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Transbay Auto Serv., Inc. v. Chevron USA Inc.

United States Court of Appeals, Ninth Circuit

November 30, 2015

TRANSBAY AUTO SERVICE, INC., a California corporation, Plaintiff-Appellee,
v.
CHEVRON USA INC., a Delaware corporation, Defendant-Appellant

Argued and Submitted, San Francisco, California August 10, 2015

Page 1114

Appeal from the United States District Court for the Northern District of California. D.C. No. 3:09-cv-04932-SI. Susan Illston, Senior District Judge, Presiding.

SUMMARY[**]

Rules of Evidence / Hearsay

Reversing the district court's judgment, after a jury trial, in an action under the Petroleum Marketing Practices Act, the panel held that certain evidence was not hearsay and should have been admitted as an adoptive statement.

The district court awarded the plaintiff almost half a million dollars as compensation for overpaying for a gasoline service station. The defendant contended that the station's $2.375 million price tag constituted a " bona fide offer" under the Act.

The panel held that a third-party appraisal of the property that valued it higher than either of the appraisals commissioned by the parties was not hearsay, and should have been admitted into evidence as an adoptive statement under Federal Rule of Evidence 801(d)(2)(B). Using the " possession plus" test, the panel held that when a party acts in conformity with the contents of a document e.g., by giving an independent appraisal to a lender in support of accomplishing its objective to secure a commercial loan such an action constitutes an adoption of the statements contained therein even if the party never reviewed the document's contents. The panel further held that such an action constitutes an adoption even if the third party never itself uses or relies on the document. Where, however, a party forwards a document while acting as a mere messenger, this does not constitute an adoption. The panel reversed the district court's judgment and remanded the case for a new trial.

Dissenting, District Judge Piersol wrote that the possession plus rule had not been adopted in this circuit at the time of trial and should not be applied retroactively.

David S. Ettinger (argued) and Mitchell C. Tilner, Horvitz & Levy LLP, Encino, California; Robert C. Phelps, Glynn & Finley, LLP, Walnut Creek, California, for Defendant-Appellant.

Samuel T. Rees (argued) and Martin R. Fox, Bleau Fox, Los Angeles, California, for Plaintiff-Appellee.

Before: Alex Kozinski and Richard C. Tallman, Circuit Judges, and Lawrence L. Piersol,[*] Senior District Judge. Opinion by Judge Tallman; Dissent by Judge Piersol.

OPINION

Page 1115

TALLMAN, Circuit Judge:

The dispute before us stems from the multi-million dollar purchase of a gasoline service station in the West Portal neighborhood of San Francisco. Chevron USA Inc. contends the station's $2.375 million price tag constituted a " bona fide offer" under the Petroleum Marketing Practices Act (" PMPA" ). Transbay Auto Service, Inc. rejects this argument and urges us to preserve the jury verdict awarding it almost half a million dollars as compensation for overpaying for the property. We must decide whether the district court erred in excluding at trial a third-party appraisal of the property that valued it significantly higher than either of the appraisals commissioned by the parties. We find this appraisal should have been admitted as an adoptive statement under Federal Rule of Evidence 801(d)(2)(B), and we reverse.

I

Beginning in the late 1930s, Chevron owned the land located at 301 Claremont Boulevard in San Francisco, California (the " property" ). While the oil company

Page 1116

initially operated its own Chevron-branded service station there, over the years it leased the service station to independent dealers who continued to operate under the Chevron banner. These independent dealers, known as franchisees, paid rent to Chevron in exchange for the right to operate the service station on the property.

In 2001, Chevron and Transbay--which is solely owned by Mike Tsachres--entered into a service station franchise relationship. At the time they entered into the franchise, Chevron informed Transbay it intended to sell the property sometime in the near future. In May 2008, Chevron communicated to Transbay its intent to do so. Chevron solicited bids from interested purchasers. Transbay submitted a bid in addition to two other companies. These bids ranged from $1.2 to $1.9 million, with Transbay's $1.8 million bid falling in between.[1] Ultimately, none of these bids resulted in a completed transaction for the disposition of the property. Chevron therefore opted to make what it deemed to be a " bona fide offer" to sell the property to Transbay in accordance with the PMPA. See 15 U.S.C. § 2802(b)(3)(D)(iii). " [A] bona fide offer under the PMPA is measured by an objective market standard. To be objectively reasonable, an offer must approach fair market value." Ellis v. Mobil Oil, 969 F.2d 784, 787 (9th Cir. 1992) (quotation omitted).

To determine the property's fair market value, Chevron employed Deloitte Financial Advisory Services to conduct an appraisal of the property. After learning that buildings in the West Portal neighborhood are generally restricted to a height limitation of twenty-six feet, Deloitte revised its initial appraisal from $3.24 million to $2.386 million as the property's " highest and best use" for retail or commercial space. In its revised appraisal, Deloitte deemed the property worth $1.5 million if it continued to be operated as a service station (a " going concern" valuation).

After Deloitte issued its revised appraisal, Chevron offered to sell the property to Transbay as a branded station for $2.386 million, or as an unbranded station for a slight haircut at $2.375 million. On behalf of Transbay, Tsachres accepted the unbranded offer under protest. In order to fund this purchase, Tsachres sought financing from a bank. While he faced rejection from almost all of the sixteen lenders he approached, Tsachres obtained some traction with American California Bank. This bank commissioned Property Sciences Group to appraise the property, which valued it at $2.52 million as a going concern (" PSG Appraisal" ). Tsachres acknowledged the PSG Appraisal was conducted " for the purposes of [his] loan application." And he personally participated in the process by providing financial information and submitting to an interview with PSG's appraiser. Although American California Bank ultimately declined to extend a loan to Transbay, it provided Tsachres with a copy of the PSG Appraisal.

Transbay then sought financing from California Pacific Bank (" CPB" ). CPB's chairman instructed Tsachres, " [w]hatever you have, bring them to me." The parties dispute whether Tsachres ever looked at the PSG Appraisal. But there is no dispute that when Tsachres went to the bank to apply for the loan, he provided the chairman with an envelope containing the PSG Appraisal. According to Tsachres's testimony at trial, the chairman ...


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