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DI NAPOLI v. EXXON CORP.

January 21, 1982

DON G. DI NAPOLI, d/b/a DINO'S SERVICE, Plaintiff,
v.
EXXON CORPORATION and EXXON COMPANY, U.S.A. (a division of Exxon Corporation), Defendants



The opinion of the court was delivered by: SAROKIN

 Plaintiff moved for summary judgment to enjoin defendant Exxon from terminating plaintiff's franchise, and has also moved for interim attorney's fees. Defendant has cross-moved for summary judgment or, alternatively, for an order dissolving the preliminary injunction.

 STATEMENT OF FACTS

 On June 1, 1979, DiNapoli executed a retail service station lease and a sales agreement with Exxon under which DiNapoli operated an Exxon retail service station in Little Falls, New Jersey. The sales agreement specified that if the plaintiff were to cease selling Exxon's motor fuels, that plaintiff would discontinue using Exxon's trademarks in its business.

 In February 1981, a credit dispute arose between DiNapoli and Exxon. Plaintiff claims that as a result of the dispute, Exxon refused to deliver fuel to plaintiff and that the last delivery was made on March 10, 1981. Exxon denies that it refused to deliver fuel to plaintiff. Defendant also contends that, in February 1981, plaintiff informed Arthur M. Dudley, Retail District Manager for Exxon's North Jersey District, that he intended to begin selling non-Exxon fuel at his station. During the conversation, it is alleged that Mr. Dudley reminded plaintiff that the sales agreement prohibited the sale of non-Exxon motor fuel under Exxon's trademarks, and that the agreement also prohibited any action which would diminish the value of the trademark rights.

 On March 25, 1981, plaintiff was still selling Exxon fuel, but he also began selling non-Exxon motor fuel. Before he began selling the non-Exxon fuel, plaintiff put white tape over the word "Exxon" on each of the pumps where the non-Exxon fuel was being sold, and covered with paint the Exxon tiger insignia on the "Exxon Unleaded Extra" pump panel. Plaintiff claims that he also instructed his employees to inform any customer who asked, that the gasoline sold was not Exxon gasoline.

 Defendant claims that plaintiff's efforts to disassociate his sales of non-Exxon gasoline from the Exxon trademark were inadequate. In support of its claim, defendant notes that Exxon's trademarks were still prominently displayed on the premises in many places: on a large pole sign in front of the station; on the canopy over the gasoline pumps; on a sign over the garage bays; on a sign above the station's office door; on a sign in front of the office; on plaintiff's invoices; and on the uniforms of plaintiff's employees. In addition, defendant claims that misrepresentations were made as to the identity of the gasoline to defendant's affiants. In one case, defendant notes that plaintiff accepted an affiant's charge plate in payment for gasoline and, on the charge slip, marked the box "Exxon Unleaded Extra".

 On or before April 2, 1981 Richard L. Miniter, the Exxon Sales Representative assigned to plaintiff's station since January 1, 1981, delivered a set of detailed, illustrated, guidelines for deidentification to DiNapoli. Plaintiff denies that these materials were left with him, claiming that Miniter showed him only the front page of the materials and flipped through the rest of the pages. Plaintiff also denies receiving a copy of the same guidelines which defendant alleges had previously been mailed to him on March 14, 1980. In addition, plaintiff contends that Mr. Miniter, in late March, told plaintiff that his efforts to deidentify the gasoline were "okay for now", and also told plaintiff that he would receive a deidentification "kit", which plaintiff claims was never delivered.

 As of April 3, 1981, plaintiff no longer sold Exxon gasoline at his service station. On April 22 and 24, photographs were taken of the station, which defendant claims indicate that no further steps had been taken to remove the Exxon trademarks from the premises. On July 23, 1981, Exxon delivered written notice to plaintiff stating that the service station lease, sales agreement, and franchise relationship would be terminated effective 12:00 noon on October 22, 1981.

 This court subsequently granted plaintiff's request for a temporary restraining order enjoining Exxon from terminating plaintiff's franchise. On November 23, 1981, the court granted plaintiff's motion for a preliminary injunction enjoining termination. The court found that a hearing would be necessary to determine whether defendant would be estopped from terminating plaintiff's franchise because of the statement allegedly made by Exxon's agent that DiNapoli's deidentification efforts were "okay for now."

 DISCUSSION OF THE LAW

 In seeking to terminate plaintiff's franchise, Exxon asserts claims under the Petroleum Marketing Practices Act (PMPA). The purpose of the Act is to protect franchisees from "arbitrary or discriminatory" termination practices by franchisors. S. Rep. No. 95-731, 95th U.S. Code Cong. & Ad. News 874. Although Congress intended "to protect franchisees from heavy-handed practices by oil companies," Gilderhus v. Amoco Oil Co., 470 F. Supp. 1302, 1305 (D. Minn. 1979), it also recognized "the legitimate needs of a franchisor to be able to terminate a franchise." S. Rep. No. 95-731, at 19. The legislation thus contained a set of rules governing the rights of franchisors and franchisees with respect to termination of a franchise. Id. Defendant contends that under two of these rules, 15 U.S.C. § 2802(c)(10) and 15 U.S.C. § 2802(b)(2)(A), it has the right to terminate plaintiff's franchise.

 Under 15 U.S.C. § 2802(b)(2)(A), a franchise may be terminated if a contract provision, which is "both reasonable and of material significance to the franchise relationship" is violated, and the franchisor gives notice of termination not more than 120 days after it "first acquired actual or constructive knowledge" of the violation. In paragraph 11 of the sales agreement between DiNapoli and Exxon, DiNapoli agreed to protect the value of Exxon's trademarks. DiNapoli specifically agreed to discontinue the posting of Exxon's trademarks immediately upon ceasing to sell Exxon gasoline.

 The trademark provision of the contract is both "reasonable and of material significance to the franchise relationship." The provision allows Exxon to determine what gasolines will be sold under its trademark. Without this type of control, inferior gasolines could be ...


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