Pennzoil Co. v. Carlson

• Decision Date: 22 June 1990
• Citation: 558 N.Y.S.2d 754,158 A.D.2d 206
• Parties: , 59 USLW 2056 PENNZOIL COMPANY, Appellant, v. George A. CARLSON, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 754

558 N.Y.S.2d 754

158 A.D.2d 206, 59 USLW 2056

PENNZOIL COMPANY, Appellant, v. George A. CARLSON, Respondent.

Supreme Court, Appellate Division,

Fourth Department.

June 22, 1990.

Wright, Wright and Hampton by Craig Jones, Jamestown, for appellant.

Jaeckle, Fleischmann & Mugel by John Stenger, Buffalo, for respondent.

Before DENMAN, J.P., and BOOMER, PINE, BALIO and DAVIS, JJ.

DENMAN, Justice Presiding:

Pennzoil Company appeals from an order that denied its motion for summary judgment dismissing defendant Carlson's sixth and seventh affirmative defenses and counterclaims alleging violations of, respectively, the Federal Petroleum Marketing Practices Act (PMPA) (15 U.S.C. § 2801 et seq.) and article 11-B of the New York General Business Law (GBL) (General Business Law § 199-a et seq.). Plaintiff contends that the PMPA claim is subject to exclusive Federal jurisdiction; that the GBL claim is preempted by the PMPA; and that both claims are barred by the Statute of Limitations. We conclude that state courts have concurrent jurisdiction over PMPA claims; that the PMPA preempts defendant's GBL claim; and that defendant's PMPA claim, which was interposed in the amended answer, relates back to the original answer and thus is not barred by the Statute of Limitations. We thus modify to dismiss defendant's seventh affirmative defense and counterclaim alleging plaintiff's violation of General Business Law article 11-B; in all other respects we affirm.

THE FACTS

According to defendant, George A. Carlson, whose allegations and proof must be taken as true in this procedural posture, he first entered into a business relationship with plaintiff Pennzoil (actually, with its predecessor, the Fleet Wing Division of Sohio) in 1970 or 1972. Either in his own name or in the name of his business, Robo Wash of Jamestown, defendant began purchasing motor fuel and other petroleum products from plaintiff for resale. In 1976, defendant was approached by plaintiff's representatives, who suggested that defendant form a corporation with Sandy Galati, also a local purchaser of Pennzoil products, so that the new entity could become a distributor of Pennzoil products. Sometime between 1976 and 1978, defendant and Galati formed a corporation known as In January 1981, representatives of plaintiff advised defendant that several checks from Jamestown Petroleum had been dishonored and it was over $600,000 in arrears for products ordered from Pennzoil. Pennzoil determined to discontinue its relationship with Galati but was willing to continue "business as usual" with defendant. The parties entered into negotiations to resolve Pennzoil's claim against Jamestown Petroleum and to determine whether defendant could keep the distributorship. By March, 1981, those negotiations led to an oral settlement agreement pursuant to which defendant personally executed a promissory note in the amount of $136,000, representing part of the debt owed by Jamestown Petroleum. The express consideration for defendant's personal assumption of that indebtedness included plaintiff's oral commitments to:

"Hal-Sand", through which defendant and Galati operated the Jamestown distributorship of Pennzoil products using the Pennzoil trademark. Around 1980, defendant and Galati were again approached by Pennzoil representatives, who proposed that they purchase a second Pennzoil distributorship in Lakewood that had previously been operated by Pennzoil. Defendant and Galati formed Jamestown Petroleum Sales & Services, Inc. (Jamestown Petroleum) for the purpose of purchasing and operating the Lakewood distributorship and continuing to operate their existing Jamestown distributorship. Through Jamestown Petroleum, defendant and Galati went into possession of the Lakewood distributorship in June 1980, although an agreement between Jamestown Petroleum and Pennzoil for the sale of the Lakewood real property never closed.

(a) allow defendant to continue as a Pennzoil distributor upon the same terms and conditions as theretofore existed between Pennzoil and Jamestown Petroleum;

(b) provide defendant with a $70,000 line of credit for the purchase of Pennzoil inventory; and

(c) transfer to defendant the operations of the Lakewood distributorship and the real property upon which it was located.

