Facts

Houtan Petroleum Inc. operated a Union 76 service station in Mountain View (the "Station") as a ConocoPhillips franchisee, pursuant to a franchise agreement governed by the Petroleum Marketing Practices Act, 15 U.S.C. section 2801, et seq. ("PMPA") ConocoPhillips leased the station from a third-party, V.O. Limited Partners ("V.O."), and subleased the property to Houtan. ConocoPhillips owns the structures, equipment and improvements at the station.

The parties' franchise agreement stated that it would terminate on Oct. 31, 2007, upon expiration of ConocoPhillips' lease with V.O. In mid-October 2007, Houtan entered an agreement to lease the property directly from V.O., to commence on Nov. 1, 2007. On Oct. 18, 2007, Houtan advised ConocoPhillips of its agreement with V.O., and requested pursuant to the PMPA that ConocoPhillips offer to sell Houtan the structures, improvements and equipment at the station. ConocoPhillips made such an offer for $340,000. The offer price was based on an independent appraisal prepared by a third-party appraiser.

Houtan rejected the offer on Oct. 29, 2007, but also refused to allow ConocoPhillips to access the station to remove its equipment and improvements. Instead, Houtan filed suit under the PMPA, alleging that the franchise termination was for an improper reason under the PMPA; the notice of termination provided by ConocoPhillips was untimely; ConocoPhillips' termination was not in good faith; and the offer was not "bona fide" under the PMPA.

Houtan sought compensatory damages, punitive damages and an order mandating that ConocoPhillips make a new offer at a lower price.

The franchise agreement provided that, upon its termination, Houtan was to cease using the station property and surrender possession to ConocoPhillips. Houtan sought a preliminary injunction to prevent termination of the franchise agreement and to compel ConocoPhillips to leave its property at the Station pending the litigation. The court denied injunctive relief. Houtan, however, continued using the property, without paying rent, for the duration of the litigation.

ConocoPhillips alleged counterclaims for breach of contract, conversion and unjust enrichment.

Before trial, the court granted summary judgment in ConocoPhillips' favor on all claims other than Houtan's claim that the offer was not bona fide under the PMPA. The court also adjudicated (in ConocoPhillips' favor) Houtan's claims for compensatory and punitive damages.

At trial, Houtan submitted an appraisal that purported to value the equipment and improvements at $145,000. That appraisal was based on the assumption that the Station would be totally demolished and rebuilt within three to five years. However, Houtan's president, Ed Haddad, admitted that Houtan had no plan to do so, but intended to renovate the existing Station. Houtan also contended that environmental indemnity and release language in the offer violated the PMPA, because the underground fuel storage tanks at the Station were leaking. Houtan, however, presented no witness testimony, or other evidence, to establish any fuel leak or environmental contamination, and ConocoPhillips' witnesses testified that neither had occurred.

PLAINTIFF'S CONTENTIONS:
Houtan Petroleum Inc. contended that the franchise termination was for an improper notice under the PMPA; the notice of termination provided by ConocoPhillips was untimely; ConocoPhillips' termination was not in good faith; and the offer was not "bona fide" under the PMPA. Houtan sought compensatory damages, punitive damages and an order mandating that ConocoPhillips make a new offer at a lower price.

DEFENDANT'S CONTENTIONS:
ConocoPhillips contended that the termination was for a permissible reason under the PMPA (the expiration of ConocoPhillips' property lease with V.O.); the notice of termination was timely and complied in all other respects with the PMPA; and that the offer was bona fide under the PMPA. ConocoPhillips further contended that by retaining the property after the franchise termination without accepting the bona fide offer or paying rent, Houtan breached the franchise agreement, converted the subject property and was unjustly enriched.

Result

The jury found that ConocoPhillips' bona fide offer complied with the PMPA in all respects, and awarded damages of $380,000 in favor of ConocoPhillips. The damage award reflected the value of ConocoPhillips' equipment and improvements ($340,000), plus the fair rental value of the property for the period Houtan retained and used it after the franchise termination ($40,000). The court subsequently entered judgment requiring that Houtan pay ConocoPhillips' damages of $40,000, and either accept or reject the $340,000 bona fide offer.

Other Information

Houtan moved for judgment as a matter of law. The motion was denied. FILING DATE: Nov. 5, 2007.

Deliberation

one hour

Length

four days