Mobil Oil Corp. v. Rubenfeld , 48 A.D.2d 428 ( 1975 )

Hopkins, J.

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 Ruben feld, 72 Misc 2d 392); that judgment was affirmed by the Appellate Term by a divided court (Mobil Oil Corp. v Rubenfeld, 77 Misc 2d 962). 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, 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 conscientious 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 NY 40, 51; Thayer v Leggett, 229 NY 152, 158), 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 Min. Co., 127 App Div 368). 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, affd 34 AD2d 618). 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 with 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, 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, 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., supra; Texaco Inc. v A. A. Gold, Inc., 78 Misc 2d 1050, affd 45 AD2d 1054). 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 (397 F2d 687, cert den 393 US 1016), 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 (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; Markese v Cooper, 70 Misc 2d 478; Toms Point Apts. v Goudzward, 72 Misc 2d 629, affd 79 Misc 2d 206; Cornell v Dimmick, 73 Misc 2d 384). 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 premises will be swiftly realized by the direct remedy of recognizing the defense as available to the tenant.

In the present case the lease (and the land) is peripheral to the objective of the enforcement of the antitrust laws. The posture of the parties is not unlike that in the cases in which it has been determined that violations of the antitrust laws by the parties are not valid defenses to actions to recover for the price of services rendered or goods sold (Columbia Broadcasting System v Roskin Distrs., 31 AD2d 22, 25, affd 28 NY2d 559;² Samuel Adler, Inc. v Bieler; 37 Misc 2d 741, affd 20 AD2d 772, affd 16 NY2d 688). In the words of Justice Brennan in Kelly v Kosuga (358 US 516, 520), "if the defense of illegality is to be allowed as a collateral method of enforcement of the antitrust laws, as the breadth of the petitioner’s argument suggests, it must be said that his theory creates a very strange class of private attorneys general.”

Usually, the remedy vouchsafed to individuals for violations of the antitrust laws lies in a suit to recover damages for injuries proximately caused by the violations (General Business Law, § 340, subd 5; Arthur Murray, Inc. v Reserve Plan, 406 F2d 1138; Advance Business Systems & Supply Co. v SCM Corp., 415 F2d 55, cert den 397 US 920; cf. Columbia Gas of N.Y. v New York State Elec. & Gas Corp., 28 NY2d 117). As Justice Margett observed in his dissent (Mobil Oil Corp. v Rubenfeld, 77 Misc 2d 962, 964, supra), the use of the defense by the respondent imposes a penalty for the violation beyond monetary damages, in effect compelling the petitioner to accommodate the respondent on the premises for a term terminable only by the latter’s will.³

The right of a service station lessee to damages for violations of the Federal antitrust acts has been recognized (Osborn v Sinclair Refining Co., 324 F2d 566; Lessig v Tidewater Oil Co., 327 F2d 459). On the other hand, the remedy of injunction to require the continuation of a service station lease has been withheld (Russell v Shell Oil Co., 382 F Supp 395; Hollander v American Oil Co., 329 F Supp 1300). We do not consider that the decisions in the neighboring state of New Jersey (Shell Oil Co. v Marinello, 63 NJ 402, cert den 415 US 920; Texaco, Inc. v Appleget, 63 NJ 411), holding that a service station lease may be terminated only for cause, are persuasive, since the Supreme Court of New Jersey rested its conclusion on public policy exampled by New Jersey statutes expressly prohibiting a franchisor from failing to renew a franchise without cause.⁴ As noted above, New York has not adopted that general policy, except in the instance of a motor vehicle dealer, and, indeed, has negatived that general policy by not enacting a statute which would have protected a franchisee by making good cause a prerequisite to termination. Hence, we see no compelling reason to deny recovery of possession of the premises to the petitioner as a means to enforce the antitrust laws. The order appealed from should, therefore, be reversed, and the petition granted.

1 . We further note that the price-fixing and tie-in arrangements have been determined to be breaches of the antitrust laws (see e.g., Northern Pacific RR Co. v United States, 356 US 1, 6; Tampa Elec. Co. v Nashville Co., 365 US 320, 328-329; cf. TimesPicayune v United States, 345 US 594, 614; Siegel v Chicken Delight, 448 F2d 43; Wheeler, "Some Observations on Tie-Ins, the Single-Product Defense, Exclusive Dealing and Regulated Industries”, 60 Cal L Rev 1557, 1558-1559), although some reservations have been voiced concerning a per se violation of the laws by tie-in (Markovits, "Tie-Ins, Leverage, and the American Antitrust Laws”, 80 Yale LJ 195, 292-293; 6A Corbin, Contracts, § 1412A). We note, too, that administrative agency trade regulation has occurred in these areas (Federal Trade Comm. v Texaco Inc., 393 US 223; Atlantic Refíning Co. v Federal Trade Comm., 381 US 357; Shell Oil Co. v Federal Trade Comm., 360 F2d 470, cert den 385 US 1002).

2 . It should be noted that the affirmance in the Court of Appeals did not pass directly on the dismissal of the defense by the Appellate Division, First Department.

3 . In Markese v Cooper (70 Misc 2d 478, 481) it was suggested that the tenant could not remain on the premises beyond the time that the repairs were made. Without such a limitation, the respondent’s right approaches a perpetual renewal of a lease (see Burns v City of New York, 213 NY 516, 524; Hoff v Royal Metal Furniture Co., 117 App Div 884, affd 189 NY 555); however, the renewal provision must be in precise language to permit such a construction, as these cases hold.

4 . The Supreme Court of New Jersey explicitly stated that it did not reach the question of the equitable defense raised by the tenant claiming that Shell was guilty of price discrimination and tie-in practices. For further developments with respect to the New Jersey franchising laws, see Mariniello v Shell Oil Co. (368 F Supp 1401).