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Drexel v. Union Prescription Centers Inc.

decided: August 11, 1978.



Before Adams, Biggs and Weis, Circuit Judges.

Author: Biggs


This is an appeal, pursuant to 28 U.S.C. § 1291, from a final order of the United States District Court for the Eastern District of Pennsylvania, dated March 23, 1977, granting appellee's motion for summary judgment. The case presents difficult questions concerning the liability of a franchisor for the allegedly negligent acts of its franchisee. After a careful examination of the record, we conclude that unresolved issues of material fact exist as to both a real and an apparent master-servant or agency relationship between the franchisor and the franchisee. Accordingly, we will reverse the judgment of the district court and remand the case for further proceedings.


According to the complaint, plaintiff's husband, the decedent, had been given a prescription for the drug "Aldactone" which was properly filled on March 3, 1975, by Union Prescription Center, a retail drugstore located in Reading, Pennsylvania. On April 14, 1975, decedent returned to the same drugstore to have the prescription refilled. This time, however, decedent received not "Aldactone," a diuretic, but "Coumadin," a blood thinner. As a result of taking "Coumadin," decedent sustained massive traumatic injuries from which he died on May 12, 1975.

Plaintiff, appellant herein, instituted this diversity action*fn1 for damages under the Pennsylvania wrongful death and survival statutes*fn2 against defendant-appellee Union Prescription Centers, Inc. (UPC). The complaint, which charged UPC with "negligence and carelessness and malpractice" in improperly refilling the prescription, alleged that UPC was "the owner, operator, possessor and in control" of the Reading drugstore and that "all of the acts alleged to have been done or not to have been done by defendant were done or not done by defendant, its agents, servants, workmen, and/or employees, acting in the course and scope of their employment with and on behalf" of UPC.

UPC filed a motion for summary judgment which stated, Inter alia, that on October 15, 1974, UPC has entered into a franchise agreement with Joseph J. Todisco, Jr., whereby Todisco purchased from UPC the right to acquire and operate the Union Prescription Center in Reading; that UPC "was not at any time material to plaintiff's cause of action, the owner, operator, possessor, or in control" of the Reading store; that UPC had never supplied or sold any drugs or medication to the Reading store; that Todisco, acting as an "independent contractor," was not "an agent, servant, workman, and/or employee" of UPC; and that therefore defendant was not in a position whereby a duty of due care was owed plaintiff's decedent. A copy of the Franchise Agreement was attached as an exhibit to UPC's motion.*fn3 Subsequently, in support of its motion for summary judgment, UPC submitted affidavits signed by Todisco, the franchisee, and by James B. Young, Esquire, corporate counsel for UPC.*fn4 In opposing the motion for summary judgment, plaintiff submitted the deposition of Todisco, but filed no countervailing affidavits. On the basis of that record, the district court granted summary judgment for UPC in a written opinion, 428 F. Supp. 663 (E.D.Pa.1977), and this appeal followed.


Appellant contended in the district court and asserts on appeal that UPC is vicariously liable for Todisco's alleged negligence either because UPC retained sufficient control over the operation of the Reading drugstore to establish a master-servant relationship or because UPC "held itself out" to the public as the owner or operator of the Reading store. We shall examine these theories in turn. In so doing, we heed the well-established principles that the moving party in a motion for summary judgment must show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, Rule 56(c), Fed.R.Civ.P., 28 U.S.C.; Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), Cert. denied, 429 U.S. 1038, 97 S. Ct. 732, 50 L. Ed. 2d 748 (1977), and that the evidence and the inferences drawn therefrom must be considered in a light most favorable to the party opposing the summary judgment motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962) (per curiam); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870, 874 (3d Cir. 1972); Long v. Parker, 390 F.2d 816, 821 (3d Cir. 1968), Vacated on other grounds, 384 U.S. 32, 86 S. Ct. 1285, 16 L. Ed. 2d 333 (1969).

