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DIVISION TRIPLE T SERVICE v. MOBIL OIL CORPORATION (09/05/69)

SUPREME COURT, WESTCHESTER COUNTY 1969.NY.42798 <http://www.versuslaw.com>; 304 N.Y.S.2d 191; 60 Misc. 2d 720 - decided: September 5, 1969. DIVISION OF THE TRIPLE T SERVICE, INC., DOING BUSINESS AS EASTCHESTER SERVICE CENTER, PLAINTIFF,v.MOBIL OIL CORPORATION, DEFENDANT. Engelman, Kiernan & Fishman for plaintiff. Bleakley, Platt, Schmidt, Hart & Fritz for defendant. Author: Gagliardi


Author: Gagliardi

Motion by plaintiff for an injunction pendente lite, and cross motion by defendant for an order dismissing the complaint for failure to state a cause of action, are disposed of in accordance with the following decision.

 Plaintiff, the lessee of certain premises operated as an automobile service station in the Town of Eastchester, brings this action for a permanent injunction to restrain defendant, the lessor, from terminating a "franchise" or "distributorship" agreement. On July 5, 1966, the parties executed a retail dealer contract and service station lease for a term of three years, both agreements to commence on August 1, 1966 and end on July 31, 1969, unless renewed as provided for in the agreements. Said contracts in fact superseded a certain similar agreement dated July 17, 1964 that plaintiff had executed with defendant or one of its affiliates. Plaintiff has been operating an automobile service station on the demised premises since July 17, 1964, and alleges that he has expended substantial sums of moneys for improvements thereon.

The July 5, 1966 retail dealer contract denominates defendant as "seller" and plaintiff as "buyer" of defendant's products listed in the agreement. The contract provides that the seller shall sell and the buyer shall buy not less than the minimum nor more than the maximum quantity of specified products for any contract year. Pursuant to the contract and the separate lease agreement of even date, plaintiff was obligated to purchase various petroleum products and automobile accessories from defendant and pay a monthly rental computed on the purchases of motor fuel. Pursuant to a "Rent Security Rider" incorporated in the lease, plaintiff deposited $1,500 as security, which sum was returnable to him upon termination of the agreements and in "the event that [plaintiff] shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of said Lease and Retail Dealer Contract". The parties also entered into an equipment loan agreement whereby defendant loaned plaintiff certain equipment necessary to the successful operation of the service station. Plaintiff agreed to maintain insurance and indemnify defendant against liability for injuries caused by person on the demised premises. These agreements are standard forms used by the defendant and common to the industry.

The retail dealer contract and lease each provide in paragraph two thereof that the original term of the agreements shall be for three years and is automatically renewable for successive three year periods "provided that it shall terminate at the end of any current period (original or renewal) by notice from either party to the other, given not less than 90 days prior to such termination". Said paragraph also gives the defendant the right to cancel the agreements on 30 days' notice during the first 12 months of the agreements.

On April 25, 1969, defendant's district manager notified plaintiff by certified mail that defendant elected to terminate the lease agreement because a "further renewal of the lease would be inadvisable." Plaintiff thereafter learned that defendant's proposed reason for termination is its desire to convert the property into a diagnostic and repair service center. Plaintiff notified defendant that such conversion would require changes in the applicable zoning ordinances and requested defendant to extend the term of the lease until such time as defendant could lawfully operate a diagnostic center. Plaintiff also requested that defendant attempt to locate another area where plaintiff could operate a service station. Defendant has refused the first request and done nothing about the second.

