customers at PSI's stations were unable to use Valero cards. Valero started to receive complaints from customers about their inability to use Valero cards at those stations, and Valero sent Shimek written information about such complaints. Id. at 199. Trimble admitted that the problem of significant delays in authorization of transactions was resolved in 2002, and that the problem of delays in settlement was also resolved before PSI stopped using the Valero card system. Phelps Decl. Ex. K (Trimble Depo. at 87-88). PSI went back on the Valero system in December 2004, at which point Valero resumed payment of Facilities Allowances. Phelps Decl. Ex. J (Shimek Depo. at 198). Valero did not pay the three-cent per gallon Facilities Allowance to PSI from November 13, 2003 to December 21, 2004, which the parties refer to as the "damage period." LEGAL STANDARD Under Federal Rule of Civil Procedure 56, a court may properly grant a motion for summary judgment if the pleadings and materials demonstrate that there is "no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary judgment may be granted in favor of a defendant on an ultimate issue of fact where the defendant carries its burden of "pointing out to the district United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 9 of 34 1 2 3 4 5 6 7 8 9 10 court that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325; see Johnston v. IVAC Corp., 885 F.2d 1574, 1577 (Fed. Cir. 1989). To withstand a motion for summary judgment, the non-movant must show that there are genuine factual issues which can only be resolved by the trier of fact. Anderson, 477 U.S. at 250. The nonmoving party may not rely on the pleadings but must present specific facts creating a genuine issue of material fact. T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). The court's function, however, is not to make credibility determinations. Anderson, 477 U.S. at 249. The inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631. ANALYSIS I. Defendants' Objections to Plaintiff's Evidence3 A. Objections to Shimek Declaration i. Exhibits 2, 3, 5, 7, 11, 21, and 37 These exhibits are: (2) a letter from Exxon to PSI dated December 6, 1999; (3) al letter from Bill Greehey, Chairman of the Board and CEO of Valero Energy Corp., to Shimek dated April 3, 2000; (5) a letter from Gregory Kaneb, Vice President of Valero Refining Company California, to "prospective dealer," dated June 1, 2000; (7) a letter from Kaneb to "dealer" dated July 28, 2000; (11) unidentified correspondence, apparently from Valero to retailers; (21) a letter from Shimek to Belinda Hacker, Valero Credit Manager, dated May 25, 2000; and (37) a letter from Blair Skellie, Director, West Coast Region of Valero Refining Company California, to Shimek, dated April 22, 2002. Defendants object that these letters are not properly authenticated. See Orr v. Bank of America, 285 F.3d 764, 773 (9th Cir. 2002) ("We have repeatedly held that unauthenticated documents cannot be considered in a motion for summary judgment."). Federal Rule of Evidence United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The facts section above does not include evidence as to which this Court has sustained Defendants' objection. 9 3 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 10 of 34 1 2 3 4 5 6 7 8 9 10 901 provides that evidence may be authenticated in a number of ways, including the testimony of a witness with knowledge. Shimek does not state that he has personal knowledge of the letters, nor does he swear that they are true and correct copies. Thus, the objection is SUSTAINED. ii. Exhibits 4, 6, and 10 Defendants object that these letters are not properly authenticated. Exhibit 4 is a letter from counsel for Valero in response to public comment submitted by PSI's attorney, Mr. Daskal. Shimek declares that he received the letter from PSI's attorney, but he does not swear that it is a true and correct copy. See Shimek Decl. at 3. Exhibit 6 is a letter from counsel for Valero in response to complaints raised by Dennis DeCota of the California Service Station and Automotive Repair Association. Shimek declares that he received the letter from Mr. DeCota, but he does not swear that it is a true and correct copy. See Shimek Decl. at 4. Exhibit 10 is a letter from counsel for Valero to PSI's attorney Daskal, which Shimek declares that he received from Daskal "and/or Mr. DeCota." Id. at 5. Again, Shimek does not swear that the exhibit is a true and correct copy of the letter. Thus, Defendants' objection is SUSTAINED. iii. Exhibit 25 Shimek declares that Exhibit 25 is copies of credit memos faxed by Valero Marketing in San Antonio, Texas to PSI on December 15, 2003. Shimek Decl. at 7. Defendant correctly points out that Shimek fails to testify as to their accuracy or genuineness based on personal knowledge or otherwise. Thus, the objection is SUSTAINED. iv. Shimek Decl. 12, 21 Paragraph 12 states: "Shortly after PSI became a Valero Refining franchisee, I discovered that the electronic credit card processing system installed by Valero Refining at PSI's stations authorized credit cards too slowly. Valero Refining's system took 15 to 30 seconds to authorize a credit card, while systems used by most major brands, including Exxon, took 3-6 seconds. The delay was a serious competitive disadvantage for PSI because its customers were frustrated and left PSI's stations." Paragraph 21 states: "By early 2003, VMSC [Valero Marketing and Supply Co.] United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 