Mustang Marketing, Inc. v. Chevron Products Co. ( 2005 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MUSTANG MARKETING, INC., a 
California corporation,
Plaintiff-Appellant,
No. 03-56516
v.
CHEVRON PRODUCTS COMPANY, a  D.C. No.
CV-02-00485-DOC
division of CHEVRON U.S.A. INC., a
OPINION
California corporation; and
CHEVRON TEXACO CORPORATION,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
February 18, 2005—Pasadena, California
Filed April 29, 2005
Before: A. Wallace Tashima, Kim McLane Wardlaw,
Circuit Judges, and Raner C. Collins,* District Judge.
Opinion by Judge Collins
*The Honorable Raner C. Collins, United States District Judge for the
District of Arizona, sitting by designation.
4755
4758 MUSTANG MARKETING v. CHEVRON PRODUCTS
COUNSEL
Stephen Thomas Erb, Esq., San Diego, California, for the
plaintiff-appellant.
Michael L. Armstrong, Esq., Morgan, Lewis & Bockius LLP,
Los Angeles, California, for the defendants-appellees.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4759
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 sta-
tion (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 pos-
sessed 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 subse-
quent 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 dis-
trict judge?
I. BACKGROUND
On April 28, 1971, Chevron’s predecessor in interest, Stan-
dard Oil Company of California, entered into the underlying
4760 MUSTANG MARKETING v. CHEVRON PRODUCTS
lease (Ground Lease) for the Service Station for a term expir-
ing 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 four-year options
extending its tenancy through May 31, 2001. Meanwhile,
Macerich succeeded to the lessor’s interest under the underly-
ing lease. Throughout the entire term of the underlying lease,
Chevron subleased the premises to independent service sta-
tion operators licensed to sell Chevron-branded motor fuel.
The underlying lease granted Chevron, as lessee, the fol-
lowing 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 exten-
sion thereof . . .
Taking language from Section 7 itself, therefore, Mustang
refers to this right as the “Prior Right to Lease.”1 Chevron
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 Macerich 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
1
Chevron disputes this title, preferring to call it instead a “Right of First
Refusal,” saying Mustang is using the name for tactical purposes; how-
ever, there is nothing wrong with “Prior Right to Lease” as the phrase
comes directly from the section.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4761
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 con-
cluded 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 con-
clusion, 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 Sta-
tion could no longer be operated as a dealer-leased site. Chev-
ron 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 improve-
ments). 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”)
2
Lintz was a former employee of Chevron and therefore familiar with
the PMPA and its requirements.
3
The original Dealer Agreement expired on that date, but was renewed
to coincide with the expiration of Chevron’s underlying lease.
4762 MUSTANG MARKETING v. CHEVRON PRODUCTS
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 consid-
eration. 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 for Mutual
Termination of Dealer Lease,” substantially in a form purport-
edly attached to the May 8th letter.
Humphreys’ letter also did not mention the two service sta-
tions Lintz desired to purchase from Chevron. Lintz therefore
handwrote those additional terms on Humphreys’ letter,
signed in Chevron’s signature block: “ACCEPTED AND
AGREED TO,” and returned the letter to Humphreys. Hum-
phreys telephoned Lintz to explain that she could not add lan-
guage 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
MUSTANG MARKETING v. CHEVRON PRODUCTS 4763
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 unaccept-
able.
Chevron made a second written offer to Mustang for
$775,000 on June 22, 2000. Mustang still did not wish to sell.
On February 21, 2001, Chevron employees Cole, Humphreys
and Michael O’Neal (“O’Neal”), told Lintz in a meeting at
Chevron’s offices that if Mustang was not willing to sell its
Service Station interests to Chevron, then Chevron would not
extend its underlying lease. Lintz protested Chevron’s negoti-
ating tactics and insisted the business was worth more than
$775,000.
Apparently all the parties were also aware that Macerich
wanted to convert the property to a fast-food restaurant as
soon as Chevron’s underlying lease expired.
Chevron then hand-delivered to Lintz its February 21,
2001, written notice of non-renewal of the franchise relation-
ship (“Non-renewal Notice”), relying solely upon expiration
of Chevron’s underlying lease on May 31, 2001. Mustang
claims that Chevron never offered to assign to Mustang the
Prior Right to Lease as required by § 2802(c)(4)(B) of the
PMPA. Both orally and in letters dated February 22, March
5, and June 4, 2001, Lintz insisted that the PMPA required
Chevron assign to Mustang its Prior Right to Lease, which
Chevron refused to do. With the Non-renewal Notice now
pending, on March 2, 2001, Chevron offered to pay Mustang
$700,000 for its Service Station interests.
