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THREE RIVERS MOTORS CO. v. FORD MOTOR CO.

April 18, 1974

Three Rivers Motors Co.
v.
The Ford Motor Co. and Auto-Lite Corp.


Snyder, J.


The opinion of the court was delivered by: SNYDER

SNYDER, J.

 This Court has for decision a Motion to Dismiss the Complaint filed by the Defendant Ford Motor Company (Ford) pursuant to Rule 12(b) 6, Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. The Motion sets forth in substance that Three Rivers Motors Company (Three Rivers) when it resigned its Ford Dealership Franchise, executed and delivered to Ford a General Release covering all claims which the Plaintiff had, or could have, against Ford. Therefore, Ford asserts that the release bars this anti-trust action. The Defendants filed an Affidavit of the Assistant Secretary of Ford setting forth that Three Rivers resigned its Ford Motor Agreement (franchise) effective February 9, 1970, and in connection with said resignation delivered to Ford the General Release, a copy of which was attached. *fn1"

 An Evidentiary Hearing was held on October 19, 1973, and after due consideration of all the testimony, the briefs and arguments of counsel, this Court concludes that the Defendant's Motion to Dismiss the Plaintiff's Petition must be denied and the Release must be held inoperative in this particular case.

 Mr. William Winterhalter, President of Three Rivers, testified at the Hearing that in 1966 he first contacted Ford with respect to resigning. He was informed at that time that Ford would not buy back his new parts, accessories and equipment inventory. As a result of that fact, he concluded that the amount he would receive would be considerably less than the value of his inventory if he had to proceed to auction, and, therefore, he rescinded his resignation. He said he had requested Ford's assistance in helping him to find a buyer for his facility but was informed by Ford that they would not approve another dealer in that facility, and that it would be necessary for him to acquire a new facility. After he acquired a new facility, a purchaser was found by the name of Marvin Yollin. A Buy-Sell Agreement was duly executed with the sale to be consummated on December 31, 1969. After several extensions, final arrangements were made for sale on February 6, 1970. The Agreement included the purchaser's obligation to buy the parts and equipment inventory. At the time of the closing he was asked to sign the Release on behalf of Three Rivers. The testimony further developed that at least until the Spring of 1967, the Agreement between Three Rivers and Ford (as well as with other Ford Dealers) was that Ford had the option, but not the obligation, to buy back any vehicle, parts, etc., in the event the Dealer resigned. In June of 1967, Ford Sales Agreements were changed to provide that not only when termination was initiated by Ford, but also when a Dealer resigned, Ford had the obligation, and not the mere option, to buy back the vehicles, parts, etc. It appears that pursuant to this policy change, and in November of 1969, Three Rivers was demanding that Ford buy back the parts. Instead, an agreement was apparently worked out with the prospective purchaser, Marvin Yollin, primarily negotiated through Ford, for a total consideration of $524,000.00. It appears that $240,000.00 was put up by Ford and the balance by the purchaser. Of this $524,000.00, some $391,000.00 went to Ford to pay off the four financing plans on the new vehicles, and the balance of $133,804.00 went to Three Rivers.

 An exception was added to the original release form as submitted in December, 1969, and prior to closing, at the insistence of Three Rivers which retained Ford's liability after closing for any claims and/or suits filed against Three Rivers with regard to Ford's liability on warranty for products or parts. Finally, at the closing when Mr. Winterhalter (Three River's President) asked his lawyer if he had to sign the Release, he was informed that he had no choice and he would have to sign the Release if any deal was to be consummated.

 In addition, the testimony indicated that prior to the closing of the transaction, Three Rivers attempted to negotiate on the prices to be paid for the parts and equipment but Ford set the prices and no deviations were permitted.

 The Plaintiff asked the Court to consider the Affidavit of J. Norman Davis, stating that he was counsel for Three Rivers in 1969 and 1970 when the Ford Franchise was terminated; that the Release given by the Plaintiff in connection with that termination related only to matters having to do with the Franchise Agreement; that he was unaware of any anti-trust violations at that time, and did not contemplate or advise Three Rivers or any of its Officers of the possibility of an action against Ford for such violations; that the Release was "not intended as a release of unknown claims resulting from the violation of the antitrust laws." (Affidavit at P 9).

 I. Discussion

 Between 1951 and 1965, Three Rivers had operated as a profitable Ford Dealership. Between 1966 and 1970, Three Rivers sustained an annual loss and, under Ford's Dealer Development Program, entered into a Buy-Sell Agreement with East Hills Ford. As part of the entire transaction there was included the execution of a General Release to Ford in the form set forth in Footnote 1. In this action, Three Rivers claims that Ford's sales restrictions, pricing policies, and various financing arrangements it had with other Dealers violated the antitrust laws, and that it was damaged as a result of Ford's unlawful activity. The Release purported to discharge Ford "of and from any and all manner of action and actions, cause or causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever in law, in admiralty or in equity . . . . upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to the date of these presents . . ."

