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Amerada Hess Corp. v. Quinn

Decided: May 7, 1976.

AMERADA HESS CORPORATION, A DELAWARE CORPORATION, PLAINTIFF,
v.
DAVID BARRY QUINN, DEFENDANT



Doan, J.s.c.

Doan

[143 NJSuper Page 241] At issue in this case is the right of plaintiff, an oil company, to terminate a Dealer Lease (lease) and a Dealer Franchise and Sales Agreement (franchise agreement) for a location known as Hess Station No. 30256 (the station) located at 451 Route 23 in Wayne, New Jersey. The present dealer at the station is defendant David Barry Quinn, who has occupied the station pursuant to those agreements since December 1968. Plaintiff Amerada Hess Corporation (Hess) contends that Quinn had breached the agreements in numerous respects; that these breaches are substantial, both individually and in the aggregate, and that, therefore, Hess properly terminated these agreements and is entitled to possession of the station. Quinn denies the charges, and at the pretrial conference which molded the

pleadings in this case Quinn set up the claim to a permanent injunction to prevent plaintiff from effectuating its termination of the agreements.

The genesis of this litigation followed the service upon defendant of the notice of termination dated October 31, 1974. Plaintiff instituted the present action in the Chancery Division seeking damages in the first three counts of the verified complaint and injunctive relief in the fourth count enjoining defendant from altering or destroying any records. Defendant, in its amended answer, set up a counterclaim which sought damages for breach of contract in six counts. By a consent order dated November 4, 1974 each of the parties was enjoined from altering or destroying any records pertaining to the operation of the station until the termination of the litigation, and the case was transferred to the Law Division. Thereafter defendant moved in the Law Division for a preliminary injunction restraining plaintiff from executing its notice of termination and recovering possession of the station until a plenary hearing was held to determine plaintiff's right in regard thereto. After a hearing on that application an order was entered on December 19, 1974 restraining plaintiff from terminating the lease and franchise agreement and removing defendant from the station until the further order of the court. Plaintiff's application for leave to appeal that order was denied by the Appellate Division on January 20, 1975. Thereafter plaintiff moved to vacate the restraint described in the order of December 19, 1974, and on August 28, 1975 plaintiff's motion to dissolve the existing preliminary injunction was denied.

At pretrial conference held on November 21, 1975 the pleadings in this action were molded so that the claims for damages in the first three counts of plaintiff's complaint and the first five counts of defendant's counterclaim were dismissed without prejudice, leaving open defendant's sixth count for leakage loss resulting from a defective storage tank, which count was severed to await disposition following the trial of the present action. Thus, the only issue remaining

for present disposition is whether defendant has failed to "substantially perform" its obligations under the lease and franchise agreement so that "good cause" for termination exists. Cf. N.J.S.A. 56:10-5, Shell Oil Co. v. Marinello , 63 N.J. 402 (1973). Plaintiff seeks judgment for possession and defendant seeks a permanent injunction restraining plaintiff from terminating the agreements. The action as thus molded is, in essence, a conventional injunction suit. As such, an order was entered, on December 1, 1975 striking defendant's demand for trial by jury and directing that the action be tried before the court alone.

Since 1960 Hess has marketed gasoline and motor oil through gasoline service stations located on the East and Gulf Coast of the United States. Throughout this period Hess has promoted its products and promoted its trademark, trade name and image through what it describes as a unique marketing policy. It has a little over 100 stations in New Jersey and about 465 in all of the United States. It does not engage in the sale of tires, batteries or automotive accessories, nor does it perform automotive repairs. Rather, its gasoline stations' revenue is derived solely from its sale of petroleum products.

In order to establish and maintain its customer satisfaction and good will, Hess had developed and actively promoted the image of a company which retails its products in modern, clean and brightly lighted service station facilities, staffed by courteous employees who rendered prompt and complete service which includes cleaning front and rear windows, headlights and side view mirror and checking underneath the hood. These concepts are contained in the agreements as well as in the Statement of Marketing Policy which is accepted in writing by its dealers, including Quinn, and prominently displayed in its salesroom. Hess bears the entire investment in a given site involving extensive land and construction costs and the continuing expenses, such as taxes and insurance. Hess charges its dealers no franchise fee.