In letters dated March 2, April 3, and April 26, 2001, Chev-
ron told Lintz that Chevron would not renew its underlying
lease with Macerich unless and until Chevron had reached a
“mutually satisfactory agreement” for the purchase of Mus-
4764 MUSTANG MARKETING v. CHEVRON PRODUCTS
tang’s interests. On April 16, 2001, Chevron offered Mustang
$775,000. On April 23, 2001, Chevron offered $850,000.
Unknown to Lintz, Macerich was finding that Chevron’s
intent to exercise the Prior Right to Lease was dissuading all
other prospective tenants from offering to lease the Service
Station property. In fact, aside from offers by Mustang and
Chevron, Macerich received no other offers.
During March through May 1, 2001, Chevron and
Macerich exchanged written lease proposals. In each pro-
posal, Chevron requested an initial base term of only two
years, to be followed by multiple five-year options exercis-
able in Chevron’s discretion. Macerich’s Mark Strain
(“Strain”) testified that such short initial base terms were gen-
erally unacceptable to Macerich, as were multiple options to
extend. For its part, Chevron states that Macerich made unrea-
sonable offers with a lease term of only five years. Nonethe-
less, Paquin was optimistic Macerich would eventually reach
agreement with Chevron, and she attached no importance to
doing so prior to May 31, 2001.
On May 1, 2001, Chevron’s Cole reportedly went to
Macerich’s offices to meet personally with Strain and Paquin.
Cole testified the meeting was “very contentious,” and he left
believing Macerich did not want Chevron as a tenant. Neither
Cole nor anyone else at Chevron pursued negotiations with
Macerich between May 1 and mid-June, 2001. At the same
time, some negotiations between Macerich and Mustang did
take place which proved unproductive.
Mustang states that Paquin contradicted Cole’s account of
this meeting in several material respects. Paquin testified that
the meeting was not the least bit contentious. According to
Paquin, negotiations were proceeding normally. In mid-May
2001, Paquin unexpectedly required a maternity-related medi-
cal leave of absence.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4765
O’Neal advised Lintz in early May, 2001, that Chevron had
discontinued its negotiations with Macerich. Mustang was
free to negotiate its own lease he said, though O’Neal cau-
tioned Lintz against paying Macerich too much for rent.
Unknown to Lintz, Chevron’s in-house attorney, Paula Bai-
ley, wrote to Macerich on May 3, 2001, insisting that Chevron
receive notice of all offers made to lease the property. Cole
testified that Chevron fully intended to assert the Prior Right
to Lease against offers made to or by Mustang.
Chevron represented in the district court that by early May
2001, it had given up hope of obtaining a new lease from
Macerich. Chevron then reportedly “wrote off” its Service
Station assets, weeks before its underlying lease was to
expire, and “began the process of pulling permits” to demol-
ish its improvements. However, on May 14, 2001, Humphreys
frankly told Lintz that Chevron was not pursuing any “hard
negotiations” with Macerich because Mustang had not yet
agreed to sell its Service Station interests.
Chevron’s April 23, 2001, offer for $850,000 remained out-
standing. At Humphreys’ urging, Lintz reluctantly signed the
letter on May 22, 2001, thus forming the Letter Agreement.
Chevron states that by the time Mustang agreed to this offer,
negotiations for a new lease between Chevron and Macerich
had been broken off so this offer was never submitted to
Chevron’s management for consideration because the condi-
tions were not satisfied.
Throughout June and July 2001, Chevron took no action to
actually remove its Service Station improvements. No other
tenant ever took possession. When Mustang inquired about
purchasing Chevron’s improvements in June 2001, Chevron
disavowed any duty to sell, whether or not Mustang success-
fully obtained its own direct lease for the property. For its
part, Chevron states that the Prior Right to Lease was not rele-
vant since it expired with the Ground Lease.
4766 MUSTANG MARKETING v. CHEVRON PRODUCTS
The next month, Chevron began to change the terms in its
conditions for the new underlying lease. Learning of Chev-
ron’s progress, Lintz asked O’Neal on July 6, 2001, to con-
firm their arrangement under the Letter Agreement, while he
also offered not to compete against Chevron for the Macerich
lease.
