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BRUNO v. PEPPERIDGE FARM

August 10, 1966

James A. BRUNO
v.
PEPPERIDGE FARM, INC.



The opinion of the court was delivered by: LORD, JR.

 John W. Lord, Jr., District Judge.

 This action is based on the alleged breach and improper termination of a franchise agreement between the plaintiff, James A. Bruno, and the defendant, Pepperidge Farm, Inc. The parties were previously before this Court in the same matter. However, at that time, diversity jurisdiction was not properly set forth. (James A. Bruno v. Pepperidge Farm, Inc., Civil Action No. 38486, filed February 25, 1966). That defect has since been cured.

 The matter is presently before the Court on the defendant's motion for dismissal or, in the alternative, for a stay of all proceedings pending arbitration pursuant to the franchise agreement. The plaintiff resists arbitration, asserting that the alleged breach deprived the defendant of the right to invoke the arbitration clause.

 FACTS

 On May 25, 1962, the plaintiff and the defendant entered into a written agreement under which the plaintiff was to enjoy an exclusive franchise for the sale and promotion of the defendant's products throughout a designated geographic area. The plaintiff asserts that he acquired the franchise by paying the prior franchise holder $5,500.00 with the consent and approval of the defendant. The alleged breach occurred when, according to the complaint, the defendant assigned a portion of plaintiff's territory to another dealer without the plaintiff's knowledge or consent.

 The termination is alleged to have been improper due to the manner in which it was effected. The plaintiff complains that prior to the official termination, the defendant engaged in surreptitious negotiations with three other persons, arranging to sell to each of them one-third of plaintiff's franchise. Moreover, the notice, when given, was unreasonable in that it arrived only two days prior to the effective termination date. This short notice is alleged to have had two adverse effects. First, it is asserted that the plaintiff was thereby deprived of the profits that he would have made during a reasonable notice period - thirty days, in his judgment. Second, it resulted in an additional loss, since he was thereafter unable to market the $500.00 worth of merchandise in stock at the time of termination.

 For the alleged breach, the plaintiff demands an accounting. For the improper termination, he demands damages in the amount of $11,950.00 consisting of (1) the alleged value of the franchise ($10,750.00), (2) the loss of profits resulting from the short notice ($700.00), and (3) the value of the goods in stock at the time of termination ($500.00).

 The defendant contends that the plaintiff's rights are confined to the franchise agreement which provides for arbitration as to the value of the franchise and awards an additional premium of 25%. Moreover, the defendant asserts that the premium was intended by the parties to constitute liquidated damages for any and all breaches by the defendant. Further, it is argued that no notice was required under the agreement beyond that given, for the reason that a notice period is conspicuously absent in the paragraph under which termination was had.

 Finally, the defendant asks that the complaint be dismissed for the reason that the aggregate of plaintiff's claims do not satisfy the jurisdictional amount necessary to maintain an action in this Court. It arrives at this conclusion by assigning a value to the franchise of $3,200.00, subtracting this figure from the amount claimed ($10,750.00) and adding the $1,200.00 alleged to have been lost as a result of the improper termination. The maximum amount recoverable then, the defendant points out, would be $8,750.00, clearly below the jurisdictional requisite.

 Plaintiff's demand for an accounting for the alleged franchise infringement is disposed of by calling attention to the absence in the complaint of any intimation as to the territory involved, the duration of the alleged infringement or of the damages purportedly accruing.

 DISCUSSION

 I - Arbitration

 Paragraph nineteen of the franchise agreement is clear and unequivocal. Its relevant ...


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