Chevron U.S.A. Inc., Plaintiff-Counterdefendant-Appellee v. Samir L. El-Khoury, Defendant-Counterclaimant-Appellant

Defendant Samir L. El-Khoury owns and operates one of Plaintiff Chevron U.S.A. Ine.’s service station franchises in California. After its efforts to buy El-Khoury’s franchise failed, Chevron conducted an audit and discovered that El-Khoury had underpaid state sales tax. Chevron served notice to El Khoury that it intended to terminate his franchise and that the failure to pay state sales tax was a permissible ground for termination under the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. §§ 2801-2841 . El-Khoury objected to the termination. This action for declaratory relief followed.

The district court granted summary judgment to Chevron, declaring that termination of the franchise was permissible under the PMPA. On appeal, we hold that summary judgment was not appropriate because there is a question of fact as to whether El-Khoury’s failure to pay state sales tax was sufficiently material to the franchise relationship to allow for its termination. Accordingly, we reverse and remand.

FACTS AND PROCEDURAL HISTORY

A. The Franchise Agreement

In 1984, El-Khoury obtained a franchise service station and convenience store from Chevron. Chevron and El-Khoury had a…