By letter dated July 31, 2001, Richard Loyd at Chevron
confirmed all of the essential terms of Chevron’s new 20-year
lease with Macerich. On August 10, 2001, O’Neal finally
responded to Lintz in writing, confirming that Chevron had
reached a tentative agreement on a new lease with Macerich,
and saying that the April 23, 2000 letter was merely a pro-
posal.
Chevron signed a new 20-year lease for the Service Station
premises on May 1, 2002 and reopened the Service Station as
a Chevron-operated facility on May 28, 2002.
Chevron also paid Macerich $129,000 as a “lease induce-
ment fee” for “environmental liabilities.” However, Chevron
has admitted that the payment was for back rent to June 2001.
Macerich’s accounting records corroborated this fact. On Feb-
ruary 18, 2003, Chevron obtained City of Santa Ana approv-
als to renovate the Service Station and to build a new
convenience store.
For its part, Chevron claims that in late June 2001,
Macerich “dramatically altered its negotiating position”
because Macerich was now prepared to accept a long term
rent at a rate much closer to Chevron’s figures. Chevron then
says that “without telling Chevron or Mustang about its
change in position, Macerich invited Chevron to renew its
efforts to negotiate a new lease” while simultaneously negoti-
ating with Mustang. Macerich then selected Chevron. Chev-
ron then states that it took nine months to finalize the deal and
finally, on May 1, 2002, a new Ground Lease was executed.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4767
As of June, 2003, no renovations had been made to Mus-
tang’s former Service Station. Chevron now operates the
facility exclusively for its own account. Judgment was first
entered on July 30, 2003. On Chevron’s motion, the original
judgment was vacated as incomplete and an Amended Judg-
ment was entered August 14, 2003. This appeal followed.
II. DISCUSSION
1. Standard of Review
We review de novo the grant of summary judgment. See
Oregon Paralyzed Veterans of America v. Regal Cinemas,
Inc., 339 F.3d 1126, 1130 (9th Cir. 2003); Rene v. MGM
Grand Hotel, Inc., 305 F.3d 1061, 1064 (9th Cir. 2002) (en
banc). Our review is not limited to a consideration of the
grounds upon which the district court decided the issues; the
Court can affirm the district court on any grounds supported
by the record. Sicor Ltd. v. Cetus Corp., 51 F.3d 848, 860 fn.
17 (9th Cir. 1995). We must determine whether the record,
when viewed in the light most favorable to Mustang, shows
that there is no genuine issue of material fact and that Chev-
ron is entitled to summary judgment as a matter of law. See,
e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct.
2548, 91 L. Ed. 2d 265 (1986).
The interpretation of a statute is a question of law which we
review de novo. See, e.g., Carson Harbor Village, Ltd. v.
Unocal Corp., 270 F.3d 863, 870 (9th Cir. 2001); Hilo v.
Exxon Corp., 997 F.2d 641, 643 (9th Cir. 1993) (PMPA). The
grant of summary judgment on grounds that a signed writing
is not an enforceable contract is also reviewed de novo. Renn-
ick v. O.P.T.I.O.N., Care, Inc., 77 F.3d 309, 313 (9th Cir.
1996).
2. Chevron’s Option of the Prior Right to Lease and PMPA
§ 2802(c)(4)(B)
Mustang claims that it was never offered the Prior Right to
Lease option by Chevron as was required by the PMPA.
4768 MUSTANG MARKETING v. CHEVRON PRODUCTS
Chevron claims that it did in fact make the offer to Mustang
and that regardless, the offer was not required since the option
expired with the termination of the underlying lease with
Macerich.
[1] A franchisor invoking § 2802(c)(4) as grounds for non-
renewal or termination must offer to assign to its franchisee
“any option to extend the underlying lease” which the franchi-
sor holds. The offer to assign is a condition to the very valid-
ity of the Non-renewal Notice. 15 U.S.C. § 2802(c)(4)(B).
