Central Jersey Freightliner v. Freightliner Corp., CIV.A.97-5244 (JCL).

• Decision Date: 03 December 1997
• Docket Number: No. CIV.A.97-5244 (JCL).,CIV.A.97-5244 (JCL).
• Citation: 987 F.Supp. 289
• Parties: CENTRAL JERSEY FREIGHTLINER, INC., and Robert Pezzolla, individually, Plaintiffs, v. FREIGHTLINER CORP., Defendant.
• Court: U.S. District Court — District of New Jersey

987 F.Supp. 289

CENTRAL JERSEY FREIGHTLINER, INC., and Robert Pezzolla, individually, Plaintiffs, v. FREIGHTLINER CORP., Defendant.

No. CIV.A.97-5244 (JCL).

United States District Court, D. New Jersey.

December 3, 1997.

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Brian L. Baker, Warshaw & Barnes, Red Bank, NJ, for Plaintiffs.

Raymond T. Lyons, Connell, Foley & Geiser, Roseland, NJ, for Defendant.

OPINION

LIFLAND, District Judge.

Presently before the Court are: (1) a motion by plaintiffs, Central Jersey Freightliner, Inc. (hereinafter "CJF") and its President and sole shareholder Robert Pezzolla (hereinafter "Pezzolla") (hereinafter collectively "plaintiffs"), for a preliminary injunction enjoining defendant, Freightliner Corp. (hereinafter "defendant") from terminating three franchise agreements and (2) a cross-motion by defendant to dismiss part of the complaint, to compel arbitration of certain claims and to stay proceedings in this Court pending arbitration, and to dismiss Pezzolla as a party to the action. For the reasons set forth herein, plaintiffs' motion for a preliminary injunction is denied. Defendant's cross-motion to dismiss part of the complaint is denied. Defendant's cross-motion to compel arbitration and to stay proceedings pending arbitration is granted. Defendant's cross-motion to dismiss Pezzolla is granted.

BACKGROUND

On October 24, 1997, plaintiffs filed a complaint commencing this action. The complaint alleges violations of the New Jersey Franchise Practices Act (hereinafter the "NJFPA"), the New Jersey Antitrust Act, breach of contract and various economic torts arising out of defendant's threatened termination of three franchise agreements effective November 28, 1997. On the same day they filed the complaint, plaintiffs filed an ex parte application for an order to show cause and temporary restraining order enjoining defendant from terminating the franchise agreements. The Court denied the requested relief finding that plaintiffs had failed to establish any urgency which would warrant imposition of temporary restraints. The Court further directed plaintiffs to file a motion for a preliminary injunction by October 31, 1997 according to standard motion practice, and scheduled a return date of November 24, 1997.

On October 31, 1997, plaintiffs filed their motion for a preliminary injunction. At issue are three franchise agreements: (1) the Heavy Duty Dealer Sales and Service Agreement (hereinafter the "Heavy Duty Franchise"); (2) the Medium Duty Dealer Sales and Service Agreement (hereinafter the "Medium Duty Franchise") and (3) the Century Class Franchise. The following allegations give rise to the instant dispute.

In 1991, plaintiffs entered into the Heavy Duty and Medium Duty franchises with defendant. Plaintiffs allege that in June of 1996 defendant "compelled and pressured" them to enter into the Century Class franchise agreement by intimating that the Heavy and Medium Duty franchises would suffer otherwise. Verified Complaint, at ¶¶ 11, 14. All three franchises authorize CJF to purchase and sell certain Freightliner trucks in specified territories. Under the various franchise agreements, CJF is required, inter alia, to purchase a certain number of vehicles, to maintain a certain number of vehicles in stock at all times, and to maintain certain financing. All three franchises contain an arbitration clause. The Heavy Duty and Medium Duty franchises require any claim, controversy or dispute arising out of or relating to termination to be settled by binding arbitration, the sole and exclusive remedy, and further require a notice of demand for arbitration to be filed within 30 days of receipt of the notice of termination. The Century Class franchise requires arbitration of any claim or dispute relating to the franchise agreement and further requires a notice of demand for arbitration to be filed within 90 days of receipt of a termination notice. See Defendant's Brief, at 3-4; Declaration of Richard Lumelleau (hereinafter "Lumelleau Decl."), Ex. A at 20 (Medium Duty), Ex. B at 20 (Heavy Duty), Ex. C at 21 (Century Class).

On March 17, 1997, defendant served CJF with a notice threatening termination of the three franchise agreements. On March 19, 1997, CJF filed a chapter 11 bankruptcy petition. On September 23, 1997, the bankruptcy court dismissed CJF's case with CJF's consent. No plan of reorganization was ever confirmed. Shortly thereafter, CJF's lender, Freightliner Financial, repossessed much of CJF's new and used vehicle inventory. On September 25, 1997 defendant again served CJF with a notice of termination of the three franchise agreements, effective November 28, 1997.