Although it apparently was never questioned in the district court proceedings that Pennsylvania substantive law was to be applied in this diversity case, See Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964), both parties, at the request of this court, submitted additional briefs regarding a potential conflict-of-laws issue. As discussed Infra, one of plaintiff's contentions is that a master-servant relationship existed between UPC and its franchisee as evidenced by the terms of the Franchise Agreement. The district court, applying Pennsylvania law, concluded that the Franchise Agreement did not demonstrate such a relationship and that UPC was entitled to summary judgment. However, section XXIII.I of the Franchise Agreement states: "This Agreement shall be interpreted, construed and governed under and by the laws of the state of Wisconsin." Thus, it could be argued that the district court, to the extent that it was required to interpret and construe the Agreement in determining the existence of a master-servant relationship, should have considered, under Pennsylvania choice-of-law theory, whether to give effect to section XXIII.I. Cf. Siata International U.S.A. Inc. v. Insurance Co. of North America, 498 F.2d 817, 820 (3d Cir. 1974); Boase v. Lee Rubber & Tire Corp., 437 F.2d 527, 529-30 (3d Cir. 1970). Nevertheless, we are now satisfied, and both parties agree without objection, that whether the relationship between UPC and its franchisee is ultimately determined by the law of Wisconsin, in deference to section XXIII.I, rather than by the law of Pennsylvania, is inconsequential since the laws of both states are in accord in their treatment of the matters before us. See, e.g., Raasch v. Dulany, 273 F. Supp. 1015, 1018 & n.1 (E.D.Wis.1967); Bond v. Harrel, 13 Wis.2d 369, 108 N.W.2d 552, 555 (1961). Having therefore concluded that no conflict of law exists, we find no reason to diverge from the position of both parties and the district court that Pennsylvania law governs in this case. Cf. Pierce v. Capital Cities Communications, Inc., 576 F.2d 495 (3d Cir. 1978).

A. Appellant's Master-Servant Theory

We first consider appellant's contention that summary judgment was erroneous because factual questions exist requiring jury resolution with respect to the precise nature of the relationship between UPC and its franchisee. Under Pennsylvania law, when an injury is done by an "independent contractor," the person employing him is generally not responsible to the person injured. Hader v. Coplay Cement Mfg. Co., 410 Pa. 139, 150-51, 189 A.2d 271, 277 (1963). However, when the relationship between the parties is that of "master-servant" or "employer-employee," as distinguished from "independent contractor-contractee," the master or employer is vicariously liable for the servant's or employee's negligent acts committed within the scope of his employment. Smalich v. Westfall, 440 Pa. 409, 415, 269 A.2d 476, 481 (1970). While Pennsylvania courts have set forth numerous criteria to determine whether a given person is an employee-servant or an independent contractor, See, e.g., Stepp v. Renn, 184 Pa.Super.Ct. 634, 637, 135 A.2d 794, 796 (1957), "the basic inquiry is whether such person is subject to the alleged employer's control or right to control with respect to his physical conduct in the performance of the services for which he was engaged . . . . The hallmark of an employee-employer relationship is that the employer not only controls the result of the work but has the right to direct the manner in which the work shall be accomplished; the hallmark of an independent contractee-contractor relationship is that the person engaged in the work has the exclusive control of the manner of performing it, being responsible only for the result." Green v. Independent Oil Co., 414 Pa. 477, 483-84, 201 A.2d 207, 210 (1964) (citations omitted); See Johnson v. Angretti, 364 Pa. 602, 607, 73 A.2d 666, 669 (1950); Feller v. New Amsterdam Casualty Co., 363 Pa. 483, 486, 70 A.2d 299, 300 (1950); Joseph v. United Workers Ass'n., 343 Pa. 636, 639, 23 A.2d 470, 472 (1942). Actual control of the manner of work is not essential; rather, it is the right to control which is determinative. Coleman v. Board of Education, 477 Pa. 414, 383 A.2d 1275, 1279 (1978); Yorston v. Pennell, 397 Pa. 28, 39, 153 A.2d 255, 260 (1959).

