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California Federal Court Denies Summary Judgment on Franchisee’s CFIL Claim

A federal court in California denied a gasoline station and convenience store franchisee’s motion for summary judgment on its claim that there was an unlawful material modification to its franchise agreement under the California Franchise Investment Law (CFIL). BP Prods. N. Am., Inc. v. Grand Petroleum, Inc., 2021 WL 4804275 (N.D. Ca. Oct. 14, 2021). After franchisee Grand Petroleum, Inc. entered into two franchise agreements with BP, BP instituted two optional programs and provided Grand with a disclosure about the programs under the CFIL. Each ultimately became mandatory and, after Grand failed to comply with them, BP terminated the franchise agreements. When BP filed suit to enforce the termination, Grand counterclaimed that the programs were material modifications to the franchise agreements in violation of the CFIL. The parties filed cross motions for summary judgment on their respective claims.

The court denied Grand’s motion for summary judgement as to its CFIL claim on the grounds that there were material questions of fact as to the meaning of the disclosure that BP provided, and the question of whether the programs rose to “material modifications.” The court noted that parties pointed to different sections of the disclosure to bolster their interpretation; the scant record and lack of briefing on the interpretation prevented the court from determining whether the mandatory programs were unlawful material modifications. The court also rejected BP’s argument that the material modification requirements of the CFIL were preempted by the Petroleum Marketing Practices Act – citing the Ninth Circuit’s holding that that state law concerning fraud in the formation of contracts is not preempted because it does “not implicate the grounds for, procedure for or notification requirements of termination and nonrenewal under the [PMPA].”

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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