The parties appear to agree that plaintiff's performance has been more than satisfactory during the latest three-year period. Nor does plaintiff claim that defendant did not fulfill its obligations under the contract and lease. Furthermore, no questions of fraud, duress, deceit, coercion, mistake, misrepresentation or ignorance are raised. Nevertheless, plaintiff contends that defendant's arbitrary action is not in good faith as required by the Uniform Commercial Code and is an attempt to seize the good will created by plaintiff during his five-year leasehold. Plaintiff further contends that defendant's failure to renew constitutes unfair practices under the Federal Trade Commission Act (U.S. Code, tit. 15, § 45, subd. [a], par. [1]) and amounts to conduct in illegal restraint of trade under the Sherman Act (U.S. Code, tit. 15, § 1). However, on a motion to dismiss pursuant to CPLR 3211 the court may, as requested by plaintiff in his affidavit in opposition to the cross motion, consider such motion as one for summary judgment (Mareno v. Kibbe, 32 A.D.2d 825 [2d Dept.]), and plaintiff must come forward with evidence which will raise an issue as to the facts pleaded (CPLR , subd. [c]; Leonard v. Leonard, 31 A.D.2d 620). Considering the allegations in the complaint as to violations of Federal statutes, and in the absence of any evidence contained therein or in the motion papers and affidavits submitted hereon which "show a genuine issue of fact" (Silinsky v. State-Wide Ins. Co., 30 A.D.2d 1, 6), those "causes of action" are dismissed (see 8 Encyclopedia, New York Law of Contracts, ch. 29; City Trade & Ind. v. New Cent. Jute Mills Co., 25 N.Y.2d 49). Nevertheless, "[a] motion to dismiss a complaint cannot be granted if it contains any valid cause of action" (Rosenblatt v. Birnbaum, 16 N.Y.2d 212, 216). The court looks to substance and not form (Kaufman v. Sweigard, 27 A.D.2d 717) and it must determine whether plaintiff has sufficiently set forth a cause of action for improper termination of a sales contract under the Uniform Commercial Code. "The inquiry is whether the pleader has a cause of action rather than whether he has properly stated one" (Kelly v. Bank of Buffalo, 32 A.D.2d 875).

Before discussing the merits it should be noted that the relief requested by plaintiff (a temporary and eventually a permanent injunction) is not provided for in the code (Uniform Commercial Code, art. 2, part 7; see Ann. 17 ALR 3d 1010 et seq., "Uniform Commercial Code - Sales"). However, it does provide that where the seller fails to deliver the goods the buyer, in a proper case, may obtain specific performance (Uniform Commercial Code, § 2-711, subd. [2], par. [b]). The code further provides that specific performance "may be decreed where the goods are unique or in other proper circumstances" (Uniform Commercial Code, § 2-716, subd. [1]). Official Comment 2 to the last-cited section states in pertinent part: "The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract. Output and requirements contracts involving a particular or peculiarly available source or market present today the typical commercial specific performance situation".

While the complaint herein seeks a permanent injunction it is clear that the effect of a favorable decision will be to require defendant to maintain its business relationship with plaintiff, albeit perhaps at a different location. This is a form of specific performance which is properly accorded to requirements contracts and other agreements akin thereto (cf. 12 Carmody-Wait 2d, New York Practice, Injunctions, §§ 78:37, 78:41). As will be indicated infra, the Federal courts have not hesitated in the exercise of their equitable discretion to grant injunctions under the "Dealer's Day-in-Court Act" (U.S. Code, tit. 15, § 1221) despite the absence of any statutory injunctive remedy specifically conferred upon the franchise. Moreover, Governor Rockefeller did not approve the proposed New York State franchise legislation, which shall also be discussed hereafter, on the ground that the injunctive remedies granted to franchisees were too broad and that it would be advisable to leave to the courts any question of injunctive relief. Clearly, the power to issue injunctions is inherent in the courts (Schwartz v. Lubin, 6 A.D.2d 108, 110-111), and it is the policy of this State to make the remedy more available, not to restrict it (People ex rel. Bennett v. Laman, 277 N. Y. 368, 383). Since the avowed purpose of the code is to enable the judiciary to fashion relief according to the commercial nature of the transaction, an injunction pendente lite or permanent in nature may, in the exercise of discretion, be granted pursuant to established principles (Polin v. Kaplan, 257 N. Y. 277; Butterick Pub. Co. v. Loeser & Co., 232 N. Y. 86; Belmont Quadrangle Drilling Corp. v. Galek, 137 Misc. 637; Spielman v. Sigrist, 164 Misc. 622; Berrien v. Pollitzer, 165 F. 2d 21; CPLR 6301; 12 Carmody-Wait 2d, New York Practice, Injunctions, §§ 78:46-48).

