Weiss also argues that it was forced to pay excess interest charges because of the alleged delay in credits. Weiss Aff. at 7-8, 14, 16.
16. A class action lawsuit was instituted by the JLAF, an association of Jiffy Lube franchisees. The lawsuit was settled in mid-1992. It was asserted at oral argument, and not disputed, that the execution of the Amendment was in part a result of the settlement of that suit. Paragraphs 19 and 20 of the Amendment, in fact, provide for mutual releases which were executed and are attached as Exhibit 4 to the Amendment. These releases reference the litigation.
17. Sometime in early 1993 (or late 1992) Jiffy Lube established a centralized point of sale ("POS") computer system (the "J-SMRT") for use by all franchises. As each sale is made, sales information is entered into the computer and transmitted daily from the individual service centers to the corporate headquarters in Houston. Weiss Aff. at 8; Plaintiff's Exhibit P-4; Defendant's Exhibits D-1 to D-3. The implementation of J-SMRT helps both franchisor and franchisee. By providing timely and accurate sales data it allows both parties to have confidence in the financial data on which the calculation of mutual debits and credits depends.
18. Installation of the J-SMRT system at the Weiss Brothers' facility was fraught with difficulties. Apparently, Weiss Brothers maintained its own system, and feared that installation of the J-SMRT would have adverse effects on existing data. Plaintiff's Exhibit P-7. In March of 1993, Weiss Brothers was informed that its intransigence with respect to the computer system was construed as a default under the License and Franchise Agreements, and that it would be given thirty days to cure the default. Plaintiff's Exhibit P-4. Finally, the defendants' site was placed "on-line" and, after initial difficulties with data transmission, the defendants began relaying daily sales information to Houston.
19. Notwithstanding the settlement of the litigation, defendants continued to feel as though Jiffy Lube was incorrectly computing the fleet credits to which Weiss was entitled. In fact, as late as June of 1993, defendants were still inquiring about "confusion" in their royalty accounts. Defendant's Exhibits D-3, D-4. We find that, throughout the length of the franchise, defendants had a dispute with plaintiff regarding the accounting for royalty payments and fleet credits. Weiss Brothers genuinely believed that it was not receiving the credits to which it was entitled and did not fabricate this claim only when caught underreporting sales to Jiffy Lube.
20. On or about March 2, 1993, Weiss Brothers submitted a Monthly Statistical Report to Jiffy Lube which misrepresented that it had achieved $ 67,833.29 in gross sales for the month of February, when, in fact, gross sales were $ 75,370.32.
21. On or about April 1, 1993, Weiss Brothers submitted a Monthly Statistical Report to Jiffy Lube showing $ 73,886.20 in gross sales for the month of March, when gross sales were actually $ 82,095.77.
22. In August, 1993, defendant Alfred Weiss admitted during an audit at the Turnersville site that Weiss Brothers had knowingly underreported sales for February and March, 1993. In addition, Alfred Weiss admitted that Weiss Brothers had underreported sales from January through December of 1992. Verified Complaint at P 25. In the affidavit submitted in opposition to the application for a preliminary injunction, Alfred Weiss confesses that he "was personally the one responsible for the decision to underreport the sales to Jiffy Lube for the five months in question." Weiss Aff. at 15, P 34.
23. Oral argument solved the minor mystery of how Jiffy Lube was able to determine with pinpoint accuracy the volume of sales concealed by defendant. It was represented by plaintiff's counsel, and not disputed, that defendant installed and entered sales data into computer terminals many months before hooking those terminals to Houston. When the hookup finally occurred, the terminals transmitted not only new data, but also apparently "dumped" its past memory banks over the wires to Houston. The comparison of this new data with the information previously reported by defendant led to the audit and defendant's exposure.
24. Irrespective of the actual motivation for defendants' actions, at no time was anyone at Jiffy Lube informed that underreporting sales was defendants' way of seeking to offset the amounts allegedly owed by Jiffy Lube.
24. The giving of false information to the plaintiff by the defendants constitutes a failure by the franchisee to substantially comply with the requirements imposed in the License Agreement and Franchise Agreement between Jiffy Lube and Weiss Brothers. While the amount of royalties may not be significant in dollar amount, the integrity of information flowing from franchisor to franchisee goes to the very heart of the relationship.
25. Exercising its option under Paragraph 10 of Addendum B to the License Agreement and Paragraph 21(B) of the Franchise Agreement, on July 28, 1993, Jiffy Lube served Weiss Brothers with a Notice of Termination, effective 12:01 A.M. on September 28, 1993. Jiffy Lube informed the defendants' counsel that its decision to terminate the franchise was based on the defendants' "false statements in reports and financial records submitted to Jiffy Lube." Plaintiff's Exhibit P-6.
26. Despite the Notice of Termination, Weiss Brothers has continued to operate the Turnersville site as a Jiffy Lube Service Center after 12:01 A.M. on September 28, 1993.
Conclusions of Law
Rule 65(a) of the Federal Rules of Civil Procedure governs the issuance of preliminary injunctions. When ruling on an application for preliminary injunction, the district court must consider four factors: (1) the likelihood that the applicant will prevail on the merits at the final hearing; (2) the extent to which the applicants are being irreparably harmed by the conduct complained of; (3) the extent to which the defendants will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. S & R Corp. v. Jiffy Lube International, Inc., 968 F.2d 371 (3d Cir. 1992); Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186 (3d Cir. 1990).
Likelihood of Success on the Merits
Jiffy Lube alleges in this application that it is being damaged by defendants' unauthorized use of its trademarks. The Third Circuit has held that:
The franchisor has the power to terminate the relationship where the terms of the franchise agreement are violated. Once a franchise is terminated, the franchisor has the right to enjoin unauthorized use of its trademarks under the Lanham Act. Thus, Jiffy Lube will merit preliminary injunctive relief if it can adduce sufficient facts indicating that its termination of [the franchisee's] franchises was proper.
S & R, supra, at 375.
As a federal court sitting in diversity, we apply the substantive law of New Jersey to determine whether Jiffy Lube's termination of the franchise was proper. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); Erie RR Co. v. Tompkins, 304 U.S. 64, 78, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). When the state's highest court has not addressed the precise issue in question, we must predict how the state's highest court would resolve the issue. Borman v. Raymark Industries, Inc., 960 F.2d 327, 331 (3d Cir. 1992). "In a diversity case, however, federal courts may not engage in judicial activism. Federalism concerns require that we permit state courts to decide whether and to what extent they will expand state common law." City of Philadelphia v. Lead Industries Ass'n, 994 F.2d 112 (3d Cir. 1993).
The New Jersey Franchise Practice Act, N.J.S.A. 56:10-1 et seq., expressly applies to the facts of this case: the franchisee maintains a place of business within the state of New Jersey, gross sales for the twelve months that preceded institution of this suit exceeded $ 35,000, and more than 20% of the franchisee's gross sales were derived from such franchise. N.J.S.A. 56:10-4.
Section 10-5 of the New Jersey Franchise Practices Act provides:
It shall be a violation of this act for a franchisor to terminate, cancel or fail to renew a franchise without good cause. For the purposes of this act, good cause for terminating, cancelling or failing to renew a franchise shall be limited to failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise.