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NORTH PENN OIL & TIRE CO. v. PHILLIPS PETROLEUM CO

May 14, 1973

North Penn Oil & Tire Co.
v.
Phillips Petroleum Co.


Broderick, District Judge


The opinion of the court was delivered by: BRODERICK

BRODERICK, District Judge:

 This matter comes before the Court pursuant to plaintiff's motion for a preliminary injunction to prevent the defendant from terminating its supply of gasoline and other petroleum products to the plaintiff, a Phillips branded jobber. Plaintiff alleges that the termination by the defendant Phillips Petroleum Co. of plaintiff's supply of gasoline and other petroleum products would be in violation of the federal antitrust laws as well as a breach of contract. Plaintiff also alleges that the defendant should be enjoined from terminating its supply of gasoline and other petroleum products to the plaintiff on the grounds of promissory and equitable estoppel.

 Plaintiff originally filed a complaint in the Court of Common Pleas of Bucks County on April 4, 1973 alleging that the defendant's proposed termination of the plaintiff's supply of gasoline and other petroleum products on April 15, 1973 would be in violation of the contractual agreements existing between plaintiff and defendant. The complaint requested, inter alia, that the Court enjoin the proposed termination of the plaintiff's supply of gasoline and other petroleum products. The Court of Common Pleas of Bucks County scheduled a hearing on the motion for a preliminary injunction for Friday, April 6, 1973. On April 5, 1973 this matter was removed, upon petition of the defendant, Phillips Petroleum Co., to this Court. On April 6, 1973 this Court scheduled a hearing on plaintiff's motion for a preliminary injunction for Friday, April 13, 1973. On April 12, 1973 plaintiff filed an amended complaint alleging, inter alia, breaches of contract and violations of the federal antitrust laws. On April 13, 1973, the parties advised the Court that the hearing on the motion for a preliminary injunction would take at least three full trial days and could not, therefore, be concluded on or before April 15, 1973, the date on which defendant's scheduled termination of plaintiff's supply of gasoline and other petroleum products was to take place. Accordingly, the Court, by agreement of the parties, continued the preliminary injunction hearing until April 23, 1973 and temporarily restrained the defendant from terminating plaintiff's supply of gasoline and petroleum products through April 27, 1973. On Friday, April 27, 1973 the Court, again by consent of the parties, extended the temporary restraining order through May 4, 1973.

 The Court issues this Memorandum and Order denying plaintiff's motion for a preliminary injunction after hearing the testimony presented by the parties on April 23, 24, 25, 26, 27 and May 2, 1973, after a review of the proposed findings of fact and conclusions of law filed by both parties, and after considering the extensive briefs submitted by both parties.

 Plaintiff, North Penn Oil and Tire Company (North Penn), a Pennsylvania corporation with its principal place of business at 135 North Ninth Street, Perkasie, Pennsylvania, is a petroleum products jobber managed and principally owned by Earl J. Gehman. The defendant, Phillips Petroleum Company, a Delaware Corporation with its principal place of business in Bartlesville, Oklahoma, is in the business of, inter alia, producing and purchasing crude oil which it refines into gasolines, oils, lubricants, and other petroleum products for distribution in various parts of the United States.

 Since 1947 plaintiff operated as a partnership under the name of North Penn Oil Company, and, in 1951 Mr. Earl Gehman became a partner. Subsequently, the partnership was dissolved and, in 1961, the North Penn Oil & Tire Company was incorporated with Mr. Earl Gehman as its chief executive officer. (NT 30). At the date of its incorporation, North Penn Oil & Tire Company's assets consisted primarily of trucks, accounts receivable, tire inventory, miscellaneous tools and equipment and land. It owned no bulk plant storage facility to receive liquid petroleum products but used bulk plant facilities owned by the Texaco Company. Beginning in April 1961, North Penn became a consignee of the Texaco Company ("Texaco") for the distribution of Texaco retail service station outlets and commercial customers in an area in and around Perkasie, Pennsylvania, of gasoline and other automobile related petroleum products. Because of the limited growth potential in being a consignee, in October 1961 North Penn was considering termination of its consignee relationship with Texaco to become a jobber for a major-branded gasoline and petroleum products company. At this time there was no shortage of gasoline, and there was no difficulty in obtaining supply from almost any major oil company. (NT 33, 34). In October 1961, Phillips Petroleum Company was relatively unknown in the Northeastern United States Market when Jerry Rhoads, a Phillips District Representative, called upon North Penn and initiated conversations concerning the possibility of North Penn becoming a jobber (distributor) for Phillips' gasoline, oils, lubricants, and other petroleum products in an area in and around Perkasie, Pennsylvania. (NT 35-37). At that time, Phillips was actively engaged in efforts to expand its market into the Northeastern area of the United States through a program designated by it as its "March to Maine." The objective of Phillips was to expand its operations to every state. (NT 37).