They are required only to furnish a security deposit to cover the last load of gasoline supplied to them.

The terms of the relationship between the parties are embodied in the lease and franchise agreement. Each is dated December 19, 1968. The lease ran until January 31, 1969 and thereafter automatically renews itself from month to month until either party terminates the lease by giving at least 30 days' written notice to the other party before the end of the initial term or before the end of any subsequent monthly term. The franchise and agreement, executed on December 19, 1968, ran for a term to expire January 31, 1970 and has thereafter automatically renewed itself from year to year. Either party has the right to terminate the agreement by giving at least 30 days' written notice to the other party before the end of the initial term or before the end of any subsequent renewal term. It also provided that if the dealer breached any of the provisions of the agreement, plaintiff would have the right to terminate the agreement on 24 hours' written notice to the dealer. Each agreement provided that a breach of one would be a breach of the other.

By letter dated October 31, 1974 plaintiff notified defendant that due to his failure to substantially comply with the terms of the lease and franchise agreement both were terminated effective December 31, 1974. The grounds for termination set out in that letter were:

(1) That defendant sold gasoline at prices which exceeded those allowable by the Economic Stabilization Act of 1970 and the Emergency Petroleum Allocation Act of 1973 in violation of para. 5 of the Dealer Lease and para. 5 (f) of the Dealer Franchise and Sales Agreement.

(2) Defendant's operation of the station has led to a substantial decline in the volume of gasoline sold from April 1974 and continuing to October 31, 1974.

(3) The 10-car observation surveys taken and defendant's field representative's reports show a complete lack of adherence to the Hess Marketing Policy which defendant agreed to follow on at least the dates in 1974 running sporadically from January 16th to October 21st in violation of para. 5 of the Dealer Franchise and Sales Agreement.

(4) That defendant failed to maintain a clean and attractive station in violation of para. 5 of the Dealer Franchise and Sales Agreement and para. 6 of the Dealer Lease on dates which ran sporadically from January 5, 1974 to October 16, 1974.

(5) That defendant failed to devote his full time and effort to the operation of the station in violation of para. 14 of the Dealer Franchise and Sales Agreement on dates in 1974 running sporadically from January 5th to October 16th.

(6) [Added at trial by leave of court] defendant failed to maintain records contrary to the New Jersey Motor Fuel Act, N.J.S.A. 54:39-33 and 34, the New Jersey Motor Fuel Sales Act, N.J.S.A. 56:6-12 and regulations promulgated pursuant to said statutes as contained in N.J.A.C. 18:18-4.1, et seq., (b)(1) and (4); also in violation of Federal Energy Regulation 10 C.F.R. § 212.128 and 212.129, the gist of these statutes and regulations being that defendant was required to maintain a daily sales record which showed the unit price of each product, a monthly expense record which must include all overhead and general business expenses and records of base production control levels and selling prices authorized by the petroleum price rules of the federal regulations.

Although plaintiff relies upon all of the breaches described above, its principal thrust is directed toward defendant's violation of the Economic Stabilization Act of 1970 as amended (P.L. 92-210) in § 203. This act led to the issuance of Executive Orders Nos. 11695, 11723 and 11730, which authorized the Cost of Living Council to issue regulations to carry out the Congressional mandate as necessary to stabilize prices, rents, wages and salaries. The Cost of Living Council issued a regulation contained in 6 C.F.R. 150.359 (applicable to resellers and retainers) which provides in part:

(C) Price rule. (1) A seller may not charge a price for any item subject to this section which exceeds the weighted average price at which the item was lawfully priced by the seller in transactions with the class of purchaser concerned on May 15, 1973 , plus an amount which reflects on a dollar-for-dollar basis, increased cost of the item. (2) Notwithstanding subparagraph (1) of this paragraph, with respect to special products: (1) Beginning with January 1, 1974, with respect to retail sales, a seller may charge 1 cents per gallon in excess of the amount otherwise permitted to be charged for that item * * *.

Gasoline is one of the "special products" for which this 1 cents a gallon increase was authorized. This ...


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