11 of 34 1 2 3 4 5 6 7 8 9 10 converted PSI's stations to a network provided by EFS Concord BuyPass. PSI did not sign any confidentiality agreement with respect to credit card authorization data downloaded by VMSC onto PSI's point-of-sale equipment. VMSC's new dialup network was still unreasonably slow. It took about 12-15 seconds to authorize cards. PSI's customers were still frustrated because their cards were authorized more slowly that at most other stations." Defendants object to these statements because Shimek fails to establish that he had personal knowledge of the information. See Fed. R. Evid. 602 (providing that a witness may not testify to a matter unless evidence is introduced to support a finding that the witness has personal knowledge of the matter). As the sole owner of PSI, the information seems to be of a type that Shimek would know, but Shimek does not explicitly state the basis for his personal knowledge of the information. Thus, the objection is SUSTAINED. v. Shimek Decl. 22, lines 5-7 This is a statement by Shimek that "Mr. Trimble reported to me that the Card Guide did not prohibit PSI from processing third party cards (e.g. Visa and Mastercard) on a separate network." Defendants object on hearsay grounds. This objection is SUSTAINED Shimek offers the statement of a third party, Trimble, for its truth. vi. Shimek Decl. 25, lines 2-3 This is a statement by Shimek that "Mr. Trimble had advised me that the only requirement was for VMSC to authorize PSI to download its authorization information to PSI's 'gateway.'" Defendants object on hearsay grounds. This objection is SUSTAINED Shimek offers the statement of a third party, Trimble, for its truth. vii. Shimek Decl. 27, lines 13-16 This is a statement by Shimek that "I am informed by PSI's accountant (Ms. Paul) and believe that PSI's business records show that those payments would have totaled $338,619.54." Defendants object on hearsay grounds. This objection is SUSTAINED Shimek offers the statement of a third party, Paul, for its truth. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 12 of 34 1 2 3 4 5 6 7 8 9 10 viii. Shimek Decl. 29 Paragraph 29 states: "In May 2000, Valero Refining required PSI to complete a standard form which authorized Valero Refining to initiate electronic fund transfers (1) from PSI's bank in San Francisco to pay for petroleum products purchased by PSI and (2) to PSI's bank in San Francisco to pay Facilities Allowances. I have reviewed PSI's banking records and the declaration of Ms. Hein attached as Exh 23 and discussed electronic fund transfers to and from PSI's account at City National Bank in San Francisco initiated by VMSC with representatives of the bank. During the damage period, VMSC in Texas initiated Electronic Fund Transfers from PSI's bank in San Francisco to Valero Energy's bank in Ohio to pay for PSI's petroleum purchases. Since 2002, VMSC in Texas has paid Facilities Allowances by initiating electronic fund transfers from Valero Energy's bank in New York to PSI's bank in San Francisco. Mr. Barrantes advised me that VMSC debited and credited all Valero dealers in the same fashion." Defendants object on the ground of "lack of personal knowledge concerning PSI's electronic funds transfers." Shimek states that the basis for his knowledge of the electronic funds transfers is his discussions with representatives of PSI's bank. Accordingly, this objection is SUSTAINED. Defendants also object that Shimek's statement about what Mr. Barrantes told him is hearsay. The Court agrees, and the objection is SUSTAINED as to lines 3-4 of the paragraph. ix. Shimek Decl. 30-32 Paragraph 30 states: "PSI's Westborough station in South San Francisco and Sullivan station in Daly City competed for retail gasoline customers with Valero branded stations at 800 El Camino Real in San Bruno during the damage period. PSI's Westborough and Sullivan stations were located in different price zones than the Valero stations in San Bruno." Paragraph 31 states: "PSI's Northgate station in San Rafael and Lombard station in San Francisco competed for retail gasoline customers with the Valero branded station at 100 Marinwood in San Rafael during the damage period. PSI's Lombard station was located in a different price zone than the Valero station at 100 Marinwood." United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 13 of 34 1 2 3 4 5 6 7 8 9 10 Paragraph 32 states: "From September 1, 2001, to October 10, 2003, PSI's station in Kentfield was supplied under a standard form Distributor Sales Agreement ("jobber supply agreement") between VMSC (as assignee of Valero Refining) and PSI. During that time, VMSC sold petroleum products to PSI as a jobber at wholesale. I have been informed by other Valero jobbers and dealers that VMSC has continued to sell petroleum products to Valero jobbers at wholesale since termination of PSI's jobber agreeement." Defendants object to the above on the ground that Shimek lacks personal knowledge concerning whether Valero stations were in competition with each other. Further, Defendants object that these declarations conflict with Shimek's deposition testimony, and argue that Plaintiff cannot create a genuine issue of material fact submitting an affidavit contradicting deposition testimony. See Radobenko v. Automated Equip. Corp., 520 F.2d 540, 544 (9th Cir. 1975) (so holding). The Court is persuaded that Shimek has not appropriately established the basis for his knowledge of which gas stations are in competition