 The contemplated change from consignee status to jobber status for North Penn would require considerable capital investment in the nature of purchase and construction of bulk storage facilities including tanks and warehouse. Also, considerable sales effort would be required to convince existing dealer accounts to switch to the Phillips brand because Phillips at that time was relatively unknown to dealers in the Northeast. (NT 37, 43). In the conversations with Jerry Rhoads, Earl Gehman specifically questioned Rhoads as to whether Phillips was coming into the Northeast to stay, because Gehman specifically indicated that he never wanted to make another product change. In response to Mr. Gehman's questioning, Mr. Rhoads replied that "Phillips never had retreated from an area." (NT 37-38).

 After subsequent conversations, a meeting was set up for November 29, 1961 between Messrs. Rhoads, Gehman and Doug Hawkland (Rhoads' immediate superior) at the Holiday Inn in Allentown, Pennsylvania (NT 39). At this meeting, plaintiff contends an overall verbal agreement was reached among the parties as to North Penn's becoming a Phillips' jobber. Plaintiff further testified that this oral agreement contemplated that Phillips would finance on a long-term basis the construction of a bulk plant and warehouse facility, with a lease and sublease agreement terminating in 1979, and that Phillips would supply gasoline and petroleum products for an initial contract period of three years, which would be renewable on an annual basis each succeeding year, and would not be terminated except for cause until after the date of termination of the lease and sublease agreement. Mr. Gehman further testified, however, that his understanding that the jobber contract would not be terminated until after the date of the termination of the finance agreement (1979) was based upon statements by Phillips' employees that Phillips had never left a marketing area which it had once entered (NT 193, 209). The Court finds that such statements did not constitute an oral promise that Phillips would not terminate the jobber contract except for cause. Furthermore, Mr. Gehman also testified that he was aware that the Phillips employees at the November 29, 1961 meeting had no authority to bind Phillips (NT 219). Therefore, the Court finds that the Phillips employees with whom the plaintiff had his discussions were not authorized to make any such oral agreement.

 On December 6, 1961, Phillips' representatives presented and North Penn executed a standard form "Jobber Sales Contract." This contract in addition to providing for purchase of minimum and maximum amounts of petroleum products contained inter alia the following terms and provisions:

 2. PERIOD OF CONTRACT

 
This contract shall be and remain in full force and effect for the primary term of 3 years, beginning on April 16, 1962, and ending on April 15, 1965, and for successive periods of one (1) year each thereafter unless and until either party shall notify the other in writing at least ninety (90) days prior to the expiration of the primary term or any succeeding one-year period of its desire to terminate this contract, whereupon this contract shall terminate at the end of the yearly period in which the notice is given.

 19. ENTIRETY OF AGREEMENT

 
This contract contains the entire agreement between the parties hereto, and there are no oral promises, agreements or warranties affecting it.

 22. EXECUTION

 
This contract shall not be binding on Seller unless and until signed by the Division Manager of Seller in Seller's Baltimore, Maryland office. Commencement of performance hereunder prior to signing by Seller as herein stipulated shall in no case be construed as a waiver by Seller of this requirement. (P&D 1)

 On the same date, December 6, 1961, Phillips presented and North Penn executed a standard form "Lubricating Oil and Grease Contract." This contract, in addition to providing for the purchase of minimum and maximum amounts of lubricating oils and greases, contained, inter alia, the following terms and provisions:

 
2. This contract shall be and remain in full force and effect for the primary term of 3 years beginning on April 16, 1962 and ending on April 15, 1965, and for successive periods of one (1) year each thereafter unless and until either party notify the other in writing at least ninety (90) days prior to the expiration of the primary term or any succeeding one-year period of its desire to terminate this contract, whereupon this contract shall terminate at the end of the yearly period in which the notice is given.
 