The ultimate question raised herein is whether franchiser or distributors with tremendous bargaining power can terminate agreements with franchisees pursuant to their contract but without cause? Plaintiff offers for the court's consideration a plethora of cases concerning price fixing and restraint of trade, which is not this case, and cases involving the "Dealer's Day-in-Court Act" (U.S. Code, tit. 15, § 1221; see General Business Law, § 197). While the Federal legislation governing the automobile industry is not applicable at bar, it and other recent developments may serve as a helpful guide in aiding the court in reaching a proper resolution of the issues presented.

The "Dealer's Day-in-Court Act" gives the automobile dealer a cause of action, where none previously existed, for damages where the automobile manufacturer has failed to act in "good faith" (U.S. Code, tit. 15, § 1222). Temporary injunctions have been granted enjoining termination of automobile franchises in "bad faith" (see, e.g., Bateman v. Ford Motor Co., 302 F. 2d 63; 310 F. 2d 805). The avowed purpose of the legislation is to alleviate the imbalance of bargaining power between automobile dealers and manufacturers, which imbalance would appear to exist in the gasoline service station industry. Even today Congress is considering extending similar protection to small business distributors (S. 2321, S. 2507 [1967]; S. 1967, H.R. 12074 [1969]). The proposed legislation is known as the "Fairness in Franchising Act" and would require franchiser engaged in interstate commerce to show "good cause" in terminating or failing to renew franchise agreements. "Good cause" is defined as failure by the franchisee to comply with reasonable contract provisions or the use of bad faith by the franchisee in carrying out the terms of the franchise. Termination cannot occur unless 90 days' advance written notice is given.

During 1966 and 1967 hearings on the proposed Federal legislation were conducted by the Subcommittee on Antitrust and Monopoly. Significant opposition to the bills came from all areas of industry. Noteworthy is the opposition put on the record by the defendant Mobil Oil Corporation (see 1968 hearing minutes, Committee on the Judiciary, "Franchise Legislation", pp. 508-510). The gist of defendant's opposition may be tersely summarized as follows: existing contract and antitrust law is more than adequate "to prevent abuse of the franchise relationship". Congressional action on the proposed legislation has been delayed and the matter was referred to the Committee on the Judiciary.

More recently, the New York State Legislature attempted to enact franchise legislation similar in import to the proposed Federal legislation (S. 4915). The legislation would have amended the General Business Law by providing a new article 9-C, entitled "Franchise Distribution." The new act would require franchiser to act in a fair, equitable and honest manner and in accordance with reasonable standards of fair dealing when granting, modifying, terminating, canceling or failing to renew a franchise. The legislation would also require the franchiser when failing to renew a franchise to purchase from the franchisee all facilities and inventory at fair market value, including good will. It is interesting to note that in its declaration of policy the Legislature stated: "The legislature hereby finds that because of the substantial growth in the distribution of goods and services through utilization of the franchise system, in industries engaged in commerce or activities affecting commerce, which system is presently estimated to account for ten per centum of the nation's gross material product and twenty-five per centum of all retail sales that the interest of many thousands of small franchisees requires that the great disparity in economic power now heavily weighted in the favor of franchiser be reduced by providing that the franchiser must deal in a fair and equitable manner with its franchisees as to all aspects of the franchise relationship; and that the existing judicial remedies to afford the relief to franchisees from injurious practices or [sic] franchiser are limited, ineffective, and too costly and franchisees should be provided with a means of simple, direct, and full legal relief against franchiser failing to deal in a fair and equitable manner.

"It is hereby declared to be the policy of this state, through the exercise by the legislature of its power to regulate commerce partly or wholly within the state of New York to correct as rapidly as practical the inequities in the franchise system in such industries so as to establish a more equitable balance of power between franchiser and franchisees, to require franchiser to deal fairly and equitably with their franchisees with reference to all aspects of the franchise relationship and to provide franchisees direct, simple, and full judicial relief against franchiser who fail to deal fairly and equitably with franchisees."

Unfortunately for plaintiff the Governor was "constrained to withhold" approval of the bill "because of the unreasonable injunctive rights it would grant ...


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