Mobil Oil Corp. v. Rubenfeld ( 1975 )

Munder, J. (dissenting).

The majority concedes that the price-fixing and tie-in arrangements present in this case are violations of the Federal antitrust laws. There was a finding by the trial court, similarly accepted by the majority, that the reason why the petitioner did not renew the respondent’s lease and contract, after a- 17-year continuous relationship, was because the respondent had refused to go along with these illegal arrangements (see Mobil Oil Corp. v Rubenfeld, 72 Misc 2d 392, 410). In addition, the amicus curiae brief submitted by the Attorney-General charges that the petitioner’s conduct effects a monopoly or restraint of trade in violation of section 340 of the General Business Law (Donnelly Antitrust Act). This has been declared to be against the "public policy” of New York (General Business Law, § 340, subd 1). Nevertheless, the majority, following "the traditional principles of real property and contract law”, are granting the petitioner the relief it seeks. I cannot agree.

As noted in Division of Triple T Serv. v Mobil Oil Corp. (60 Misc 2d 720, 728-729, affd 34 AD2d 618), the retail dealership contract and the lease under which a dealer such as the respondent operates are really indivisible. They are not separate contractual agreements; it is artificial and improper to treat them as such. We cannot rely exclusively on rights historically grounded in real property law when dealing with the short-term leases indigenous to the service station industry. When an oil company indicates that it wants to terminate a lease it means that it wants to terminate the entire business relationship. The issue in this case as stated by the majority, i.e., whether the tenant under a lease of commercial property may defeat the landlord seeking possession at the end of the term by asserting a retaliatory defense, is too narrow. I perceive the issue to be: given the franchise-fiduciary relationship^* between oil companies and their dealer-lessees, may the oil companies be permitted to rely upon their lease terms to coerce compliance with their illegal demands? That should not be permitted.

This case is distinguishable from Division of Triple T Serv. (supra.), wherein the oil company indicated that it wanted to terminate the plaintiffs lease in order to convert the property into a diagnostic and repair service center. Here, there is no claim that the petitioner wants to alter or close its operation at the site. Moreover, there was no claim of duress in Division of Triple T Serv., while here duress and coercion are at the very heart of the case. Accordingly, our holding in Division of Triple T Serv. offers little guidance here.

Before looking to the case law, which I conclude supports affirmance, the observation by the majority that any changes in the rights arising out of real property law are "customarily achieved by legislative or constitutional enactment” brings to mind that just a few weeks ago this court, in Tonetti v Penati (48 AD2d 25), held that a warranty of habitability should be implied in the rental of premises for use as a residence. In so doing, Mr. Justice Shapiro said (p 29): "It is evident that the rationale behind the common-law rule, which likened a lease to the sale of a chattel and therefore applied the ancient doctrine of caveat emptor, has no rational basis in a modern, urban society. Realistically viewed, and fiction discarded, a lease of residential premises establishes a contractual relationship with mutual obligations and is not intended to be treated as a conveyance of an interest in realty.”

A similar realistic view should be taken of leases involving gasoline retail stations; ancient common-law precepts should be susceptible to change by an enlightened judiciary dealing with modern-day real property leases which are combined with dealership franchise agreements.

In my view, the case at bar comes within the holding of the Supreme Court of the United States in Simpson v Union Oil Co. (377 US 13). There, a gasoline service station lessee (on the day before the expiration of his lease) brought an antitrust suit for damages and to enjoin the lessor from taking possession of the property. The lessee alleged that the lessor had refused to renew his lease because he sold the gasoline consigned to him by the lessor at a price below that fixed in the consignment agreement. The District Court for the Northern District of California, Southern Division granted the lessor summary judgment on the ground that there was no violation of the Sherman Act and that, even assuming such a violation, there was no showing by the lessee of actionable damage. The Court of Appeals for the Ninth Circuit affirmed on the ground the lessee had suffered no actionable wrong or damage (311 F2d 764). In reversing and remanding for a hearing on the issues, including damages, if any, the Supreme Court made the following comments (pp 16-18), which are appropriate at bar:

