Janmort Leas., Inc. v. Econo-Car Intern.

• Decision Date: 08 August 1979
• Docket Number: No. 77 C 1936.,77 C 1936.
• Citation: 475 F. Supp. 1282
• Parties: JANMORT LEASING, INC. and Morton C. Kirschbaum, Plaintiffs, v. ECONO-CAR INTERNATIONAL, INC., Gelco Corporation and Feld Truck Rental, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

475 F. Supp. 1282

JANMORT LEASING, INC. and Morton C. Kirschbaum, Plaintiffs, v. ECONO-CAR INTERNATIONAL, INC., Gelco Corporation and Feld Truck Rental, Inc., Defendants.

No. 77 C 1936.

United States District Court, E. D. New York.

August 8, 1979.

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Vincenti & Schickler, New York City, by Arnold S. Schickler, Jesse Alan Epstein, New York City, for plaintiffs.

Burns, Jackson, Miller, Summit & Jacoby, New York City, by Lawrence C. Gibbs, Stuart A. Jackson, New York City, for defendants.

MEMORANDUM AND ORDER

NEAHER, District Judge.

In this action alleging antitrust, contract and tort claims, the court is called upon to decide whether plaintiffs are entitled to preliminary injunctive relief and whether certain claims are subject to arbitration. The background facts are as follows:

Plaintiff Janmort Leasing, Inc. ("Janmort"), a New York corporation, is engaged in the rental and leasing of automobiles and trucks in the New York metropolitan area and in the State of Florida pursuant to three franchise agreements with defendant Econo-Car International, Inc. ("ECI"), a Delaware corporation and wholly-owned subsidiary of Gelco Corporation ("Gelco"), a Minnesota corporation with its principal place of business in Eden Prairie. Invoking the court's jurisdiction under 28 U.S.C. §§ 1331 and 1332 (and, presumably, § 1337), Janmort and its president, Morton C. Kirschbaum, have filed a lengthy amended complaint¹ in which they allege that defendants Gelco, ECI and Feld Truck Rental, Inc. ("Feld"), another wholly-owned (and Minnesota-based) Gelco subsidiary, have engaged in conduct proscribed by the Sherman, Clayton and Robinson-Patman Acts (Count I); breached fiduciary duties owed to Janmort (Count II); tortiously interfered with the contractual relationship between Janmort and ECI (Count IV); and converted rebates and allowances properly due to Janmort (Count VI), all as "part of a plan and scheme directed against the general public" (Count X, ¶ 107). Plaintiffs also claim that ECI fraudulently induced Janmort to enter into the franchise agreements (Count V); exploited its greatly superior bargaining power by compelling Janmort to assent to a series of purportedly unconscionable contract provisions (Count VII); breached its obligations under the three franchise agreements (Count III), including its obligation accurately to bill Janmort for sums due and owing, by virtue of which ECI has been unjustly enriched (Count VIII); and has sought to exact from both plaintiffs usurious interest payments in connection with loans of money and forebearances of debts embodied in the franchise agreements (Count IX). To redress the injuries they claim they have thus sustained, plaintiffs request declaratory and injunctive relief, an award of many millions of dollars in actual and exemplary damages, and reformation of the franchise agreements.

Despite the breadth of the amended complaint, this action arises from—or, in any event, was precipitated by—an unresolved billing dispute which led ECI on July 13, 1977, and again on September 20, 1977, to notify Janmort that its franchise agreements were being terminated. See Schickler Aff. (9/28/77), Exhs. F, J; Amended Compl. at ¶¶ 30a, 31.² The original complaint³ was filed soon thereafter, and on September 30, 1977, Judge Platt granted Janmort's unopposed application for an order temporarily restraining ECI from terminating and requiring it to fulfill its obligations under the three Janmort franchise agreements. The parties have agreed to maintain the status quo, as preserved by the temporary restraining order, in order to afford the court an opportunity to rule on plaintiffs' motion for a preliminary injunction and defendants' cross-motion for an order staying proceedings and compelling arbitration. Each will be treated in turn.

Arbitration

ECI has moved, pursuant to 9 U.S.C. §§ 3 and 4, for an order staying proceedings and compelling plaintiffs to submit their dispute to arbitration in accordance with what ECI claims is the agreement of the parties. Plaintiffs insist, on a number of grounds, that the controversy is not arbitrable and claim that they are entitled, under 9 U.S.C. § 4, to a jury trial of four issues raised by ECI's application for an order compelling them to arbitrate. Our starting point is the firmly established principle that whether a party is "bound to arbitrate, . . . is a matter to be determined by the Court on the basis of the contract entered into by the parties." Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8 L.Ed.2d 462 (1962). See John Wiley & Sons v. Livingston, 376 U.S. 543, 546-47, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964). And where, as here, the contract is one "evidencing a transaction invoking interstate commerce," 9 U.S.C. § 2, federal rules of contract construction and interpretation govern. See Bigge Crane and Rigging Co. v. Docutel Corporation, 371 F.Supp. 240, 243 (E.D.N.Y. 1973).

