Kreisher v. Mobil Oil Corp., A036017

• Decision Date: 05 February 1988
• Docket Number: No. A036017,A036017
• Citation: 198 Cal.App.3d 389,243 Cal.Rptr. 662
• Court: California Court of Appeals Court of Appeals
• Parties: Denzil KREISHER, Plaintiff and Appellant, v. MOBIL OIL CORPORATION et al., Defendants and Appellants.

Page 662

243 Cal.Rptr. 662

198 Cal.App.3d 389

Denzil KREISHER, Plaintiff and Appellant, v. MOBIL OIL CORPORATION et al., Defendants and Appellants.

No. A036017.

Court of Appeal, First District, Division 4, California.

Feb. 5, 1988.

Certified for Partial Publication. ^*

Review Denied May 5, 1988.

Todd C. Hedin, Nelson, Boyd, MacDonald, Mitchell, Mason & Hedin, San Rafael, John R. Wolf, Tiburon, for plaintiff and appellant

David M. Heilbron, John R. Reese, Leslie G. Landau, Donna M. Ryu, McCutchen, Doyle, Brown & Enersen, William K. O'Brien, San Francisco, for defendants and appellants.

POCHE, Associate Justice.

The primary issue presented is this: Are judicial decisions holding that a contracting party's right to refuse consent to an assignment must be exercised in accordance with standards of commercial reasonableness and good faith to be retroactively applied to a situation where a contrary rule prevailed at the time all actions which subsequently formed the basis for this litigation occurred? Our answer is no.

BACKGROUND AND PROCEDURAL HISTORY

The following is an abbreviated narrative of a massive record, restricted to those From 1971 through 1980, plaintiff Denzil G. Kreisher operated a service station in San Rafael. Plaintiff's franchise relationship with defendant Mobil Oil Corporation (Mobil) throughout this period was governed by a trio of contracts. Each contract, which had a term of three years, was comprised of a pair of documents, a "Retail Dealer Contract" and a separately executed "Service Station Lease." On December 22, 1980, plaintiff and Mobil formally executed a new agreement continuing plaintiff's franchise and tenancy for the period commencing January 1, 1981, and concluding December 31, 1983. Included in the "Retail Dealer Contract" and the "Service Station Lease" were provisions forbidding assignment without Mobil's written consent. ¹ The following events occurred in 1981:

matters germane to the limited approach and holding adopted for purposes of resolving these appeals.

Plaintiff received a letter from Mobil on May 6th informing him that "you are in default of the Lease by reason of failure to operate the marketing premises for more than seven consecutive days" and that unless this default was cured within ten days Mobil "will terminate said Lease effective May 18." Plaintiff notified Mobil, by a letter dated May 12th, that he had received an offer from Robert Gregory Enterprises, Inc. to purchase the franchise for $28,000. Plaintiff asked "whether Mobil will consent to the transfer." Six days later, Mobil sent plaintiff a letter announcing its election to "terminate the Service Station Lease and franchise relationship between us, effective June 18." On May 28th plaintiff was notified by letter that "Mobil does not consent to the proposed transfer."

Mobil learned in early June that plaintiff had not maintained insurance as required by the contract. It therefore, on June 16th, transmitted a notice to plaintiff advising him that this and other acts and omissions constituted "further default" which Mobil "considered substantial in nature and make termination of your franchise, effective June 18, ... reasonable and necessary." Mobil learned several days later that plaintiff's resale permit had been revoked by the State Board of Equalization effective March 31st of that year. Mobil served on plaintiff a three-day notice to quit the premises on June 29th.

In July plaintiff advised Mobil that he had a further offer of $31,000 from Cesar Faedi for the franchise, again asking "if Mobil wishes to purchase the franchise or will consent to the transfer to Mr. Faedi." ² Mobil apparently rejected both aspects later that month when it responded that "the Mobil initiated an unlawful detainer proceeding against plaintiff in September. About that time plaintiff submitted a third and final proposed assignment, which was apparently rejected by Mobil in the belief that plaintiff no longer had any interest to assign. Plaintiff relinquished possession of the premises in January of 1982 without the necessity of judicial action.

proposed assignment may be considered in light of existing circumstances."

