exxon's offers were not bona fide is the inclusion of a mandatory fifteen year supply agreement to be entered into by the dealer at the expiration of the existing supply agreement doing so was a violation of the dealer's rights it forced a substantial change in the franchise relationship and it was contrary to the purposes of the california statute today i'm going to try to address two independent reasons for why the court should reverse the district  decision first the courts reversed because exxon mobil included with its offer terms which were impermissible either because those terms were unreasonable as a matter of law or because those terms were unconscionable and alternatively the court could with me that in reviewing whether an offer is bonafide or not we should look at the entire offer or the entire package both price and non price terms because how can one judge those the legitimacy of an offer by dissecting terms piece by piece we've got to look at the relation to the whole and only i think that's correct your honor and certainly the question of price it can be an of a basis for finding that an offer is not bona fide in this case we're dealing with a summary judgment ruling that was limited to the non price terms so that's the issue that's before the court if the court finds that either the terms were included which could not be included or that there were interests which had to be conveyed which were not conveyed piece which violates certain let me let me well i suppose they had a fifteen they had this fifteen year term but the price was really low bark it depends on how that fifteen year term works so if the court looks at an existing fifteen year supply agreement then perhaps your honor suggestion that a low price would be a reason why a court could find it to be bona fide in this case though we're dealing with a new offer a new supply agreement and if i can briefly explain what i mean by this exxon doesn't have fifteen years of fighting it has a three year supply agreement and at the end of an existing supply agreement franchise agreement each franchise or any franchisee if you need any franchisee dealer like my clients has the ability to choose to enter into a new agreement or not and that's the same whether they own the property or not although the consequences of choosing not to sign a new one if they don't own the property may be very severe and in fact that may be ex expectation that if they win they don't own the property that dealer will sign a new agreement so that they don't lose their business so is it your position that having had a three year and now proposing a fifteen years and reasonable is a matter of law that's correct your honor and the reason  some reason was a matter of law is because it takes away the dealer's right to choose to be bound or not be bound and the court can fall follow through with the three year green not if it's an existing well actually yes your honor so any future agreement would violate that rule and it's the same rule that the court adopted in the graham case in the graham case the court found that an arbitration clause used to narrow a statue of limitations and to restrict the ability of the franchisee under the p n p a to seek attorney's fees and punitive damages could not be included because it was a waiver of the franchise the dealer's rights and the same was actually held by the district court on his who holding  in khost village on summary judgment where the court said that in that case terms which are limited damages which also narrow the statue of limitations and which required the franchisee to waive a claim on the existing agreement were also in permissible the court be following the exact those precedents if it chose to find this term in permissible on the basis of a waiver of rights but that's not the only way the court can do it the court can also find it in permissible if it looks at this from the perspective of a change in the franchise relationship so this was the holding of the court in ellen pete's which is also a p n p case it was a district court decision but in that case the court looked at a very similar case to what we have here of an statutory offer conditioned upon the deal even to accept a supply agreement and that course said said that you cannot do that so the franchise relationship that was changed that the court found so improper and that case was the same as going on here from franchise or owned and franchise or supplied to franchise owned and franchise or supplied so the court is not inclined to find that this is impermissible because  of the dealers rights or future rights rather it could also find that it's a change in a relationship and on that basis find in principle i want to make clear by the way something that i think is kind of confusing in the briefs and the court doesn't have to look at these as a question of reasonableness or unreasonableness you can find as a matter of law that some terms simply can't be included because they undermine the purposes of the statute that seems to be the approach of the courts in l graham and coast village so the court doesn't have to do what the district court found so onerous of going through term by term although we certainly believe that the court should do that because the value in doing a term by term analysis is there provides franchisees flexibility and franchise owners so one thing that i think again did not bear out in the pleadings which i would like to share with the court is that this is a statute like the a which enables the course to see to look at a deal given the innumerable numbers of circumstances and terms which may be offered or which may have arise and try to form something that does justice to the parties are not disagreeing with the district court's approach here of adopting the seventh and eleventh circuit approach regarding the meaning of reasonableness