 Under the Affidavits as filed and the testimony received at the Hearing on the Petition to Set Aside the Release, it was clearly established that Ford desired and secured a General Release. There was no indication of any fraud, accident, mistake or misrepresentation.

 It is just as clear, however, that the matter of antitrust actions was not, in any way, a part of the negotiations which led to the Release; what concerned the parties was the purchase and sale of assets, any claims in relation thereto, as well as claims inter se concerning the dealership operations.

 Three Rivers lost $42,782.00 in 1966, and at that time, through its President, attempted to terminate the Dealership. Ford refused to buy back new parts, accessories, and equipment inventory having an estimated value of $150,000.00. Following this refusal, Three Rivers rescinded its resignation and continued in business. Also in 1966, Ford advised Three Rivers that its facilities were inadequate and directed that new facilities be obtained. Three Rivers accordingly purchased a five acre tract of land in the Borough of Wilkinsburg, Pennsylvania, on which Ford (through its Realty Company) built a building and leased it to Three Rivers. Three Rivers moved into the new facility in September of 1968, after having registered a loss of nearly $10,000.00 in 1967. Three Rivers incurred a loss of $23,773.00 in 1968 and in 1969, again facing continued losses, Three Rivers resigned. Before accepting the resignation, however, Ford demanded the Release, which has been previously set forth, from Three Rivers. We must answer the question as to what effect should be given to the Release in regard to the present anti-trust action.

 II. Applicability of Federal or State Law on the Interpretation of Releases

 We begin this discussion with the principle that it is Congressional policy to rely heavily upon the private sector for enforcement of anti-trust laws. Zenith Radio Corp. v. Hazeltine Research, 401 U.S. 321, 336, 91 S. Ct. 795, 28 L. Ed. 2d 77 (1971); Minnesota Mining v. New Jersey Wood F. Co., 381 U.S. 311, 317-318, 85 S. Ct. 1473, 14 L. Ed. 2d 405 (1965). There is strong authority indicating that in view of this Federal policy, Federal law should wholly displace State law governing the release of anti-trust claims. In Zenith, supra, the Court assumed the question of whether the release of an anti-trust defendant released his co-conspirators as a matter to be determined without reference to particular state rules on releases. Cf. Dice v. Akron, C. & Y. R. Co., 342 U.S. 359, 72 S. Ct. 312, 96 L. Ed. 398 (1952) (Federal law held to govern releases of claims under the F.E.L.A.).

 The Court in Zenith gave an extensive history of the various rules that have evolved concerning the release of one joint tortfeasor by an injured party and what rights remained against other joint tort-feasors who were not parties to the release. In discussing these rules, the Court stated: (28 L. Ed. 2d at pp. 95-97).

 
"Three rules have developed to deal with the question whether the release of one joint tortfeasor releases other tortfeasors who are not parties to or named in the release. The ancient common-law rule, which was grounded upon a formalistic doctrine that a release extinguished the cause of action to which it related, was that a release of one joint tortfeasor released all other parties jointly liable, regardless of the intent of the parties. See e.g., Western Express Co. v. Smeltzer, 88 F.2d 94, 95 (CA6 1937); American Ry. Express Co. v. Stone, 27 F.2d 8, 10 (CA1 1928); Barrett v. Third Avenue R. Co., 45 N.Y. 628, 635 (1871); Ellis v. Esson, 50 Wis. 138, 146, 6 N.W. 518, 519 (1880). While this Court has referred to this rule in cases where the rights of the litigants were controlled by state or federal common law, see Chicago & Alton R. Co. v. Wagner, 239 U.S. 452, 456-457, 60 L. Ed. 379, 381, 36 S. Ct. 135 (1915); United States v. Price, 50 U.S. 83, 9 How. 83, 92, 13 L. Ed. 56 (1850); Hunt v. Rhodes, 26 U.S. 1, 1 Pet. 1, 16, 7 L. Ed. 27 (1828); we are cited to no case where we have applied the rule to a statutory cause of action created under federal law. Indeed, we have expressly repudiated the rule. See Aro Mfg. Co. v. Convertible Top Co., 377 U.S. 476, 501, 12 L. Ed. 2d 457, 477, 84 S. Ct. 1526 (1964). Cf. Birdsell v. Shaliol, 112 U.S. 485, 489, 28 L. Ed. 768, 769, 5 S. Ct. 244 (1884). Moreover, in the lower federal courts, causes of action based upon federal statutes have generally been governed by one of the other two rules. The first of these rules provides that, although a release of one co-conspirator normally releases all others, it will not have such an effect if a plaintiff expressly reserves his rights against the others. This rule, which has been adopted with some variation by statute in 21 States, by judicial decision in others, see, e.g., McKenna v. Austin, 77 U.S. App. DC 228, 233-234, 134 F.2d 659, 664-665 (1943) (announcing D.C. law); Riley v. Industrial Finance Service Co. 157 Tex. 306, 311, 302 S.W. 2d 652, 655 (1957); and by the First Restatement, see Restatement, Torts § 885(1) (1939); has been applied in a number of antitrust cases. See, e.g., Miami Parts & Spring, Inc. v. Champion Spark Plug Co., 402 F.2d 83, 84 (CA5 1968); Twentieth Century-Fox Film Corp. v. Winchester Drive-In Theatre, Inc., 351 F.2d 925, 931 (CA9 1965); Dura Electric Lamp Co. v. Westinghouse Electric Corp., 249 F.2d 5, 6-7 (CA3 1957). It was this rule that the Court of Appeals followed in the opinion below. A final rule, which has gained support in several recent decisions and been adopted by the American Law Institute in a tentative draft of the Second Restatement of Torts, provides that the effect of a release upon coconspirators shall be determined in accordance with the intentions of the parties. See Winchester Drive-In Theatre, Inc. v. Twentieth Century-Fox Film Co., 232 F. Supp. 556, 561-563 (N.D. Cal. 1964), rev'd, Twentieth Century-Fox Film Corp. v. Winchester Drive-In Theatre, Inc., supra ; Young v. State, 455 P.2d 889 (Alaska, 1969); Breen v. Peck, 28 N.J. 351, 146 A.2d 665 (1958); Restatement (Second), Torts § 885(1) (Tent. Draft No. 16, 1970); 12 Vand. L. Rev. 1414, 1416-1417 (1959).
 
