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GLENSIDE WEST CORP. v. EXXON CO.

February 21, 1991

GLENSIDE WEST CORPORATION, PLAINTIFF,
v.
EXXON COMPANY, U.S.A., A DIVISION OF EXXON CORPORATION, DEFENDANT. EXXON COMPANY, U.S.A., A DIVISION OF EXXON CORPORATION, COUNTERCLAIMANT, V. GLENSIDE WEST CORPORATION, COUNTERDEFENDANT.



The opinion of the court was delivered by: Lechner, District Judge.

  OPINION

This is a claim brought by plaintiff Glenside West Corporation ("Glenside") against Exxon Company, U.S.A., a Division of Exxon Corporation ("Exxon"), and counterclaims brought by Exxon against Glenside arising out of the decision by Exxon to terminate the retail motor fuel service station franchise of Glenside (Glenside and Exxon are collectively referred to as the "Parties"). Jurisdiction is alleged pursuant to the Petroleum Marketing Practices Act (the "PMPA"), 15 U.S.C. § 2801 et seq., and 28 U.S.C. § 1331 and 1337.*fn1

Exxon moves to dismiss various counts of the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) and to strike the affirmative defenses of Glenside to its counterclaims pursuant to Fed.R.Civ.P. 12(f).*fn2 For the reasons which follow, the motions are granted in part and denied in part.*fn3

Facts*fn4

Glenside, through its president and sole shareholder Robert E. Lee, Jr. ("Lee"), entered into a franchise relationship with Exxon sometime around April 1985 for the operation of an Exxon retail motor fuel service station (the "Service Station") located at 2591 U.S. Route 22, Scotch Plains, New Jersey. Amended Complaint at 5-6. The franchise relationship was based on a lease agreement (the "Lease Agreement") and retail sales agreement (the "Sales Agreement") between the Parties which authorized Glenside to use Exxon's trade mark in connection with the sale, consignment or distribution of motor oil (the "Lease Agreement" and "Sales Agreement" are collectively referred to as the "Franchise Agreement"). Amended Complaint at 6. The Parties renewed the Franchise Agreement on or about 27 September 1987 for the period 1 January 1988 to 1 January 1991. Amended Complaint at 8.

Glenside alleges a number of conflicts arose with Exxon during the course of the franchise relationship. Glenside alleges that while the Franchise Agreement permitted the performance of automotive repair and towing services, agents and employees of Exxon continuously insisted beginning in January 1988 that Glenside abandon its repair and towing services and limit its operations to the sale of motor fuel and related products. Amended Complaint at 9. In addition, agents and employees of Exxon allegedly continuously harassed Glenside by claiming that its repair and towing services "constituted a decline in retail performance, a nuisance and a failure of [Glenside] to maintain clean and healthful facilities, and that a continuation of said automotive repair and towing service constituted a strain in the franchise relationship and [Glenside] would be deemed uncooperative in said franchise relationship to its detriment." Amended Complaint at 9-10.

Glenside also alleges Exxon agents and employees repeatedly misrepresented to Glenside's employees that the franchise relationship would end because the landowner refused to renew the lease or sell the Service Station property to Exxon and that they should therefore seek other employment. Amended Complaint at 10-11. Glenside contends that, in fact, Exxon "was ultimately successful in its attempts to purchase said premises and did, indeed, purchase said premises from the landowner or its heirs, successors and assigns." Amended Complaint at 8.

Finally, Glenside alleges the Sales Agreement obliged Exxon to provide Glenside "with only those goods, inventory and services necessary to adequately, properly and successfully operate a retail motor fuel station operation. . . ." Amended Complaint at 14. Glenside alleges it purchased inventory based on the representations of Exxon's "business counselors" that such inventory was marketable and essential to successful performance, when in fact much of the inventory remained "unsold, unmarketable and otherwise inappropriate for [Glenside's] retail motor fuel service station operation." Amended Complaint at 15.

Glenside alleges that prior to October 1989, it was a "longstanding" practice between Glenside and Exxon for Glenside to pay its monthly rental fees to the Exxon sales representative who regularly visited the Service Station. Amended Complaint at 3. Glenside alleges the sales representative did not make his customary visits in October and November 1989, and did not provide Glenside with the address to which rental payments should be mailed. Id. Glenside alleges it was for that reason that it failed to make its rental payments for these months. Id.

Glenside also states that while Lee*fn5 never "seriously threatened personal injury or damage to anyone associated with Exxon or Exxon's property," he had a long-standing argumentative relationship with an Exxon sales representative arising out of ongoing problems in obtaining gas supplies from Exxon. Id. Glenside acknowledges "these ongoing problems did contribute to one inappropriately emotional outburst during a telephone conversation with the secretary to [Exxon's] retail district manager. However [Lee] has since apologized for that isolated incident." Id.

On or around 4 January 1990, Glenside received notice from Exxon of Exxon's intention to terminate and not renew the Franchise Agreement effective 15 April 1990. Amended Complaint at 2. Glenside states Exxon claimed it was basing its decision to terminate on Glenside's failure to make timely rental payments for October and November 1989 and on Lee's alleged threat to cause damage to Exxon's property and injury to its personnel. Amended Complaint at 2-3.

On 3 April 1990, Glenside filed its Complaint for Preliminary and Permanent Injunction, seeking to enjoin Exxon from terminating the Franchise Agreement. See Complaint for Preliminary and Permanent Injunction (the "Complaint").

On 30 April 1990, Exxon answered the Complaint and asserted three counterclaims against Glenside. See Answer and Counterclaim. In Count I (the "First Counterclaim"), Exxon alleges the failure of Glenside to make timely rental payments for the months September 1988 and April, October and November 1989 and threats by Glenside against Exxon's personnel and property constitute grounds for termination and nonrenewal pursuant to 15 U.S.C. § 2802(b)(2)(A), 2802(b)(2)(B) and/or 2802(b)(2)(C) and 2802(c)(8).*fn6 In Count II (the "Second Counterclaim"), Exxon alleges it will be entitled to possess the Service Station on 15 June 1990. In Count III (the "Third Counterclaim"), Exxon alleges Glenside owes Exxon in excess of $3,500 for rent and other items. Exxon seeks declaratory relief that its termination and nonrenewal of the Franchise Agreement were lawful under the PMPA, injunctive relief enjoining Glenside from continuing to occupy and refusing to vacate the Service Station, a judgment against Glenside for the amounts due and owing, and legal costs and attorneys' fees.

Glenside filed its Answer to Counterclaim on 22 June 1990. It filed an Amended Answer to Counterclaim on 10 August 1990 (the "Amended Answer"). In the Amended Answer, Glenside asserted two affirmative defenses to Exxon's counterclaims. As its first affirmative defense (the "First Affirmative Defense"), Glenside alleges Exxon was a fiduciary to Glenside and exerted undue influence over Glenside to induce it to purchase inventory, change and restructure business activities and relationships and otherwise conduct business in a manner to which Glenside would not otherwise have consented. Glenside alleges: "As a result of said undue influence, [Glenside] was and is forced into an unnatural transaction that unfairly enriches [Exxon] at the expense of [Glenside]." Amended Answer at 5. As its second affirmative defense (the "Second Affirmative Defense"), Glenside alleges it is entitled to cure its alleged deficient performance of the terms of the Franchise Agreement, stating:

  [Glenside], as incapacitated party, now has the
  election to ratify its prior promise by remedying
  said alleged "deficient" performance or avoiding
  enforcement of its contractual obligations.
  Plaintiff herein affirmatively elects to ratify
  its prior promise by remedying its "deficient"
  performance, and indeed, has already corrected
  said alleged "deficient" performance, in good
  faith, which remedied performance does not rise to
  the level of reasonable or material significance
  to

  the franchise relationship as contemplated by [the
  PMPA], amount to a failure to exercise good faith
  efforts, to carry out the provisions of said
  franchise relationship or constitute events which
  are relevant to the franchise permitting
  reasonable termination pursuant to [the PMPA].

