Power Quality & Electrical Systems, Inc. et al v. BP West Coast Products LLC

Filing 22

ORDER by Judge Yvonne Gonzalez Rogers granting 19 Motion to Dismiss and Vacating Hearing. The Court VACATES the hearing set for November 15, 2016. (fs, COURT STAFF) (Filed on 11/3/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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POWER QUALITY & ELECTRICAL SYSTEMS,
INC.; RAJINDER K. SINGH; AND TEJINDAR P.
SINGH,

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10

United States District Court
Northern District of California

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Case No.: 16-CV-04791 YGR
ORDER GRANTING MOTION TO DISMISS AND
VACATING HEARING

Plaintiffs,
vs.
BP WEST COAST PRODUCTS LLC,

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Defendant.

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Plaintiffs Power Quality & Electrical Systems, Inc., Rajinder K. Singh, and Tejindar P.

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Singh bring this breach of contract action relating to the purchase of two franchises to operate

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gasoline stations from defendant BP West Coast Products LLC (“BP”). Plaintiffs allege five

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claims: (I) Breach of Contract; (II) Breach of Covenant of Good Faith and Fair Dealing; (III)

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Violation of California Business and Professions Code section 17200; (IV) Violation of California

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Business and Professions Code section 17500; and (V) Breach of Fiduciary Duty.

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BP has filed a motion to dismiss on the grounds that plaintiffs’ claims I through V related to

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the operations of the stations at issue are barred by the statute of limitations, and that Claims III and

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V fail to state a claim for relief under Rule 12(b)(6). (Dkt. No. 19.) Having carefully considered

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the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court

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hereby GRANTS defendant’s motion to dismiss as follows: Claims I through IV are DISMISSED

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WITH LEAVE TO AMEND. Claim V is DISMISSED WITHOUT LEAVE TO AMEND.1

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1

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The Court has determined that the motion is appropriate for decision without oral
argument, as permitted by Civil Local Rule 7-1(b) and Federal Rule of Civil Procedure 78. See
also Lake at Las Vegas Investors Group, Inc. v. Pacific Malibu Dev. Corp., 933 F.2d 724, 729 (9th
Cir. 1991). Accordingly, the Court VACATES the hearing set for November 15, 2016.

1

I.

BACKGR
ROUND AND SUMMARY OF RELEVAN FACTUAL ALLEGATIONS
O
NT
L

2

Plaintiff filed their original com
fs
mplaint in Al
lameda Supe
erior Court o July 22, 2
on
2016. (Dkt.

3

D
moved the action to fede court on the basis of diversity ju
eral
n
f
urisdiction.
No. 1, at 11.) Defendant rem

4

(Dk No. 1.) Pl
kt.
laintiffs filed their correc First Am
d
cted
mended Com
mplaint on S
September 19 2016.
9,

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(Dk No. 18 (“F
kt.
FAC”).)

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7
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9

Plaintiff FAC relat to franch agreements with BP to operate tw gasoline stations.
fs’
tes
hise
wo
es
The FAC allege as follows:
A. Plaintiffs Co
P
ontract with BP to Purc
h
chase Two F
Franchises
Since 19 plaintiff have opera two gas stations, on in San Ra
998,
fs
ated
s
ne
amon, CA an one in
nd
Dub
blin, CA. (FA ¶ 14.) In or about Ju 2007, a BP sales rep
AC
n
une
presentative approached plaintiffs

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United States District Court
Northern District of California

10

offe
ering to brand the station as ARCO gas stations. Plaintiffs a BP then entered into various
d
ns
.
and
o

12

agre
eements (the “Franchise Agreements to operate the San Ra
e
s”)
e
amon and Du
ublin station as ARCOns
-

13

bran
nded fueling stations and ampm mini markets. T agreeme provided BP with so discretion
d
The
ents
d
ole
n

14

for selecting ven
s
ndors and th manner in which fuel w delivere and paid. (Id. ¶ 15.) Prior to
he
was
ed

15

exec
cuting the co
ontracts to co
onvert both sites to ampm mini mark
s
m
kets, BP repr
resentative S
Shaheenur

16

Rah
hman brough plaintiffs to three other BP and AR
ht
r
RCO facilitie with ampm mini mark that
es
m
kets

17

were “similar” to the San Ra
e
t
amon and Dublin station stated tha they were “extremely profitable
D
ns,
at

18

with over $100,000 in mont
h
thly store sal even thou two of th three stat
les
ugh
he
tions only ha two fuel
ad

19

disp
pensers,” and provided plaintiffs with a $40,000 per month p
d
h
projection of profits for t San
f
the

20

Ram station. (Id. ¶ 16.)
mon

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In or aro
ound Septem
mber 2007, pl
laintiffs and BP entered into loan ag
greements of $500,000
f

22

e
f
a
market conve
ersions. BP placed a lien on the San Ramon and
n
n
d
for each site to finance the ampm minim

23

Dub propertie which pla
blin
es,
aintiffs owne (Id. ¶ 17 Plaintiffs also obtain a private loan of
ed.
7.)
s
ned

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appr
roximately $1 million to cover the re
$
o
emaining co sts. The Du
ublin and San Ramon sta
n
ation

25

conv
versions into ampm min
o
nimarkets com
mpleted in a
around December 31, 20
009, and Janu
uary 2011,

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resp
pectively. (Id ¶¶ 17, 22.)
d.

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28

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B. The San Ramon Station Suffers Losses and Closes in April 2012

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The San Ramon station began to suffer significant losses. During the conversion process,

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BP representatives for that region, including Rahman, Patrick Lemons, and Eric Sell “promised that

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everything would improve once the ampm minimarket conversion was complete.” (Id. ¶ 20.)

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In late 2011 and early 2012, plaintiffs had several meetings with BP’s Tom Reeder, who assured

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them that they were “operating the station correctly within the guidelines provided by BP and . . .

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that the station would become profitable as promised.” (Id. ¶ 23.) The losses continued.
Plaintiffs allege that BP breached the Franchise Agreements as follows: BP refused to allow

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plaintiffs a “temporary voluntary allowance” under their contracts relating to fuel sales and ampm

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mini mart, thereby preventing plaintiffs from effectively competing with neighboring gas stations;

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United States District Court
Northern District of California

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BP preemptively announced that it would not under any circumstances consent to approve

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additional and alternative vendors for the ampm mini-mart, preventing plaintiffs from competing in

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the local market; and BP unreasonably withheld its consent to plaintiffs’ repeated requests to

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reduce cooked food supplies during certain hours of operation, leading to waste of excess food. (Id.

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¶¶ 26, 27.) BP refused to modify the terms of the contracts. (Id. ¶ 28.)
In April 2012, plaintiffs met with Mr. Lemon and Mr. Sell and informed them that they

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could not continue operating the station. On April 22, 2012, plaintiffs closed the San Ramon

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station. (Id. ¶¶ 25, 30.) On May 17, 2012, BP issued plaintiffs a notice of breach of contract and

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termination letter for closing the San Ramon station, seeking immediate return of equipment and

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payment of liquidated damages and repayment of loans and financing totaling over $700,000. (Id.

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¶ 31.)

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In late May 2012, plaintiffs met with Mr. Sell to discuss the amicable closure of the San

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Ramon station. He provided plaintiffs with the contact information of an individual who was

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building his own station, and plaintiffs then arranged to sell him their equipment. “Plaintiffs and

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BP agreed and understood that upon the sale of the BP equipment . . . the relationship between

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plaintiffs and BP, with respect to the San Ramon station, was terminated and that neither were

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indebted to each other.” (Id. ¶ 32.) Plaintiffs believed that this agreement “superseded the alleged

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claims outlined in the San Ramon Termination Letter . . . .” (Id.)

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1
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C. The Dublin Station Starts Off Profitable, Then Closes In Early July 2012
On the other hand, the Dublin station was “moderately profitable” when it opened in 2009.

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(Id. ¶ 24.) In late 2011, Mr. Lemons visited the Dublin station and complained that the Dublin

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station gas prices were too high, which adversely affected his bonus tied to store sales, and advised

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plaintiffs to lower fuel prices. This was despite plaintiffs’ experience that the station was always

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more profitable with higher gas prices even with relatively “lower” store sales. (Id. ¶ 24.)

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In around June 2012, after plaintiffs closed the San Ramon station, BP changed the fuel

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payment terms from four days after delivery to collect on delivery (“COD”), effective immediately.

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(Id. ¶ 34.) BP controlled the price and timing of all fuel load deliveries under the Franchise
Agreements. After BP implemented the change, plaintiffs did not have sufficient funds or notice to

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United States District Court
Northern District of California

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pay for the next two fuel loads. BP then initiated an additional fee of approximately $2,000 for

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each fuel load moving forward. (Id. ¶ 35.) Plaintiffs allege that BP was retaliating against them

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for closing the San Ramon station.

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In “early July 2012,” plaintiffs closed the Dublin station. (Id. ¶ 37.) Upon meeting with

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Mr. Sell, he “confirmed that the relationship had terminated and never mentioned payment of

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liquidated damages, repayment of loans, or returning any signage or equipment to BP at any point

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during or after this meeting. As with the San Ramon station, plaintiffs and Mr. Sell understood that

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the relationship between plaintiff and BP had ended and that the parties were not indebted to each

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other in any way.” (Id.)

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On July 23, 2012, BP issued a letter to plaintiffs stating that plaintiffs had breached the

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agreements at the Dublin Station and demanded over $1 million in liquidated damages, repayment

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of loans and financing, and past deliveries of fuel. (Id. ¶ 34.) In early August 2012, plaintiffs

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contacted Mr. Lemons to confirm the closure of the San Ramon and Dublin stations and to notify

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him that the July 23, 2012 termination letter was inconsistent with the agreements reached with Mr.

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Sell regarding the termination of their relationship with BP. Mr. Lemons said he would check with

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management on the question of whether plaintiffs could disregard the letter, but did not contact

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plaintiffs again or return their several follow-up calls. (Id. ¶ 39.)