Plaintiff commenced this action on August 5, 1982. In its final form, his complaint purported to allege eight causes of action which may be identified as follows: (1) breach of the contract and implied covenants of good faith and fair dealing for Mobil's "failing and refusing to consent to transfer or sale of the franchise and lease without reasonable or permissible grounds ... and ... by withholding consent ... although each of such proposed franchise purchasers was ready, willing, able and qualified to perform all obligations of a franchisee and leasee [sic ]; " (2) unreasonable withholding of consent to a transfer in violation of Business and Professions Code section 21148 (see fn. 2 and accompanying text, ante ); (3) "wrongful and retaliatory constructive eviction constituting termination of the franchise without good cause; " (4) "tortious breach of implied covenants of good faith and fair dealing" for Mobil's "failing and refusing to process and allow sale ... of the franchise; " (5) negligent interference with prospective economic advantage; (6) intentional interference with prospective economic advantage; (7) intentional infliction of emotional distress for a variety of acts including the "refus[al] to provide reasonable explanation for ... withholding of consent to transfer the franchise" and evicting plaintiff "from the gasoline station premises; " and (8) violation of the federal Petroleum Marketing Practices Act (PMPA; 15 U.S.C. § 2801 et seq.). ³ After sustaining a demurrer without leave to amend the second cause of action, the trial court granted defendants summary judgment on plaintiff's third, fourth and fifth causes of action, but ruled that the remainder of plaintiff's case presented material issues of fact to be decided by a jury.

Trial commenced on October 9, 1985. The presentation of evidence occupied five weeks. On December 3d, having deliberated on plaintiff's first, sixth, seventh, and eighth causes of action for seven days, the jury returned its verdict finding (among other things) that: (1) Mobil breached its contract with plaintiff by refusing to consent to the proposed transfer; (2) defendants intentionally interfered with plaintiff's prospective economic advantage; and (3) defendants intentionally inflicted emotional distress upon plaintiff. The jury further found plaintiff entitled to recover compensatory damages of $214,000 (including $31,000 for loss of his home) and punitive damages of $2,002,500.

After the jury had been discharged, the court filed an order in which it: (1) denied Defendants then filed a conjoint motion for judgment notwithstanding the verdict and for new trial. In connection therewith the trial court filed an order in which it: (1) denied the motion for judgment n.o.v.; (2) conditionally granted the alternative motion for a new trial unless plaintiff consented to a reduction in the judgment of $31,000, representing the amount of equity in the home plaintiff had sold as an alleged consequence of his dispute with Mobil; and (3) vacated the award of prejudgment interest.

plaintiff any recovery pursuant to his PMPA cause of action on the dual grounds that "federal courts have exclusive jurisdiction over [198 Cal.App.3d 395] actions brought under the PMPA" and "plaintiff's PMPA claim is barred by the statute of limitations" included in that statutory scheme; and (2) granted plaintiff's request for prejudgment interest pursuant to Civil Code section 3291 and Code of Civil Procedure section 998. On May 20, 1986, the court entered a judgment directing that plaintiff recover compensatory damages of $214,000, punitive damages of $2,002,500, both with interest from the date of plaintiff's compromise offer made in May of 1983, and costs of $22,719.24, on his first, sixth, and seventh causes of action. The judgment was in defendants' favor on all remaining causes of action.

Defendants thereupon filed a timely notice of appeal from the judgment. Plaintiff has appealed from the new trial order and from the order rejecting his PMPA cause of action. Plaintiff has also taken a protective cross-appeal from various portions of the judgment.

REVIEW

I

The contractual provisions at issue here (see fn. 1, ante ) gave Mobil the express right to refuse its consent to a proposed transfer of plaintiff's franchise. No restriction upon Mobil's exercise of that right is apparent from the plain language of the provisions, which are therefore to be treated as conferring an absolute and unfettered discretion justifying a refusal without regard to the nature or even enunciation of any objection. The evolution and doctrinal explanation of how such a power came to be subject to considerations of commercial reasonability and the implied covenant of good faith and fair dealing is recounted in Kendall v. Ernest Pestana, Inc. (1985) 40 Cal.3d 488, 220 Cal.Rptr. 818, 709 P.2d 837, and consequently need not be repeated here. More relevant for present purposes is the synthesis of that history and the chronology of events in this case.

" '[W]here a subletting or assignment of the leased premises without the consent of the lessor is prohibited, he may withhold his assent arbitrarily and without regard to the qualifications of the proposed assignee, unless, ... the lease provides that consent shall not be arbitrarily or unreasonably withheld, and in granting his assent may impose such conditions as he sees fit. Accordingly, if ... the lessor does not covenant to give his consent to an assignment or subletting, the lessee has no remedy against the lessor for his refusal to consent thereto.' " This 1960 holding by the Court of Appeal in Richard v. Degen & Brody, Inc. (1960) 181 Cal.App.2d 289, 299, 5 Cal.Rptr. 263, stood unimpeached until September of 1983, when a different Court...