Mobil Oil Corp. v. Rubenfeld

• Decision Date: 07 July 1975
• Citation: 370 N.Y.S.2d 943,48 A.D.2d 428
• Parties: , 1975-2 Trade Cases P 60,389 MOBIL OIL CORPORATION, Appellant, v. Paul RUBENFELD, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 943

370 N.Y.S.2d 943

48 A.D.2d 428, 1975-2 Trade Cases P 60,389

MOBIL OIL CORPORATION, Appellant, v. Paul RUBENFELD, Respondent.

Supreme Court, Appellate Division, Second Department.

July 7, 1975.

Bleakley, Platt, Schmidt & Fritz, White Plains (Frederick J. Martin and Michael J. Trainor, White Plains, of counsel), for petitioner.

Anderman, Povman & Warren, Forest Hills (Morton Povman, Forest Hills, of counsel), for respondent.

Louis J. Lefkowitz, Atty. Gen., New York City (Terrence M. Kelly, Asst. Atty. Gen., Samuel A. Hirshowitz and Charles A. La Torella, Jr., New York City, of counsel), Amicus curiae.

Before RABIN, Acting P.J., and HOPKINS, MARTUSCELLO, MUNDER and COHALAN, JJ.

HOPKINS, Justice.

The question before us is whether a tenant under a lease of commercial property--a gasoline service station--may defeat the landlord, seeking possession of the premises at the end of the term, by asserting a retaliatory defense that the landlord failed to renew the lease because the tenant resisted the landlord's actions in enforcing tie-in and price-fixing agreements in violation of the antitrust laws. The Civil Court held that the retaliatory defense was valid and dismissed the petition (Mobil Oil Corp. v. Rubenfeld, 72 Misc.2d 392, 339 N.Y.S.2d 623); that judgment was affirmed by the Appellate Term by a divided court (Mobil Oil Corp. v. Rubenfeld, 77 Misc.2d 962, 357 N.Y.S.2d 589). We reverse and grant judgment in favor of the petitioner. A retaliatory defense based upon such circumstances does not lie. A violation of the antitrust laws by a landlord, under a dealer agreement concurrent with the lease, does not result in a continuing obligation on the landlord to remain in a contractual relationship with the tenant.

The petitioner was the lessee of a gasoline service station located in Queens. It subleased the premises to the respondent for a term of three years, ending on September 30, 1972. This was not the first leasing transaction between the parties. The respondent had previously been a tenant under a lease from the petitioner at another service station in Queens. Originally, the term and dealer agreement accompanying the lease ran for a year; thereafter, there were three renewals of the lease and the agreement, each for a term of three years.

In 1965 the petitioner leased the present service station to the respondent for a term of one year, simultaneously with the execution of a dealer agreement for the same period. For a time the respondent operated both stations; he surrendered the original station to the petitioner after six months. Upon the expiration of the one-year term for the present station, a lease and dealer agreement were executed by the parties for a three-year term; both were thereafter renewed for a three-year period, ending, as has been said, on September 30, 1972. The petitioner notified the respondent prior to the expiration date that the lease would not be renewed. The respondent did not vacate the premises, and this holdover proceeding to obtain possession was then instituted by the petitioner.

The respondent interposed several defenses, only two of which need discussion. The fifth defense alleges that the lease may not be terminated in the absence of good cause and that the agreements between the parties are unconscionable. The sixth defense alleges that the petitioner is attempting to coerce the respondent through efforts to fix the price of gasoline and that the failure to renew the lease arises because the petitioner has not submitted to that coercion.

After the trial, the Civil Court (Kassoff, J.), found that the business relationship between the parties was not merely lessor-lessee, but rather franchisor-franchisee; that inherent in such relationship was a fiduciary obligation imposed upon the petitioner toward the respondent; and that the petitioner exercised undue and illegal economic power over the respondent through its violations of the antitrust laws, disabling the petitioner from refusing to renew its relationship with the respondent, since thereby its fiduciary obligation would be breached. Implicit in these findings were factual findings by the court that the petitioner had practiced illegal conduct against the respondent and that the lease and agreement were not renewed because of the resistance of the respondent to that illegal conduct.

The majority at the Appellate Term (Groat, P.J., and Schwartzwald, J.) held, however, that the violation of the antitrust laws supported a defense to the eviction on the ground that public policy would not permit the enforcement of a contractual right when an illegal objective would, as a consequence, be promoted. The Justice dissenting (Margett, J.) decided that the denial of the remedy of eviction in effect worked the renewal of the lease 'for an indefinite period and at an unspecified rental', thus amending the contract of the parties, and that the injustice in the case could be redressed only by legislation (Mobil Oil Corp. v. Rubenfeld, 77 Misc.2d 962, 964, 357 N.Y.S.2d 589, 591, Supra). Neither the majority nor the dissenting Justice discussed the status of the parties as franchisor-franchisee.