under the p m p a you're ok with the general framework of the district court i'm not your honor so the unreasonableness analysis really needs to be looked at from two prongs first of all the unreasonable ness analysis was actually a reasonable missing house so in both the brash and texaco cases which are the cases that the district court looked at what the court was doing was saying what is reasonable miss in this context and and defined it as unconscionably and one of the reasons that made sense for that court but not for us is because in that case they were dealing with existing terms terms which had already been agreed to by the parties now we know from don't see any change in reasonable i'm sorry or any change in the existing framework with the unreasonable no any change in the franchise relationship which is a fundamental one would be it would be unreasonable well if the purpose behind the california statute was to allow our franchisee to continue doing business there's nothing in these offers that precludes them from continuing to operate as gas stations and wasn't that one of the concerns in the legislation no your honor so well actually me rephrase that it is something that the legislature was concerned with yes but but we disagree that it is the sole purpose of this statute so that and again there are two ways to approach or the sole purpose but a significant purpose right but if it's not the sole purpose that and other purposes can be served where the franchisees are permitted to continue in business and so  by restricting terms which nevertheless allow franchisees to continue in business what do we do with the fact that apparently thirty six of these franchisees accepted the offer and only five of the original plaintiffs in this case of appeal to discourage decision appears to me they're ok with the deal they get it's irrelevant your honor because each of those stations first of all were different stations are not the same and secondly they were accepted under the same kind of terms and conditions which we're dealing with here where there is extreme franchise or power influencing the purchase of these terms unlike a right of first refusal and the terms included in those offers where it's open to a market to market participants who may choose to not do the deal at all franchisees any franchisee who is looking at offer like this is faced with very harsh consequences if they don't accept and in fact it may be their only chance to purchase these properties so you can look at those terms from different sites though they may be terms similar to these because they're not the product of open market transactions they don't care what the market would actually hold for those terms and i want to make sure i have enough time to respond to the court's questions for my own and so must our other pressing questions i want to re we're missing a fundamental and key point here which is that the dealers have an option and the offers that they received one option they have is to decline the offers in which case they continue the federal statute correct the piano if the dealer says no thank you to the bonafide offer of the dealer continues to have the franchise rights of any p n p a dealer which means that they have a right to be absent good cause for franchise terminations so it's a a false comparison to compare the fifteen year supply agreement that they must accept as part of a purchase with the three year supply agreement that they currently have and likely have to accept in perpetuity to remain a franchise here without ownership rights so actually in trying to compare the two packages as a whole one would have to look at the fact that after fifteen years under the bona fide offer the dealer would be a free agent and the dealer could then negotiate a franchise with any franchise or of  his or her choice or could actually exit the marketplace for fuel entirely in developed property to a higher and better use albeit a commercial use and not a residential use so suggesting that the dealer is without recourse and only has this option which is to purchase the property in the supposedly harsh terms there is no evidence to support the notion that their hearts terms but assuming the hypothetically that they were harsh terms dealer is not without options to do or then remain exactly as the dealer is now that's the key distinction between the situation before this court and the l n p district court for example in l m p the dealer is told where x is in the franchise business and if you  don't take this deal for a supply agreement you are out of business that's not the choice that presented to the five dealers that are complaining here and in that case the trial court actually said there's nothing inherently wrong with the supply agreement it's simply a situation where when the alternative to accept in the supply agreement is you lose your business entirely that is an unreasonable taint in the relationship were actually not for change in the relationship upon these doors were giving them an opportunity to purchase their properties and if they hang with you for another twelve years fifteen actually talk well no because the fifteen is added on top of the three so while i'd like to agree it's twelve it really is fifteen but of course if they don't accept this option if they want to stay in the oil business as a retailer they have to hang with the franchise or in perpetuity for a longer period of time than fifteen years your honor so it may be that it's only three year contracts at a time but it could be ten twenty or thirty of them and many of these franchisees have been franchisees for a long time so they have a fork in the road they can they can garner more control over their property and more control over the franchise relationship it takes them time to do it or they can stick with the status quo there's no evidence in this