AM/PM Franchise Ass'n v. Atlantic Richfield Co.

• Court: Superior Court of Pennsylvania
• Writing for the Court: Before CIRILLO; BECK; BROSKY; BROSKY
• Citation: 542 A.2d 90,373 Pa.Super. 572
• Decision Date: 13 June 1988
• Parties: AM/PM FRANCHISE ASSOCIATION, Salvatore Miluzzo, Robert J. Williams, Robert E. Recotta, Paul Hastings and Thomas E. Doyle, Appellants, v. ATLANTIC RICHFIELD COMPANY, Appellee.

Page 90

542 A.2d 90 373 Pa.Super. 572 AM/PM FRANCHISE ASSOCIATION, Salvatore Miluzzo, Robert J.
Williams, Robert E. Recotta, Paul Hastings and
Thomas E. Doyle, Appellants,
v.
ATLANTIC RICHFIELD COMPANY, Appellee. Superior Court of Pennsylvania. Argued Dec. 3, 1987.
Filed April 14, 1988.
Reargument Denied June 13, 1988.

Page 91

[373 Pa.Super. 573] Sol H. Weiss, Philadelphia, for appellants.

James D. Coleman, Philadelphia, for appellee.

Before CIRILLO, President Judge and BROSKY and BECK, JJ.

[373 Pa.Super. 574] BECK, Judge:

The named plaintiffs claim to be representatives of a class comprised of over 150 gasoline dealers in Pennsylvania and New York who were franchised under agreements with defendant Atlantic Richfield Company. ¹ Plaintiffs brought a breach of warranty action against Atlantic Richfield, including counts alleging fraud and breach of the duty of fair dealing. The gravamen of the complaint is that the introduction by Atlantic Richfield of Oxinol as a blending agent in ARCO brand gasoline caused the dealers to lose profits because of a decreased sales volume caused by customer dissatisfaction with the gasoline. Atlantic Richfield filed preliminary objections in the nature of a demurrer to plaintiffs' complaint. Atlantic Richfield claimed that the damages sought by plaintiffs, i.e., lost profits caused by the loss of customer satisfaction, are not recoverable as a matter of law in Pennsylvania. The trial court agreed and dismissed the action. We hold that such damages are not recoverable as a matter of law in the present case and, therefore, affirm the order of the lower court.

As a preliminary matter, the trial court notes in its opinion that the action had not yet been certified as a class action. This lack of formal certification does not affect the finality of the order entered below or of the status of this case on appeal. Rule 1707 of the Pennsylvania Rules of Civil Procedure provides that a motion for certification as a class action is to be filed thirty days after the pleadings are closed or after the last required pleading was due. Pa.R.Civ.R. 1707(a). The class determination is postponed until after the close of the pleadings to ensure that the class proponent is presenting a nonfrivolous claim capable of surviving preliminary objections. Janicik v. Prudential [373 Pa.Super. 575] Insurance Co. of America, 305 Pa.Super. 120, 451 A.2d 451 (1982). The Rule thus conserves valuable time and resources by postponing the certification determination until it is clear that the action will proceed. To require that such a determination must be made before the plaintiffs may appeal from an order sustaining preliminary objections in the nature of a demurrer would be superfluous. A certification of a class action does not join parties not yet in action. Rather, the class is in the action until properly excluded. Bell v. Beneficial Consumer Discount Co., 465 Pa. 225, 348 A.2d 734 (1975). The action is to be treated as a class action for the purpose of preliminary objections and also on the subsequent appeal of an order which sustains those objections and dismisses the complaint. Sherrer v. Lamb, 319 Pa.Super. 290, 466 A.2d 163 (1983). Therefore, this case is properly before this Court.

Plaintiffs' basic contention is that a retail dealer who must purchase all of his goods from one seller may recover lost profits as his compensatory damages when the seller delivers a defective or unmerchantable product for sale by the dealer. Plaintiffs had a franchise agreement with Atlantic Richfield which provided that each plaintiff dealer would purchase ARCO brand gasoline from Atlantic Richfield and resell it to the general public at a "markup." In the 1970's and 1980's, Atlantic Richfield implemented a number of controversial and revolutionary marketing practices. All of these novel practices, except for the one at issue, resulted in increased sales and profits to the retail dealer. In their complaint, plaintiffs acknowledge and even praise Atlantic Richfield for its business judgment in introducing these practices. However, the gravamen

Page 92

of the complaint is that one of these practices, the introduction of Oxinol as a blending agent in the gasoline, did not result in the same success as did the other practices. Plaintiffs contend that the Oxinol blended gasolines were not of the high quality which Atlantic Richfield represented them to be, and that the gasoline actually harmed automotive systems. Once the public became aware of the possibility that the Oxinol blended gasoline was harmful to automobiles, [373 Pa.Super. 576] according to plaintiffs, consumers stopped buying gasoline from the ARCO retail dealers. Allegedly, sales volume decreased dramatically.

Plaintiffs frame their complaint in counts alleging breach of warranty, breach of the implied duty to deal fairly, and fraudulent misrepresentation. The compensatory damages sought in all of the counts are based upon lost profits resulting from the alleged decrease in sales volume caused by the loss of customer satisfaction. This case does not involve a situation in which the dealer alleges that he had to pay a consumer for an injury to the consumer's automobile caused by the gasoline, nor is there an allegation that the dealers had to sell each gallon at a loss or a reduced price. Each gallon delivered to plaintiffs by Atlantic Richfield was sold to consumers at customary prices. Plaintiffs are basically contending, not that they were unable to sell gasoline delivered to them, but, that they would have sold more gasoline during the time period in question if Oxinol had not been added to the gasoline.

Preliminary objections in the nature of a demurrer should be sustained where it is shown that upon the facts pleaded recovery is not permitted by law. Clevenstein v. Rizzuto, 439 Pa. 397, 266 A.2d 623 (1970). Under the facts pleaded by plaintiffs, Pennsylvania law permits no recovery. Recovery for loss of profits under Pennsylvania law is allowed where such loss was caused by a plaintiff's inability to use property damaged, destroyed or withheld by defendant's wrongful conduct. See Kosco v. Hachmeister, Inc., 396 Pa. 288, 152 A.2d 673 (1959); Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205, 1226 (3rd Cir.1970). However, the Pennsylvania Supreme Court has consistently distinguished lost profits in a situation where those losses are consequential damages accompanying another kind of economic injury from this type of speculative loss of potential customers.

The Pennsylvania Supreme Court has held that losses stemming from customer alienation, whether those losses are characterized as either "lost profits" or loss of good [373 Pa.Super. 577] will," cannot be ascertained with reasonable certainty and are not recoverable as a matter of law. In the seminal case of Michelin Tire...