Difficulties arise, of course, in the application of these familiar principles to the facts of a given case. Each case must be decided on its own facts. George v. Nemeth, 426 Pa. 551, 554, 233 A.2d 231, 233 (1967); Namie v. DiGirolamo, 412 Pa. 589, 594, 195 A.2d 517, 519 (1963). The difficulties are perhaps especially evident where, as here, the alleged master and servant also occupy the status of franchisor and franchisee. Some degree of control by the franchisor over the franchisee would appear to be inherent in the franchise relationship, See generally Brown, Franchising A Fiduciary Relationship, 49 Texas L.Rev. 650 (1971), and may even be mandated by federal law.*fn5 However, as several courts have discerned, the mere existence of a franchise relationship does not necessarily trigger a master-servant relationship, nor does it automatically insulate the parties from such a relationship. Whether the control retained by the franchisor is also sufficient to establish a master-servant relationship depends in each case upon the nature and extent of such control as defined in the franchise agreement or by the actual practice of the parties. See Singleton v. International Dairy Queen, Inc., 332 A.2d 160, 162 (Del.Super.Ct.1975); Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874, 877 (1975); Annots, 81 A.L.R.3d 764 (1977), 83 A.L.R.2d 1282 (1962) and authorities cited therein. The fact that the franchise agreement expressly denies the existence of an agency relationship is not in itself determinative of the matter. See Levin v. Wear Ever Aluminum, Inc., 442 F.2d 1307, 1309 n.1 (3d Cir.1971); George v. Nemeth, supra, 426 Pa. at 554, 233 A.2d at 233; Singleton v. International Dairy Queen, Inc., supra, 332 A.2d at 163; Murphy v. Holiday Inns, Inc., supra, 219 S.E.2d at 876-77.*fn6

In the present case there is no evidence that UPC exercised actual control over the manner in which Todisco operated the Reading store.*fn7 Instead, both parties rely upon various provisions of the Franchise Agreement as supporting their respective contentions regarding UPC's right to control Todisco's performance. While acknowledging that a franchise agreement may disguise what is essentially a master-servant relationship, appellee argues that the present Agreement at most creates only an independent contractor relationship. Under the terms of the Agreement, appellee observes, Todisco is merely the recipient of a license granted by UPC to operate a Union Prescription Center under that name and to use UPC's service mark and logo in conjunction therewith, in return for which Todisco pays to UPC a four and one-half percent monthly royalty out of the store's gross receipts (I.A, II.B). In fact, stresses appellee, the Agreement specifically provides that the franchisee pays all business expenses and taxes (XIII), bears the risk of litigation arising out of the store's operation (XX), has some say in choosing the inventory (VIII.A), and is required to identify himself as owner of the store on all signs and printed matter bearing the UPC mark (I.B).

Appellant contends, conversely, that the Franchise Agreement, considered as a whole, provides sufficient indicia of control to raise a factual question respecting the nature of the relationship between UPC and its franchisee. Appellant relies upon numerous contractual provisions which allegedly accord UPC the right to control specific details of the store's operation and which restrict Todisco's exercise of personal managerial discretion. Thus, under the terms of the Agreement: the franchisee "acknowledges that the public image and good name of the Union Prescription Centers requires the perpetuation of quality standards . . . and further requires the management and marketing advice of UPC in order to avoid improper or degrading techniques" (preamble); the franchisee may operate only under the UPC name and logo (I.A, B); UPC approves the location of the store and has the right to inspect the premises during normal business hours (IV.A); the franchisee must maintain the exterior and interior of the store premises in a "clean, orderly and attractive condition and shall maintain all structures, furnishings, fixtures, equipment and decorations in such a manner as to insure an attractive appearance of the Prescription Center" (IV.C); the franchisee must adhere to UPC's interior and exterior standard colors, lighting, design, equipment, and fixtures, and any new construction, facilities, or equipment must conform to such "national standards" (VI.A, B); the franchisee must maintain a "neat, orderly arrangement of displayed merchandise and a high degree of cleanliness" (VI.B); the store must be operated "as part of a national organization securing its strength through adherence to UPC's uniformly high standards of service, appearance, quality of equipment and proved methods of operation," and the franchisee agrees to "conform strictly" to "all such national standards" and to the provisions of the Franchise Agreement (VI.C); UPC has the "unqualified right" both to review the store's operations and consult with the franchisee on operating problems and to inspect the store "so as to assure maintenance of the high standards of the Union Prescription Center program, the goodwill of the public, and compliance with the provisions of this Agreement and with various licensing laws" (VI.E).

