Bruno v. Pepperidge Farm, Inc.

• Decision Date: 10 August 1966
• Docket Number: Civ. A. No. 38486.
• Parties: James A. BRUNO v. PEPPERIDGE FARM, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

256 F. Supp. 865

James A. BRUNO v. PEPPERIDGE FARM, INC.

Civ. A. No. 38486.

United States District Court E. D. Pennsylvania.

August 10, 1966.

Alexander Schamban, Philadelphia, Pa., for plaintiff.

Lewis H. Van Dusen, Jr., David P. Bruton, Philadelphia, Pa., for defendant.

OPINION AND ORDER

John W. Lord, Jr., District Judge.

This action is based on the alleged breach and improper termination of a franchise agreement between the plaintiff, James A. Bruno, and the defendant, Pepperidge Farm, Inc. The parties were previously before this Court in the same matter. However, at that time, diversity jurisdiction was not properly set forth. (James A. Bruno v. Pepperidge Farm, Inc., Civil Action No. 38486, filed February 25, 1966). That defect has since been cured.

The matter is presently before the Court on the defendant's motion for dismissal or, in the alternative, for a stay of all proceedings pending arbitration pursuant to the franchise agreement. The plaintiff resists arbitration, asserting that the alleged breach deprived the defendant of the right to invoke the arbitration clause.

FACTS

On May 25, 1962, the plaintiff and the defendant entered into a written agreement under which the plaintiff was to enjoy an exclusive franchise for the sale and promotion of the defendant's products throughout a designated geographic area. The plaintiff asserts that he acquired the franchise by paying the prior franchise holder $5,500.00 with the consent and approval of the defendant. The alleged breach occurred when, according to the complaint, the defendant assigned a portion of plaintiff's territory to another dealer without the plaintiff's knowledge or consent.

The termination is alleged to have been improper due to the manner in which it was effected. The plaintiff complains that prior to the official termination, the defendant engaged in surreptitious negotiations with three other persons, arranging to sell to each of them one-third of plaintiff's franchise. Moreover, the notice, when given, was unreasonable in that it arrived only two days prior to the effective termination date. This short notice is alleged to have had two adverse effects. First, it is asserted that the plaintiff was thereby deprived of the profits that he would have made during a reasonable notice period—thirty days, in his judgment. Second, it resulted in an additional loss, since he was thereafter unable to market the $500.00 worth of merchandise in stock at the time of termination.

For the alleged breach, the plaintiff demands an accounting. For the improper termination, he demands damages in the amount of $11,950.00 consisting of (1) the alleged value of the franchise ($10,750.00), (2) the loss of profits resulting from the short notice ($700.00), and (3) the value of the goods in stock at the time of termination ($500.00).

The defendant contends that the plaintiff's rights are confined to the franchise agreement which provides for arbitration as to the value of the franchise and awards an additional premium of 25%. Moreover, the defendant asserts that the premium was intended by the parties to constitute liquidated damages for any and all breaches by the defendant. Further, it is argued that no notice was required under the agreement beyond that given, for the reason that a notice period is conspicuously absent in the paragraph under which termination was had.

Finally, the defendant asks that the complaint be dismissed for the reason that the aggregate of plaintiff's claims do not satisfy the jurisdictional amount necessary to maintain an action in this Court. It arrives at this conclusion by assigning a value to the franchise of $3,200.00, subtracting this figure from the amount claimed ($10,750.00) and adding the $1,200.00 alleged to have been lost as a result of the improper termination. The maximum amount recoverable then, the defendant points out, would be $8,750.00, clearly below the jurisdictional requisite.

Plaintiff's demand for an accounting for the alleged franchise infringement is disposed of by calling attention to the absence in the complaint of any intimation as to the territory involved, the duration of the alleged infringement or of the damages purportedly accruing.

