Workshops Portland Carson, L.L.C. v. Carson Oil Co. Inc.
3:15-cv-01234
D. Or.Jun 30, 2017Background
- Workshops Portland Carson, L.L.C. (Workshops) leased premises to Carson Oil Co. under a 2013 lease that included an attached Exhibit C purporting to give Carson a single five-year option to extend (the Option).
- After Carson purported to invoke the Option, Workshops proposed a rental structure for the Option period; the parties failed to agree and the Option was not exercised.
- Carson counterclaimed for breach of the implied covenant of good faith and fair dealing and for promissory estoppel; Workshops moved for partial summary judgment on both counterclaims.
- Magistrate Judge Acosta recommended denying Workshops’ motion on the implied covenant claim (finding factual disputes) and granting Workshops’ motion on promissory estoppel.
- Workshops objected, arguing Exhibit C was not incorporated into the lease and that, even if it was, the Option was unenforceable under Karamanos because it did not fix rent with certainty.
- The district court adopted the F&R: denied summary judgment on the implied covenant claim (question of fact whether Workshops acted in bad faith in setting rent under the Option) and granted summary judgment dismissing promissory estoppel with prejudice.
Issues
| Issue | Plaintiff's Argument (Workshops) | Defendant's Argument (Carson) | Held |
|---|---|---|---|
| Was Exhibit C (the Option) part of the lease? | Exhibit C was not specifically referenced and therefore not incorporated; Workshops later denied it was part of the lease. | Exhibit C was attached, negotiated contemporaneously, and Workshops’ own filings and complaint treated Exhibit C as part of the lease. | The court found Exhibit C was part of the lease (judicial admissions and transaction context). |
| If included, is the Option unenforceable for lack of a certain rent-fixing method (Karamanos)? | The Option is unenforceable because it fails to provide a method to determine rent and is therefore fatally indefinite. | The Option provides a procedure: landlord proposes a rental structure and tenant can accept or let the option expire, so a method exists. | The court held Karamanos does not render the Option unenforceable because the Option provides a method (landlord proposal + tenant acceptance). |
| Did Workshops owe and breach the implied covenant of good faith and fair dealing in setting the Option rent? | Because the Option is not part of the lease or is unenforceable, Workshops had no duty; alternatively, it argues its conduct was lawful discretion. | Even if discretionary, the covenant limits discretion; Workshops knew Carson believed the Option existed and may have negotiated in bad faith. | Question of fact exists whether Workshops acted in bad faith in exercising discretion to set rent; summary judgment denied on this claim. |
| Was Carson’s promissory estoppel claim viable? | Workshops argued there was no enforceable promise independent of the lease. | Carson asserted reliance on Workshops’ representations. | Court granted summary judgment for Workshops and dismissed promissory estoppel with prejudice. |
Key Cases Cited
- Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224 (9th Cir.) (judicial admissions in pleadings bind parties)
- McInnis v. Lind, 108 P.3d 578 (Or. Ct. App.) (factors supporting incorporation of separate document into contract)
- Karamanos v. Hamm, 513 P.2d 761 (Or. 1973) (lease extension unenforceable where no method for fixing rent)
- Best v. U.S. Nat. Bank of Or., 739 P.2d 554 (Or. 1987) (good-faith doctrine can limit contractual discretion in setting price/fees)
- Arnett v. Bank of Am., N.A., 874 F. Supp. 2d 1021 (D. Or.) (duty of good faith may apply where contract confers discretion without method)