The Agreement further provides that the franchisee must exercise best efforts to secure union members for all construction and repair work and to have all invoices, statements, letterheads, prescription blanks, and other printed materials printed in union shops (VII); UPC designates the nature and minimum inventory requirements for the store subject to the franchisee's approval and, at franchisee's request, will make available pharmaceutical items bearing the UPC label (VIII.A); the franchisee may not supplement his inventory with items not directly related to the prescription, convalescent, or medical field without UPC's written consent (VIII.A); the franchisee must deliver and maintain inventory control data, delivery receipts, and records as prescribed by law and such other inventory records as required by UPC (VIII.A); UPC uniformly designates the equipment and fixtures for each store, to be paid for by the franchisee, and the franchisee authorizes UPC to order on his behalf equipment and fixtures necessary, in the sole judgment of UPC, to commence the store's operation (VIII.B); the franchisee must keep the store open for business a minimum of 46 hours per week (IX); the franchisee must use UPC's standard forms in operating the store, including prescription labels and files, rental contracts, letterheads, business cards, and accounting and inventory records (X.A); the franchisee must use UPC's uniform accounting system and make monthly financial reports to UPC (X.B); the franchisee must schedule specified inventory dates and mail a copy of the results to UPC on forms acceptable to the Internal Revenue Service (X.C).

The Franchise Agreement states that the franchisee must preserve complete records of all sales and purchases in a manner and form prescribed by UPC (X.F); UPC may examine and audit the franchisee's books and records at any reasonable time (X.G); the franchisee must purchase and maintain various types of insurance policies prescribed by UPC and must name UPC as an insured (XI.A), and if the franchisee fails to do so, UPC may purchase such insurance on his behalf and at his cost (XI.B); the franchisee must use and pay for all advertising and promotional materials developed by UPC, and must submit any other materials to UPC for written approval prior to the distribution thereof (XII.B, E); the franchisee must utilize insignia, equipment, decals, personnel uniforms, truck signs and colors required by UPC (XII.C, D); the franchisee must conduct his business "in a manner that will reflect favorably at all times upon UPC . . . and the good name, goodwill and reputation thereof" (XII.H); UPC may terminate the license and Agreement if, Inter alia, the franchisee breaches any provision of the Agreement (XV), in which case the franchisee must, at UPC's option, completely transfer to UPC a list of all employees, files, prescription lists, customers, and facilities, thereby effecting "a complete and effective transfer of the business" to UPC (XVI.B); the franchisee is subject to a restrictive covenant and UPC has a right of first refusal with regard to transfer of the business (XVII, XVIII); the franchisee indemnifies UPC against all liabilities of any kind arising out of the operation of the business (XX).

In determining that no master-servant relationship existed between UPC and Todisco, the learned district judge reasoned that the provisions of the Franchise Agreement cited by plaintiff

only give defendant-franchisor the tools with which to protect the proprietary interest in its name and goodwill. Nowhere in the agreement is there any provision giving defendant the right to control the manner in which Todisco was to perform the daily chores of the business. The restrictions in the agreement concerning the type of advertising, logos, and inventory do not give defendant the right to dictate the manner in which Todisco was to fill prescriptions; nor does the right retained by defendant-franchisor to inspect the premises and to terminate the agreement constitute such control over Todisco's manner of performance as to create vicarious liability. . . . Defendant was not concerned with the "means' by which Todisco conducted his pharmacy business; it was concerned only with the "results' of his work.