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4

D. Plaintiffs Di
P
iscover BP’s Remaining Liens in 2
s
g
2015

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In or aro
ound 2015, approximatel three year after brand
a
ly
rs
ding the two gas stations to sell
o
s

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3

evron gasolin plaintiffs met with th banking representati on an unr
ne,
heir
ive
related matte and
er
Che

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learn that BP had not rem
ned
moved its lien on the Dub station. They later learned that B had not
n
blin
BP

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rem
moved its lien on the San Ramon stati either. (I ¶ 41.) O or about July 22, 2016 BP
n
ion
Id.
On
6,

6

ng
secr
retly contacte Chevron to inform th that they were seekin to procee with non-j
ed
hem
y
ed
judicial

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fore
eclosure on th San Ram and Dubl stations. (Id. ¶ 42.)
he
mon
lin
Plaintiff filed the in
fs
nstant suit on July 22, 20
n
016, notably without a cl
laim for quie title.
et

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9
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II.

LEGAL STANDARD
Pursuant to Federal Rule of Civi Procedure 12(b)(6), a c
t
R
il
complaint m be dismi
may
issed for

United States District Court
Northern District of California

11

failu to state a claim upon which relief may be gra
ure
n
anted. Dism
missal for fail
lure to state a claim

12

unde Rule 12(b
er
b)(6) is prope if there is a “lack of a cognizable legal theory or the absen of
er
y
nce

13

suff
ficient facts alleged unde a cognizab legal theo
a
er
ble
ory.” Conse
ervation For v. Salaza 646 F.3d
rce
ar,

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1240 1242 (9th Cir. 2011) (citing Balis
0,
h
(
streri v. Pacif
ifica Police D
Dep’t, 901 F
F.2d 696, 699 (9th Cir.
9

15

1988)). The com
mplaint mus plead “eno
st
ough facts to state a claim [for] relief that is plau
m
f
usible on its

16

face Bell Atl. Corp. v. Tw
e.”
wombly, 550 U.S. 544, 57 (2007). A claim is pl
U
70
lausible on it face
ts

17

“wh the plain pleads fa
hen
ntiff
actual conten that allow the court t draw the r
nt
ws
to
reasonable in
nference that

18

the defendant is liable for th misconduct alleged.” Ashcroft v. Iqbal, 556 U 662, 678 (2009). If
d
he
U.S.
f

19

the facts alleged do not supp a reason
f
d
port
nable inferen of liabili stronger than a mere possibility,
nce
ity,

20

the claim must be dismissed Id. at 678–
c
b
d.
–79; see also In re Gilea Scis. Sec. Litig., 536 F
o
ad
F.3d 1049,

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1055 (9th Cir. 2008) (stating that a cour is not requ
2
g
rt
uired to accep as true “allegations th are
pt
hat

22

rely
ory,
anted deducti
ions of fact, or unreason
nable inferen
nces”) (citati omitted).
ion
.
mer concluso unwarra

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“Federal Rule of Civ Procedure 8(a)(2) req
l
vil
e
quires only a ‘short and p
plain stateme of the
ent

24

claim showing that the plead is entitle to relief,’ in order to ‘give the def
m
t
der
ed
fendant fair n
notice of

25

wha the . . . cla is and the grounds up which it rests.’” Tw
at
aim
e
pon
t
wombly, 550 U.S. at 554– (quoting
–55
g

26

Fed. R. Civ. P. 8(a)(2)) (alte
8
eration in ori
iginal) (citat
tion omitted) Even und the libera pleading
).
der
al

27

stan
ndard of Rule 8(a)(2), “a plaintiff’s obligation to provide the grounds of his entitleme to relief
e
o
ent

28

requ
uires more th labels an conclusions, and a for
han
nd
rmulaic recit
tation of the elements of a cause of
f

5

1

actio will not do.” Id. at 55 (citing Pa
on
d
55
apasan v. Al
llain, 478 U. 265, 286 (1986) (inte
.S.
ernal

2

ume
brac
ckets and quo
otation mark omitted)). The Court will not assu facts no alleged, n will it
ks
.
ot
nor

3

draw unwarranted inference Iqbal, 55 U.S. at 67 (“Determi
w
es.
56
79
ining whethe a complai states a
er
int

4

plau
usible claim for relief [is] a context-s
specific task that require the review
k
es
wing court to draw on its

5

judicial experien and com
nce
mmon sense.”
”).
If dismis is approp
ssal
priate, a cou “should g
urt
grant leave to amend eve if no request to amend
o
en
d

6
7

the pleading wa made, unle it determ
p
as
ess
mines that the pleading co
e
ould not possibly be cure by the
ed

8

alleg
gation of oth facts.” Lopez v. Smit 203 F.3d 1122, 1130 (9th Cir. 20
her
L
th,
000) (quotati marks
ion

9

and citation omi
itted).

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III.

DISCUSS
SION
A. Statute of Li
S
imitations

United States District Court
Northern District of California

11
12

Defenda argues that Claims I, II, IV, and p
ant
portions of II and V rela
II
ating to the o
operation of

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the gasoline stat
g
tions fail to state a claim for relief be
s
m
ecause they are barred b the applica statutes
by
able
s

14

of li
imitations. The Court ad
T
ddresses each claim as fo
ollows.
1. Claim I: Breach of Contract
m
o

15
16

Defenda argues that plaintiffs untimely file their claim for breach of contract Under
ant
ed
m
h
t.