We have observed that “ ‘[a]s remedial legislation, the
[PMPA] must be given a liberal construction consistent with
its goal of protecting franchisees.’ ” Hilo, 997 F.2d at 643
(citing Humboldt Oil Co. v. Exxon Co., U.S.A., 695 F.2d 386,
389 (9th Cir. 1982)). Prompted by reports of unfair and coer-
cive practices by major oil companies, Congress provided
protections where franchisees were most vulnerable, viz.,
against the actual or threatened loss of their businesses. As
such, the “overriding purpose of Title I of the PMPA is to
protect the franchisee’s reasonable expectation of continuing
the franchise relationship.” Unocal Corp. v. Kaabipour, 177
F.3d 755, 762 (9th Cir. 1999).
With this general principle of the PMPA serving as the
background, statements by Representative Wyden explain the
purposes of § 2802(c)(4)(B) as follows:
Another problem arises in situations where the ser-
vice station operators are not parties to the lease
agreements for the properties where their stations are
located. Some oil companies are taking advantage of
this, and, by refusing to renew the lease for the prop-
erty, are forcing dealers to be evicted.
Second, H.R. 1520 addresses situations where the
franchisor leases the service station property from a
third party and the station operator is not a party to
MUSTANG MARKETING v. CHEVRON PRODUCTS 4769
the lease. In these circumstances, the station operator
typically has no right to extend the lease or to pur-
chase the property from the landlord; the franchisor
has the sole right to exercise any options to renew
the lease or buy the service station. As a result,
franchisors can in effect terminate their franchisees
and put the station operators out of business simply
by failing to exercise these options.
To protect dealers against terminations in these situ-
ations, franchisors will now be required to give their
franchisees the opportunity to assume the underlying
leases for the station properties when those leases
expire. Oil companies, which are typically the par-
ties to the lease agreements, will now be required to
offer to assign to the service station operators any
options they hold either to purchase the property or
to extend the lease.
140 Cong.Rec. 27316, 27317-18 (1994) (remarks by Rep.
Wyden).
This case is the very situation which the creators of this
provision of the PMPA sought to remedy. Representative
Wyden’s remarks make it very clear that Congress intended
to remedy situations where the franchisor, using its superior
bargaining position and strength, could evict the operator by
claiming non-renewal of the underlying lease but continuing
to hold onto any options it possesses to extend the lease. This
appears to be exactly what happened with respect to Mustang.
Section 2802(c)(4)(B) of the PMPA requires the franchisor
to offer the franchisee “any option to extend the underlying
lease.” See § 2802(c)(4)(B). If Chevron possessed any option
to extend the lease, then by law, it was required to offer that
option to Mustang upon expiration of the lease. The issue
becomes whether Chevron possessed a valid option?
4770 MUSTANG MARKETING v. CHEVRON PRODUCTS
As the record shows, Chevron possessed an option referred
to as the Prior Right to Lease contained in Section 7 of its
underlying lease with Macerich. Chevron argues that this
option was only exercisable in very limited circumstances,
namely that it merely possessed the right to match a third
party offer and that, in any event, the option expired with the
termination of the underlying lease.
[2] While Section 7 is not a unilateral option to extend as
were Chevron’s other two options, it does give Chevron the
“prior right to lease” if a third party offers or if “Lessor
[Macerich] offers.” Hence, this was a bilateral option to
extend and did not expire as Chevron had claimed.
This fact is further supported by the record where Chevron
informed prospective third parties that it possessed this Prior
Right to Lease and intended to exercise it if anyone should
make an offer. This clearly shows that Chevron thought it still
possessed the option and intended to use it.
The record is unclear as to whether Chevron ever offered
this option to Mustang. Chevron claimed that it did, Mustang
claimed that it did not.4 We remand that issue for the trial
court to determine. What is determinable, however, is that
Chevron possessed a duty to extend its option to Mustang if
the underlying lease had expired. We turn to the question of
the lease expiration next.
3. Chevron’s Use of the Expiration of the Underlying Lease
to Evict Mustang
[3] Under § 2802(c)(4) of the PMPA, the termination of the
underlying lease is an acceptable reason for the termination of
the franchise relationship.5 While it appears that facially
4
Curiously, the citation that Chevron points to in the record for its con-
tention is “see, supra, pp x-x.”
5
Section 2802(c)(4) says that the “loss of the franchisor’s right to grant
possession of the leased marketing premises through expiration of an
underlying lease” is an acceptable reason for termination assuming certain
notification requirements are met.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4771
Chevron complied with this statute with the expiration of the
original underlying lease, its subsequent actions call into
question whether this is what really occurred.