11. ENTIRE AGREEMENT: This contract constitutes the entire agreement between the parties hereto and there are no oral promises, agreements or warranties affecting it.
 
12. EXECUTION: This contract shall not be binding on Seller unless and until signed by a duly authorized agent of the Seller in Seller's Division Office or in Seller's Bartlesville, Oklahoma Office. Commencement of performance hereunder prior to signing by Seller as herein stipulated shall in no case be construed as a waiver by Seller of this requirement. This contract terminates and supersedes as of the effective date hereof all prior lubricating oil, gear oil, gear lubricant and greases sales contracts by and between the parties hereto. (P&D 2)

 By letter dated December 7, 1961, Mr. Gehman expressly conditioned the validity of the Jobber Sales Contract which he had executed upon his securing within 90 days thereafter a source of adequate financing to allow him to purchase service station equipment, certain inventories and office equipment from his supplier (Texaco) and additional funds for the financing and constructing of bulk storage and warehouse facilities (NT 203). And by letter dated January 8, 1962, Phillips advised North Penn as follows:

 
We are pleased to advise that Management has approved three year Branded Jobber Contracts with your company beginning April 16, 1962. This approval is based on the following:
 
1. We will two-party your Bulk Plant and warehouse for a sum of $40,000 for ten years.
 
2. We will purchase certain equipment presently installed, or to be installed, at dealer and consumer accounts, and in turn lease the equipment to you at a rental of 1% per month. You will start to repurchase this equipment from us, at our code price, as soon as your financial condition will permit.
 
3. You must furnish us an itemized list of the equipment by accounts and locations, showing make, model, serial number, tank sizes, etc.
 
Should you have any questions regarding this matter, please advise.

 Thereafter, fully executed copies of the Jobber Sales Contract and the Oil and Grease Contract were returned by Phillips to North Penn.

 In the period following Phillips' January 8, 1962 letter to North Penn, financing in the amount of $55,000 (instead of $40,000) was arranged by Phillips for North Penn's bulk plant and warehouse through Alma Stations, Inc. and a two-party lease-leaseback for fifteen years (instead of ten years) was also arranged. On February 26, 1962, North Penn executed a long and short form Lease Agreement of the bulk plant and warehouse premises from North Penn to Phillips. The long-form lease specifies a monthly rental of $439.77 and contains, inter alia, the following provisions:

 
* * *
 
. . . said premises being situated on 8th Street, 150 feet West of Race Street, in the City of Perkasie, together with service station buildings, improvements and equipment to be erected and installed thereon by Lessor as hereinafter provided, for a term commencing on the date said service station is accepted by Lessee's engineers as completed in accordance with this agreement and the possession thereof delivered to Lessee (which date shall be evidenced by written memorandum signed by the parties), and continuing thereafter until April 1, 1979. The leased premises are to be used for a gasoline, oil, oil products, petrochemicals, automobile tires and accessories, any other goods, wares and merchandise, and at Lessee's option may be used for the conduct of any other lawful business thereon.
 
It is understood and agreed that contemporaneously with the execution of this lease Phillips Petroleum Company, the Lessee herein, has subleased the above-described premises to the Lessor herein. It is further understood and agreed that in the event said sublessee or any subsequent sublessee who owns the property defaults in any of the terms and provisions of said sublease or any subsequent sublease between the parties, and as a result of said default Phillips Petroleum Company, as sublessor, cancels any such sublease, then in that event Phillips Petroleum Company, as lessee herein, shall have the right and privilege of cancelling this underlying lease, without penalty, at any time thereafter by giving lessor herein written notice not less than sixty (60) days prior to the effective date of such cancellation.
 
18. This instrument incorporates all of the obligations of the parties hereunder and there are no oral agreements or understandings between the parties concerning ...

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