17

ifornia law, the statute of limitations for breach o a written contract is f
t
s
of
four years.2 Cal. Civ.
Cali

18

Proc Code § 33
c.
37(1). A thre
eshold quest
tion is when the statutes of limitation period sta to run.
ns
arts

19

Und Californi law, “the limitations period, the pe
der
ia
l
p
eriod in whic a plaintif must bring suit or be
ch
ff
g

20

barr runs from the mome a claim ac
red,
m
ent
ccrues.” Ary v. Canon Bus. Solut
yeh
n
tions, Inc., 55 Cal.4th

21

1185, 1191 (201
13). The “la element” accrual rule provides that absent any equitable e
ast
y
exception, a

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m
pon
ccurrence of the last elem essentia to the caus of action.’” Id.
ment
al
se
claim accrues up “‘the oc

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(quo
oting Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 C
O
C
Cal.3d 176, 1 (1971)). A breach
187
.

24

of contract claim generally accrues at th time of the breach. Je v. City & Cty. of San F
m
a
he
e
en
Francisco,

25
26
27
28

2

Defend
dants argue that plaintiff claims so
fs’
ounding in fr
raud have th
hree-year lim
mitations
periods. An “ac
ction for relief on the gro
ound of fraud has a thre
d”
ee-year statu of limitat
ute
tions period.
Cal. Civ. Pro. § 338(d); Bro
.
ooks v. Wash
hington Mut. Bank, No. C 12-00765 WHA, 2012 WL
2
5869
9617, at *3 (N.D. Cal. Nov. 19, 2012). Given th Court’s fi
(
N
he
inding that th claims are barred by
he
the four-year sta
f
atute of limit
tations, it do not reach this issue.
oes
h
6

1

No. 15-CV-03834-HSG, 2016 WL 3669985, at *5 (N.D. Cal. July 11, 2016) (citation omitted);

2

Mortkowitz v. Texaco, Inc., 842 F. Supp. 1232, 1236 (N.D. Cal. 1994) (citing Donahue v. United

3

Artists Corp., 2 Cal. App. 3d 794, 802 (1969)). Under the discovery rule, “[s]ubjective suspicion is

4

not required. If a person becomes aware of facts which would make a reasonably prudent person

5

suspicious, he or she has a duty to investigate further and is charged with knowledge of matters

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which would have been revealed by such an investigation.” Mangini v. Aerojet–Gen. Corp., 230

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Cal. App. 3d 1125, 1150 (1991) (citation omitted).

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9

Here, plaintiffs allege that BP breached the terms of the parties’ Franchise Agreements.
(FAC ¶¶ 15, 43-49.) Regarding the San Ramon station, the FAC alleges that on April 22, 2012,
plaintiffs closed that station because “BP refused to abide by the contract terms and/or work with

11

United States District Court
Northern District of California

10

plaintiffs in any meaningful way to improve the profitability of the San Ramon station.” (Id. ¶ 29.)

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The alleged breaches of contract leading to plaintiffs’ loss of profits and the closure of the San

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Ramon station included: (1) BP’s breach of paragraph 5 of the “Contract Dealer Gasoline

14

Agreement” by refusing to grant plaintiffs with temporary voluntary allowances (“TVA”) to allow

15

them to compete more effectively with neighboring gas stations despite plaintiffs’ repeated requests

16

(id. ¶ 46.); (2) BP’s breach of article 12.04 of the ampm Mini Market Agreement by informing

17

plaintiffs that any request for additional or alternative vendors would be denied (id. ¶ 47); and (3)

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BP’s breach of article 13.03 of the ampm Mini Market Agreement causing plaintiffs to maintain an

19

excess supply of food and beverages resulting in losses in excess of $3,000 per month at the San

20

Ramon station (id. ¶ 48). The FAC states that each of these breaches occurred before plaintiffs

21

closed the San Ramon station on April 22, 2012. Therefore, the four-year statute of limitations

22

began to run by that date. The defendant’s alleged wrongdoing resulting in the closure of the

23

station triggered a duty to investigate further, and plaintiffs are “charged with knowledge of matters

24

which would have been revealed by such an investigation.” Mangini, 230 Cal. App. 3d at 1150.

25

Accordingly, plaintiffs’ breach of contract claim regarding the San Ramon station filed over four

26

years later on July 22, 2016 is untimely.

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28

Regarding the Dublin station, plaintiffs similarly allege that BP’s various breaches of the
Franchise Agreements caused plaintiffs to suffer monetary damages. (Id. ¶ 49.) The FAC alleges

7

1

that in around June 2012, in retaliation for plaintiffs’ closure of the San Ramon station, BP

2

implemented an additional $2,000 fee for each fuel load purchase and placed plaintiffs’ shipments

3

on COD terms. (Id. ¶¶ 35-36.) Plaintiffs closed the Dublin station in early July 2012,3 by which

4

point the statute of limitations commenced. Accordingly, for the same reasons as the San Ramon

5

station, plaintiffs’ breach of contract claim related to the Dublin station is time barred.
2. Claim II: Breach of Covenant of Good Faith and Fair Dealing

6
7

Defendant also argues that plaintiffs’ claim for breach of implied covenant of good faith and

8

fair dealing is time barred. In California, the statute of limitations for the breach of the covenant of

9

good faith and fair dealing based on contract is four years. See Fehl v. Manhattan Ins. Grp., No.
11-CV-02688-LHK, 2012 WL 10047, at *4 (N.D. Cal. Jan. 2, 2012) (citing Love v. Fire Ins. Exch.,

11

United States District Court
Northern District of California

10

221 Cal. App. 3d 1136, 1144 (1990)). Therefore, for the same reason as the breach of contract

12

claim, Claim II is untimely.
3. Claims III, IV and V: California Business and Professions Code Violations,

13

Breach of Fiduciary Duty

14
15

Defendant further contends that the statute of limitations for Claims III, IV, and V related to

16

the operations of the stations bar these claims. The statute of limitations for claims under Business

17

and Professions Code sections 17200 and 17500 is four years. Cal. Bus & Prof. Code § 17208.