As noted above, Janmort is a party to three separate franchise agreements with ECI. The first—the so-called "Midtown-East" agreement—is dated January 13, 1975, and, as originally drawn, gave Janmort the right to operate as an Econo-Car dealer in a portion of midtown Manhattan and at Kennedy Airport in Queens; addenda to this contract have extended Janmort's franchise to include the balance of Manhattan, La Guardia Airport, and Suffolk County. The second agreement, the "Bronx-Westchester" agreement, is dated August 12, 1975, and granted the Econo-Car franchise for the Riverdale area of the Bronx and the cities of Yonkers and Mt. Vernon in Westchester County to Brand Auto Rental, Inc. ("Brand"). On September 23, 1976, Brand assigned its interest in the franchise to Janmort, which in turn accepted the assignment and undertook to perform all obligations imposed by the underlying agreement, although the arrangement presumably did not become effective until December 21, 1976, when ECI gave its consent. Finally, the most recent agreement, the "Palm Beach agreement," was entered into on September 30, 1976, and gives Janmort the right to operate as an Econo-Car dealer in Palm Beach County, Florida. Although the terms of the three agreements are, in most respects, similar, the Palm Beach and Bronx-Westchester agreements—in contrast to the Midtown-East agreement—contain arbitration clauses which, apart from designation of the site of arbitration, recite as follows:

"21. ARBITRATION

It is mutually agreed by the parties hereto that they will submit any controversy or claim arising out of or relating to this Agreement, or the breach hereof, to binding arbitration under the Rules of the American Arbitration Association . . .. Further, the parties hereto agree that they will abide by the provisions and rules of the American Arbitration Association and that any judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof and all costs⁴ and expenses, including reasonable attorney's fees, will be paid by the parties hereto according to said rules."

Palm Beach agreement at 6; Bronx-Westchester agreement at 7. The Palm Beach and Midtown-East agreements and the Bronx-Westchester assignment were all executed by Kirschbaum.

Beginning with the Midtown-East franchise in 1975, Janmort's performance as an Econo-Car dealer was encouraging. Business apparently was good, and plaintiffs claim that Janmort invested substantial sums in the expansion of its New York and Florida facilities. They also assert, however, that throughout "the relationship of Janmort with ECI, Janmort has consistently been the recipient of erroneous and fallacious billing," perhaps partly because of the relatively primitive billing and accounting system utilized by ECI until mid-1977. Kirschbaum Aff. (9/28/77), at 5. It seems that the problem eventually became so acute that on March 23, 1977, Kirschbaum traveled to Coral Gables, Florida, where he met with several officers of ECI in an effort to reach a satisfactory reconciliation of accounts. The venture was something of a success, for the parties not only agreed to a number of changes in assessments and billing practices, but also fixed Janmort's indebtedness for systems fees and supplies at a mutually acceptable figure, $10,828.58. See Kirschbaum Aff., supra, at 8-9; Shun Aff. (filed 1/23/78), at ¶ 5; Schickler Aff. (9/28/77), Exh. D (DeNight letter to Kirschbaum, March 25, 1977).

On April 6, 1977, Gelco acquired ECI and installed new management personnel. Bell Aff. (filed 1/23/78), at ¶ 3. According to defendants, the confusion attendant upon this shift in management and upon the transfer of ECI's headquarters from Coral Gables to Minneapolis in early July was responsible for the failure of billings and statements of account thereafter rendered to Janmort to reflect the adjustment that had been made in March between Kirschbaum and ECI's former officers. See Shun Aff., supra, at ¶ 13; Gibbs Aff. (filed 1/23/78), at ¶ 4. In any event, ECI continued to generate inaccurate statements of account for Janmort's Florida and New York operations (under the March agreement, ECI was to render a single statement for the two New York franchises), and Janmort continued to protest. See Kirschbaum Aff., supra, at ¶¶ 7-10; Shun Aff., supra, at ¶¶ 10-14.⁵ As a result, ECI's records on July 13, 1977, indicated that Janmort was $33,457.54 in arrears, with $16,872.70 overdue for more than 30 days. Id. at ¶ 9. It was on that date that ECI first issued notice of Janmort's default and the conditional cancellation of the franchise agreements. Id. at ¶ 3.⁶ Janmort, through counsel, took vigorous exception to the July 13 pronouncement, and ECI agreed to take no further steps toward termination while the parties attempted to resolve their not inconsiderable differences. See id. at ¶ 4; Schickler Aff., supra, Exh. L (J. W. Bell mailgram of 7/20/77 to R. Schickler)....