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Reyes v. Atlantic Richfield Co.

filed: December 8, 1993.


Appeal from the United States District Court for the Southern District of California. D.C. No. 88-1074-E. William B. Enright, District Judge, Presiding.

Before: Dorothy W. Nelson, and Stephen Reinhardt, Circuit Judges, and Marion J. Callister, District Judge.*fn* Opinion by Judge Callister; Dissent by Judge Reinhardt.

Author: Callister

CALLISTER, District Judge:

Franchisees of an Atlantic Richfield Company (ARCO) gas station and convenience store sued ARCO when their franchise was not renewed.*fn1 The District Court granted summary judgment to ARCO, and the franchisees appealed. We affirm.


In 1986, the appellants, Wilfredo Reyes, and his wife, Bernardita, wanted to purchase a franchise for an existing ARCO gas station and convenience store from Mohammad Attiyeh. The appellants agreed to pay $305,000.00, consisting of $270,000.00 for assignment of Attiyeh's franchise with ARCO, and $35,000.00 for inventory.

The assignment of Attiyeh's franchise agreement to the appellants was contingent on ARCO's approval of the appellants as franchisees. Wilfredo Reyes enrolled in an ARCO dealer's school and completed his training in July 1986. He passed even though he displayed no aptitude for bookkeeping. The school instructors warned ARCO's sales representative that Reyes would need help with bookkeeping.

On August 18, 1986, ARCO gave its permission for the appellants to assume the franchise. The next day, the appellants, Attiyeh, and ARCO's district manager Terry Firestone, met to close the transaction. Before escrow closed, Firestone advised the appellants that ARCO had purchased a chain of gas stations, including one across the street from Attiyeh's station, and planned to convert the chain to ARCO gas stations and convenience stores. He offered to let the appellants back out of the deal. After discussing the matter in private, the appellants decided to go ahead with the purchase, and the deal then proceeded to close.

About a month later, in mid-September 1986, ARCO sales representative Edward Loza found that the appellants had not done any accounting over the preceding month. There is no dispute that the franchise agreement required that the appellants keep the books accurate and up-to-date.

The appellants do not dispute that they received notices, some by certified mail, almost every month between September 1986 and May 1987, warning them that their bookkeeping was inadequate and constituted a violation of the terms of the franchise agreement. ARCO conducted two audits between September 1986 and February 1987 which revealed that the books were not accurate and were not in conformance with ARCO's requirements.

On May 15, 1987, ARCO sent a certified letter to the appellants notifying them that a third audit would be held on the appellants' premises on May 21, 1987, and warned the appellants that "if your books and records are not complete and accurate and in conformance with ARCO's requirements, steps will be taken to terminate or non-renew your franchise, as appropriate."

The May 21, 1987, audit could not be performed because the books were not complete and were not on the premises. By letter dated June 9, 1987, ARCO notified the appellants that their franchise would not be renewed when it expired September 11, 1987.

In July 1987, after the appellants had been notified of the non-renewal, they submitted to ARCO a request to transfer their franchise to Kevin Tapia. There were only six weeks remaining on the appellants' franchise, and ARCO consented to Tapia taking over for that six-week period only if he acknowledged in writing that the franchise agreement would expire on September 11, 1987. ARCO would not make any further commitment at that time to renew the franchise for the appellants or to give prospective franchisee Tapia any additional time. Nothing further was done by Tapia or the appellants.

In July 1987, the appellants ceased stocking the store with new merchandise. They allowed the required insurance on the store to expire for non-payment of premiums effective August 11, 1987. Wilfredo Reyes himself returned to his former employment, but alleges that he kept family members operating the store. By letter dated August 11, 1987, ARCO told the appellants that they had effectively abandoned the store, and that the termination date was therefore advanced to August 11, 1987.

The appellants responded by filing this suit containing the following causes of action: (1) fraud; (2) negligent misrepresentation; (3) violation of the California Franchise Investment Act; (4) violation of California's Unruh Act; (5) negligent interference with economic advantage; (6) intentional interference with economic advantage; (7) negligent infliction of emotional distress; (8) intentional infliction of emotional distress; and (9) violation of the Petroleum Marketing Practices Act. The District Court granted summary judgment on all claims. The appellants appeal.


The grant of summary judgment is reviewed de novo. Retsieg Corp. v. ARCO Petroleum Products Co., 870 F.2d 1495 (9th Cir. 1989). In assessing the evidence in the record, we must view the facts in a light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).


To determine if the grant of summary judgment was appropriate, we will examine each of the nine causes of action ...

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