18

The limitations period is also four years for breach of fiduciary duty. Solomon v. N. Am. Life &

19

Cas. Ins. Co., 151 F.3d 1132, 1137 (9th Cir. 1998). Accordingly, for the same reasons as the

20

breach of contract claim, Claims III, IV, and V are also time barred.
4. Discovery Rule

21
22

Plaintiffs argue that their breach of contract and related claims are not barred because the

23

statutes of limitations did not begin to run until mid-2015, when plaintiffs first discovered that they

24

had been damaged because BP had not removed the liens on their properties. California applies the

25

discovery rule to breach of contract claims. El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1039

26
3

27
28

Plaintiffs’ FAC does not provide the date on which they closed the Dublin station.
Defendants cite evidence (Dkt. No. 1 at 44) that the date of the closure was July 5, 2012. The
Court does not rely on this fact. Rather, it interprets the FAC’s reference to “early July 2012” as
the date of the closure to mean prior to July 23, 2012.
8

1

(9th Cir. 2003). The discovery rule also applies to claims brought under Business and Professions

2

Code sections 17200 and 17200, as well as to breach of fiduciary duty claims. See Cover v.

3

Windsor Surry Co., No. 14-CV-05262-WHO, 2015 WL 4396215, at *3 (N.D. Cal. July 17, 2015)

4

(citing Aryeh, 55 Cal.4th at 1191); Apr. Enterprises, Inc. v. KTTV, 147 Cal. App. 3d 805, 827

5

(1983). “The discovery rule may be applied to breaches which can be, and are, committed in secret

6

and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by

7

plaintiffs until a future time.” See Hashim, 316 F.3d at 1039 (citations omitted). “Ultimately, the

8

discovery rule permits delayed accrual until a plaintiff knew or should have known of the wrongful

9

conduct at issue.” Id. (internal citations and quotation marks omitted). In invoking the discovery
rule, a plaintiff must plead and prove facts showing: (a) lack of knowledge; (b) lack of means of

11

United States District Court
Northern District of California

10

obtaining knowledge (in the exercise of reasonable diligence the facts could not have been

12

discovered at an earlier date); (c) how and when he actually discovered the fraud or mistake. Gen.

13

Bedding Corp. v. Echevarria, 947 F.2d 1395, 1397 (9th Cir. 1991).

14

Plaintiffs argue that their 2015 discovery of the liens triggered the statute of limitations.

15

The FAC alleges that as of late May 2012, based on representations by Mr. Sell, “Plaintiffs and BP

16

agreed and understood that . . . the relationship between plaintiffs and BP, with respect to the San

17

Ramon station, was terminated and that neither were indebted to each other.” (FAC ¶ 32.)

18

Similarly with regard to the Dublin station, “Plaintiffs and Mr. Sell understood that the relationship

19

between plaintiff and BP had ended and that the parties were not indebted to each other in any

20

way.” (Id. ¶ 37.) Therefore, plaintiffs argue that they reasonably believed that defendant was

21

abiding by this alleged walk-away agreement and did not become aware that BP had maintained its

22

liens on the San Ramon and Dublin properties until mid-2015, after speaking to their banking

23

representative on an unrelated matter.

24

Plaintiffs’ allegations do not satisfy the discovery rule. The FAC alleges their lack of

25

knowledge of the wrongful conduct until their discovery of the liens in 2015, but does not allege

26

lack of means of obtaining the knowledge through reasonable diligence. Gen. Bedding Corp., 947

27

F.2d at 1397. Plaintiffs argue in their Opposition that they had “no reason to believe the liens were

28

not earlier removed” and “plaintiffs were ignorant through no fault of their own.” (Opp. at 18.)

9

1

However, the FAC itself does not reflect such facts. In the FAC, Plaintiffs allege that they “had

2

previously assumed these liens were withdrawn upon the closure of the stations and completion of

3

the debranding process.” (FAC ¶ 4, emphasis added.) In addition, the FAC alleges that they

4

received notices of breach of contract and termination letters from BP regarding the San Ramon

5

station on May 17, 2012 and the Dublin station on July 23, 2012. (Id. ¶¶ 31, 38.) Upon contacting

6

Mr. Lemons to question the inconsistencies between Mr. Sell’s alleged representations and the July

7

2012 letter, Mr. Lemons said he “would check with management on the question of whether

8

plaintiffs could disregard the letter.” (Id. ¶ 39.) However, despite making several follow-up calls

9

to Mr. Lemons and Mr. Rahman, they allege that they did not receive a response or any further
contact from BP. (Id.) In order to satisfy the discovery rule, plaintiffs must adequately allege that

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Northern District of California

10

in the exercise of reasonable diligence they could not have discovered the facts at an earlier date.

