Unpublished Disposition, 886 F.2d 1320 (9th Cir. 1986)

PALMER COMMUNICATIONS, INC., Plaintiff-counter-defendant-Appellee,v.Edward GORGES, Defendant-counter-claimant-Appellant,Grace Gorges, Counter-defendant-Appellant.

No. 86-6728.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 5, 1989.Decided Sept. 21, 1989.

Before WALLACE and FLETCHER, Circuit Judges, and LLOYD D. GEORGE, District Judge^* .

MEMORANDUM^** 

Edward and Grace Gorges appeal the district court's grant of summary judgment in favor of Palmer Communications, Inc. on their breach of contract claim arising under a cable television franchise lease agreement. They also appeal the district court's dismissal of their claim against Palmer for tortious breach of the implied covenant of good faith and fair dealing. Jurisdiction is based on diversity. We reverse in part and affirm in part, and remand.

FACTS

In 1960, Edward Gorges and his wife Grace Gorges, doing business as "Antenna Systems Engineering Company" (hereinafter referred to collectively as "Gorges"), obtained a 25-year cable television franchise from the City of Coachella, California, pursuant to City Ordinance No. 144. On October 20, 1961, Gorges entered into two written agreements with Desert Cable TV, Inc. Under the purchase and sale agreement, Gorges sold all the assets of the cable system, except the franchise, to Desert Cable and agreed not to compete with Desert Cable for five years. Under the franchise lease agreement, Desert Cable obligated itself to pay monthly rental to the Gorges based upon a percentage of the monthly service charges collected by Desert Cable. The lease agreement contained the following provisions which are the center of the dispute between the parties in this case:

3. Term. This lease shall be for the life of the franchise herein leased, and all renewals thereof.

4. Renewal. Lessors hereby agree to use their best efforts in obtaining renewals upon each termination date of said franchise, from time to time as the term of said franchise expires.

Desert Cable sold its outstanding stock and assigned the franchise to appellee Palmer Communications, Inc. in 1964. In late 1985, with the 25-year period of the original franchise drawing to a close, Palmer and Gorges each applied to Coachella for a franchise. A dispute arose between the parties, Gorges taking the position that upon the granting of a "renewal" of the franchise by Coachella, Palmer was obligated to continue making payments under the lease. Palmer on the other hand contended that all lease payments terminated upon the expiration of the original franchise. Coachella was well aware of the parties' dispute.

On November 12, 1985, Coachella passed Ordinance No. 511, which provided for the granting of future franchises for cable television systems. On December 12, 1985, Coachella passed Ordinance No. 517, which extended Gorges' existing franchise on an interim basis until February 17, 1986. Palmer commenced this action on December 18, 1985 by filing a complaint against Coachella for an injunction and damages and against Gorges for a declaration that no rent payments were due after December 17, 1985.¹  Gorges counterclaimed for breach of contract and for violation of the covenant of good faith and fair dealing. After holding two public hearings and obtaining the report of an independent cable consultant, Coachella adopted Ordinance No. 527, which granted a franchise to Palmer commencing on February 17, 1986. The ordinance stated that Coachella took no position as to whether Ordinance 527 was a "renewal of the franchise" under the parties' lease agreement.²  Palmer has made no rental payments to Gorges since February 17, 1986.

On July 7, 1986, the district court dismissed Gorges' claim for tortious breach of the implied covenant. On November 14, 1986, the district court granted Palmer's motion for summary judgment, denied Gorges' motion for summary judgment, and dismissed Gorges' counterclaim on the merits. Gorges appeals.

DISCUSSION

Gorges contends the district court erred in granting summary judgment in favor of Palmer because there were triable issues of fact as to whether Palmer's refusal to pay rent after February 17, 1986 was a breach of the lease agreement.

We review grants of summary judgment de novo. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir. 1986). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986). Where a court is presented with an issue of contract interpretation arising under California law, extrinsic evidence which renders the contract ambiguous is sufficient to create a genuine issue of material fact resolvable only at trial. Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564, 570 n. 6 (9th Cir. 1988).

