Mustang Marketing, Inc. v. Chevron Products Co.

406 F.3d 600, 2005 WL 994555
CourtCourt of Appeals for the Ninth Circuit
DecidedApril 28, 2005
Docket03-56516
StatusPublished
Cited by3 cases

This text of 406 F.3d 600 (Mustang Marketing, Inc. v. Chevron Products Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Mustang Marketing, Inc. v. Chevron Products Co., 406 F.3d 600, 2005 WL 994555 (9th Cir. 2005).

Opinion

COLLINS, District Judge:

Mustang Marketing, Inc. (“Mustang”) brought this suit against Chevron Products Company (“Chevron”) alleging a violation of the Petroleum Marketing Practices Act (“PMPA”), 15 U.S.C. § 2801 et seq., with respect to a gas station (the “Service Station”) that Chevron had leased from Macerich and then franchised to Mustang. Mustang alleges that Chevron failed to comply with a provision of the PMPA requiring Chevron to assign to Mustang any option it possessed for an extension of the underlying lease after the underlying lease had expired. Additionally, Mustang alleges that Chevron violated the PMPA by entering into a subsequent lease with Macerich after ending Mustang’s franchise through expiration of the original underlying lease and lock Mustang out of the deal.

The district court granted summary judgment in favor of Chevron on all counts. Mustang brings this appeal on the questions of: (1) Whether Chevron relying upon PMPA § 2802(c)(4) can refuse to assign Mustang the option to extend the underlying lease; (2) Whether Chevron may end its franchise relationship with Mustang based upon expiration of its underlying lease with Macerich and subsequently negotiate a new underlying lease with Macerich and locking Mustang out of the deal; (3) Whether, if any of these allegations are true, any exemplary damages may be awarded to Mustang; (4) Whether the proposal sent by Chevron to Mustang in April constitutes a breach of contract in California; and (5) Whether this case, if remanded, should be reassigned to a different district judge?

I. BACKGROUND

On April 28, 1971, Chevron’s predecessor in interest, Standard Oil Company of California, entered into the underlying lease (Ground Lease) for the Service Station for a term expiring May 31, 1992, with two options to extend with Macerich’s predecessor in interest. Chevron then took over the lease and exercised the five-year and iour-year options extending its tenancy through May 31, 2001. Meanwhile, Macerich succeeded to the lessor’s interest under the underlying lease. Throughout the entire term of the underlying lease, Chevron subleased the premises to independent service station operators licensed to sell Chevron-branded motor fuel.

The underlying lease granted Chevron, as lessee, the following right for extending its tenancy:

7. Lessee, while in possession, shall have the prior right to lease the whole or any part of the leased premises or any larger parcel which includes the leased premises, if Lessor receives from a third party an acceptable bona fide offer, or if Lessor offers, to lease such property for a term commencing on or after the expiration of the term hereof or any extension thereof ...

Taking language from Section 7 itself, therefore, Mustang refers to this right as the “Prior Right to Lease.” 1 Chevron *603 says that this section merely gave Chevron the right to match: (1) an offer for a new underlying lease received by Macerich; (2) during Chevron’s tenancy; (3) that Mace-rich wanted to accept.

In December 1998, Mustang purchased the previous franchisee’s equipment, goodwill, and PMPA franchise rights. Although aware that the underlying lease expired on May 31, 2001, Mustang’s principal, Robert Lintz (“Lintz”), correctly predicted that Chevron would be very interested in extending its underlying tenancy. 2 However, even if Chevron elected to depart, Lintz assumed Mustang would be well-positioned to obtain its own direct lease from Macerich.

Approximately one year before the underlying lease expired, Chevron evaluated the Service Station. Chevron concluded that the Service Station’s location was attractive but that the Service Station itself (particularly the service bays) no longer met Chevron’s image requirements. Based on this conclusion, Chevron decided that it would attempt to keep its brand at the site, but only if the Service Station could be demolished and rebuilt with modern improvements.

Chevron says that its evaluation meant that the Service Station could no longer be operated as a dealer-leased site. Chevron states that the significant costs of constructing a new station (estimated at $1,300,000) mandated that the Service Station be converted either to a company-owned site or a dealer-owned site (depending on who financed the improvements). However, there was uncertainty as to the outcome since everything depended on Macerich’s approval of a new lease.

On April 18, 2000, Mustang’s franchise agreements were renewed through May 31, 2001. 3

In March 2000, Chevron Property Specialist Jeffery Cole (“Cole”) wrote to Mary Klein-Paquin (“Paquin”) at Macerich stating that Chevron “clearly prefers” to obtain a long-term lease for the Service Station property upon expiration of Chevron’s current underlying lease. Meanwhile, Chevron’s Retail Account Manager Julie Humphreys (“Humphreys”) and her supervisor, Scott Lystad, approached Lintz with an offer to buy Mustang’s Service Station interests for $750,000. Mustang did not wish to sell especially at the price Chevron offered. Lintz proposed a price of $775,000, but only on the condition that Chevron agree to sell to Mustang Chevron’s interest in two other service stations.

Humphreys wrote to Lintz on May 8, 2000, setting forth Chevron’s proposal to pay $775,000. In the preamble to the Chevron-provided letter was the following statement:

This letter sets forth only a proposal for your consideration. Neither you nor Chevron will be bound or have any obligations with respect to this proposal unless and until the following conditions have been satisfied.

The sale would be subject to four conditions: (1) Chevron’s ability to secure extended tenancy from Macerich. beyond May 31, 2001; (2) Chevron’s ability to obtain permits to remodel the facility; (3) approval by Chevron’s management; and (4) the parties’ execution of an “Agreement *604 for Mutual Termination of Dealer Lease,” substantially in a form purportedly attached to the May 8th letter.

Humphreys’ letter also did not mention the two service stations Lintz desired to purchase from Chevron. Lintz therefore handwrote those additional terms on Hum-phreys’ letter, signed in Chevron’s signature block: “ACCEPTED AND AGREED TO,” and returned the letter to Hum-phreys. Humphreys telephoned Lintz to explain that she could not add language to Chevron’s letter, then wrote “Void due to Bob putting conditions” on her file copy.

At around the same time Chevron and Mustang attempted to negotiate a new lease with Macerich. Given the significant investment required to rebuild the Service Station, Chevron says that both it and Mustang insisted that Macerich agree to an initial lease term of at least twenty years. However, Macerich refused to accept such a lengthy term and insisted on a term of five years (according to Chevron). Chevron also states that the rent that Macerich was seeking was unacceptable.

Chevron made a second written offer to Mustang for $775,000 on June 22, 2000. Mustang still did not wish to sell.

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Cite This Page — Counsel Stack

Bluebook (online)
406 F.3d 600, 2005 WL 994555, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mustang-marketing-inc-v-chevron-products-co-ca9-2005.