"We disagree with the Court of Appeals that there is no actionable wrong or damage if a Sherman Act violation is assumed. If the 'consignment’ agreement achieves resale price maintenance in violation of the Sherman Act, it and the lease are being used to injure interstate commerce by depriving independent dealers of the exercise of free judgment whether to become consignees at all, or remain consignees, and, in any event, to sell at competitive prices. The fact that a retailer can refuse to deal does not give the supplier immunity if the arrangement is one of those schemes condemned by the antitrust laws. * * *

"The fact that, on failure to renew a lease, another dealer takes Simpson’s place and renders the same service to the public is no more an answer here than it was in Poller v Columbia Broadcasting System, 368 US 464, 473. For Congress, not the oil distributor, is the arbiter of the public interest; and Congress has closely patrolled price fixing whether effected through resale price maintenance agreements or otherwise. The exclusive requirements contracts struck down in Standard Oil Co. v United States, 337 US 293, were not saved because dealers need not have agreed to them, but could have gone elsewhere. If that were a defense, a supplier could regiment thousands of otherwise competitive dealers in resale price maintenance programs merely by fear of nonrenewal of short-term leases.

"We made clear in United States v Parke, Davis & Co., 362 US 29, that a supplier may not use coercion on its retail outlets to achieve resale price maintenance. We reiterate that view, adding that it matters not what the coercive device is. * * *

"Here we have an antitrust policy expressed in Acts of Congress. Accordingly, a consignment, no matter how lawful it might be as a matter of private contract law, must give way before the federal antitrust policy.” (emphasis added throughout).

The point to emphasize is that a matter of private contract law, such as a lease, must give way when it is an instrument used to violate the Federal antitrust policy. In other words, cancellation of the lease and dealer arrangement under the circumstances here would be unlawful, even though in exercise of a right expressly granted by the lease (Lessig v Tidewater Oil Co., 327 F2d 459, 464).

In Interphoto Corp. v Minolta Corp. (295 F Supp 711, 723) the District Court for the Southern District of New York, stated this point as follows: "In addition to relying on the asserted absence of any nexus between the refusal to deal and the alleged conspiracies, Minolta claims its contractual right to terminate as a basis and justification for denying injunctive relief. This reliance on contract is misplaced. It is not open to doubt that, where a refusal to deal is in furtherance of an illegal conspiracy, the circumstance that the manufacturer or supplier has a contractual right to terminate the agreement is irrelevant. See, e.g., Osborn v Sinclair Refining Company, 324 F2d 566, 575 n 17 (4 Cir 1963); Albrecht v Herald Co., supra; United States v Arnold, Schwinn & Co., supra. This rule applies to defendants who have a right to cancel under a contract, see, e.g., Osborn v Sinclair Refining Company, supra; McKesson and Robbins v Charles Pfizer & Co., Inc., supra; to defendants who are simply choosing not to renew contracts, see, e.g., Simpson v Union Oil Co., 377 US 13, 84 S Ct 1051 (1964); and even where there is in fact no contract but merely a history of dealing, see, e.g., Beverage Distributors, Inc. v Olympia Brewing Co., 5 Trade Reg Rep (1968 Trade Cas) ¶ 72-530 (ND Cal Sept. 19, 1967), modified on other grounds, 395 F2d 850 (9 Cir May 17, 1968); Kay Instrument Sales Co., Inc. v Haldex Aktiebolag, supra; Osborn v Sinclair Refining Company, supra at fn 17. The Court may appropriately require that the defendant maintain plaintiff as a distributor pending the determination of a trial on the merits.”

Although the Osborn case (324 F2d 566), cited in the above quotation, involved a private antitrust action rather than an action to recover possession of property, the court noted, as I here contend, that it is no defense that the oil company has a contractual right, under the written lease and the written sales agreement, to terminate the relationship with the dealer (supra, p 575, n 17).