with each other. Thus, the objection is SUSTAINED. Further, Defendants object that lines 16-22 of Paragraph 32 are irrelevant, because the PSI's Kentfield Station is not at issue in this litigation. The Court agrees; this objection is SUSTAINED. Finally, Defendants object that lines 19-22 of Paragraph 32 are hearsay. Shimek offers the statements of unidentified parties for the truth of what is asserted, and the objection is SUSTAINED. B. Objections to Trimble Declaration i. Trimble Decl. 4,5 Paragraph 4 states: "From about 1995 to 1999, I was the General Manager for the four stations involved in this action. During that time, PSI leased these stations from Exxon. The electronic credit card processing systems installed by Exxon at those stations used telephone communications to send data to Exxon's network. Exxon's network authorized credit cards within about 4-6 seconds after the customer swiped his card at the pump." Paragraph 5 states: "Since about 1990, the average credit card authorization time (including all telephone and satellite communications systems at major branded and independent stations) in United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 14 of 34 1 2 3 4 5 6 7 8 9 10 the Bay Area has been five to ten seconds. Since about 1990, retail gasoline credit card customers generally notice a delay if their credit cards are not authorized within 5 to 10 seconds after they swipe their card at the pump. However, since about 1998, most retail gasoline credit card customers in the Bay Area have become accustomed to waiting 3-4 seconds to have their credit cards authorized at the pump. This is due to the fact that by 1997, most major brand retail stations in the Bay Area began using satellite or high speed communications to process credit card transactions at their stations. During that time, satellite and high speed communications began becoming available for independent marketers. The average credit card authorization wait time at the pump using satellite or high speed communication is between 3-4 seconds." Defendants object that Trimble lacks personal knowledge and fails to establish the basis for his knowledge of the speed of credit card authorization. This is a somewhat close question: elsewhere in his declaration, Trimble states that he has worked in the gasoline industry in the Bay Area since 1988, and that he has installed and supervised installation of electronic credit card processing systems at retail gas stations. See id. at 2. However, the Court is inclined to agree with Defendants that Trimble does not sufficiently lay a foundation for the detailed opinion set forth in the paragraphs objected to. Thus, the objection is SUSTAINED. ii. Trimble Decl. 13 This paragraph states: "During the first half of 2003, Mr. Shimek also asked me to review Valero's Credit Card Sales Guide to determine whether the requirement of Valero's electronic credit card processing system would allow PSI to process third party credit cards on a separate satellite network. During the first half of 2003, I reviewed the most current edition of the Credit Card Sales Guide which Valero had provided to PSI. I believe it consisted of pages stamped PSI 1303 to PSI 1348. Based on my review of Valero's Credit Card Sales Guide, I advised Mr. Shimek that the requirements of Valero's electronic credit card processing system did not preclude PSI from using satellite communications or a Verifone Omni 490 to process third party credit cards and a gateway to process Valero's proprietary cards on Valero's existing dialup network." United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 15 of 34 1 2 3 4 5 6 7 8 9 10 Defendants object that Trimble lacks the "scientific, technical or specialized knowledge to draw conclusions concerning whether the Credit Card Sales Guide precluded PSI from suing its own credit card processing system to process Valero and third-party credit cards," citing Federal Rule of Evidence 702. Trimble has been a consultant for retail gas stations in the Bay Area since 1999, and was retained by Plaintiff as an expert witness. Trimble Decl. at 1. He states that he first became familiar with electronic credit card processing systems at gas stations in 1989. Id. at 2. However, Trimble is not an attorney, nor does he profess to have any particular knowledge of contract interpretation, yet he offers an opinion about what the Credit Card Sales Guide allows. Thus, Defendants' objection is SUSTAINED. iii. Trimble Decl. 18-20 Paragraph 18 states: "During the time that I was the General Manager of the four stations involved in this action (1996 to 1999), each station (then branded Exxon) competed with other nearby Exxon stations. For example, the station at 2296 Westborough Boulevard, South San Francisco 94080 competed with Exxon stations at 800 El Camino Real, San Bruno 94066 (about 3 miles away) and 310 E. San Bruno Avenue, San Bruno 94066 (about 3.3 miles away). The three stations were located near dense multi-unit housing and major commute routes including SR 101 and US 380 and 280. The station manager at Westborough monitored retail prices at 800 El Camino Real. Customers at Westborough occasionally asked about price differences between Westborough and 800 El Camino Real." Paragraph 19 states: "PSI's Exxon station at 1690 Sullivan Avenue, Daly City 94105 also competed with the Exxon stations at 800 El Camino Real, San Bruno 94066 (about 5.9 miles away) and 310 E. San Bruno Avenue, San Bruno 94066 (about 6.3 miles away). The three