Amended Answer at 6-7.

On 31 May 1990, Glenside withdrew its request for a preliminary injunction. It filed the Amended Complaint, which is the subject of the instant motion to dismiss, on 10 August 1990. See Amended Complaint.

The Amended Complaint contains twelve counts. Count One alleges Exxon seeks to terminate the Franchise Agreement with Glenside in violation of the PMPA, 15 U.S.C. § 2802. Count Two alleges Exxon seeks to terminate the Franchise Agreement for an improper motive, in order to operate the retail service station directly without reliance on a franchise arrangement. In Count Three, Glenside complains that agents and employees of Exxon continuously harassed Glenside by insisting that it abandon its automotive repair and towing services. In Count Four, Glenside complains that its employees were continuously harassed by Exxon's employees and agents, who misrepresented to them that they should seek other employment because Exxon may be unable to renew the lease or to purchase the Service Station property. Count Five incorporates the allegations of the prior four counts and states Exxon engaged in such conduct with malice. In Count Six, Glenside alleges Exxon seeks to terminate the Franchise Agreement for an improper motive in order to prevent Glenside from assigning the Franchise Agreement to a third party or to forestall the necessity of exercising its right of first refusal in the event Glenside sought to assign such agreement. In Count Seven, Glenside alleges Exxon's "business counselors" were negligent in the advice they gave Glenside as to what inventory to purchase. Count Eight alleges Exxon breached an implied covenant to uphold its image with the public by virtue of highly publicized oil spills with which Exxon was associated. In Count Nine, Glenside alleges Exxon promised a reduction in Glenside's monthly rent in consideration for a reduction in Glenside's retail motor fuel prices and that Glenside suffered harm from the reduction made in its retail motor fuel prices. In Count Ten, Glenside alleges Exxon's "business counselors" represented to Glenside Exxon would make a reduction in Glenside's monthly rent in consideration for a reduction in Glenside's retail motor fuel prices in reckless disregard of the truth. In Count Eleven, Glenside demands an accounting of monies owing and credits due between Glenside and Exxon. Finally, in Count Twelve, Glenside alleges it suffered severe emotional distress as a result of the extreme and outrageous conduct of Exxon in divulging details of "[Glenside's] business and finances, franchise relationship with defendant and personal life," Amended Complaint at 22, to an individual who approached Lee in late 1987 with an offer to purchase assignment of Glenside's franchise.

Exxon filed its Answer to Amended Complaint and Counterclaims on 31 August 1990. The counterclaims asserted therein reiterate the counterclaims asserted in the Answer and Counterclaim filed 30 April 1990. In addition, on 28 December 1990, with the consent of Glenside, Exxon supplemented its counterclaims to allege in Count One Glenside failed to make timely payment of rent for the months August, September, October, November and December 1990.

Exxon now moves to dismiss Counts Two, Five, Six, Eight, Eleven and Twelve of the Amended Complaint.*fn7 Exxon also moves to strike the affirmative defenses of Glenside. For the reasons which follow, Exxon's motions are granted in part and denied in part.

Discussion

A. Standard of Review

A court may dismiss a complaint for failure to state a claim where it appears beyond doubt that no relief could be granted under any set of facts which could be proved consistent with the allegations. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir.1990); Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988). In deciding such a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure, all allegations in the complaint must be taken as true and viewed in the light most favorable to the plaintiff. Gomez, 446 U.S. at 636 n. 3, 100 S.Ct. at 1921 n. 3; Markowitz, 906 F.2d at 103; Melikian v. Corradetti, 791 F.2d 274, 277 (3d Cir.1986); Robb v. Philadelphia, 733 F.2d 286, 290 (3d Cir.1984).