record that that is an unreasonable approach to the bona fide offer process and one of the interesting facts is that there is no point that the price being offered for the stations is unreasonable the price has to approach fair market value there is no the claim before this court that there is an unreasonable price for the package of rights that are being sold there is also no claim that the property interests that are being offered are in adequate to allow the retailer to continue to retail feel products so that the two questions that the court asked in a bonafide offer context according to the forty nine a case are both satisfied affirmatively without any dispute in the record before this court and without a new spirit in the record before judge anderson in the trial court the price is ok and everything that you need to run a gas station is here so there really isn't any further level of detail that we need to go to judge andersen an abundance of caution said well i was also apply an unconscious an ability analysis and the reason that he picked that standard is of course going back to the forty nine or ten pm p eight cases there is a constitutional issue here as to exactly how far the courts can go in interfering with the private roads a property rights of the franchise or to sell the real estate and to sell the franchise relationship and the particular instance of a california statutory sale on reluctant to have to say two zero nine nine nine point two five to many times i'm going to revert to the california statute but in the instance of a california statutory sale it's an inherently understood portion of their range meant that the franchise relationship will continue and therefore what is the franchise or doing the franchise or is selling the franchise relationship to a new franchise store and if you listen carefully and read carefully what was presented appellant their effort is to prevent the franchise or from garnering the value of that franchise relationship because their argument  inherently on reasonable for the franchise or to offer any assurance to the new franchise or that the franchise relationship will continue for any length of time beyond the current franchise and for the courts to say that's right would be an unconstitutional taking of the franchise rights of the existing franchise or in this case exxon which is selling to my clients circle k so the courts take a very minimal approach to reviewing these sorts of arrangement no court has ever reviewed these matters on a term by term basis forty nine or cautioned against micromanaging i think is the word it's used in that case and judge anderson  followed that prudently and said i'm going to use the same test that we use under the p n p act i'm going to work and see whether these are unconscionable times and times inability to resent the question of law which allows the court to serve as a gate keeper and avoid having a trial on the merits every time a dealer doesn't like one sentence or five sentences in the offer presented to the dealer under the california statute and judge anderson says if the term is arbitrary or outrageous or or using other words from the p n p cases then i'm going to find that it's not appropriate and then he says in trying to figure this out i'm going to take notice of the fact that there are thirty six out of the forty one zero nine nine nine point two five and is a little murky because it says that in the case of a least marketing premises that is a strange term to her language argument largely hinges on that language is that right because otherwise one would think that you're supposed to sell the franchisor's interest in then it might be the case that additional assets needed to be included in the sale then were included here i also think frankly the forty nine or would have found that version of the statute to be an unconstitutional taking but i think that the statute does not use that language and it doesn't well well interest in the premises so i guess the question is what's the premises and the premises not physical place sorry i didn't mean to interrupt you and i certainly didn't mean to do so twice i thought you were at a stopping point  the premises means as you pointed out the least marketing promises and that's actually a defined term under section two zero nine nine nine programmed by were saved from any point decimal points in additional numbers two zero nine nine i sorry three nines identifies least marcie in premises as the marketing premises only anyway controlled by a franchise or and which the franchisee is authorized or permitted under the franchise to employ in connection with the sale confinement and distribution of fuel it's not the clearest definition that the california legislature has ever written it's also not the most obtuse what i think is most important for our purposes is that it's different then the entirety of the franchise or its interest in the property if that was what the legislature had intended to say it could have done so quite easily the forty nine er case which wrestled with this language a little bit talks about it i think it's on page twelve eighty two of the forty nine er decision and it says essentially that section marking premises  premises which are to be employed by the franchisee in connection with the sale consignment or distribution of fuel thus a bona fide offer includes the sale of pumps dispensers storage tanks piping and other equipment necessary for the continued operation of a service station so i think your honor is correct to say what does it say in the statute in terms of what is the obligation of the franchise as well as you can i mean you can't mean that it's only operate the fuel station need to be conveyed the balance that struck is the real property related interest and i'm not positive whether it's a real property interest or not but it shows