stations were located near dense multi-unit housing and major commute routes including SR 101 and US 380 and 280." Paragraph 20 states: "PSI's Exxon station at 930 Del Presidio Blvd., San Rafael 94903 competed with Exxon stations in downtown San Rafael and Larkspur (within about 5 miles) and United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 16 of 34 1 2 3 4 5 6 7 8 9 10 PSI's Exxon station at 2601 Lombard Street, San Francisco, CA 94123 (about 17.6 miles away). These stations were located near residential developments and a major commute route on SR 101. The station manager at 930 Del Presidio Blvd. monitored prices at Exxon stations in downtown San Rafael as well as other major oil company competitors." Defendants object to these statements on the ground that Trimble lacks personal knowledge: "Mr Trimble testifies about whether the PSI stations were in competition with other Valero stations, but fails to establish the basis for his understanding." Aside from Trimble's position as manager of the gas stations at issue, and his other experience managing or supervising gas stations in the Bay Area, he offers no basis for knowledge about what stations would compete directly with each other. The only basis for his opinion appears to be the distance between the stations and their location along commuter routes. Thus, the objection is SUSTAINED. Defendants also object on relevance grounds, arguing that "Mr. Trimble's opinion concerning the scope of competition among service stations from 1996-1999 relates to a time period that is not at issue in this case." This objection is also SUSTAINED. C. Objections to Ben-Zion Declaration United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Barry Ben Zion is an economist who was retained by Plaintiff to compare the prices Valero charged PSI compared to competing Valero dealers, and whether PSI's stations competed with other Valero dealers in the same geographic markets. Ben-Zion Decl. at 2. Defendants object to Ben-Zion's entire declaration as improper expert testimony, but the objection does not appear to be based on Federal Rule of Evidence 702. Instead, they argue that his "conclusory statements regarding the scope of competition among service stations is insufficient to raise a triable issue of material fact." This may be true, but it is not a basis for excluding the evidence altogether. Defendants also argue that Ben-Zion's testimony is improper to the extent that it purports to contradict Shimek's testimony on the same subject. Again, Defendants may be correct that Plaintiff cannot create a triable issue of fact by submitting conflicting evidence, but that is not a basis for excluding Ben-Zion's declaration. Thus, these objections are OVERRULED. 16 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 17 of 34 1 2 3 4 5 6 7 8 9 10 Defendants also object specifically to Paragraph 11 of the Ben-Zion declaration. This paragraph states: "Defendants argue that PSI Valero stations do not compete with other Valero stations. They rely on a declaration of Donald E. Spears of MPSI for their position. It should be noted that MPSI's computer model does not address the factual issue of whether PSI's station's compete with other Valero stations that are on or near primary commuter routes shared by PSI stations. Moreover, there is no evidence that the hypotheses generated by MPSI's computer model have been tested empirically or subjected to peer review." According to Defendants, this statement should be excluded because at his deposition, Ben-Zion stated that he had no opinion on the model that MPSI uses and that he had not been asked to critique it. Under Federal Rule of Civil Procedure 37(c)(1), a party that fails to disclose information or to amend a prior response to discovery is not allowed to use such information as evidence. Accordingly, the Court agrees with Defendants that Paragraph 11 should be excluded; this objection is SUSTAINED. D. Objections to Durham Declaration i. Exhibits 12 and 32 Exhibit 12 is an email from Susan Barnes, an employee of Valero, apparently to several other employees of Valero, sent on June 4, 2003, with a copy of the most current version of the Credit Card Sales Guide attached. Defendants object that these emails and the attachment are not properly authenticated, because Durham fails to testify as to the accuracy or genuineness of the documents based on personal knowledge or otherwise. That is a true statement, see Durham Decl. at 3, and thus the objection is SUSTAINED. Exhibit 32 is a series of emails between Anthony Gavin of Valero and Robert Gardner of MPSI Systems. Defendants object on the ground of lack of proper authentication, and for the reason stated above, the Court agrees. See Durham Decl. at 19. The objection is SUSTAINED. ii. Exhibits 31 and 33 Exhibit 31 is copies of pages of MPSI's Price Zones System User's Guide "produced by MPSI in response to a subpoena which I issued and served in this action." Durham Decl. at 18. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 18 of 34 1 2 3 4 5 6 7 8 9 10 Exhibit 33 is a "copy of one page from Outlet Zone Assignments for Valero's stations in the San Francisco Market in 2003 produced by MPSI in response to a subpoena which I issued and served in this action." Id. at 20. Defendants object that these documents are not properly authenticated, because Durham "fails to testify as to the accuracy or genuineness of these documents based on personal knowledge or otherwise." It is arguable that Durham's statement that he issued and served the subpoenas resulting in production of these documents is an attempt to lay a foundation of personal knowledge, but the Court is inclined to agree with Defendants that it is insufficient. Accordingly, the objection is SUSTAINED. iii. Exhibits 9, 13A, 13B, 15, 16, 17, 19, 24, 34 Exhibit 9 is an excerpt from the deposition of Robert Barrantes. Durham Decl. at 2. Exhibits 13A and 13B are excerpts from the deposition of Dane Williams. Id. at 4. Exhibit 15 is an excerpt from the deposition of Blair Skellie. Id. at 5. Exhibit 16 is an excerpt from the deposition of Michael Olivares. Id. at 6. Exhibit 17 is an excerpt from the deposition of Craig Speery. Id. at 7. Exhibit 19 is an excerpt from the deposition of Carolyn Scarola. Id. at 9. Exhibit 24 is an excerpt from the deposition of Sam Hirbod. Id. at 12. Exhibit 34 is an excerpt from the deposition of David Goodrum. Id. at 21. Defendants object that these deposition excerpts are not properly authenticated, because they do not include the reporter's certification that the deposition is a true record of the testimony of the deponent. See Orr, 285 F.3d at 773. However, on December 12, 2006, Plaintiff filed a motion for leave to file the reporter's certificates for these depositions, which the Court granted. Thus, the objection is OVERRULED. II. 1. Summary Judgment Valero Refining Defendants' first argument is that the Court should grant summary judgment as to Defendant Valero Refining Company because it did not have a contractual relationship with PSI during the relevant time period. The contracts were assigned from Valero Refining to Valero Marketing United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 19 of 34 1 2 3 4 5 6 7 8 9 10 Company in May 2002. Skellie Decl. at 3. The events here in dispute took place between November 2003 and December 2004. Accordingly, Valero Refining Company made no sales to PSI during the relevant time, nor did it pay (or withdraw) Facilities Allowances to PSI. Motion at 11-12, Reply at 1. Plaintiff does not contest this argument, nor does it offer evidence to the contrary. Accordingly, the Court GRANTS summary judgment as to Valero Refining Company. 2. Breach of Contract The substance of Plaintiff's breach of contract claim is that Valero breached the agreements by refusing to pay facilities allowances from November 2003 to December 2004. Further, Plaintiff asserts that Defendants breached the agreements "by unreasonably refusing to authorize its processor to process Valero proprietary credit card transactions at PSI stations pursuant to an agreement between PSI and the processor." FAC at 22, 23. Defendants argue that there is no genuine issue of material fact as to Plaintiff's breach of contract claim according to Defendants, it is undisputed that PSI ceased accepting Valero proprietary cards and ceased using the credit card processing system specified by Valero Marketing in November 2003. This placed Plaintiff in breach of contract, and thus Defendants were permitted, under the agreements, to suspend payment of the Facilities Allowance. Further, Defendants contend that the payment of Facilities Allowances by Valero was purely discretionary, and thus refusal to pay was not a breach of contract. Plaintiff asserts that Defendants' credit card authorization speeds were unreasonably slow, which placed PSI at a competitive disadvantage. Although Plaintiff concedes that Valero's card processing system was a "facility requirement" under the Supply Agreement, and that the system was specified by the Card Guide, Plaintiff contends that, under California Commercial Code 2311, Defendants' behavior was "commercially unreasonable." Opposition at 6. Section 2311(1) states, in relevant part, that "an agreement for sale which is otherwise sufficiently definite . . . is not made invalid by the fact that it leaves particulars of performance to be United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 20 of 34 1 2 3 4 5 6 7 8 9 10 specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness." Section 2311(3) provides that "where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party . . . is excused for any resulting delay in his own performance." Plaintiff argues that Defendants' insistence on using a slow credit card authorization system, and their failure to respond to dealers' concerns about the system, was commercially unreasonable and/or in bad faith. Although they do not clearly say so, Plaintiff suggests that it was excused from performing its contractual obligations as a result. Defendants argue that section 2311 is inapplicable here, because "[n]o special cooperation required by PSI was withheld by Valero." Reply at 3. This argument misses the mark: PSI is arguing that cooperation required by Valero namely, their responsibility to specify a commercially reasonable credit card authorization system and respond to dealers' complaints was unreasonably withheld. However, it is doubtful that section 2311 does apply. The agreement does not leave particulars of performance to be specified by one party: section 10.3.1 of the Supply Agreement states that the dealer agrees to comply with Attachment 1 Image and Facility Requirements. Phelps Decl. Ex. R at PSI0000048. In turn, Attachment 1 states that the dealer must use Valero's electronic card processing system. Id. at PSI0000062. Further, section 5.2 of the Equipment Agreement requires the dealer to comply with the Credit Card Sales Guide. Id. at PSI0000077. Thus, the contracts