Opinion ID: 790102
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 7 On April 28, 1971, Chevron's predecessor in interest, Standard Oil Company of California, entered into the underlying lease (Ground Lease) for the Service Station for a term expiring 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 underlying lease. Throughout the entire term of the underlying lease, Chevron subleased the premises to independent service station operators licensed to sell Chevron-branded motor fuel. 8 The underlying lease granted Chevron, as lessee, the following right for extending its tenancy: 9 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 extension thereof ... 10 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. 11 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 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. 12 Approximately one year before the underlying lease expired, Chevron evaluated the Service Station. Chevron concluded 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 conclusion, 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. 13 Chevron says that its evaluation meant that the Service Station could no longer be operated as a dealer-leased site. Chevron 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 improvements). However, there was uncertainty as to the outcome since everything depended on Macerich's approval of a new lease. 14 On April 18, 2000, Mustang's franchise agreements were renewed through May 31, 2001. 3 15 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) 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. 16 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: 17 This letter sets forth only a proposal for your consideration. 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. 18 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 purportedly attached to the May 8th letter. 19 Humphreys' letter also did not mention the two service stations 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. Humphreys telephoned Lintz to explain that she could not add language to Chevron's letter, then wrote Void due to Bob putting conditions on her file copy. 20 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 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 unacceptable. 21 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 negotiating tactics and insisted the business was worth more than $775,000. 22 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. 23 Chevron then hand-delivered to Lintz its February 21, 2001, written notice of non-renewal of the franchise relationship (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. 24 In letters dated March 2, April 3, and April 26, 2001, Chevron 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 Mustang's interests. On April 16, 2001, Chevron offered Mustang $775,000. On April 23, 2001, Chevron offered $850,000. 25 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. 26 During March through May 1, 2001, Chevron and Macerich exchanged written lease proposals. In each proposal, Chevron requested an initial base term of only two years, to be followed by multiple five-year options exercisable in Chevron's discretion. Macerich's Mark Strain (Strain) testified that such short initial base terms were generally unacceptable to Macerich, as were multiple options to extend. For its part, Chevron states that Macerich made unreasonable offers with a lease term of only five years. Nonetheless, Paquin was optimistic Macerich would eventually reach agreement with Chevron, and she attached no importance to doing so prior to May 31, 2001. 27 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. 28 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 medical leave of absence. 29 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 cautioned Lintz against paying Macerich too much for rent. Unknown to Lintz, Chevron's in-house attorney, Paula Bailey, 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. 30 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 demolish 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. 31 Chevron's April 23, 2001, offer for $850,000 remained outstanding. 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 conditions were not satisfied. 32 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 successfully obtained its own direct lease for the property. For its part, Chevron states that the Prior Right to Lease was not relevant since it expired with the Ground Lease. 33 The next month, Chevron began to change the terms in its conditions for the new underlying lease. Learning of Chevron's progress, Lintz asked O'Neal on July 6, 2001, to confirm their arrangement under the Letter Agreement, while he also offered not to compete against Chevron for the Macerich lease. 34 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 proposal. 35 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. 36 Chevron also paid Macerich $129,000 as a lease inducement 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 February 18, 2003, Chevron obtained City of Santa Ana approvals to renovate the Service Station and to build a new convenience store. 37 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 negotiating with Mustang. Macerich then selected Chevron. Chevron then states that it took nine months to finalize the deal and finally, on May 1, 2002, a new Ground Lease was executed. 38 As of June, 2003, no renovations had been made to Mustang'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 Judgment was entered August 14, 2003. This appeal followed.