12

See Gen. Bedding Corp., 947 F.2d at 1397. The alleged “several follow-up calls” in 2012 and BP’s

13

failure to return them does not demonstrate either plaintiffs’ reasonable diligence or their inability

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to have discovered earlier the alleged wrongdoing.

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Finally, plaintiffs’ allegations concerning the nature of defendant’s efforts to conceal their

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wrongdoing lack the requisite degree of specificity to allow the Court to conclude reasonably that

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plaintiffs were actually unable to discover this information until 2015. The gravamen of plaintiffs’

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claim is that defendant “intentionally kept plaintiffs ignorant of its true intentions and made

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representations to prevent plaintiffs from pursuing its [sic] meritorious claims so that BP could

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foreclose on plaintiffs’ properties without accountability for BP’s past wrongful conduct.” (FAC ¶

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42.) Accordingly, plaintiffs are obligated to “state with particularity the circumstances constituting

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fraud or mistake.” Fed. R. Civ. P. 9(b). Their allegations must include the “time, place, and

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specific content of the false representations as well as the identities of the parties to the

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misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citations omitted).

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To the extent plaintiff allege fraudulent concealment, they fail to meet the level of specificity that

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Rule 9(b) requires. The discovery rule does not save their claims as currently pled.

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2

5. Equitable Estoppel
Plaintiffs argue in the alternative that their claims should survive under the doctrine of

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equitable estoppel. Even if a claim is time barred, “[a] defendant will be estopped to assert the

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statute of limitations if the defendant’s conduct, relied on by the plaintiff, has induced the plaintiff

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to postpone filing the action until after the statute has run.” Mills v. Forestex Co., 108 Cal. App.

6

4th 625, 652 (2003); McMackin v. Ehrheart, 194 Cal. App. 4th 128, 140 (2011). However, such

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promises do not trigger equitable estoppel unless they are “conditioned upon [ ] refraining from

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initiating litigation or taking any action against [defendant] and that [the plaintiff does] in reliance

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thereon forbear from such action.” Abramson v. Brownstein, 897 F.2d 389, 393 (9th Cir. 1990)
(quoting Kurokawa v. Blum, 199 Cal. App. 3d 976, 990 (1988)). “For a defendant to be equitably

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Northern District of California

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estopped from asserting a statute of limitations, the plaintiff must be ‘directly prevented . . . from

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filing [a] suit on time.’” Vaca v. Wachovia Mortg. Corp., 198 Cal. App. 4th 737, 746 (2011)

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(alterations in original, citation omitted). To determine whether equitable estoppel applies, courts

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consider several factors, such as whether the plaintiff actually relied on the defendant’s

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representations, whether such reliance was reasonable, whether there is evidence that the

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defendant’s purpose was improper, whether the defendant had actual or constructive knowledge

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that its conduct was deceptive, and whether the purposes of the statute of limitations have been

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satisfied. Naton v. Bank of California, 649 F.2d 691, 696 (9th Cir. 1981).

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Here, plaintiffs contend that Mr. Sell made representations to them that reasonably led them

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to believe that the parties’ relationship had ended and they would not pursue any claims against

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each other under the Franchise Agreements. (FAC ¶¶ 32, 37.) However, even accepting the

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allegations as true, plaintiffs do not plead any reliance on Sell’s alleged promises. See Mills, 108

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Cal. App. 4th at 652. Plaintiffs do not allege that they intended to bring suit in 2012, or any time

24

before early July 2016, when the statute of limitations for claims based on both stations’ operations

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had run. They have therefore failed to plead sufficient facts to support a claim of equitable

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estoppel. Cf. Battuello v. Battuello, 64 Cal. App. 4th 842, 848 (1998) (allegations that defendant

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“convinced [plaintiff] not to file a timely suit by telling [plaintiff] that [plaintiff] would receive the

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vineyard” during settlement negotiations sufficient to plead equitable estoppel). Plaintiffs allege on

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information and belief that defendant improperly “kept plaintiffs ignorant of its true intentions” to

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“foreclose on plaintiffs’ properties without accountability for BP’s past wrongful conduct.” (FAC

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¶ 42.) BP allegedly informed Chevron on July 22, 2016, after plaintiffs filed their lawsuit, of its

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intent to proceed with foreclosure. (Id.) However, these allegations alone are not sufficient to

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qualify for equitable estoppel where plaintiffs have not alleged that they reasonably relied on

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defendant’s actions in refraining from filing suit. See Abramson, 897 F.2d at 393.

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Although plaintiffs’ breach of contract and related claims are time barred, plaintiffs may be

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able to plead that defendant should be equitably estopped from asserting a statute of limitations

9

defense. Accordingly, Claims I through IV are DISMISSED WITH LEAVE TO AMEND, as
amendment would not necessarily be futile. See Lopez, 203 F.3d at 1130 (9th Cir. 2000). Claim V

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Northern District of California

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is DISMISSED WITHOUT LEAVE TO AMEND. See Section III (C), infra.

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B. Claim III: Business and Professions Code Section 17200
Defendant argues that the remaining portion of Claim III should be dismissed because

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plaintiffs are neither competitors of defendant nor consumers, and therefore have not pled a claim

15

under Business and Professions Code section 17200. The UCL prohibits “any unlawful, unfair, or

16

fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. “As the California courts

17

have explained, the unfair competition statute is not limited to ‘conduct that is unfair to

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competitors.’” In re Pomona Valley Med. Grp., Inc., 476 F.3d 665, 675 (9th Cir. 2007) (citing

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People ex rel. Renne v. Servantes, 86 Cal. App. 4th 1081 (2001)). “Indeed, in defining unfair

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competition, § 17200 refers to only business acts and practices, not competitive business acts or

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practices, and the term “embrac[es] anything that can properly be called a business practice.” Id.