up as restrictions on the use of the property the real property interest that's necessary to garner the value of the franchise the property interest that exxon needs to sell to circle k in order to continue to be a franchise or that property interest is not transferred to the franchisee so in essence the supply rights which the franchise he does not currently have which the franchise or does have and which the franchise or will continue to have under two zero nine nine nine point two five th supply rights do not have to be transferred and fact cannot be transferred to the franchisee as the supplier rights were transferred we would have a pm p a situation rather than a california statutory situation so it's i've wrestled with that a lot i don't understand why the language is challenging but the interpretation that says that the franchise or has nothing to give to the next franchise or renders the statute  irrelevant and it would also be an unconstitutional taking the franchise or its rights so again i think that takes us back to what is the proper role of the court in this situation and with all due respect to this court and to anderson's co the proper role is a relatively modest scrutiny to make sure that the price and this is key to make sure that the price approaches fair market value and that the assets that are transferred real and personal are sufficient to allow the retailer to continue to retail fuel products and there's no dispute on either of those those two points before this court and we do have a vast majority of the forty one dealers that we know about who accepted these exact terms and conditions or actually potentially inferior ones because this is actually the third go round of offers that were made to dealers and that the two earlier ones weren't as good for the dealers as this particular offer they started with a ninety nine year residential use restriction that was reduced to twenty some of the dealers accepted that earlier offer i'm not trying to argue that that's a material difference necessarily but my point is that that most of the dealers accepted these terms and if we're trying to figure out in sort of a shorthand non intrusive gatekeeper way is this an ok deal is this a bona fide offer to have made to these dealers the fact that thirty six out of forty one took it and the fact that the price is not in dispute and the fact that you have everything you need to operate a gas station offered to the dealer says this pos is so generous and got it right with all due respect thank you to quickly address a couple of the i think easier points to rebut and that is first that we are not arguing that circle k cannot set or that exxon mobil cannot sell its existing three year franchise agreement or whatever's left of it or assign it they're able to do that what i understand the argument to be is that if you if you remain if you're a high interim manges lessees as a function no matter if they sell the franchise circle k would have perfect shooty essentially because your clients would be any very bad situation if they didn't continue through franchise so therefore if they're going to sell it instead of leasing it they are two to provide a time how correct me what we're saying is they can't sell future rights i understand why they want to assure a circle k of some continuing franchise relationship but the question is why can't they cannot because it's not something they own it's something the dealers own the dealers have the right just like anybody to choose to be bound or not to be bound and when they take that right and sell that future right to circle k what they're doing is they're selling something which the dealers own and not compensating the dealers for it that's why it's problematic again we're not taking their existing rights their existing contract rights they're able to sell it we're not contesting that so we're left with whatever's left of the supply agreement are the franchise agreement when we purchase if we purchase but what they can't do is  the line and it doesn't matter that in fifteen years we could be free agents we should be able to be free agents now because that's a right we have now so they can't sell that away from us the argument about the continuing business if there was any part of this contract which prevented us from continuing business it would be a p n p a case and if the court allows that if that's the holding of the court what the court is doing is saying that we know scrutiny of any contrary to the purpose of the california statute forty nine are said that reason the term the terms must be reasonable and so we must give some understanding of what those terms are what terms may be included in contexts where there it is assumed that separate from the price issue one of the rules at that court set out was that the franchisees cannot be forced to purchase the good will because it's their the court did make some statements in that case arriving on two previous p m k cases and this tanks pumps and lines because that would not allow them to continue business but one cannot extrapolate from that that that is the only thing that must be continued the fact that they have to make those can have conditions which permit the sale of those items does not mean that they need not permit not include any other restrictive means and so that that serving is really a misunderstanding of what the roberts court intended to do with respect to lease marketing premises i heard your honour's comment about that this is a definition which identifies property it does not parse rights not property and the term lease marking premises is a term of art it's included in the lease which the court has a copy of in the record on page nine zero six and that it says the least private the marketing premises is and the gives the address what that should tell the court is we're talking about the property