Aamco Transmissions, Inc. v. Smith

• Decision Date: 30 January 1991
• Docket Number: Civ. A. No. 90-6078.
• Citation: 756 F. Supp. 225
• Parties: AAMCO TRANSMISSIONS, INC. v. William C. SMITH and Cynthia A. Smith, husband and wife.
• Court: U.S. District Court — Eastern District of Pennsylvania

756 F. Supp. 225

AAMCO TRANSMISSIONS, INC. v. William C. SMITH and Cynthia A. Smith, husband and wife.

Civ. A. No. 90-6078.

United States District Court, E.D. Pennsylvania.

January 30, 1991.

Karen A. Von Dreusche, Bala Cynwyd, Pa., for plaintiff.

Robert J. Amelio, Pittsburgh, Pa., for defendants.

MEMORANDUM

NEWCOMER, District Judge.

This action involves an alleged breach of a franchise agreement. Presently before the Court is defendants' Motion for Pretrial Relief.¹ For the reasons that follow, the Court shall grant said motion.

I. Factual Background

This case arises in the context of a contract dispute between citizens of the Commonwealth of Pennsylvania. Plaintiff AAMCO Transmissions, Inc. ("ATI") seeks injunctive relief to enjoin the defendants, Smiths, from further use of the trademark and tradename "AAMCO" in the operation of their transmission repair center, as well as treble damages and attorneys fees on the basis that ATI claims it has terminated the Smiths' franchise agreement because: a) the Smiths had breached the franchise agreement by having submitted purchase orders to ATI for warranty work purportedly done at the Smiths' repair center in Allegheny County, Pennsylvania, which work in fact was not done; and b) the Smiths had breached the franchise agreement because they had under-reported the gross receipts earned at the transmission repair center in Allegheny County, Pennsylvania.

ATI contends that its now-declared terminated franchisees, the Smiths, had no further right to the use of the tradename and mark of "AAMCO," and that when they did continue to use said trademark, the trademark laws of the United States were violated. Based upon the "termination," the validity of which will first be in issue before the trier of fact, ATI claims it has been damaged by the Smiths' failure to implement Paragraph 19.1 of the franchise agreement which provision describes the procedures to be followed by the Smiths after termination, which provisions would compel the Smiths to immediately and permanently discontinue the use of the mark "AAMCO" or any other designation that would indicate that the Smiths were now, or ever, an authorized "AAMCO" franchisee.

ATI contends that the Smiths' actions constituted a willful trademark infringement and a violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125, and thus presents a federal question under Section 39 of the Lanham Act, 15 U.S.C. § 1121 (dealing with trademarks infringement), and further, that the Smiths' actions constituted unfair competition. As defendants correctly argue, however, in truth, ATI's action arises from, and necessarily first seeks to resolve, a contract dispute between litigants of the same state. It happens that there is also an ancillary question, being, whether the franchisor is entitled to relief under the trademark laws or under common law for unfair competition by the Smiths.

II. Rule 12(b)(6) Standard

Fed.R.Civ.P. 12(b)(6) instructs a court to dismiss an action for failure to state a cause of action only if it appears a certainty that no relief could be granted under any set of facts which could be proved. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). Because granting such a motion results in a determination of the merits at such an early stage of the plaintiff's case, the trial court "must take all well pleaded allegations as true, construe the complaint in a light most favorable to the plaintiff, and determine whether under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 664-65 (3d Cir.1988) (quoting Estate of Baily by Oare v. County of York, 768 F.2d 503, 506 (3d Cir.1985)).

III. Discussion

There is no allegation in the complaint that the alleged breaches of contract by the Smiths, which gave rise to the ostensible termination, injured ATI's service mark or tradename. This court has previously held that failure to send weekly reports of gross receipts, to pay franchise fees and rent, and to pay for merchandise ordered and received do not state claims which in any way involve injury to the service mark. Plum Tree Inc. v. Seligson, 342 F.Supp. 1084 (E.D.Pa.1972). Furthermore, in the present case, the breaches which gave rise to the termination by ATI, are wholly unrelated to the trademark and tradename "AAMCO". Moreover, there is no allegation that the franchisees defrauded the customers by performing unnecessary services thereby bringing the mark into disrepute. Plum Tree, supra, citing AAMCO v. Hearson, Civil Action No. 69-2346 (E.D.Pa., May 15, 1970).

In essence, ATI's claims may be expressed as follows: ATI itself was defrauded by the Smiths, who by their alleged wrongful acts caused ATI to make payments to the Smiths which it otherwise had no obligation to do; the Smiths caused ATI to suffer a loss of profits by the Smiths' failure to accurately report their gross receipts.

After careful review, the Court concludes that ATI is foremost attempting to enforce its act of termination, and that this case is in essence a contract dispute which should be brought on a contract theory over which the federal court would have no jurisdiction without diversity of citizenship. Silverstar Enterprises, Inc. v. Aday, 537 F.Supp. 236 (S.D.N.Y.1982). In Silverstar, the court applied a principle recognized in patent and copyright actions and quoted Judge Friendly in the case of T.B. Harms Co. v. Eliscu, 339 F.2d 823, 826 (2d Cir. 1964), cert. denied, 381 U.S. 915, 85 S.Ct. 1534, 14 L.Ed.2d 435 (1965) with respect to exclusive federal jurisdiction under 28 U.S.C. § 1338:

... The federal grant of a patent or copyright has not been thought to infuse with any national interest a dispute as to ownership or contractual enforcement turning on the facts or on ordinary principles of contract law. Indeed, the case for an unexpansive reading of the provision conferring exclusive jurisdiction with respect to patents and copyrights has been especially strong since expansion would entail depriving the state court of any jurisdiction over matters having so little federal significance. (citations omitted).

Silverstar, at 241.

Moreover, the Silverstar Court noted that:

Section 1338 applies to trademarks as well as patents and copyrights. Just as the mere existence of a patent or copyright does not confer federal jurisdiction over what is essentially a contract dispute, the

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