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(citation omitted) (emphasis in original). Where an “unlawful” business practice is charged, actual

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injury to the consuming public or even to business competitors is not a required element of proof of

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a violation of Section 17200. People ex rel. Van de Kamp v. Cappuccio, Inc., 204 Cal. App. 3d

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750, 760 (1988). Thus, defendant’s argument that Claim III fails because plaintiffs are not

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competitors of defendant or consumers is unavailing.

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The Court next considers whether the FAC sufficiently pleads a claim under Section 17200.
A plaintiff may allege either an unlawful, an unfair, or a fraudulent act to establish liability under

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the UCL. See Cel-Tech Comm., Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999).

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Here, the FAC appears to allege all three forms of UCL violations, alleging that defendants have

3

engaged in “unlawful, unfair and/or fraudulent business practice . . . .” (FAC ¶ 63.) The Court

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examines each prong in turn.

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1. Unlawful Prong
To state a claim under the unlawful prong of the UCL, plaintiff may allege the commission

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of any act “forbidden by law, be it civil or criminal, federal, state, or municipal, statutory,

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regulatory, or court-made.” Saunders v. Sup. Ct., 27 Cal. App. 4th 832, 838–39 (1994). The

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unlawful prong of Section 17200 “borrows violations of other laws and treats them as unlawful
practices that the unfair competition law makes independently actionable.” Cal. Consumer Health

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Northern District of California

10

Care Council v. Kaiser Found. Health Plan, Inc., 142 Cal. App. 4th 21, 47 (2006) (internal

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quotation marks and citations omitted). Here, plaintiffs incorporate their breach of contract

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allegations in this separate UCL claim. (FAC ¶ 59.) However, “a common law violation such as

14

breach of contract is insufficient” to state a Section 17200 claim under the unlawful prong. Shroyer

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v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1044 (9th Cir. 2010) (citation omitted).

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Thus, as the FAC does not allege the violation of any other predicate law, their claim under the

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unlawful prong of Section 17200 fails.

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19

2. Unfair Prong
With respect to the unfair prong, an act or practice is unfair if the practice “offends an

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established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or

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substantially injurious to consumers.” See Lueras v. BAC Home Loans Servicing, LP, 221 Cal.

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App. 4th 49, 81 (2013). Pending resolution of this issue in the California Supreme Court, our court

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of appeals has approved the use of either a balancing test or a tethering test when it comes to

24

defining unfair conduct. See Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 735–36 (9th Cir.

25

2007). The Court applies the tethering test, which states that conduct is unfair under Section 17200

26

when it offends an established public policy that is “tethered to specific constitutional, statutory, or

27

regulatory provisions.” Bardin v. Daimler Chrysler Corp., 136 Cal. App. 4th 1255, 1261 (2006).

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The balancing test assesses the harm to the consumer against the utility of defendant’s practice. See

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1

South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal. App. 4th 861, 886 (1999). The

2

unfairness prong must be tethered to some legislative policy. See Kaar v. Wells Fargo Bank, N.A.,

3

No. C 16-01290 WHA, 2016 WL 3068396, at *2–3 (N.D. Cal. June 1, 2016).

4

Here, the FAC alleges that defendant violated Section 17200 because it: “(i) misrepresented
the profitability of the San Ramon and Dublin stations as a result of the various breaches alleged

6

above; (ii) insisted that plaintiffs continue to operate the San Ramon station at a loss; (iii) retaliated

7

against the Dublin station for the closure of the San Ramon station; (iv) maintained a lien on

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plaintiffs’ real property despite the end of its business relationships with defendant; and (v) made

9

representations to keep plaintiffs ignorant of its true intentions to delay plaintiffs from pursuing its

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meritorious claims so that defendant could foreclose on plaintiffs’ properties.” (FAC ¶ 61.) These

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Northern District of California

5

allegations generally relate to plaintiffs’ breach of contract claim. Moreover, they do not articulate

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how the alleged wrongdoing is conduct tethered to any legislative policy. Therefore, the FAC fails

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to state a claim under the unfair prong of Section 17200. If amending their pleading to proceed

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under the unfair prong, plaintiffs should make clear that defendant’s conduct offended an

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established public policy and tie that policy to a particular legislative provision.

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17

3. Fraudulent Prong
With respect to the fraudulent prong, the UCL requires “only a showing that members of the

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public are likely to be deceived” by the allegedly fraudulent practice. Lueras v. BAC Home Loans

19

Servicing, LP, 221 Cal. App. 4th 49, 81 (2013). Additionally, to sustain a claim under the

20

fraudulent prong of the UCL in federal court, plaintiffs must plead “with particularity the

21

circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b); see also Vess v. Ciba-Geigy

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Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). Thus, “[a]verments of fraud must be

23

accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.” Kearns v.