Palmer argues that as of February 17, 1986, Gorges had no cable franchise to lease and therefore there was no consideration for continued payment of rent. However, the adequacy of consideration to support a contract must be determined as of the date the contract was entered into, not in light of subsequent events. Crail v. Blakely, 8 Cal. 3d 744, 753, 106 Cal. Rptr. 187, 194 (1973). Whether Palmer had a continuing obligation to pay rent depends on whether the 1986 franchise was a "renewal" under the lease agreement. If it was, the consideration which passed at the original transfer is adequate to support the obligation to pay rent.

The district court found that Palmer had the right to seek its own cable franchise and that the lease agreement did not prohibit Palmer from doing so. Gorges contends, however, that regardless of whether Palmer had the right to pursue its own franchise, Palmer remains obligated under the lease agreement to pay rent so long as it lawfully engages in cable television activities in Coachella. Gorges argues that because the lease agreement states that it shall last for "the life of the franchise" and "all renewals thereof," and obligates Gorges to use his best efforts to obtain renewals, Palmer remains obligated to pay rent regardless of which party obtained the renewal.

Palmer contends that such an obligation would create a perpetual contract. Under California law, the intent to enter into a perpetual contract must be clearly expressed in unequivocal terms in the written contract. See Shannon v. Civil Service Employees Ins. Union, 169 Cal. App. 2d 79, 337 P.2d 136, 138 (1959). We reject Palmer's suggestion that Gorges' construction would necessarily create a contract in perpetuity. Although under Gorges' construction Palmer's obligation could continue for a very long time, there are nevertheless ascertainable events which would terminate Palmer's obligation, see Lura v. Multaplex, 129 Cal. App. 3d 410, 414-15, 179 Cal. Rptr. 847, 849-50 (1982): for example, Palmer's departure from the cable television business in Coachella, or nonrenewal of the franchise.

In opposition to Palmer's motion for summary judgment, Gorges submitted a personal declaration setting forth his views regarding the history of the negotiations leading to the lease agreement and the intent of the parties upon entering into the agreement. This declaration supports his interpretation of the contract. Although most jurisdictions do not permit the use of extrinsic evidence to interpret the terms of a plainly written contract, California does not follow this "plain meaning" rule. In California, parol evidence is admissible to interpret the terms used in a contract, even if the contract appears to be clear and unambiguous. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33, 69 Cal. Rptr. 561, 442 P.2d 641 (1968). Only if the court considers the contract not reasonably susceptible to the interpretation sought to be placed on it by a party's parol evidence may summary judgment be granted. Brobeck, Phleger & Harrison v. Telex Corp., 602 F.2d 866, 871 (9th Cir. 1979).

The district court rejected Gorges' construction on the ground that the 1986 franchise could not, as a matter of law, be a "renewal", because it had requirements, terms, conditions and even parties that differed substantially from the 1960 franchise to Gorges, citing Seymour v. Coughlin Co., 609 F.2d 346, 350-51 (9th Cir. 1979), and Borders v. Great Falls Yosemite Ins. Co., 72 Cal. App. 3d 86, 140 Cal. Rptr. 33, 37-38 (1977). The district court erred in relying on case law to foreclose Gorges' construction of the term "renewal" as used by the parties. Brobeck, 602 F.2d at 872 n. 3 (meaning of "recovery" to be discerned from context in which parties use word, not by reference to other cases). Summary judgment on Gorges' breach of contract claim must therefore be reversed.

Gorges also appeals the district court's dismissal of his claim for breach of the implied covenant of good faith and fair dealing. Gorges sought only punitive damages. This claim was properly dismissed. A claim for breach of the implied covenant sounds in tort only in the context of insurance contracts and other contracts where there is a "special relationship" between the parties to the contract, characterized by elements of public interest, adhesion, and fiduciary responsibility, Foley v. Interactive Data Corp., 47 Cal. 3d 654, 254 Cal. Rptr. 211, 230 (1988). Gorges cannot establish the existence of such a special relationship here.

CONCLUSION

The judgment of the district court granting summary judgment in favor of Palmer on Gorges' breach of contract claim is reversed. We remand for trial on the meaning of "renewal" intended by the parties. The dismissal of Gorges' claim for tortious breach of the implied covenant is affirmed. REVERSED IN PART, AFFIRMED IN PART, AND REMANDED.