Council's ban on gas station could spark lawsuit with Safeway

As the Petaluma City Council prepares to block Safeway from building its South McDowell Boulevard gas station by using an "urgency" moratorium on new fueling stations, the grocery chain bit back on Monday when it sent a 16-page letter to the city, challenging the validity of the ordinance.

"Threatening lawyer letters are nothing new at City Hall," said Councilmember Mike Healy, who proposed the moratorium, known as an "urgency ordinance" because gives the council 45 days to address an imminent concern. "I will say that the council listens carefully to the advice we receive from the city attorney (on such letters), and I do not anticipate that the council will do anything that would expose the city to meritorious litigation."

Safeway has done its homework on the issue. The letter, loaded with legalese, lists five challenges to the ordinance, citing everything from when a city can legally call for an urgency ordinance to how the moratorium violates the company's right to due process and equal protection. It seems clear that Safeway is prepared to challenge the urgency ordinance in court, should the council vote to pass it.

"We are hopeful that the City Council will see that there is neither legal right nor necessity to adopt a moratorium and that we are thus not faced with such a scenario," Safeway spokeswoman Wendy Gutshall said in a statement.

Safeway is no stranger to disputes over its fueling center; since 2008 the company has been fighting a lawsuit over its gas rewards program in Dixon, Calif., which independent gas station owners said offered prices lower than market value, a possible violation of the Unfair Business Practices Act. Safeway vehemently denies the claim, pointing out that in June, a judge sided in favor of the company in the lawsuit. In his decision, Alameda County judge Wynne S. Carvill acknowledged that "Safeway sold substantial volumes of fuel below cost" but said that the independent gas station owners failed to prove that Safeway acted with the express purpose to put competitors out of business, a requirement to determine if the company violated the Unfair Business Practices Act. He explained that Safeway's discount program, which awards points based on how much a shopper spends on groceries, aims to expand the company's grocery business, not put other fueling stations out of business.

Jim Dombroski, a Petaluma attorney who has represented the independent station owners since 2009, has appealed the judge's decision.

Dombroski has been is talks with Healy about Safeway's Petaluma proposal, and relayed facts about the Dixon case that the council member quoted in his Feb. 20 opinion commentary in the Argus-Courier. Healy cited concerns about Safeway creating "urban blights" in the community by putting competitors out of business and leaving the city with "dead gas stations" as one of the reasons the moratorium is needed. While Gutshall said that its operation in Dixon did not cause any gas stations to go out of business, Dombroski said two of his clients, Ali Salki and Amin Salki, were forced to close down their independent businesses and sell the stations to national competitors.

Safeway has proposed building an eight pump, 16 nozzle station in the area that was occupied by Peppers Restaurant and other retailers. Gutshall said the station would bring the city about $400,000 in tax revenue annually, but declined to say how it arrived at that figure.

"Well over 50 percent of our fuel sales in Novato come from outside of the city, and we expect the percentage to be similar in Petaluma," Gutshall said in an email. "Many of these gas sales and resulting tax dollars would be new to the city of Petaluma."

The project complies with the city's zoning ordinance, meaning that aside from the design elements, the Petaluma Planning Commission, not the City Council, has overseen the project's application. Safeway conducted noise and traffic studies that showed minimal impact from the project. In fact, the project could make the intersection at Maria Drive and McDowell Boulevard safer because it creates a dedicated transit stop that will allow buses to maneuver without blocking traffic on Maria Drive. Additionally, Safeway said it would employ an attendant to direct traffic through the station to ensure that cars waiting for a pump won't block traffic.

In an August Argus-Courier article, Healy said he spoke with city staff in Novato who expressed regrets about allowing a similar station to open on Nave Drive. Novato City Manager Michael Frank said the issue was with the design, not the station. "I would say the layout is less than ideal, but that was really on the city for not mandating a longer (waiting) line so cars didn't pile up."

The proposed Petaluma station's design includes a holding area where at least 12 cars can wait for their turn at the pump without impacting traffic.

The planning commission has asked for additional traffic studies as well as health and safety studies before it will make a decision on Safeway's application. Meanwhile, Healy is hoping the urgency ordinance will pass soon, giving the council time "to consider changes to the zoning ordinance before this project slides through."

He wrote in his opinion piece, "What I have suggested… is legislation clarifying and confirming that the term 'gas station,' as used in Petaluma's zoning ordinance, does not include a fueling station under common ownership with another retail business where gasoline is sold to customers below cost as a loss-leader incentive for patronizing the affiliated retail business."

The council is expected to discuss the urgency ordinance during its next meeting on Monday, March 3, at 6 p.m. in council chambers at 11 English St.

(Contact Emily Charrier at emily.charrier@arguscourier.com)