The majority says that while service station lessees have been permitted to recover damages for antitrust violations, the remedy of injunction to require the continuation of a service station lease has been withheld. The cases cited to support that conclusion are clearly distinguishable. In Russell v Shell Oil Co. (382 F Supp 395), there was no allegation whatsoever of antitrust violations, fraud or coercion. The plaintiff’s claim was that the defendant’s decision to terminate the lease and dealer agreement was arbitrary and not in accordance with normal business practice. Finding no support or basis for the plaintiffs position, the District Court (ED, Mich) held that the defendant was entitled to possession as the lease had expired. In Hollander v American Oil Co. (329 F Supp 1300), there were alleged violations of the Clayton Antitrust Act, but the allegations were not supported by evidence. In fact, in support of the oil company’s decision not to renew the lease, there was evidence that the dealer had failed to keep his station clean and evidence of a decline in gasoline sales. In denying the dealer’s request for a preliminary injunction, the District Court (WD, Pa) concluded that he had failed to establish the three requirements: (1) irreparable injury, (2) equities in his favor and (3) a reasonable likelihood of success on the merits.

In cases where these requirements have been shown, the courts have not hesitated to grant injunctive relief. In Milsen Co. v Southland Corp. (454 F2d 363, 366), the Court of Appeals for the Seventh Circuit stated as follows: "Many courts have held that defendants who are or may be guilty of anti-competitive practices should not be permitted to terminate franchises, leases or sales contracts when such terminations would effectuate those practices. Semmes Motors, Inc. v Ford Motor Co., 429 F2d 1197 (2d Cir 1970); Sahm v V-1 Oil Co., 402 F2d 69 (10th Cir 1968); Broussard v Socony Mobil Oil Co., 350 F2d 346 (5th Cir 1965); Bergen Drug Co. v Parke, Davis & Co., 307 F2d 725 (3d Cir 1962); Bateman v Ford Motor Co., 302 F2d 63 (3d Cir 1962); Interphoto Corp. v Minolta Corp., 295 F Supp 711 (SDNY) affd 417 F2d 621 (2d Cir 1969); Wurzberg Brothers, Inc. v Head Ski Co., 276 F Supp 142 (DNJ 1967); Madsen v Chrysler Corp., 261 F Supp 488 (ND Ill 1966), vacated as moot, 375 F2d 773 (7th Cir 1967); McKesson and Robbins, Inc. v Charles Pfizer & Co., 235 F Supp 743 (ED Pa 1964).”

It is obvious that the only effective means to prevent termination in a case such as this is an injunction, and not a suit for treble damages. As noted above, the Simpson case (377 US 13, supra) included a request for injunctive relief and the Supreme Court gave no indication that such relief could not be granted. The recovery of damages, long after the fact, is small consolation to a man such as the respondent Rubenfeld, who has put 17 years of his life into his career as a Mobil Oil dealer. He wants to continue in business, not subsist on an award of damages (see Semmes Motors v Ford Motor Co., 429 F2d 1197, 1205). Nowhere is it claimed that Rubenfeld has not been an effective, profitable dealer. Indeed, his long standing relationship with Mobil indicates that the latter was pleased with his performance and ability. After all, it was Mobil which urged Rubenfeld that he could build a secure future for his family if he became one of its dealers. To hold that the courts are powerless to enjoin Mobil from terminating, under the circumstances of this case, seems to me to be a mockery of justice.

Where, as here, the court is satisfied that an illegal conspiracy exists, and that the refusal to continue the dealership is in furtherance of that conspiracy, the court should not permit the dealership to be terminated by the guilty party (see Interphoto Corp. v Minolta Corp., 295 F Supp 711, 723, supra; Semmes Motors v Ford Motor Co., 429 F2d 1197, 1205, supra). The inequities of such a situation "prove the wisdom of courts which have refused to permit a party to benefit from contractual rights when the contract is an instrument of restraint of trade” (Milsen Co. v Southland Corp., 454 F2d 363, 368-369).

The order appealed from should be affirmed.

Rabin, Acting P. J., Martuscello and Cohalan, JJ., concur with Hopkins, J.; Munder, J., dissents and votes to affirm the order of the Appellate Term, with an opinion.

Order of the Appellate Term of the Supreme Court for the Second and Eleventh Judicial Districts, dated January 4, 1974, and judgment of the Civil Court of the City of New York, Queens County entered December 19, 1972, reversed, on the law, without costs, and petition granted. The findings of fact of the Appellate Term and of the Civil Court are affirmed.

* So found by the trial court.