Prestin v. Mobil Oil Corp.

• Citation: 741 F.2d 268
• Decision Date: 24 August 1984
• Docket Number: No. 83-5637,83-5637
• Parties: 1984-2 Trade Cases 66,164 Dwayne PRESTIN, Plaintiff-Appellant, v. MOBIL OIL CORPORATION, a New York Corporation, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 268

741 F.2d 268

1984-2 Trade Cases 66,164

Dwayne PRESTIN, Plaintiff-Appellant, v. MOBIL OIL CORPORATION, a New York Corporation, Defendant-Appellee.

No. 83-5637.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 7, 1983.

Resubmitted Feb. 29, 1984.

As Amended Oct. 2, 1984.

Decided Aug. 24, 1984.

James H. Lehr, Shapiro, Laufer, Posell & Close, Los Angeles, Cal., for plaintiff-appellant.

Robert L. Hess, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Southern District of California.

Before BROWNING and NORRIS, Circuit Judges, SOLOMON, ^* District Judge:

NORRIS, Circuit Judge:

Appellant, Dwayne Prestin, a gasoline station franchisee, appeals from a summary judgment declaring that appellee, Mobil Oil Corporation, had lawfully terminated his lease of a Mobil gasoline station and ordering Prestin to relinquish possession of his station to Mobil. The question presented on appeal is whether, under California law, Mobil could arbitrarily refuse to consent to the assignment of Prestin's lease when the lease provided that Prestin could not assign the premises without the written consent of Mobil.

I

Prestin began operating the Mobil Oil station in San Diego in 1968. In 1980, Prestin and Mobil entered into a service station lease and a retail dealer contract effective through September 30, 1983. Both the lease and the contract expressly provide that any assignment without Mobil's written consent shall be void. ¹

On October 16, 1981, Donald Dalbec, Mobil's district manager, notified Prestin that Mobil was terminating the lease and related agreements. Among the reasons cited by Dalbec for termination was Prestin's attempt to assign his interest in the leased premises.

Prestin then brought an action in federal district court to enjoin Mobil from terminating the franchise relationship, claiming that Mobil's action violated the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. section 2801 et seq. The district court entered summary judgment for Mobil on the ground that Prestin's attempt to assign the lease without obtaining Mobil's consent violated the non-assignment clause of the lease and provided justification for the termination of the lease and the franchise pursuant to section 2802(b)(2)(A) of the PMPA. Section 2802(b)(2)(A) provides, inter alia, that a ground for termination of such a franchise relationship is "[a] failure by the franchisee to comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship...."

II

In reviewing a grant of summary judgment, our task is identical to that of a trial court. United States v. One 1977 Mercedes Benz, 708 F.2d 444, 447 (9th Cir.1983), cert. denied sub nom. Webb v. United States, --- U.S. ----, 104 S.Ct. 981, 79 L.Ed.2d 217 (1984). We must affirm the district court's grant of summary judgment in favor of Mobil if it appears, after viewing the evidence in the light most favorable to Prestin, that there are no genuine issues of material fact and that Mobil is entitled to judgment as a matter of law. Gaines v. Haughton, 645 F.2d 761, 769 (9th Cir.1981), cert. denied, 454 U.S. 1145, 102 S.Ct. 1006, 71 L.Ed.2d 297 (1982).

Applying this standard, we conclude, for reasons discussed below, that there is a triable issue of fact as to whether Mobil unreasonably withheld its consent to the assignment and thereby breached its implied duty of good faith and fair dealing. Accordingly, the district court improperly granted Mobil's motion for summary judgment.

III

This appeal turns on the question whether Mobil may arbitrarily withhold its consent to Prestin's assignment of the lease and the retail dealer contract, as Mobil contends, or whether Mobil's consent could properly be withheld only if Mobil could demonstrate the existence of a good faith, reasonable objection to the assignment. ²

The parties agree that the PMPA provides that state law governs the assignability of franchises. 15 U.S.C. Sec. 2806(b). The Senate Report on the PMPA states that "[t]he legislation is not intended to authorize or to prohibit franchise assignments; instead, as a general rule, assignability of franchises is a matter left to state law." S.Rep. No. 95-731, 95th Cong., 2d Sess. 38, reprinted in [1978] U.S.Code Cong. & Ad.News 873, 901. We thus turn to state law in order to decide the question presented.

Mobil cites Richard v. Degen & Brody, Inc., 181 Cal.App.2d 289, 5 Cal.Rptr. 263 (1960) as authority for its position that if the terms of a lease prohibit assignment without the lessor's consent, the lessor can arbitrarily withhold that consent unless the lease provides that the lessor's consent may not be withheld unreasonably. We agree that Richard supports Mobil's position.