[4] The “overriding purposes of Title I of the PMPA is to
protect the franchisee’s reasonable expectation of continuing
the franchise relationship.” Ellis, 969 F.2d at 788 (quoting
Slatky v. Amoco Oil Co., 830 F.2d 476, 484 (3rd Cir. 1987)).
Expiration of the underlying lease is not to be interpreted lit-
erally. Veracka v. Shell Oil Co., 655 F.2d 445, 448 (1st Cir.
1981). Courts have scrutinized the franchisor’s subjective
intent, its continuing control over the marketing premises, and
its actual or eventual right to continued possession. See Hifai
v. Shell Oil Co., 704 F.2d 1425, 1429 (9th Cir. 1983) (inquir-
ing into and finding that the franchisor had a sincere intent to
discontinue its use of the premises as a service station);
Veracka, 655 F.2d at 448 (holding that “expiration” is not to
be taken literally, then inquiring into and finding that the
franchisor had experienced total loss of control over the mar-
keting premises).
The statutory phrase “loss of franchisor’s right to grant pos-
session of the leased marketing premises through expiration
of an underlying lease” must be interpreted as an unified
whole as well as in context of the overall legislative scheme.
Kaabipour, 177 F.3d at 770-71.
The Senate Report accompanying the original 1978 legisla-
tion provides in pertinent part:
However, it is not intended that termination or non-
renewal should be permitted based upon the expira-
tion of a lease which does not evidence the existence
of an arms length relationship between the parties
and as a result of the expiration of which no substan-
tive change in control of the premises results.
S.Rep. No. 95-731, 95th Cong., 2d Sess. 38, reprinted in 1978
U.S. Code Cong. & Ad. News 873, 896.
4772 MUSTANG MARKETING v. CHEVRON PRODUCTS
In Hifai, we reviewed § 2802(c)(4) in light of its legislative
history and concluded:
This quotation [from Senate Report No. 95-731]
merely evidences an intent underlying the PMPA not
to permit a franchisor to use section 2802(c)(4) as a
means to end a franchise relationship with one oper-
ator while retaining control of the premises. No such
situation is present in this case. Throughout, Shell
has acted in a manner which indicated a sincere
intent to dispose of the premises and discontinue its
use of the premises as a service station.
704 F.2d at 1429. In Hifai, we held that “the purpose of the
extension was not to grant possession to another subtenant,
but to give Shell [the franchisor] time to regain possession
from Hifai [Appellant]. The record contains no evidence that
Shell ever had any other intention than to terminate the master
lease . . .” Hifai, 704 F.2d at 1429.6 We emphasized the “pur-
pose” of the extension and to look at what the franchisor
intended to do with the premises.
[5] Under the Hifai analysis, we examine Chevron’s intent.
Viewing the record in the light most favorable to Mustang, as
we must, Chevron never intended to vacate the premises even
after its initial failure to negotiate a lease extension with
Macerich. In March 2000, Chevron wrote to Macerich stating
that Chevron “clearly prefers” a long-term lease agreement.
The letters dated March 2, April 3, and April 26, 2001, in
which Chevron plainly told Mustang that it would not renew
6
In Hifai, we ruled that the oil company, which informed its franchisee
that the franchise would be terminated because the oil company was not
renewing the underlying lease gave adequate reason for termination, even
though the oil company’s control over the premises was extended at the
end of the term of the master lease so that the oil company could evict the
service station operator, which it was required to do in order to exercise
its right to remove the improvements from the premises. Hifai, 704 F.2d
at 1430.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4773
its underlying lease unless Mustang sold to Chevron all of its
interests in the Service Station demonstrate Chevron’s intent
to stay at the Service Station, and are violations of the PMPA.
Likewise, Chevron let it be known that it intended to exercise
its Prior Right to Lease which dissuaded any other prospec-
tive third parties interested in the premises. Additionally, on
May 3, 2001, Chevron’s counsel wrote a letter to Macerich
and insisted that Chevron receive notice of all offers made to
lease the property. Also, the fact that even after their original
underlying lease terminated Chevron never took any substan-
tial physical steps to remove its improvements, demonstrate
that it never intended to leave the site.7 Finally, after Chevron
and Macerich had agreed to another underlying lease where
Chevron opened the Service Station run by its own employ-
ees, Chevron paid Macerich a $129,000 “lease inducement
fee” that was later discovered to be back rent.