are clear that PSI was required to use Valero's system, and although Valero reserved the right to change the Image and Facility Requirements and the Card Guide, there was no aspect of performance left unspecified. Even if section 2311 does apply, the Court is unpersuaded that Valero's behavior fell outside the bounds of "commercial reasonableness." Valero asserts that allowing retailers to make separate deals with credit card processors would threaten Valero's ability to provide a consistent retail experience to consumers, and that it would greatly increase Valero's costs. See Skellie Decl. at 9- United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 21 of 34 1 2 3 4 5 6 7 8 9 10 10. Plaintiff provides no argument, authority, or evidence to the contrary. Plaintiff makes no effort to define commercial reasonableness, instead offering the conclusory assertion that because the credit card authorization system was slower than that of other gas stations, Valero should have upgraded its system and failure to do so was commercially unreasonable. In essence, PSI's argument is that Valero had a duty to use a better credit card processing system, and that their failure to do so gave PSI the right to use its own system. PSI cites absolutely no case law in support of this theory, nor does it cite to any provision of the agreements imposing such a duty on Valero. It is a specious argument, and the Court rejects it. Although Plaintiff earlier appeared to concede that it did breach the dealer agreements, it next argues that it did not breach the agreements by switching to another credit card authorization system, because the Card Guide in effect in July 2003 did not require dealers to only use Valero's network. Opposition at 8. Plaintiff cites to its Exhibit 12, which is a copy of the Card Guide in effect in July 2003. However, this exhibit has been excluded because it was not properly authenticated. Thus, Plaintiff has offered no admissible evidence proving that the earlier version of the Card Guide did not require them to use Valero's system. Further, it is undisputed that Valero sent dealers a letter in July 2003 warning them that failure to use the Valero system would be a breach of contract. It is also undisputed that Valero sent a letter on August 15, 2003, before PSI completed its transition to a third-party credit card processor, alerting dealers to changes in the Card Guide.4 The Card Guide in effect in September 2003 expressly stated that dealers were required to use Valero's system. Moreover, as discussed, Attachment 1 to the Supply Agreement (which was in effect all along) required PSI to use Valero's system. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff asserts that it has no record of receiving Valero's August 15 letter, and that "Defendants first provided a copy of the Sept 03 Card Guide revision to PSI by fax to its attorney on November 18, 2003." Opposition at 9. However, as noted, Shimek admitted in his deposition that although he personally never read the August 15 letter, the document was marked with a PSI production number, indicating that it came from PSI's files. Further, when asked whether he had any reason to doubt that the letter was received by Woodlands Valero (one of PSI's stations), Shimek answered in the negative. See Phelps Decl. Ex. J (Shimek depo. at 164). Thus, there is no genuine issue of material fact as to whether Plaintiff received notice of changes to the Card Guide. The Court rejects Plaintiff's argument that PSI was not bound by changes in the Card Guide because it did not receive proper notice of them. 21 4 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 22 of 34 1 2 3 4 5 6 7 8 9 10 PSI argues that Valero's revision of the Card Guide was not "seasonable," and thus it violated California Commercial Code 2311(3). Opposition at 9. However, as discussed above, that section does not apply here; even if it did, the Court is completely unpersuaded by Plaintiff's argument essentially, Plaintiff argues that Valero waited too long to respond to dealers' complaints about the credit card processing system, and by the time they made changes, PSI had already entered into an agreement with another processor. Plaintiff appears to interpret California Commercial Code 2311 to mean that parties to a contract may do as they please so long as their actions are commercially reasonable, and that the terms of a business relationship are not defined by the contract but by the nebulous concepts of "reasonableness" and "seasonableness." This argument is untenable. The contract itself does not specify any particular type or amount of notice that Valero must give of changes to the Card Guide.5 As Defendants point out, Section 5.2 of the Equipment Agreement, which is the provision binding PSI to comply with the Card Guide, does not require any notice at all it merely states that the terms of the Card Guide may be amended and/or supplemented at any time by Valero. Phelps Decl. Ex. R at PSI0000077. Accordingly, the Court rejects Plaintiff's argument that it was either not aware of or not bound by the September 2003 Card Guide. At the very least, Plaintiff admits that it was made aware of the changes to the Card Guide in November 2003, very shortly after PSI ceased using Valero's credit card processing system. Knowing that the Card Guide required them to use Valero's system, Plaintiff continued to use its own system until December 2004. This fact also weighs against the credibility of the assertion that