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Media Alerts - Transbay Auto Service, Inc. v. Chevron USA Inc. - Ninth Circuit
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March 1, 2016
  Transbay Auto Service, Inc. v. Chevron USA Inc. - Ninth Circuit
Headline: Ninth Circuit panel holds when a party acts in accordance with the contents of a document, that party adopts the contents enclosed in the document, even if the party never reviewed the statements contained in the document.

Area of Law: Evidence

Issue Presented: Should a document be admitted as an adoptive statement if, despite not reviewing the document, a party did in fact act in accordance with the contents of the document.

Significance: This case involves a matter of first impression because the court had not yet reviewed a case where a party, who has not reviewed a document, acted in accord with the document's contents. This case presented an opportunity for the Ninth Circuit to adopt the First Circuit's construction of the "possession plus" standard as it applies to documents, a standard the Ninth Circuit first articulated in United States v. Ospina, 739 F .2d 448 (9th Cir. 1984).

Brief Summary: In an action against a franchisor for failing to make a "bona fide offer" pursuant to the Petroleum Marketing Practices Act ("PMPA"), the district court ruled that a third-party appraisal that plaintiff used to successfully secure a loan was inadmissible as an adoptive statement because the record did not establish that the plaintiff or the lender actually read the appraisal. The Ninth Circuit reversed, holding that the "district court applied the wrong standard" by failing to apply the "possession plus" standard and "limiting the scope of Federal Rule of Evidence 801(d)(2)(B) to whether the evidence established that the plaintiff did 'actually hear, understand, and accede to the [statements contained in the appraisal].'" Because the plaintiff knowingly brought the appraisal to the lender, used the appraisal with a desire to induce the lender to fund the purchase, and understood that the lender might rely on the appraisal in determining whether to finance the transaction, the panel held that the appraisal's contents were adopted and admissible pursuant to Rule 801(d)(2)(B).

Extended Summary: In 2001, Chevron and Transbay entered into a service station franchise agreement. In 2008, Chevron informed Transbay of their intent to sell the property. Transbay submitted a bid to purchase the land for $1.8 million. Chevron rejected the bid and subsequently made an alleged "bona fide offer" as required under the Petroleum Marketing Practices Act ("PMPA"), the law governing the cancelation of service station franchise agreements. See 15 U.S.C. ยง 2802(b)(3)(D)(iii). Under PMPA, a "bona fide offer" is an objectively reasonable offer made at fair market value. Ellis v. Mobil Oil, 969 F .2d 784, 787 (9th Cir. 1992).

In preparation for submitting their "bona fide offer," Chevron obtained an appraisal, which indicated a value of $2.386 million based on the property's "highest and best use" and $1.5 million if continued as a gas station (a going concern valuation). Subsequently, Chevron offered the property for purchase to Transbay for $2.375 million as an unbranded station (the alleged "bona fide offer"). The sole owner of Transbay, Tsachres, agreed to purchase the property under protest for $2.375 million as an unbranded station.

In an effort to locate funding for the transaction, Transbay obtained an appraisal conducted by Property Service Group ("PSG"), which indicated a going concern value of $2.5 million ("PSG Appraisal"). Whether Tsachres actually reviewed the PSG Appraisal, and whether the bank that funded the deal relied on the PSG Appraisal are disputed matters of fact. However, that Tsachres personally delivered the appraisal to the lender from which Transbay obtained financing is undisputed.

In 2009, Transbay brought an action against Chevron in district court, alleging that Chevron failed to make a "bona fide offer" and therefore violated PMPA. At issue was the admissibility of the PSG Appraisal because the going concern valuation of $2.5 million, produced by an entity unaffiliated with Chevron, favored a finding that Chevron's offer was in fact bona fide.

Initially, the district court ruled that the evidence was sufficient as an adoptive admission under the Federal Rule of Evidence 801(d)(2)(B). However, after a mid-trial voir dire of Tsachres outside the presence of the jury, during which Tsachres testified that he never reviewed the PSG Appraisal, the district court reversed its ruling as to the admissibility of the PSG Appraisal, concluding that the state of the record did not establish a basis for an 801(d)(2)(B) adoptive admission. After the trial, the jury awarded Transbay $495,000 in damages. Upon denial of Chevron's post-verdict motion for a new trial, the district court restated its finding that there was "no indication that Mr. Tsachres actually read the contents of the PSG Appraisal." Chevron appealed to the Ninth Circuit.

The Ninth Circuit panel first reviewed the district court's ruling as to the admissibility of the PSG Appraisal. After examining prior decisions, including the opinions of sister circuits and parities drawn from criminal cases, the panel "embrace[d] the First Circuits formulation of [the Ninth Circuit's] 'possession plus' standard as it pertains to documents - we do not look to whether the party has affirmatively reviewed the document, but whether 'the surrounding circumstances tie the possessor and the document together in some meaningful way.'" In other words, if a party acts in accordance with the statements contained in a document, the statements therein may be adopted even if the party has not reviewed the document's contents.

On de novo review, the panel held that the "district court applied the wrong standard" by failing to apply the "possession plus" standard and "limiting the scope of Rule 801(d)(2)(B) to whether the evidence established that Tsachers did 'actually hear, understand, and accede to the [statements in the PSG Appraisal].'" Because Tsachers knowingly brought the PSG Appraisal to the lender, used the PSG Appraisal with a desire to induce the lender to fund the purchase, and understood that the lender might rely on the PSG Appraisal in determining whether to finance the transaction, the panel held that Tsachers acted in accordance with the statements contained in the document. Therefore, the panel held, Tsachers adopted the statement in the PSG Appraisal and the district court erred in holding that the PSG Appraisal was inadmissible pursuant to Rule 801(d)(2)(B). The judgment of the district court was therefore vacated and the case was reversed and remanded for a new trial.

To read full opinion, please visit:

http://cdn.ca9.uscourts.gov/da...15/11/30/13-15439.pdf

Panel: Alex Kozinski and Richard C. Tallman, Circuit Judges, and Lawrence L. Piersol, Senior Judge.

Argument Date: August 10, 2015

Date of Issued Opinion: November 30, 2015

Docket Number: 14-15297

Decided: Reverse and remand for a new trial

Case Alert Author: Andre Clark

Counsel: David S. Ettinger (argued) and Michell C. Tilner, Horvitz & Levy LLP, Encino, California; Robert C. Phelps, Glynn & Finely, LLP, Walnut Creek, California, for Defendant-Appellant. Samuel T. Rees (argued) and Martin R. Fox, Bleau Fox, Los Angeles, California, for Plaintiff-Appellee.

Author of Opinion: Judge Tallman

Circuit: Ninth

Case Alert Supervisor: Professor Ryan T. Williams

    Posted By: Ryan Williams @ 03/01/2016 12:46 PM     9th Circuit  

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