Larese v. Creamland Dairies, Inc., 83-2164

• Decision Date: 15 July 1985
• Docket Number: No. 83-2164,83-2164
• Citation: 767 F.2d 716
• Parties: Ernst LARESE and Barbara Ann Larese, Plaintiffs-Appellants, v. CREAMLAND DAIRIES, INC., a New Mexico corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 716

767 F.2d 716

Ernst LARESE and Barbara Ann Larese, Plaintiffs-Appellants, v. CREAMLAND DAIRIES, INC., a New Mexico corporation, Defendant-Appellee.

No. 83-2164.

United States Court of Appeals Tenth Circuit.

July 15, 1985.

Joseph A. Kiely, Denver, Colo., for plaintiffs-appellants.

William H. Pratt, Martha E. Rudolph with him on the brief of Kirkland & Ellis, Denver, Colo., for defendant-appellee.

Before McKAY and SETH, Circuit Judges, and JENKINS, District Judge. ^*

McKAY, Circuit Judge.

The issue in this case is whether a franchisor has an absolute right to refuse to consent to the sale of a franchisee's interest to another prospective franchisee.

Plaintiffs entered into a 10-year franchise agreement with defendant, Creamland Dairies, in 1974. The franchise agreement provided that the franchisee "shall not assign, transfer or sublet this franchise, or any of [the] rights under this agreement, without the prior written consent of Area Franchisor [Creamland] and Baskin Robbins, any such unauthorized assignment, transfer or subletting being null and without effect." The plaintiffs attempted to sell their franchise rights in February and August of 1979, but Creamland refused to consent to the sales. Plaintiffs brought suit, alleging that Creamland had interfered with their contractual relations with the prospective buyers by unreasonably withholding its consent. The district court granted summary judgment for the defendant on the ground that the contract gave the defendant an absolute, unqualified right to refuse to consent to proposed sales of the franchise rights. Plaintiffs appeal, claiming that defendant franchisor has a duty to act in good faith and in a commercially reasonable manner when a franchisee seeks to transfer its rights under the franchise agreement.

The Colorado courts have never addressed the question of whether a franchisor has a duty to act reasonably in deciding whether to consent to a proposed transfer. The Colorado courts have, however, imposed a reasonableness requirement on consent to transfer clauses in other types of contracts. In Basnett v. Vista Village Mobile Home Park, 699 P.2d 1343 (Colo.App.1984), the Colorado appellate court held that a landlord cannot unreasonably refuse to consent to assignment or subleasing by a tenant. While the court indicated that the courts would enforce a provision expressly granting the landlord an absolute right to consent if such a provision was freely negotiated, it refused to find such an absolute right in a provision which provided simply that the landlord must consent to assignment. At 1346 (citing Restatement (2d) of Property Sec. 15.2(2) (1977)). The question before us, therefore, is whether the Colorado courts would impose a similar requirement of reasonableness on restraint on alienation clauses in franchise agreements.

Counsel for both parties have argued that the franchisor-franchisee relationship is a special one which is not directly analogous to that of a landlord and tenant. As the Supreme Court of Pennsylvania has noted, "[u]nlike a tenant pursuing his own interests while occupying a landlord's property, a franchisee ... builds the good will of both his own business and [the franchisor]." Atlantic Richfield v. Razumic, 480 Pa. 366, 390 A.2d 736, 742 (1978). This aspect of the relationship has led a number of courts to hold that the franchise relationship imposes a duty upon franchisors not to act unreasonably or arbitrarily in terminating the franchise. See, e.g., Atlantic Richfield, 390 A.2d at 742; Arnott v. American Oil Co., 609 F.2d 873 (8th Cir.1979), cert. denied, 446 U.S. 918, 100 S.Ct. 1852, 64 L.Ed.2d 272 (1980); Shell Oil Co. v. Marinello, 63...