Crown Central Petroleum Corp. v. Waldman

• Decision Date: 19 May 1981
• Docket Number: Civ. A. No. 79-1086.
• Citation: 515 F. Supp. 477
• Parties: CROWN CENTRAL PETROLEUM CORPORATION, Plaintiff, v. Carl J. WALDMAN, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

515 F. Supp. 477

CROWN CENTRAL PETROLEUM CORPORATION, Plaintiff, v. Carl J. WALDMAN, Defendant.

Civ. A. No. 79-1086.

United States District Court, M. D. Pennsylvania.

May 19, 1981.

COPYRIGHT MATERIAL OMITTED

Juliet A. Eurich, Baltimore, Md., David Richman, Thomas E. Zemaitis, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for plaintiff; Morton A. Sacks, Cable, McDaniel, Bowie & Bond, Baltimore, Md., of counsel.

Lewis H. Markowitz, York, Pa., for defendant.

MEMORANDUM

HERMAN, District Judge.

I. INTRODUCTION

Plaintiff initiated this action on August 24, 1979 by filing a complaint seeking termination of the franchise relationship between it and Defendant.¹ On September 24, 1979, Defendant filed a motion and supporting brief to dismiss Count II of the complaint and to strike Count III. Plaintiff opposed that motion by filing a brief on October 23, 1979. By our opinion and order filed on March 21, 1980, we construed the motion as if it were for summary judgment and granted it, thereafter entering judgment in favor of Defendant in Count II. 486 F.Supp. 759 (M.D.Pa.1980). We stayed further consideration of Count III pending the results of a state court action involving the identical issue.² Plaintiff filed its appeal of our March 21, 1980 order on April 11, 1980.

On October 11, 1979, Defendant had initiated his own action against Plaintiff at docket C.A. No. 79-1280. Defendant sought essentially the converse relief requested by Plaintiff in this action, i. e., upholding the franchise relationship. Defendant also sought certain damages from Plaintiff in the second action. We consolidated the two actions on December 7, 1979, thus transforming Defendant's demands into counterclaims.

The Third Circuit Court of Appeals filed its opinion in Plaintiff's appeal on November 17, 1980, reversing and remanding the case to us on a procedural matter. 634 F.2d 127 (3d Cir. 1980). On December 12, 1980, we ordered rebriefing of the motion to dismiss as construed as a motion for summary judgment. Plaintiff filed its own motion for summary judgment in Counts I and II with a supporting brief on January 21, 1981. Defendant filed a brief supporting his former motion to dismiss on January 22, 1981. Defendant filed a brief opposing Plaintiff's motion for summary judgment on March 9, 1981. Plaintiff closed the briefing by filing its reply brief on March 23, 1981. The motions for summary judgment on Counts I and II are now ripe for our consideration.

II. FACTUAL BACKGROUND³

On December 19, 1973, Plaintiff Crown Central Petroleum Corporation (hereafter referred to as "Crown") and Defendant Carl J. Waldman (hereafter referred to as "Waldman") entered a Branded Service Station Lease and Dealer Agreement (hereafter referred to as "the Agreement"). Waldman's leased service station is located in Hanover, Pennsylvania. Although the Agreement expired on June 18, 1976, its terms continue to govern Waldman's operation and possession of the station. The Agreement is uniformly employed throughout Crown's marketing system and its standards of operation apply to both dealer-operated and company-operated service stations.

The station is situated on land owned by Crown and was built at Crown's expense. Crown dealers, including Waldman, do not pay franchise fees. They make only an initial investment limited to the purchase of the gasoline in the tanks, a refundable security deposit of $2,500.00, and other marginal expenses such as uniforms, paper towels, and supplies.

The Agreement, in its standards of operation, specifically requires the dealers to keep the service station open and operating without interruption 24 hours per day, seven days per week, except in circumstances beyond the dealers' control. The Agreement includes a provision for immediate termination if the dealer fails to keep the station open and operating continuously. The Agreement also contains general provisions that govern the manner of operation of the station. One of these provisions is a covenant to comply with all applicable laws and regulations covering operation of the business and the dealer's use and possession of the service station. The breach of this covenant is also a ground for immediate termination in the Agreement.

In the spring and summer of 1979 a nationwide shortage of gasoline rendered Crown unable to supply an unlimited quantity of gasoline to its dealers as it had in the past. Crown was forced to allocate products to its stations in accordance with Department of Energy regulations. Crown therefore notified its dealers by letter dated April 27, 1979 that it would temporarily waive the provision that stations must be open 24 hours each day. Stations were allowed to close from 9:00 p. m. to 5:00 a. m. On May 4, 1979, the worsening shortage led Crown to adjust even that modification by permitting closings from 7:00 p. m. to 7:00 a. m. Moreover, stations were allowed to close when they exhausted their daily allotment.

