Three Rivers Motors Co. v. Ford Motor Co.

• Citation: 522 F.2d 885
• Decision Date: 01 July 1975
• Docket Number: No. 74-1710,74-1710
• Parties: 1975-2 Trade Cases 60,394 THREE RIVERS MOTORS COMPANY v. The FORD MOTOR COMPANY and Auto Lite Corporation, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 885

522 F.2d 885

1975-2 Trade Cases 60,394

THREE RIVERS MOTORS COMPANY v. The FORD MOTOR COMPANY and Auto Lite Corporation, Appellants.

No. 74-1710.

United States Court of Appeals Third Circuit.

Argued May 1, 1975.

Decided July 1, 1975.

John A. Metz, Jr., Henry G. Beamer, III, Metz, Cook, Hanna & Kelly, Pittsburgh, Pa., for appellee.

Frank L. Seamans, John H. Morgan, Edward G. O'Connor, David E. Tungate, Ray C. Stoner, Eckert, Seamans, Cherin & Melliott, Pittsburgh, Pa., for appellants.

Before FORMAN, Van DUSEN and GARTH, Circuit Judges.

OPINION OF THE COURT

FORMAN, Circuit Judge.

This is an interlocutory appeal ¹ from the refusal of the United States District Court for the Western District of Pennsylvania to apply a general release to bar a pending antitrust action by Three Rivers Motors Company (Three Rivers) against Ford Motor Company (Ford). The release, executed in favor of Ford by Three Rivers upon termination of its Ford franchise, was raised by Ford in the context of a Rule 12(b)(6), Fed.R.Civ.P., motion to dismiss the antitrust claim. ² For the reasons set forth herein, it is held that the release bars Three Rivers' antitrust cause of action against Ford and, therefore, the District Court's ruling will be reversed and remanded with directions to grant Ford's motion to dismiss.

From 1951 to 1970 Three Rivers, first a Delaware and later a Pennsylvania corporation, operated under a Ford franchise in the Pittsburgh, Pennsylvania area with William Winterhalter serving as its president. Ford owned and operated a competing dealership in the same area under the name of Triangle Motors during at least part of this twenty-year span. ³ Three Rivers was aware of the Ford-owned dealership and also knew that the resulting competition was a factor contributing to Three Rivers' post-1965 operating losses. Prompted by these operating losses, Mr. Winterhalter began negotiating with Ford in 1966 in an effort to resign the Three Rivers franchise without sacrificing the corporation's investment in parts, accessories and equipment which at the time amounted to more than $120,000. Under the pre-1967 standard franchise agreement which Mr. Winterhalter and other Ford dealers had within the manufacturer, Ford had the option but not the obligation to repurchase Three Rivers' vehicles, parts inventory, etc. This repurchase of inventory stumbling block was apparently resolved in June 1967 when Ford unilaterally changed its franchise agreement to obligate Ford to buy back the inventory in return for the dealer's execution of a general release in a form specified by Ford. It is this general release which Ford now raises as a defense against the antitrust suit brought by Three Rivers.

Further problems, unrelated to the sale of inventory, delayed resignation of the Three Rivers franchise for several years. Finally, in early 1970 an agreement was reached and a closing was held where Three Rivers was to execute the general release and transfer its franchise and inventory to East Hills Ford, a new privately-owned dealership, in return for a total consideration of $524,000, part of which was supplied by Ford and part by East Hills. At the closing, Mr. Winterhalter balked at executing the general release, but after some negotiating between the parties' attorneys, he signed the release form, modified in a single respect an exception was added to the release for a pending product liability suit filed by Eazor Trucking against Three Rivers and Ford. ⁴

Three years later, in February 1973, Three Rivers filed the instant suit charging Ford with various antitrust violations arising, Inter alia, from an alleged price-fixing arrangement which encouraged certain fleet customers to purchase their new vehicles from the Ford-owned dealership, Triangle Motors. The limited question presented by this appeal is whether the release signed by Three Rivers is written in language broad enough to encompass antitrust claims and, therefore, bars this action against Ford.

Is the release to be interpreted by federal law or by state law?