[6] All of these actions point to the fact that Chevron never
intended to leave the premises. This is manifestly different
from Hifai where the franchisor’s lease was extended merely
to evict the operator. Again viewing the evidence in the light
most favorable to Mustang, we conclude that Chevron always
intended to remain at the Service Station. In order facially to
comply with the PMPA, Chevron attempted to maneuver
through this law by ending Mustang’s franchise by the termi-
nation of the underlying lease while holding onto the Prior
Right to Termination so as to be able to keep its grip on the
Service Station premises, and by then going through pro-
tracted negotiations of nine months with Macerich and finally
placating Macerich with the $129,000 payment. Chevron then
could point to the fact that nine months had elapsed between
the expiration of the original lease and the commencement of
the new lease and say that it was merely exercising its right
in the market place to do business where it pleased.
7
Chevron contends that it undertook concrete steps to begin removing
the repairs like applying for permits but the fact remains that months after
the expiration of the lease, the improvements remained on the premises.
4774 MUSTANG MARKETING v. CHEVRON PRODUCTS
[7] These actions by Chevron are exactly what Congress
intended to prohibit with its enactment of the PMPA. There-
fore, the district court’s grant of summary judgment in favor
of Chevron is reversed and remanded.
4. Exemplary Damages
[8] Section 2805(d) provides for “actual and exemplary
damages” to the franchisee if the court finds that the franchi-
sor has violated §§ 2802 or 2803 of the PMPA.
In common usage, the word “willful” is considered synony-
mous with such words as “voluntary,” “deliberate,” and “in-
tentional.” In the context of the PMPA it is reasonable to use
the term “willful” to indicate an act that is not merely negli-
gent but can be said to have taken with deliberate or inten-
tional disregard to the requirements of the statute. Id. The
phrase “willful disregard” has been defined to mean that a
franchisor “either knew its conduct was prohibited by the
PMPA or if the franchisor acted with plain indifference to its
prohibitions.” Eden v. Amoco Oil Co., 741 F. Supp. 1192,
1195 (D.Md. 1990). When the courts have considered the
term “willful disregard” with respect to the PMPA, they have
been reticent to award exemplary damages absent a clear and
affirmative showing of a deliberate and intentional act on the
part of the defendant.
[9] Because there are controverted issues of fact on whether
Chevron’s actions were in willful disregard of the PMPA, this
issue is remanded back to the district court.
5. The Proposal Letter of April 23rd
As a fall back position to its PMPA arguments, Mustang
alleges that the April 23rd letter constituted a binding contract
on Chevron. Because we conclude that summary judgment on
the question of Chevron’s violation of the PMPA must be
reversed, we decline to address this issue.
MUSTANG MARKETING v. CHEVRON PRODUCTS 4775
6. Remand Back to a Different District Judge
Mustang requests that if this case is remanded, that it be
reassigned to a different district court judge.
In Air-Sea Forwarders, Inc. v. Air Asia Co., Ltd., 880 F.2d
176, 191 (9th Cir. 1989), we stated that 28 U.S.C. § 2106 has
conferred the power on us to reassign cases when they are
remanded. However, that authority is exercised in only “rare
and extraordinary circumstances.” Id.
In deciding whether reassignment is appropriate, two inqui-
ries are made. The first question is whether the district court
has exhibited personal bias requiring recusal from a case.
United States v. Sears, Roebuck & Co., 785 F.2d 777, 779-80
(9th Cir. 1986). Absent a showing of personal bias, the Court
must decide whether “unusual circumstances” warrant reas-
signment. Id. at 780. The factors for determining “unusual cir-
cumstances” are:
(1) whether the original judge would reasonably be
expected upon remand to have substantial difficulty
in putting out of his or her mind previously
expressed views or findings determined to be errone-
ous or based on evidence that must be rejected; (2)
whether reassignment is advisable to preserve the
appearance of justice; and (3) whether reassignment
would entail waste and duplication out of proportion
to any gain in preserving the appearance of fairness.
United Nat’l Ins. Co. v. R & D Latex, 242 F.3d 1102, 1118-
1120 (9th Cir. 2001).
[10] Mustang has not shown any personal bias on the part
of the district judge nor has it proven its burden of demon-
strating the fulfillment of the several factors to show that “un-
usual circumstances” are present in this case. Therefore, the
Court declines to remand back to a different district judge.
REVERSED and REMANDED