Although the shortage and mandatory allocation required curtailment of the continuous operation, Crown did not want its stations closed during an entire day. Therefore, while permitting closings during certain hours of each day, Crown re-emphasized its requirement that each station must be open and operating seven days each week. The May 4, 1979 letter stated:

This waiver of the 24 hour requirement does not effect sic any other provision of the Agreement, and, in particular, you will be obligated to have the station open seven days a week and you will be expected to sell your full allocation.

Crown received favorable publicity through the gasoline shortage by maintaining its seven days each week policy because the public knew that Crown stations would open at 7:00 a. m. every day.

Waldman, however, failed to open or operate his service station on seven consecutive Sundays, beginning May 20, 1979 and ending July 1, 1979. He also failed to open or operate the station on the weekend of July 13-15, 1979. The Sunday closings were done unilaterally by Waldman because he felt it was in the public's best interest to close on Sundays. The July weekend closing resulted from a decision of members of the Pennsylvania-Delaware Service Station Dealers Association to close their businesses completely in protest of the mandatory petroleum price regulations promulgated by the Department of Energy. The regulations limited the amount that a dealer could add to his purchase price of gasoline when selling it retail, thus limiting the profit margins of the dealers.

Waldman knew that his refusal to open the station every day violated his obligations under the Agreement. He also knew that none of his closings were authorized by Crown. Crown representatives spoke with Waldman on at least three occasions and advised him that the closings violated the Agreement. Waldman ignored them.

III. ARGUMENTS

A. Plaintiff's Position

Crown bases its action in Count I on the Petroleum Marketing Practices Act, Act of June 19, 1978, Pub.L. 95-297, 15 U.S.C. §§ 2801 et seq. (hereafter referred to as "the PMPA"). In particular, Crown relies upon four transgressions of the Agreement or business relation committed by Waldman, each of which allegedly justifies termination of the franchise relationship under the PMPA.

First, Crown's primary argument is that Waldman failed to comply with a reasonable and material provision of the Agreement, continuous operation, by closing on the seven consecutive Sundays and the weekend in July 1979. Such a failure would violate 15 U.S.C. § 2802(b)(2)(A) and would therefore permit termination of the relationship under the PMPA.

Second, Crown insists that Waldman failed to exercise good faith efforts to carry out the provisions of the Agreement after notice of his deficiency and an opportunity to remedy the problem. Under 15 U.S.C. § 2802(b)(2)(B), such a failure would justify Crown in terminating the relationship.

Third, Waldman allegedly failed to open or operate the service station for a period of time that, under the surrounding facts and circumstances, constituted an unreasonable period of time, i. e., it was unreasonable for Waldman to close the station for the seven consecutive Sundays and the weekend. 15 U.S.C. § 2802(b)(2)(C), as defined by 15 U.S.C. § 2802(c)(9).

Finally, Crown claims that Waldman, by allegedly violating the federal antitrust laws, knowingly failed to comply with federal, state, or local laws or regulations relevant to the operation of the station. 15 U.S.C. § 2802(b)(2)(C), as defined by 15 U.S.C. § 2802(c)(11).

B. Defendant's Position

Waldman has countered Crown's allegations without denying that they occurred. Rather, Waldman has offered four affirmative defenses that he claims either justify his actions or negate Crown's right to complain. None of Waldman's arguments are based on the PMPA.

First, Waldman contends that Crown's reliance on his violations of the Agreement is simply subterfuge to conceal Crown's true motives. Waldman claims that Crown acted, and is acting, in bad faith because it wants only to convert its high-volume product outlets into company operations to make more profit.

Second, Waldman insists he will be able to prove that Crown has suffered, and will suffer, no financial damages from Waldman's closings. Waldman appears to be arguing that proof of some financial injury is a prerequisite to termination of the relationship for violation of the Agreement's provisions. Related to this defense is Waldman's request to conduct discovery relating to Crown's economic injury before we rule on the motions before us.

Third, Waldman claims that the extraordinary circumstances surrounding the gasoline shortage in 1979 made it unreasonable for Crown to insist that its requirements of operation be followed. Waldman indicated that he differed with Crown on what was fundamentally the best policy to follow for the good of the country.

Finally, Waldman recalls that Crown made certain exceptions to its...