Court Opinion

ID: 9558301
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:06:13.136835+00
Date Added: 2024-06-11T09:08:40.657462
License: Public Domain

MOSK, J.
I concur.
The majority opinion reaches the correct result on the issues raised and discussed. My concern, however, has been with the validity of Business and Professions Code section 20999.1. If the section is constitutionally infirm it would have no effect whatever on this unlawful detainer action.
Section 20999.1 provides, in substance, that no petroleum refiner or distributor franchisor “shall terminate, cancel, or fail to or refuse to renew any existing franchise without good cause,” and defines “good cause” to mean: (a) the franchisee has failed to comply with essential and reasonable requirements of the franchise agreement; (b) the franchisee has failed to act in good faith toward the franchisor; (c) the franchisor is withdrawing from the franchisee’s marketing location; and (d) any other legitimate business reason, provided that if the franchisor terminates, cancels, or fails or refuses to renew in order to assume operation of the franchisee’s business, the *835franchisor must pay the franchisee reasonable compensation for the value of the franchise. At the present time 24 other states have statutes similar to section 20999.1. (15 Glickman, Business Organizations: Franchising (1985) § 3.03[1] at pp. 3-28-3-29, and statutes cited.)
“Good cause” statutes such as section 20999.1 spring from the economic and social importance of franchising in the United States and the potential and actual abuses associated with this business relationship.
Franchising combines the efficiencies of big business at the national or regional level (e.g., economies of scale and access to capital) with the efficiencies of small business at the local level (e.g., the ability to quickly determine and respond to customers’ desires). (See Ungar v. Dunkin' Donuts of America, Inc. (3d Cir. 1976) 531 F.2d 1211, 1222-1223, cert. den., 429 U.S. 823 [50 L.Ed.2d 84, 97 S.Ct. 74]; Brown, Franchising: Realities and Remedies (1982) § 7.04[1]-[2] at pp. 7-31-7-34 [hereafter Brown].) Franchising also decreases economic concentration in integrated enterprises and—as franchisors invariably claim in their marketing efforts—allows individuals who otherwise would not have been able to become independent businessmen to do so. (See Ungar, supra, at pp. 1222-1223; Brown, supra, § 1.01[2] at p. 1-3.) The franchisee, as it has been recognized, develops goodwill for the franchise through the investment of his time, labor, and money. (See, e.g., Milsen Company v. Southland Corporation (7th Cir. 1971) 454 F.2d 363, 366.) Not surprisingly then, his interest in the goodwill of his franchise in his own locality has achieved recognition under the common law (see, e.g., Shell Oil Co. v. Marinello (1973) 63 N.J. 402 [307 A.2d 598, 601-602, 67 A.L.R.3d 1291] cert. den. (1974) 415 U.S. 920 [39 L.Ed.2d 475, 94 S.Ct. 1421]), and under statutes (see, e.g., Bus. & Prof. Code, § 20000 et seq.; Corp. Code, §§ 31101, 31119, 31125).
Franchising, I note in passing, has become a significant economic phenomenon. In 1980, for example, franchised businesses had only recently recovered from a severe slump—and nevertheless accounted for $385 billion in annual sales, 24 percent of the GNP, and 38 percent of all retail sales in the United States. (Brown, supra, § 1.01[1] at p. 1-2, citing U.S. Dept. of Commerce (1980) Franchising in the Economy 1979-1981.)
Franchising involves the unequal bargaining power of franchisors and franchisees and therefore carries within itself the seeds of abuse. Before the relationship is established, abuse is threatened by the franchisor’s use of contracts of adhesion presented on a take-it-or-leave-it basis. (See, e.g., Ungar, supra, 531 F.2d at pp. 1222-1223; Semmes Motors, Inc. v. Ford Motor Company (2d Cir. 1970) 429 F.2d 1197, 1207; see generally Note, Fairness in Franchising: The Need for a Good Cause Termination Require*836-ment in California (1980) 13 U.C. Davis L.Rev. 780, 785, fn. 18, and authorities cited [hereafter Good Cause Termination Requirement].) Indeed, such contracts are sometime so one-sided, with all the obligations on the franchisee and none on the franchisor, as not to be legally enforceable. (Brown & Cohen, Franchising: Constitutional Considerations for “Good Cause” State Legislation (1978) 16 Hous.L.Rev. 21, 33 [hereafter Brown & Cohen].) After the relationship is established, abuse is threatened by the very nature of franchise agreements as contracts of adhesion: “[T]hey contain provisions which are extremely difficult for franchisees to comply with. The result is that franchisees are constantly in peril of non-compliance . . . .” (Good Cause Termination Requirement, supra, at p. 785, fn. 19; see, e.g., FTC v. Texaco (1968) 393 U.S. 223, 226-229 [21 L.Ed.2d 394, 397-399, 89 S.Ct. 429].) The seeds of abuse, moreover, have not remained dormant: abuse has sprung up, and sprung up often. (E.g., Good Cause Termination Requirement, supra, at p. 781, fn. 4, and authorities cited; see, e.g., Ungar, supra, 531 F.2d at p. 1222.)
Set against this background, the purpose of good cause legislation, such as section 20999.1, is manifestly to protect the franchisee’s interest in his business without denying the franchisor the right to terminate, cancel, or fail or refuse to renew when he has legitimate business reasons to do so. (See, e.g., Brown, supra, § 7.04[1]-[2] at pp. 7-31-7-34.) Such protection has not effectively been provided by substantive legal remedies. (E.g., Good Cause Termination Requirement, supra, 13 U.C. Davis L.Rev. at pp. 788-803.)