We recently adopted the final rule giving effect to the intentions of the parties in Aro Mfg. Co. v. Convertible Top Co., supra, a patent infringement case. The agreement in that case expressly provided for the release of Ford, its associated companies . . . its and their dealers, customers and users of its and their products' from all past and future infringement claims. 377 U.S., at 493, 12 L. Ed. 2d at 472. The document, however, did not expressly reserve the releasor's rights against anyone. The issue in the case was whether Aro, a contributory infringer which did not fit within any of the special categories enumerated in the release, was nonetheless liable for its past contribution to infringements. The District Court had found that the parties had not intended to release contributory infringers such as Aro, and, despite the absence of an express reservation of rights against such infringers, we accordingly held that Aro was not entitled to benefit from the release. We concluded that a release, which clearly intends to save the releasor's rights against a past contributory infringer, does not automatically surrender those rights. Id., at 501, 12 L. Ed. 2d at 477.
 
We perceive no reason to follow a different rule in antitrust litigation. Indeed, of the three available rules, the rule adopted in Aro is most consistent with the aims and purposes of the treble-damage remedy under the antitrust laws. We must keep in mind the multistate and multiparty character of much private antitrust litigation; often, defendants who have conspired together must be sued in a number of different States if all are to be reached, and, while defendants in some States may be willing to enter into settlements, defendants in others may not. To adopt the ancient common-law rule would frustrate such partial settlements, and thereby promote litigation, while adoption of the First Restatement rule would create a trap for unwary plaintiffs' attorneys. The straightforward rule is that a party releases only those other parties whom he intends to release. Our conclusion that this is the appropriate rule for giving effect to releases under the antitrust laws is further buttressed by the Restatement's abandonment in a tentative draft of the rule requiring express reservation of rights in order to save them, and its adoption of the rule to which we adhere. See Restatement (Second), Torts § 885, Comments a-d (Tent. Draft No. 16, 1970).

 Our situation is quite different from that in the Zenith case. In Zenith, the prior settlement and release covered antitrust violations which the Plaintiff had alleged against other coconspirators. The Court held that the release of the prior joint tortfeasors did not bar Zenith's action against Hazeltine since Zenith did not intend to release any conspirators other than those stated in the release. In the action before this Court, the release was meant to cover any actions arising out of and/or concerning the franchise sales contract.

 In June of 1962, Stanley Novak initiated an action against Union Carbide in the District Court for the District of New Jersey, alleging a Robinson-Patman Act violation by Carbide in the selling of "Prestone" antifreeze to certain competitors at different prices than the price charged to the plaintiffs. Carbide asserted a cost justification defense for the difference, and the case was called for trial. The parties then entered into settlement negotiations which resulted in an agreement whereby Carbide would pay the plaintiffs $5,000.00, in return for dismissal of the suit with prejudice and the execution of a release for the benefit of Carbide by the plaintiffs. A year and a half later, Novak alleged price discrimination against General Electric Corporation and Union Carbide in the sale of miniature, sealed beam lamps in violation of the Clayton, Robinson-Patman, and Federal Trade Commission Acts. Both General Electric and Carbide moved for summary judgment asserting that the release precluded the suit. In an opinion entered in the second action, Novak v. General Electric Corporation, 282 F. Supp. 1010 (E.D. Pa. 1967), Judge Higginbotham stated the following (at pp. 1013 and 1016):

 
"At the threshold we are met with a difficult problem. Federal law is generally interstitial in its nature. It rarely occupies a legal field completely, totally excluding all participation by the legal systems of the states. * * * Federal legislation on the whole, has been conceived and drafted on an ad hoc basis to accomplish limited objectives. It builds upon legal relationships ...

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