B. The Statutory Scheme of the PMPA

Congress enacted the PMPA in 1978 "in recognition of the 'disparity of bargaining power which exists between the franchisor and the franchisee' in the gasoline industry." Rodgers v. Sun Refining and Marketing Co., 772 F.2d 1154, 1158 (3d Cir.1985) (quoting Sun Refining and Marketing Co. v. Rago, 741 F.2d 670, 672 (3d Cir.1984)). Congress recognized franchisors "risk losing completely the return from their prior investments, and potentially their livelihood, if their franchise agreements are terminated," and that franchisors "used their superior bargaining power and the threat of termination to gain an unfair advantage in contract disputes." O'Shea v. Amoco Oil Co., 886 F.2d 584, 587 (3d Cir.1989) (citing Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987)). The PMPA was intended to protect franchisees from exploitation by large petroleum companies. O'Shea, 886 F.2d at 587 (citing S.Rep. 731, 95th Cong.2d Sess. 17-18, reprinted in 1978 U.S.Code & Admin.News, 873, 875-77).

The PMPA accomplishes this purpose primarily by limiting the grounds on which distributors may terminate or fail to renew the franchise. 15 U.S.C. § 2802.*fn8 Other than as provided therein, the PMPA makes it illegal for a franchisor to terminate or to refuse to renew a franchise. 15 U.S.C. § 2803(a). As exceptions to this general rule, the PMPA provides two grounds on which a franchisor may terminate or fail to renew a franchise due to failure to perform on the part of the franchisee.*fn9 First, the franchisor may terminate or fail to renew a franchise when the franchisee fails to "comply with any provision of the franchise, which provision is both reasonable and of material significance to the franchise relationship." 15 U.S.C. § 2802(b)(2)(A). Second, the franchisor may terminate or fail to renew a franchise for the franchisee's failure to make a good faith effort to carry out any provision of the contract "without consideration of the reasonableness of the term as long as the franchisee is given an opportunity to comply with the term in question." O'Shea 886 F.2d at 595 (citing Mobil Oil Corp. v. Karbowski, 879 F.2d 1052, 1054 (2d Cir.1989)); 15 U.S.C. § 2802(b)(2)(B).

The Third Circuit has recently limited the instances in which subsection (b)(2)(B) will justify a termination:

    Although section 2802(b)(2)(B) does not
  explicitly state a materiality requirement, we
  nonetheless believe that a franchisor could not
  justify terminating a franchisee pursuant to the
  section for failing to exercise good faith in
  carrying out immaterial provisions of the
  franchise agreement. Congress clearly stated its
  purpose to prevent "arbitrary or discriminatory"
  terminations. Senate Report at 15, 1978 U.S.Code
  Cong. & Admin.News,

  874. If franchisors could terminate franchisees
  when they fail to comply with immaterial terms,
  this purpose would be frustrated, because, by
  definition, a franchisor can have no legitimate
  reason to terminate a franchise for violating
  immaterial contract provisions.

O'Shea, 886 F.2d at 595 n. 11.

In addition, in construing whether the franchisee has failed to perform the terms of the franchise agreement in the sense intended by either subsection (b)(2)(A) or (b)(2)(B), reference must be made to 15 U.S.C. § 2801(13), in which "failure" is defined. Sun Refining & Marketing Co. v. Rago, 741 F.2d 670, 673 (3d Cir.1984). Under this subsection, the term "failure" does not include:

  (A) any failure which is only technical or
  unimportant to the franchise relationship; or
  (B) any failure for a cause beyond the reasonable
  control of the franchisee.

15 U.S.C. § 2801(13).

Finally, termination or nonrenewal of a franchise agreement is permitted upon "the occurrence of an event which is relevant to the franchise relationship and as a result of which termination of the franchise or non-renewal of the franchise relationship is reasonable. . . ." 15 U.S.C. ยง 2802(b)(2)(C). The PMPA provides a nonexhaustive list of examples of such occurrences, including fraud or criminal conduct by the franchisee "relevant to the operation of the marketing premises" and ...


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