United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Plaintiff points to Section 10.3.2 of the Supply Agreement, which requires Valero to give notice to the dealer of changes to Attachment 1. However, because it does not otherwise specify the method of notice, section 10.3.2 is arguably subject to section 23.1, which states that, "[e]xcept where specifically required otherwise in this SUPPLY AGREEMENT, the following must occur to meet the requirement for due notice: (A) The party giving notice must post to the other party a properly addressed written message by certified mail, with return receipt requested, and with adequate postage; (B) The party giving notice must send to the other party a properly addressed written message by a nationally recognized overnight carrier; or (c) The party giving notice must have a written message personally delivered to the address of the other party." Phelps Decl. Ex. 6 at PSI0000057. An identical provision is included in the Equipment Agreement. Id. at PSI0000084. There is no evidence that Valero did deliver the August 15 letter by certified mail, overnight carrier, or in person. However, as noted above, Section 5.2 of the Equipment Agreement does not require any notice of changes to the card guide, and thus Section 23.1 does not apply to it. 22 5 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 23 of 34 1 2 3 4 5 6 7 8 9 10 PSI was proceeding in ignorance of the contractual requirements. PSI next argues that Valero's refusal to allow them to process Valero proprietary cards on their own system was "neither reasonable nor in good faith," once again citing California Commercial Code 2311(3). Opposition at 11. PSI argues that Valero's assertion that it would be impractical to allow PSI to use a separate system to process Valero cards was incorrect, because "VMSC was not required to change its business practices at any other location or to incur any costs in order to allow PSI to process Valero cards. VMSC refused to listen to PSI's consultant. VMSC was only required to authorize its processor to download information to PSI's gateway." Id. This argument is not based on the law or the contract. It is simply a reiteration of Plaintiff's complaint that Valero was being unreasonable. Be that as it may, it does not constitute a breach of contract. PSI next argues that Valero did not have the discretion to stop paying Facilities Allowances, pointing to Section 4.6.4 of the Supply Agreement, which states that, "[i]n addition to any rights of VALERO contained in Section 4.6.3, VALERO will cease payment of the FACILITIES ALLOWANCE if VALERO decides, in its sole discretion, that TENANT is not fulfilling all of its responsibilities" under the agreements. Phelps Decl. Ex. R at PSI0000042. PSI correctly points out that it is a dealer, not a tenant. Opposition at 12. However, PSI ignores the first part of Section 4.6.4, which refers to Valero's rights under Section 4.6.3. That section states that "VALERO reserves the right, in its sole discretion, to periodically change, reduce or eliminate, the FACILITIES ALLOWANCE," with no reference to the tenant in other words, section 4.6.3 clearly applies to dealers. In addition, section 4.6.1 states that Valero may "at its sole option" pay a Facilities Allowance to the dealer, but that the dealer's obligations under the agreement are in no way contingent on payment of the Facilities Allowance. Id. In other words, the contract is perfectly clear that payment of Facilities Allowances was within Valero's discretion, and that Valero's failure or refusal to pay Facilities Allowances did not permit a dealer to breach the agreements. Plaintiff further argues that Valero could not refuse to pay Facilities Allowances because this constituted "bad faith" behavior and price discrimination, relying on California Commercial Code United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 23 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 24 of 34 1 2 3 4 5 6 7 8 9 10 2305(2). Opposition at 12. Section 2305(2) states that "A price to be fixed by the seller or by the buyer means a price for him to fix in good faith." This statute applies to contracts in which the price term is left open, and it is intended to prevent suppliers from charging buyers with identical contracts different prices for arbitrary or discriminatory reasons. Plaintiff argues that Valero refused to pay PSI Facilities Allowances for arbitrary and discriminatory reasons: "VMSC refused to allow PSI to process Valero cards for reasons that VMSC knew were invalid. VMSC refused to listen to PSI's consultant. VMSC charged PSI more for gasoline to force PSI to process all credit card transactions on Valero's network so that VMSC could collect processing fees from PSI's Visa and MasterCard transactions." Opposition at 13. This litany of complaints notwithstanding, Plaintiff is wholly incapable of rebutting the argument that the contract gave Valero the right to withhold Facilities Allowances, and that Valero did so because PSI refused to comply with a term of their agreement namely, use of the Valero credit card processing system. The Court is unpersuaded that there is even a triable issue of fact with respect to whether Valero engaged in bad faith behavior or price discrimination (as will be discussed further below). On the contrary, it is undisputed that Valero warned PSI that Facilities Allowances would be withheld unless PSI used Valero's system, and gave PSI the opportunity to remedy the situation. Plaintiff does not assert, much less offer any evidence, that there were other dealers who stopped using the Valero credit card processing system and were still paid Facilities allowances. Thus, the Court rejects Plaintiff's argument that Valero was obligated to pay PSI Facilities Allowances. Plaintiff next argues that the dealer agreements were unconscionable and should not be enforced by this Court. Under California law, the doctrine of unconscionability has both a procedural and a substantive element, "the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results." Discover Bank v. Superior Court, 36 Cal. 4th 148, 160 (2005) (citations omitted). Courts apply a sliding scale: "the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 25 of 34 1 2 3 4 5 6 7 8 9 10 conclusion that the term is unenforceable, and vice versa." Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 114 (2000). However, Plaintiff must show that the dealer agreements were both procedurally and substantively unconscionable. See Wayne v. Staples, Inc., 135 Cal. App. 4th 466, 480 (2006). Plaintiff asserts that the agreements were "oppressive" (and thus procedurally unconscionable) because there was an inequality of bargaining power and they had no meaningful choice regarding its terms. See Ting v. AT&T, 319 F.3d 1126, 1148 (9th Cir. 2003). Valero gave PSI the choice to surrender possession of the four locations it had been running as Exxon stations, or to enter into franchise agreements. Opposition at 14-15. Further, PSI asserts, in order to purchase the land and improvements, PSI had to accept Valero's dealer agreements as written. Id. Plaintiff points to A&M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 489-90 (1986), in which the court commented that "[e]ven large business entities may have relatively little bargaining power, depending on the identity of the other contracting party and the commercial circumstances surrounding the agreement." Further, Plaintiff asserts that the agreements were procedurally unconscionable because they were "complex, pre-printed forms," and key provisions were not conspicuous and were not brought to PSI's attention. Opposition at 15. Thus, PSI claims, there was an element of unfair surprise. Defendants argue that Plaintiff's procedural unconscionability argument fails because Shimek testified that he did not read the contracts before signing them, and relied on his attorney's advice to sign, therefore he cannot be heard to complain of unfair surprise. Defendants deny that they prevented PSI from understanding the agreements or that there was anything hidden from PSI. The Court agrees. Valero had no obligation to point out any particular provision of the contracts to PSI, particularly because PSI was represented by counsel and Shimek is an experienced, sophisticated businessman who chose not to even read the documents and to inform himself of their contents. See A&M Produce, 135 Cal. App. 3d 489 (noting that courts tend to be more reluctant to entertain procedural unconscionability claims by businesspeople with commercial understanding and United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25 Case 4:05-cv-03526-SBA Document 96 Filed 12/14/2006 Page 26 of 34 1 2 3 4 5 6 7 8 9 10 "more economic muscle than the ordinary consumer"); American Software, Inc. v. Ali, 46 Cal. App. 4th 1386, 1392 n.3 ("Some courts have considered the presence and advice of counsel to constitute circumstantial, if not conclusive, evidence that a contract is not unconscionable."). It is true that the dealer agreements were standard forms drafted by Valero, and that PSI was apparently given no opportunity to negotiate the terms that is, the agreements may be properly characterized as contracts of adhesion. However, not all contracts of adhesion are unconscionable. See Morris v. Redwood Empire Bancorp., 128 Cal. App. 4th 1305, 1319-20 (2005) (recognizing that adhesiveness is not per se oppressive, and stating that "[o]ppression refers not only to an absence of power to negotiate the terms of a contract, but also to the absence of reasonable market alternatives"). PSI had the option of remaining a franchisee rather than becoming a dealer, or of walking away from the four stations at issue and seeking more favorable franchise or dealer agreements with another gas company.6 These may have been less desirable options, but they were still reasonable market alternatives. Thus, the Court rejects Plaintiff's argument that the agreements were procedurally unconscionable. Plaintiff also argues that the agreements were substantively unconscionable because they were unfairly one-sided. The unfair terms identified by Plaintiff include: PSI could not buy gasoline from other suppliers, Valero had discretion to specify all credit card processing requirements, the agreements contained open price and quantity terms to be set by Defendants, and Defendants retained the unilateral right to terminate the agreements for a variety of reasons and to repurchase the stations without an appraisal. Opposition at 16. In contrast, PSI could only recover direct damages for breach of contract (no consequential damages), and "[n]o matter what defendants did, PSI could not terminate the agreements for 15 years." Id. United States District Court 11 For the Northern District of California 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Indeed, Plaintiff asserts that Defendants' dealer agreements were less fair than other dealer contract

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