Pursuant to the oral agreement between defendant and Pennzoil, defendant paid approximately $63,000 in principal and interest on the note, but, at some point prior to September 1983, ceased payment. In the interim, following defendant's execution of the note, plaintiff told defendant that it had decided to close the Lakewood distributorship. Defendant agreed to release plaintiff from its obligation to transfer the Lakewood distributorship to defendant in exchange for plaintiff's promise to allow defendant to continue to service the accounts of the Lakewood distributorship from his other location. In reliance upon those representations, defendant executed a "Mutual Cancellation" agreement, following which Pennzoil sold the Lakewood distributorship to a third party without notice to defendant. Plaintiff did not allow defendant to continue to operate as a Pennzoil distributor, did not transfer the Lakewood distributorship to him, and failed to supply him with the agreed-upon line of credit, thus failing to fulfill the promises that had induced defendant to execute the note and the "Mutual Cancellation" agreement. Defendant stopped payment on the note as a result of plaintiff's failure to fulfill its obligations. ¹

THE PLEADINGS

Plaintiff commenced this action in September, 1983 to recover $114,794.64, the balance due on the note, plus interest. In his original answer, which was served on or about October 26, 1983, defendant admitted that he had ceased paying on the note, but denied liability. Defendant's answer asserted affirmative defenses and counterclaims alleging fraud and breach of contract based on plaintiff's failure to fulfill In August 1985, approximately two years after the alleged breach by plaintiff, defendant, pursuant to a stipulation between the parties, served an amended answer containing seven affirmative defenses and counterclaims. The amended answer alleged, as "facts common to all counterclaims and affirmative defenses", the same transactions and occurrences as alleged in the original answer; however, new theories were alleged in the sixth and seventh affirmative defenses and counterclaims. The sixth alleged that plaintiff violated the termination and notice of termination requirements of the Federal Petroleum Marketing Practices Act, 15 U.S.C. § 2802(b)(2), (3); § 2804. In support of that claim, defendant alleged that he was a "franchisee", "distributor", and "retailer" of plaintiff's products, as defined by the Federal Act (15 U.S.C. § 2801[4], [6], [7]. In his seventh affirmative defense and counterclaim, defendant alleged that plaintiff violated the termination and notification requirements of New York General Business Law § 199-c(1), (3). In support of that claim, defendant alleged that he was a "dealer" and Pennzoil a "distributor" within the meaning of General Business Law § 199-a(1), (2), and that his agreement with plaintiff was a "franchise" within the meaning of General Business Law § 199-a(3). Under the sixth counterclaim, defendant alleged that plaintiff accomplished the illegal termination by ceasing to sell petroleum products to defendant, by withdrawing defendant's authority to sell petroleum products under the Pennzoil brand name, and by removing the Pennzoil trademark and signs from defendant's premises. Under the seventh counterclaim, it was alleged that plaintiff accomplished the illegal termination by ceasing to sell fuel to defendant and by withdrawing defendant's authority to use the Pennzoil trademark and sign. Under each counterclaim, defendant alleged that plaintiff failed to give any notice of termination.

                its obligations under the alleged oral distributorship agreement, and seeking rescission of the note and compensatory and punitive damages.   In its reply to defendant's counterclaims, plaintiff denied making the representations or promises alleged by defendant
                

In its amended reply, plaintiff generally denied the allegations of the amended answer, specifically denied that defendant or any corporation in which he owned an interest was a distributor or franchisee of Pennzoil, and alleged, as an affirmative defense, that any such claim was time-barred.

THE MOTION

In November 1989, plaintiff moved for summary judgment dismissing defendant's sixth and seventh affirmative defenses and counterclaims. Plaintiff argued that the PMPA claim is subject to exclusive Federal jurisdiction, that the GBL claim is preempted by the Federal statute, and that both claims are barred by the Statute of Limitations. Defendant opposed the motion.

The court determined that state and Federal courts have concurrent jurisdiction over PMPA claims; that the GBL claim is not inconsistent with, and thus not preempted by, the PMPA claim; and that the GBL and PMPA claims asserted in the amended answer relate back to the original answer and thus are timely. Accordingly, the court denied plaintiff's motion for summary judgment.

SUBJECT MATTER JURISDICTION

Plaintiff's first contention is that the court lacks subject matter jurisdiction over claims arising under the Federal PMPA because such claims may be brought only in Federal court. In general, there is a presumption that state courts have concurrent subject matter jurisdiction over Federal claims (Tafflin v. Levitt, 493 U.S. 455, 110 S.Ct. 792, 107 L.Ed.2d 887, reh. denied --- U.S. ----, 110 S.Ct. 1942, 109 L.Ed.2d 305; Yellow Freight System, Inc. v. Donnelly, 494 U.S. ----, 110 S.Ct. 1566, 108 L.Ed.2d 834; Simpson Elec. Corp. v. Leucadia, Inc., 72 N.Y.2d 450, 455, 534 N.Y.S.2d 152, 530 N.E.2d 860). Under our system of dual sovereignty, "state courts have inherent authority, and are thus presumptively...