While the antitrust cause of action is created by federal law, it does not necessarily follow that all issues in an antitrust case are to be determined by reference to federal law. Dura Electric Lamp Co. v. Westinghouse Electric Corp., 249 F.2d 5, 6 (3d Cir. 1957); Cf. Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 67-72, 86 S.Ct. 1301, 16 L.Ed.2d 369 (1966); United States v. Yazell, 382 U.S. 341, 348-58, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966). As explained in Hart and Wechsler, The Federal Courts and the Federal System (2d Ed. 1973):

"Federal law is generally interstitial in its nature. It rarely occupies a legal field completely, totally excluding all participation by the legal systems of the states. This was plainly true in the beginning when the federal legislative product (including the Constitution) was extremely small. It is significantly true today, despite the volume of Congressional enactments, and even within areas where Congress has been very active. Federal legislation, on the whole, has been conceived and drafted on an Ad hoc basis to accomplish limited objectives. It builds upon legal relationships established by the states, altering or supplanting them only so far as necessary for the special purpose. Congress acts, in short, against the background of the total Corpus juris of the states in much the way that a state legislature acts against the background of the common law, assumed to govern unless changed by legislation." Hart and Wechsler, The Federal Courts and the Federal System 470-71 (2d Ed. 1973).

Although Congress has explicitly occupied the antitrust field to the extent of legislating duties and causes of action for their enforcement, it has provided no rule for interpreting releases of antitrust claims. Thus, the question before this panel is whether federal common law or state law should be used to interpret the contract by which Three Rivers allegedly released its private antitrust cause of action.

Initially, it bears noting that the principles enunciated in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and related decisions do not Compel the application of state contract law in the instant case. ⁵ Although Erie does require that state law be applied in certain areas where law-making competence has been exclusively allocated to the states, ⁶ its mandate has no application to the resolution of questions affecting the federal antitrust statute. Since this case deals with the operation of a Congressional statutory scheme, the federal courts are Competent to interpret the release without regard to state law. Cf. United States v. Standard Oil Co., 332 U.S. 301, 307, 67 S.Ct. 1604, 91 L.Ed. 2067 (1947); Garrett v. Moore-McCormack Co., 317 U.S. 239, 245, 63 S.Ct. 246, 87 L.Ed. 239 (1942). ⁷

Having demonstrated that this court has the power to apply federal common law to interpret the release, it must be noted that we are also free to apply a state rule of law. Reconstruction Finance Corp. v. Beaver County,328 U.S. 204, 209-210, 66 S.Ct. 992, 90 L.Ed. 1172 (1946); Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 87 L.Ed. 838 (1943). Since Congress has not enacted a federal law for interpreting antitrust releases nor has it indicated an intent to adopt state laws on the subject, this court must consider for itself whether the statutory policies embodied in the antitrust laws will be better promoted by the absorption of state laws regarding release or the formulation of a federal rule. Factors relevant to the balancing of these competing governmental interests include: the need for a uniform federal rule, ⁸ the extent to which the transaction in question fits within the normal course of activities regularly governed by state law, ⁹ and the possibility of the state rule frustrating the operation of the federal statutory scheme. ¹⁰

The need for uniformity arises when the various state laws, by their diversity, threaten to impede the efficient operation of the federal statute. As a practical matter, however, a judicially-created uniform rule may be difficult to attain. It has been observed that:

"(T)he fact is presumably well known to the legal profession that such complete uniformity may be most unlikely as a matter of common law development: the only court in a position to assure that degree of uniformity the United States Supreme Court is so burdened with its present work that it is highly improbable that it could undertake effectively to develop detailed substantive rules for any area we are here considering." Mishkin, The Variousness of "Federal Law": Competence and Discretion in the Choice of National and State Rules for Decision, 105 U.Pa.L.Rev. 797, 813 (1957). ¹¹

Nevertheless, several cases have found the need for uniformity sufficient to require implementation of a federal common law rule. In Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), the Supreme Court held that the diversity of state commercial laws necessitated the development of federal common laws to govern commercial paper issued by the United States. A WPA pay check issued by the United States at Harrisburg, Pennsylvania was stolen and cashed by way of a forged endorsement. Clearfield Trust Company, a Pennsylvania bank, presented the check for payment to the Federal Reserve Bank in Philadelphia and collected the face amount. More than eight months later the United States notified Clearfield Trust that the endorsement was a forgery and instituted suit for reimbursement. Under Pennsylvania law, where all the relevant transactions took place, the delay in notifying the bank of the forgery would have prevented the United States from recovering the funds. The Court, however, declined to apply the state rule reasoning:

"The issuance of commercial paper by the United States is on a vast scale and transactions in that paper from...