Ellis v. Mobil Oil, s. 91-15073

• Decision Date: 07 July 1992
• Docket Number: Nos. 91-15073,91-15244,s. 91-15073
• Citation: 969 F.2d 784
• Parties: Richard G. ELLIS, Plaintiff-Appellant, v. MOBIL OIL, a New York corporation; Union Oil Company of California, Defendants-Appellees. Richard G. Ellis, Plaintiff-Appellee, v. Mobil Oil, a New York corporation; Union Oil Company of California, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 784

969 F.2d 784

Richard G. ELLIS, Plaintiff-Appellant, v. MOBIL OIL, a New York corporation; Union Oil Company of

California, Defendants-Appellees.

Richard G. Ellis, Plaintiff-Appellee, v. Mobil Oil, a New York corporation; Union Oil Company of

California, Defendants-Appellants.

Nos. 91-15073, 91-15244.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 15, 1992.

Decided July 7, 1992.

Ronald W. Meyer, Phoenix, Ariz., for plaintiff-appellant-cross-appellee.

N. Warner Lee, Ryley, Carlock & Applewhite, Phoenix, Ariz., for defendants-appellees-cross-appellants.

Appeal from the United States District Court for the District of Arizona.

Before: GOODWIN, SCHROEDER and LEAVY, Circuit Judges.

GOODWIN, Circuit Judge:

Richard Ellis operated as lessee from Mobil a gasoline service station in Willcox, Arizona. Mobil informed Ellis that his lease and franchise would not be renewed. Ellis sued under the Petroleum Marketing Practices Act ("PMPA"), see 15 U.S.C. §§ 2801-2806, and appeals a summary judgment in favor of Mobil.

Mobil had negotiated with Union Oil Company of California ("Unocal") for the exchange of six Unocal stations in Florida for seven of Mobil's California stations plus the Arizona station operated by Ellis. Ellis sued both oil companies, claiming that they had infringed his franchisee rights under the PMPA.

The parties agreed that Mobil had a good faith business reason for terminating his franchise and that Ellis received statutory notice. The only substantial issue on appeal is whether Mobil complied with 15 U.S.C. § 2802(b)(3)(D)(iii) by offering to sell the station to Ellis for $581,000, the value Unocal internally placed on the Arizona station for purposes of the exchange agreement. ¹

Section 2802(b)(3)(D)(iii) requires:

in the case of leased marketing premises such franchisor, during the 90-day period after notification was given pursuant to section 2804 of this title, either--

(I) [to make] a bona fide offer to sell, transfer, or assign to the franchisee such franchisor's interests in such premises; or

(II) if applicable, [to offer] the franchisee a right of first refusal of at least 45-days duration of an offer, made by another, to purchase such franchisor's interest in such premises.

15 U.S.C. § 2802(b)(3)(D)(iii).

Before granting Mobil's motion for summary judgment, the court earlier had ruled that the requirement of subparagraph (II) of the above statute was not applicable because the terms of the exchange agreement between the two oil companies made it impractical, if not impossible, for Ellis to exercise a right of first refusal. While Mobil disagreed and saved a protective cross-appeal from the ruling, the decision was correct.

When a third party's offer is in the form of a single transaction for cash, the court can justifiably infer that the amount of an arms' length offer represents the value of the station. On such facts, all a franchisee is entitled to is the right of first refusal. See Ballis v. Mobil Oil Corp., 622 F.Supp. 473, 475 (N.D.Ill.1985). With an exchange agreement, one can infer from the fact that a transaction takes place that the exchanged items are of equal value, but the monetary value of the exchanged items is not necessarily apparent from the face of the transaction. If the exchange involves multiple properties, as in the present case, a stranger to the exchange would not necessarily know either the value of the entire package, or the value of any one of the independent components.

Mobil argues that the court should accept the internal valuation of $581,000 placed on the Willcox station by Unocal as the third party's offer and make this value the foundation of the franchisee's right of first refusal. The internal valuation, however, cannot be accepted as conclusive.

Mobil leased the land on which three of the exchanged stations were located. Prior to reaching agreement, Unocal obtained appraisals which collectively valued the three leased stations at $419,230. Mobil estimated the properties to be worth $400,000 and carried a book value for the stations of $155,968. For the purposes of the exchange agreement, however, Unocal valued each of the leased exchange stations at zero, claiming that they had no economic worth.

Unocal now goes one step further, arguing that the leased stations were, in fact, a liability. This contention is unpersuasive. The statement contradicts both Mobil's and Unocal's appraised values of the stations. It is also contrary to Unocal's trial testimony in which a witness stated, not surprisingly, that Mobil would not be willing simply to give the stations away. Moreover, if the stations were in fact a liability, as old stations for environmental reasons sometimes prove to be, then the exchange agreement should have assigned them negative values requiring Mobil to give up additional concessions to make the package acceptable to Unocal.

The undervaluation of the leased stations in the exchange agreement is significant. Mobil and Unocal agreed to a total value of the exchange package. The internal valuations assigned numbers to the component parts that would sum to the agreed amount. The undervaluation of any constituent piece automatically inflates the "value" of the remaining parts. Valuing three stations potentially worth $400,000 at zero significantly inflates the internal valuation of the Willcox station. ²

Because the right of first refusal under subparagraph (II) was not applicable, Mobil was obligated to extend Ellis a bona fide offer under subparagraph (I). The district court granted Mobil's motion on the theory that Ellis had failed to introduce evidence of the value of the station as a going concern.

Under the PMPA, the franchisor has an affirmative obligation to come forward with a bona fide offer. The district court erred in concluding that the franchisee had the sole burden of establishing the fair market value of the station. The court should have made specific findings as to the objective reasonableness of the franchisor's offer. See Slatky v. Amoco Oil Co., 830 F.2d 476, 485-86 (3rd Cir.1987).

The district court held that

[t]he value of a fully operative leased station necessarily includes the value of the business itself, as a going concern, the goodwill of the business, inventory and value for the sales of the petroleum products or accessories. Plaintiff presented no evidence as to the value of the fully operative leased station, but only as to the actual real estate value of the property.

The district court assumed a generalization that Mobil urged: that a bona fide offer incorporates the value of the station as a going concern, including the value of future sales and the goodwill of the business. On appeal, Mobil has cited, and we have found, no case that specifically supports this proposition.

Mobil and Unocal place great reliance on a line that appears in both Gooley v. Mobil Oil Corp., 678 F.Supp. 939, 941 (D.Mass.1987), aff'd, 851 F.2d 513 (1st Cir.1988), and Tobias v. Shell Oil Co., 782 F.2d 1172, 1174 (4th Cir.1986), stating that a bona fide offer " 'must meet or very nearly approach' the fair market value of the fully operative leased station." (quoting Brownstein v. Arco Petroleum Products Co., 604 F.Supp. 312, 315 (E.D.Pa.1985)). Neither case, however, discusses whether a bona fide offer under the PMPA consists of the appraised value of the land, improvements and equipment, or the value of the station as a going concern. Gooley examines the...