Mustang Marketing, Inc. v. Chevron Products Co.

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