On this appeal, our scope of review includes both law and facts (CPLR 5501, subd. (c)). It is obvious that the questions of law are significant both in the private and public sectors, and that both the Civil Court and the Appellate Term have confronted these questions in scholarly and cconscientious opinions. For the purposes of this appeal, we accept the findings of fact made by both courts. ¹

The rights arising out of real property law have ancient bases; any change in these rights is customarily achieved by legislative or constitutional enactment. Under ordinary circumstances, a landlord is not obliged to renew a lease (Robinson v. Jewett, 116 N.Y. 40, 51, 22 N.E. 224, 226; Thayer v. Leggett, 229 N.Y. 152, 158, 128 N.E. 133, 134), even though the tenant may have invested capital and energy in the expectation of renewal. Nor, in the absence of statute, may one contracting party be compelled to deal with the other beyond the contract term (cf. Brown v. Retsof Mining Co., 127 App.Div. 368, 111 N.Y.S. 594). In New York, one class of contracts has been separated by the Legislature for different treatment--the contract between manufacturer and dealer for the sale of new motor vehicles (General Business Law, § 197--a). In that class, the statute provides that such a contract cannot be terminated, save in good faith. A broader bill, covering all franchises of goods and services, was enacted by the Legislature but did not become law due to the disapproval of the Governor (S. 4915, 1969; Governor's Memorandum dated May 26, 1969; see discussion by Justice Gagliardi in Division of Triple T Serv. v. Mobil Oil Corp., 60 Misc.2d 720, 725, 304 N.Y.S.2d 191, 197, affd. 34 A.D.2d 618, 311 N.Y.S.2d 961). Hence, it must be concluded that the termination of leases and franchises, save for manufacturer-dealer contracts for the sale of motor vehicles, is to be judged in the light of the traditional principles of real property and contract law.

This does not mean that the dealer contract should not be considered with the lease as component parts of a whole transaction; clearly, the parties were concerned with the primary object of the sale of petroleum products. The lease becomes significant because of the presumably favorable site of the premises to attract purchasers of gasoline; and the dealer contract has importance because it provides the product and the advantages flowing from a readily recognizable trade-mark. Even so, though the law sometimes extracts relationships not intended by the parties (cf. 1 Corbin on Contracts, §§ 3, 9) and though, as Judge Kassoff pointed out in his opinion, a commentator argues that a fiduciary relationship should exist in franchising agreements (Mobil Oil corp. v. Rubenfeld, 72 Misc.2d 392, 400, 339 N.Y.S.2d 623, 632 Supra; Brown, 'Franchising--A Fiduciary Relationship', 49 Texas L.Rev. 650), New York has not adopted that concept (cf. Division of Triple T Serv. v. Mobil Oil Corp., 60 Misc.2d 720, 304 N.Y.S.2d 191, affd. 34 A.D.2d 618, 311 N.Y.S.2d 961, Supra; Texaco Inc. v. A.A. Gold, Inc., 78 Misc.2d 1050, 357 N.Y.S.2d 951, affd. 45 A.D.2d 1054, 358 N.Y.S.2d 973). Nor does it appear in this case that it is necessary to infer a fiduciary relationship, when the issue is not a breach of the lease or the contract by the petitioner, but simply a refusal to extend the term beyond that stated in the lease.

The question in this appeal, accordingly, is narrowed to that aspect of the case to which the Appellate Term addressed itself--may the respondent assert a retaliatory defense based upon a violation of the antitrust laws? The retaliatory defense first was sanctioned in Edwards v. Habib (130 U.S.App.D.C. 126, 397 F.2d 687, cert. den. 393 U.S 1016, 89 S.Ct. 618, 21 L.Ed.2d 560), in which the court held that the effectiveness of the housing code affecting residential properties in the District of Columbia would be frustrated if the tenant could not report violations to the authorities (Id., pp. 699--701). Courts in our State have followed this decision with respect to residential housing (e.g., Portnoy v. Hill, 57 Misc.2d 1097, 294 N.Y.S.2d 278; Markese v. Cooper, 70 Misc.2d 478, 333 N.Y.S.2d 63; Toms Point Apts. v. Goudzward, 72 Misc.2d 629, 339 N.Y.S.2d 281, affd. 79 Misc.2d 206, 360 N.Y.S.2d 366; Cornell v. Dimmick, 73 Misc.2d 384, 342 N.Y.S.2d 275). So far, the defense has not been applied to commercial tenancies.

Here, we are not dealing with the enforcement of laws or codes governing the proper maintenance of buildings to safeguard tenants from injury or impairment of health. In such an instance, the land which is the subject of the lease is, itself, the very target of the legislation. It is plain that the purpose of the legislation to ensure the improvement and repair of unsafe and unsanitary...