24

Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (citation omitted). “The requirement of

25

specificity in a fraud action against a corporation requires the plaintiff to allege the names of the

26

persons who made the allegedly fraudulent representations, their authority to speak, to whom they

27

spoke, what they said or wrote, and when it was said or written.” Tarmann v. State Farm Mut.

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Auto. Ins. Co., 2 Cal. App. 4th 153, 157 (1991).

14

1

Here, the FAC fails to allege that members of the public are likely to be deceived by

2

defendant’s conduct. In fact, the complaint does not address the argument at all. Thus, plaintiffs’

3

FAC fails to plead a claim under Section 17200 under a theory of fraud.

4

In sum, the FAC does not plead facts to support a claim under any of the three prongs of

5

Section 17200. Therefore, Claim III is DISMISSED WITH LEAVE TO AMEND, as amendment would

6

not necessarily be futile. See Lopez, 203 F.3d at 1130 (9th Cir. 2000). If plaintiffs wish to proceed

7

under a theory of fraud under Section 17200, they must plead the details with sufficient

8

particularity. See Vess, 317 F.3d at 1103. Further, plaintiffs shall identify the prong under which

9

they are proceeding.

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Northern District of California

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12

C. Claim V: Breach of Fiduciary Duty
Defendant argues that Claim V fails because plaintiffs have failed to plead the existence of a
fiduciary relationship with BP.

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Plaintiffs concede that there is no fiduciary relationship imposed by law between a

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franchisor and a franchisee. (Opp. at 21.) “The relation between a franchisor and a franchisee is

15

not that of a fiduciary to a beneficiary.” Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F.2d 1285,

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1292 (9th Cir. 1987). However, they argue that a fiduciary relationship existed as a result of the

17

parties’ confidential relationship and contractual agreement with each other. They cite authority for

18

the proposition that a fiduciary duty may be undertaken by agreement when one person enters into

19

a confidential relationship with another. See Ford v. Shearson Lehman Am. Express, Inc., 180 Cal.

20

App. 3d 1011, 1020 (1986) (holding that plaintiff was not compelled to arbitrate action for breach

21

of fiduciary duty against his securities broker and investment advisor, former psychotherapist, and

22

former bookkeeper and business manager; “A confidential relationship ‘may be said to exist

23

whenever trust and confidence is reposed by one person in the integrity and fidelity of another.’

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[Citations.] And where the person in whom such confidence is reposed, by such confidence obtains

25

any control over the affairs of the other, a trust or fiduciary relationship is created.” (citations

26

omitted)); Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 67 Cal. App. 3d 19 (1977),

27

overruled by Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394 (1996) (action against a stock

28

brokerage firm by a client for losses and damages due to discretionary sales and purchases of stock

15

1

made pursuant to a lending agreement); GAB Bus. Servs., Inc. v. Lindsey & Newsom Claim Servs.,

2

Inc., 83 Cal. App. 4th 409, 420–21, as modified (Sept. 14, 2000), as modified on denial of reh'g

3

(Sept. 26, 2000) disapproved of by Reeves v. Hanlon, 33 Cal. 4th 1140, 95 P.3d 513 (2004)

4

(holding that “an officer who participates in management of the corporation, exercising some

5

discretionary authority, is a fiduciary of the corporation as a matter of law.”)

6

Plaintiffs’ authorities are inapposite because they do not involve franchise relationships.

7

The confidential relationships examined in those cases (i.e., with investment advisors,

8

psychotherapists, stock brokers, and corporate officers) are far different from the relationship at

9

issue here. Plaintiffs argue that a fiduciary relationship existed because they entered into a
relationship based on “confidence and trust” with BP and BP had significant control over plaintiffs’

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Northern District of California

10

affairs. For example, they allege that BP had the sole discretion to set pricing and delivery of fuel,

12

selected vendors for goods and services, and were obligated to act on plaintiff’s behalf. However,

13

these facts alone do not give rise to a fiduciary relationship. See, e.g., Sea Ray Boats, Inc., 825

14

F.2d at 1292 (franchisor owed no fiduciary duty to franchisee despite the fact that franchisor gave

15

franchisee “detailed instructions on what [franchisee’s] salesmen should do” and wear, required

16

franchisee to purchase its merchandise, and limited the rates it would reimburse franchisee for

17

warranty work to Franchisee’s economic detriment).

18

As the plaintiffs and Court have located no authority that a fiduciary duty exists in a

19

franchise relationship under California law, and because plaintiffs do not plead allegations in the

20

FAC suggesting that a fiduciary relationship would otherwise exist, granting plaintiffs leave to

21

amend their claim would be futile. Thus, Claim V is DISMISSED WITHOUT LEAVE TO AMEND.

22

//

23

//

24

//

25

//

26

//

27

//

28

//

16

1

IV.

2

For the foregoing reasons, BP’s motion to dismiss is GRANTED as follows: Claims I through

3

IV are DISMISSED WITH LEAVE TO AMEND. Claim V is DISMISSED WITHOUT LEAVE TO AMEND.

4

Plaintiffs shall file an amended complaint by no later than November 17, 2016. Defendant shall

5

file a responsive pleading within fourteen (14) days of the filing of the amended complaint. The

6

hearing on November 15, 2016, is VACATED.

7

This terminates Docket No. 19.

8

IT IS SO ORDERED.

9
10

CONCLUSION

Date: November 3, 2016

_______________________________________
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

United States District Court
Northern District of California

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