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Chevron Nabs New Trial on SF Property Sale

SAN FRANCISCO (CN) - Citing improperly excluded testimony, the Ninth Circuit ordered a new trial Monday on claims that Chevron overcharged for California real estate.

Back in 2008, Chevron put a $2.3 million price tag on a service station it owned in San Francisco's West Portal neighborhood.

One of its franchisees, Transbay Auto Service, soon bought the property and rebranded the station as a Valero. Transbay sued Chevron in 2009, however, under the Petroleum Marketing Practices Act.

Though Chevron contended that its price tag qualified as a bona fide offer under the statute, a federal jury found that Transbay overpaid on the deal and deserved $495,000 in damages.

On appeal, Chevron claimed that the trial had been tainted by the court's exclusion of an appraisal conducted by Property Sciences Group, on behalf of a bank that Transbay owner Mike Tsachres had approached for a loan.

PSG valued the property at $2.5 million, but Transbay noted that the bank that commissioned this estimate had rejected Tsachres' loan application.

Complicating the matter further, however, Tsachres included the estimate when he went to another bank for a loan but he says the chairman of that bank offered him a loan on the spot without looking at the estimate.

The trial court had deemed the appraisal inadmissible, however, ruling that it did not "come in as an adoptive admission" and had to be excluded as hearsay.

With that evidence off the table, the parties presented three valuations of the property to the jury: 1) Chevron's $2.3 million appraisal if the property was operated at its "highest and best use," 2) Transbay's $1.8 million appraisal - which it created for litigation purposes - if the property continued to operate as a gas station and 3) Chevron's $1.5 million appraisal if the property continued to operate as a gas station.

A divided three-judge panel of the Ninth Circuit sided with Chevron Monday, finding that PSG's appraisal should have factored into the equation.

The majority opinion draws a parallel to criminal cases, with Judge Richard Tallman noting that "an individual who submits a false loan application to a bank faces punishment if he was willfully blind to the falsity of the contents of the application."

Tallman said that the trial court should have ascertained whether "the surrounding circumstances tie the possessor and the document together in some meaningful way."

Although Tsachres testified that he never opened the envelope containing the appraisal, Tallman said that, by providing the appraisal to the bank, he "manifested an adoption or belief in the truth" of the document.

"Given his need for money to buy the property, Tsachres's protest that he was a mere messenger rings hollow," the opinion states.

Tsachres did not "simply deliver information on behalf of another entity," Tallman said. Rather, the station owner had a "vested interest" in supplying the appraisal.

Sitting by designation from South Dakota, Senior U.S. District Judge Lawrence Piersol said the appraisal was properly excluded.

Although the majority opinion drew a parallel to willful blindness in criminal cases, "the possession-plus rule swallows that issue in holding that when a party acts in conformity with the contents of a document, such an action constitutes an adoption of the statements therein even if the party never reviewed the document's contents," Piersol said.

Since the possession-plus rule was not adopted at trial, Piersol said, it should not be applied retroactively.

Neither side returned emails and phone calls with their attorneys seeking comment on Monday morning.

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