Section 20999.1, like other state good cause statutes, is subject to scrutiny under the contracts clause (U.S. Const., art. I, § 10, cl. 1), the supremacy clause (id., art. VI, cl. 2), the due process clause (id., Amend. XIV, § 1), the equal protection clause (ibid.), and the commerce clause (id., art. I, § 8, cl. 3). The provision appears to survive scrutiny under each clause.
First, section 20999.1 appears not to impair the obligation of contracts. Such a conclusion follows when, as here, the statute is given prospective effect. (Union Oil Co. v. Moesch (1979) 88 Cal.App.3d 72, 77-78 [151 Cal.Rptr. 517]; accord, Phillips Petroleum Co. v. Paradee Oil Co., Inc. (Del. 1975) 343 A.2d 610, 611-612.) Such a conclusion, moreover, is arguably not barred even if the statute is given retroactive effect. Although the weight of authority is against the permissibility of retroactive application (e.g., Mobil Oil Corp. v. Handley (1978) 76 Cal.App.3d 956, 964-965 [143 Cal.Rptr. 321]; accord, Globe Liquor Co. v. Four Roses Distillers Company (Del. 1971) 281 A.2d 19, 21, cert. den., 404 U.S. 873 [30 L.Ed.2d 117, 92 S.Ct. 103]), better reasoned analysis would allow such application, at least in some situations (Good Cause Termination Requirement, supra, 13 *837U.C. Davis L.Rev. at p. 783, fn. 12 [“Retroactive application alone should not be sufficient to invalidate the legislation. Retroactivity is only one factor the court considers in determining whether the state has unconstitutionally impaired an existing contract. [Citations.] One could argue that when a good cause requirement is applied to existing contracts it is not a retroactive impairment of contracts but merely the reasonable regulation of an ongoing business relationship. Cf. New Motor Vehicle Bd. v. Orrin W. Fox Co., 439 U.S. 96, 106 (1978) (California’s regulation of the number of automobile franchises in an area upheld as a reasonable state regulation of a business relationship).”]; Brown & Cohen, supra, 16 Hous.L.Rev. at pp. 51-53 [“Although ‘good cause’ legislation may be couched in the language of agreements, such statutes are more the regulation of competition than a contractual proscription.” (Fn. omitted.)]).
Second, section 20999.1 appears not to be preempted by any federal law dealing with its subject matter broadly defined. As the parties agree and the majority opinion correctly concludes, the Petroleum Marketing Practices Act (15 U.S.C. § 2801 et seq.) is not preemptive. Further, the Lanham Act (id., § 1051 et seq.), the federal trademark law, is not preemptive. (E.g., C. A. May Marine Sup. Co. v. Brunswick Corp. (5th Cir. 1977) 557 F.2d 1163, 1167; Mariniello v. Shell Oil Company (3d Cir. 1975) 511 F.2d 853, 856-859.) Finally, the federal antitrust laws are not preemptive. (See In re Clark Oil & Refining Corp., etc. (E.D.Wis. 1977) 422 F.Supp. 503, 516 [approval of master settlement agreement providing for, inter alia, termination only for cause].)
Third, section 20999.1 appears not to violate the due process clause. The statutory standard of good cause is not impermissibly vague. (E.g., C. A. May Marine Sup. Co. v. Brunswick Corp., supra, 557 F.2d at p. 1167 [claim is “patently frivolous”]; Globe Liquor Co. v. Four Roses Distillers Company, supra, 281 A.2d at pp. 21-22 [upholding against a void-for-vagueness attack a statute that merely provided that a failure to renew is unjust if made “without good cause or in bad faith,” without defining either phrase].) Further, it is within the police power of the Legislature to protect franchisees from the arbitrary exercise of the right to terminate, cancel, or fail or refuse to renew on the part of franchisors. (Cf. New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co. (1978) 439 U.S. 96, 106-108 [58 L.Ed.2d 361, 373-375, 99 S.Ct. 403] [“the California Legislature was empowered to subordinate the franchise rights of automobile manufacturers to the conflicting rights of their franchisees where necessary to prevent unfair or oppressive trade practices”].)
Fourth, section 20999.1 appears not to violate the equal protection clause. In light of the Legislature’s not unreasonable finding and declaration of the *838necessity of the legislation in question (Stats. 1975, ch. 640, § 2, p. 1390), the classifications made do not appear to “do[] violence to common sense” and thus do not contravene the equal protection clause. (Globe Liquor Co. v. Four Roses Distillers Company, supra, 281 A.2d at p. 23 [statute limiting coverage to wholesaler-franchisees and to retailer-franchisees dealing in no more than three trademark or trade name products held not violative of the equal protection clause].)
Finally, section 20999.1 appears not to violate the commerce clause. (Cf. Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117, 125-129 [57 L.Ed.2d 91, 99-102, 98 S.Ct. 2207] [upholding against a commerce-clause attack a state statute prohibiting oil companies from operating gasoline stations or other retail outlets: although the statute has the efiect of making a major change in the distribution system of an interstate industry, it neither discriminates against interstate goods nor favors local producers or refiners and thus does not unduly burden interstate commerce].)
For the foregoing reasons, I conclude that section 20999.1 is valid. Therefore I agree with the majority that the judgment should be reversed.
Bird, C. J., concurred.
Respondent’s petition for a rehearing was denied August 1, 1985.