On October 24, 1997, plaintiffs commenced the instant action. Plaintiffs allege that defendant engaged in a course of conduct designed to destroy CJF and to re-obtain the franchises. Plaintiffs do not dispute that CJF has failed to meet its obligations under the three franchise agreements. Plaintiffs allege, however, that defendant orchestrated CJF's breaches by unfairly competing with CJF, selling vehicles to other entities, manufacturing and delivering defective vehicles, stealing CJF customers, making misrepresentations, impairing CJF's customer relations, failing to perform its obligations under the franchise agreements, acting in bad faith, imposing unreasonable standards of performance and restricting the amount of profit CJF could make. Plaintiffs contend that as a result of defendant's conduct, CJF was unable to obtain required floor plan financing, meet the minimum hours of operation required, employ a sufficient number of employees, fulfill its sales and promotion requirements, purchase new inventory, retain purchased inventory and pay its open account to defendant. Plaintiffs further allege that as a result of defendant's conduct, CJF incurred substantial floor plan charges, became insolvent and was forced to incur substantial legal fees and tax obligations. Plaintiffs allege that defendant's conduct forced CJF into bankruptcy.

Plaintiffs argue that this Court should preliminarily enjoin defendant from terminating the franchises because "without the injunction, plaintiff will lose its franchises, cease to operate and will be unable to pay its creditors, which amount to several hundreds of thousands of dollars. Without the injunction, the impact will be suffered by CJF, Robert Pezzolla, but also by many members in our community. Without the injunction, plaintiffs will lose their livelihood. Without the injunction, plaintiffs will lose their investment." Plaintiffs' Brief in Support of Order to Show Cause, at 5. Plaintiffs further argue that there is a strong likelihood that plaintiffs will prevail on the merits, and that a preliminary injunction will not harm defendant because it was defendant who provoked the wrongful termination.

Lastly, plaintiffs argue that this dispute is not subject to arbitration because: (1) the New Jersey Franchise Practices Act (hereinafter the "NJFPA") prohibits arbitration of disputes between franchisors and franchisees and (2) defendant waived its right to seek enforcement of the arbitration provisions by failing to do so in CJF's bankruptcy.

On November 12, 1997, defendant filed a cross-motion to dismiss certain counts of the complaint and to stay proceedings regarding the other claims. Defendant argues that: (1) the claims relating to the Heavy Duty and Medium Duty franchises must be dismissed because they were subject to mandatory arbitration and plaintiffs' failure to file demands to arbitrate within the 30-day time limit precludes any relief; (2) all claims arising out of or relating to the Century Class franchise are subject to mandatory arbitration for which there is still time to file a notice of intent to arbitrate, and thus those claims should be stayed pending arbitration; (3) any claims which are not subject to arbitration should be dismissed because CJF failed to disclose them in its schedules and statements filed in its chapter 11 bankruptcy case; and (4) Pezzolla lacks standing to sue because his injury is derivative of the harm to CJF.

DISCUSSION

CJF's Failure to Disclose Claims Against Defendant During Bankruptcy

CJF's failure to disclose its claims against defendant in its bankruptcy schedules or statements does not estop plaintiffs from asserting them now. Under Bankruptcy Code §§ 521 and 1125, a chapter 11 debtor's failure to disclose causes of action during the pendency of a bankruptcy case generally precludes litigation of those claims in the future under principles of equitable and judicial estoppel. Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 417 (3d Cir.1988) ("[A] debtor must disclose any litigation likely to occur in the non-bankruptcy context. The result of a failure to disclose such claims triggers application of the doctrine of collateral estoppel, operating against a subsequent attempt to prosecute the actions"); Payless Wholesale Distribs., Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570, 571-72 (1st Cir.), cert. denied, 510 U.S. 931, 114 S.Ct. 344, 126 L.Ed.2d 309 (1993); see 11 U.S.C. §§ 521, 1125. The governing principles in these cases and the policy behind the debtor's disclosure obligation are threefold: (1) the reliance of creditors on the debtor's representations; (2) the need for finality because an order confirming a plan is an adjudication of claims on the merits which binds the debtor and creditors; and (3) protection against a debtor playing "fast and loose" against the court and its creditors. Significantly, all of the cases barring litigation of nondisclosed claims did so where a plan of reorganization had been confirmed.

The preclusive effect of a debtor's failure to disclose is decidedly less clear where no plan was confirmed in the debtor's bankruptcy case. Defendant has not cited, and the Court's research has not yielded, any authority addressing nondisclosure in the context...