DISCUSSION

I—Arbitration

Paragraph nineteen of the franchise agreement is clear and unequivocal. Its relevant portion reads as follows:

"Upon termination pursuant to this paragraph the Bakery the defendant will pay to the distributor the plaintiff a sum equal to the fair market value of this franchise on the termination date plus 25% of such value, such value to be determined either by agreement between the parties or, if they shall be unable to agree, by three arbitrators, one of whom shall be chosen by the Bakery and one by the Distributor and the third by the first two chosen." (Emphasis supplied.)

There can be no doubt that the parties intended that the value of the franchise be determined by arbitration in the event that they were unable to agree. The plaintiff asserts that its fair market value is $10,750.00. The defendant contends that is worth only $3,200.00. Clearly the matter is arbitrable under the terms of the agreement.

This Court does not agree with the plaintiff that the defendant's conduct estops it from demanding compliance with the arbitration clause. It not only assumes facts which are as yet unestablished; more importantly, it strikes at the heart of the federal policy in favor of arbitration of disputes. If a recalcitrant party could avoid his previous agreement by the simple expedient of calling upon the general equity powers of the court, the federal policy in favor of liberal interpretation and application of arbitration clauses would be too easily frustrated.

The Federal Arbitration Act, 9 U.S.C.A. § 1 et seq, to which the agreement is subject (Cf. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2 Cir. 1959), cert. granted 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, cert. dismissed by stipulation 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960); Metro Industrial Painting Corp. v. Terminal Const. Co., 287 F.2d 382 (2 Cir. 1961), cert. denied 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed.2d 24 (1961)), was designed to avoid delays in the settlement of disputes. Cargo Carriers v. Erie & St. Lawrence Corp., 105 F.Supp. 638 (W.D.N.Y. 1952). Section 3 thereof reads as follows:

"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."

This Court is satisfied that the issue here involved, the value of the franchise, is referable to arbitration both under the agreement and within the meaning of the Federal Arbitration Act, supra. The defendant duly applied for the stay in conformance with the Act. Cf. Radiator Specialty Co. v. Cannon Mills, Inc., 97 F.2d 318, 117 A.L.R. 299 (4 Cir. 1938). It will be granted.

However, the issue as to whether the defendant infringed the plaintiff's franchise right is another matter entirely. In any dispute involving the interpretation of an arbitration clause, it is the court's primary duty to ascertain whether the matter at issue was intended to be included therein. See Lodge No. 12, Dist. No. 37, International Association of Machinists v. Cameron Iron Works, 257 F.2d 467 (5 Cir. 1958), cert. denied 358 U.S. 880, 79 S.Ct. 120, 3 L.Ed. 2d 110 (1958); International Union, United Automobile Aircraft v. Benton Harbor Malleable Industries, 242 F.2d 536 (6 Cir. 1957). This, in turn, depends upon the intent of the parties as it appears from the language used, its context within the instrument, and the circumstances surrounding its formation and execution.

An examination of these various factors militates strongly against concluding that the provision in question was intended by the parties to constitute the plaintiff's sole and exclusive remedy. The clause, by its express terms, is limited to valuation of the franchise. It is contained only in paragraph nineteen of the agreement, one of the three provisions relating to termination of the franchise, and it is operative only in the event of termination without cause. Under these circumstances, it would be unreasonable to surmise that it was intended to function beyond its rather limited scope.

The authorities cited to the Court in support of the defendant's position have been carefully examined and found to be inapposite. In Necchi Sewing Machine Sales Corp. v. Sewline Co., 194 F.Supp. 602 (S.D.N.Y.1960) the court was confronted with a very broad arbitration clause which provided that "All matters, disputes or disagreements arising out of or in connection with this agreement shall be finally settled * * *" by arbitration. The distinction between the agreement in Necchi and the case before the Court is too obvious to warrant discussion.

The same may be said for Saucy Susan Products, Inc., v. Allied Old English, Inc., 200 F.Supp. 724 (S.D.N.Y.1961), also cited by the defendant. The clause involved in that case was set off in a separate paragraph entitled "12. Arbitration", and included within its terms "Any controversy or claim arising out of or relating to the agreement or the breach thereof * * *". (Emphasis supplied.) In ...