Prestin, on the other hand, relies upon Cohen v. Ratinoff, 147 Cal.App.3d 321, 195 Cal.Rptr. 84 (1983), to support his position. In Cohen, the court held: "where, as here, the lease provides for assignment or subletting only with the prior consent of the lessor, a lessor may refuse consent only where he has a good faith reasonable objection to the assignment or sublease, even in the absence of a provision prohibiting the unreasonable or arbitrary withholding of consent to an assignment of a commercial lease." Id. at 330, 195 Cal.Rptr. 84.

We also agree that Cohen supports Prestin's position. Accordingly, the question confronting us is whether we should follow Richard or Cohen. ³ As a federal court of appeals deciding a question of state law, we place ourselves in the position of the California Supreme Court.

The California Court of Appeal, First District, in Schweiso v. Williams, 150 Cal.App.3d 883, 198 Cal.Rptr. 238, 240 (1984) applied Cohen and stated:

Relying on Richard v. Degen & Brody, Inc., (1960) 181 Cal.App.2d 289, 299, 5 Cal.Rptr. 263, respondents argue that where the terms of a lease prohibit assignment without the lessor's consent, the lessor can arbitrarily refuse to consent to an assignment unless there is a qualifying prohibition that consent may not be unreasonably withheld.

Recently, the second district in Cohen v. Ratinoff (1983) 147 Cal.App.3d 321, 322, 195 Cal.Rptr. 84 followed the current trend in other jurisdictions of abrogating the Richards [sic] rule. (See Fernandez v. Vasquez (Fla.App.1981) 397 So.2d 1171; L&H Inv. Ltd. v. Belvey Corp. (WDNC 1978) 444 F.Supp. 1321, 1325; Homa-Goff Int. v. Cowden (S.Ct.Ala.1977) 350 So.2d 1035; Arrington v. Walter E. Heller Int. (1975) 30 Ill.App.3d 631, 333 N.E.2d 50, 58).

The court reasoned that since a lease constitutes both a conveyance of a leasehold interest and a contract (Medico-Dental etc. Co. v. Horton & Converse (1942) 21 Cal.2d 411, 418, 132 P.2d 457), there was an implied covenant of good faith and fair dealing, which militated against the arbitrary or unreasonable withholding of consent to an assignment.

"... [W]here, as here, the lease provides for assignment or subletting only with the prior consent of the lessor, a lessor may refuse consent only where he has a good faith reasonable objection to the assignment or sublease, even in the absence of a provision prohibiting the unreasonable or arbitrary withholding of consent to an assignment of a commercial lease. Examples of bases for such good faith reasonable objection would be inability to fulfill terms of the lease, financial irresponsibility or instability, suitability of premises for intended use, or intended unlawful or undesirable use of premises. [p] We note that under the terms of the lease agreement, the lessor's consent to an assignment does not relieve lessee of any obligations under the lease. Whether the landlord's security or other rights would otherwise be impaired is a question of fact. [p] The question of whether a lessor unreasonably withheld his consent to an assignment and therefore breached his implied duty of good faith and fair dealing, is one of fact." (Cohen v. Ratinoff, supra, 147 Cal.App.3d at 330, 195 Cal.Rptr. 84.)

Only one California decision even mentioned the Richard holding prior to Cohen. In Laguna Royale Owners Ass'n v. Darger, 119 Cal.App.3d 670, 680-681, 174 Cal.Rptr. 136 (1981), the court characterized an argument based on Richard as an "extreme contention ... borrowed from the law of landlord and tenant developed during the feudal period in English history...." Id. The Laguna Royale court questioned whether Richard enjoyed "continued vitality," and then distinguished it on its facts. Id. at 681, 174 Cal.Rptr. 136.

Richard has no support in later California cases, having been rejected by the one court which has bothered to mention it. We therefore find that the California Supreme Court would adopt the rule recently enunciated in Cohen v. Ratinoff, 147 Cal.App.3d at 330, 195 Cal.Rptr. 84, that a lessor such as Mobil may refuse consent to an assignment or sublease only when the lessor has a good faith reasonable objection to it. See Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967); Estrella v. Brandt, 682 F.2d 814, 818 (9th Cir.1982).

Mobil argues, however, that Cohen is inapposite to this case because it has been displaced by statute. Noting that there were two agreements between Mobil and Prestin, the Retail Dealer Contract and the lease, Mobil urges that the Retail Dealer Contract, providing for the sale of petroleum products, is governed by Division 2 of the California Commercial Code. Comm.Code Sec. 2102. Section 2210 of the California Code permits parties to agree that their contracts cannot be assigned. The Retail Dealer contract between Mobil and Prestin contains a provision against assignments without Mobil's consent. Mobil contends that the common law rule of Cohen cannot qualify or abrogate this contractual prohibition on assignment and that if the Retail Dealer Contract cannot be assigned, it would be anomalous to apply Cohen retroactively to the...