428 F. Supp. at 666 (citations omitted).

While bearing in mind that we must not strain to discover issues of fact where none exist, Lockhart v. Hoenstine, 411 F.2d 455, 459 (3d Cir.), Cert. denied, 396 U.S. 941, 90 S. Ct. 378, 24 L. Ed. 2d 244 (1969), we nevertheless conclude that the Agreement, considered as a whole, is not free of ambiguity or the possibility of inferences contrary to the district judge's construction and interpretation of that document. When read in its entirety and in a light most favorable to appellant, the Agreement appears so broadly drawn as to render uncertain the precise nature and scope of UPC's rights vis-a-vis its franchisee. Thus, in the absence of further evidence of what the subscribing parties to the Franchise Agreement meant and understood by its terms, it cannot be determined as a matter of law on the present record that UPC did not have the right to control the manner of Todisco's performance or that UPC was not the "master" of Todisco.

Many of the provisions cited by appellant indicate that UPC reserved the right to control numerous specific facets of the franchisee's business operation, ranging from the appearance and contents of the store, its advertising and promotional programs, and its accounting, inventory, and record-keeping systems, to the minimum number of weekly operating hours, the type of prescription labels and files, personnel uniforms, and the color of delivery trucks. However, even assuming, as the district judge observed, that these more specific manifestations of control only evidence UPC's concern with the "result" of the store's operation rather than the "means" by which it was operated,*fn8 other provisions of the Agreement are so nebulously and generally phrased as to suggest that UPC retained a broad discretionary power to impose upon the franchisee virtually any control, restriction, or regulation it deemed appropriate or warranted. When a franchisee is required, Inter alia, to perpetuate "quality standards," to submit to UPC's management and marketing advice "to avoid improper or degrading techniques," to maintain the premises and equipment in an "attractive condition," to ensure "a high degree of cleanliness" and a "neat, orderly arrangement" of merchandise, to conform all equipment and facilities to UPC's "national standards," to adhere strictly to UPC's "uniformly high standards of service, appearance, quality of equipment and proved methods of operation," and to conduct his business "in a manner that will reflect favorably at all times upon UPC," and when the franchisor has the "unqualified right" to review the store's operations and to inspect the store "to assure maintenance of (UPC's) high standards . . ., the goodwill of the public, and compliance with the provisions of this Agreement and with various licensing laws," as well as the right to terminate the relationship for breach of any provision of the Agreement, including those here cited,*fn9 we believe that reasonable minds could differ as to whether or not UPC had the right to control Todisco's physical conduct and the manner in which he operated the store, including the prescription-filling activity. As one commentator has noted:

Through a franchise agreement containing broadly worded clauses a franchisor can very effectively control the day to day operation of the franchise. For example,

"The franchisee is required to conduct his business in strict accordance with the parent company's policies and regulations and as these policies or regulations may be promulgated from time to time by the parent company.'

A clause, such as this can hardly be considered anything but a means of dictating the most minute details of how the outlet should be run.

Comment, A Franchisor's Liability for the Torts of His Franchisee, 5 U.San Fran.L.Rev. 118, 127 (1970) (footnote omitted). Compare, for example, section VI.C of the present Agreement, which requires the franchisee to "conform strictly" to "UPC's uniformly high (national) standards of service, appearance, quality of equipment and proved methods of operation." Thus, although the district judge determined that "(N )Owhere in the agreement is there any provision giving defendant the right to control the manner in which Todisco was to perform the daily chores of the business" (emphasis added), we believe that that issue cannot be resolved conclusively on the present record without drawing inferences favorable to the moving party, which is forbidden in ruling on a motion for summary judgment. See Thompson-Starrett International, Inc. v. Tropic Plumbing, Inc., 457 F.2d 1349, 1352 (3d Cir. 1972).

Although the affidavits of Todisco and Young, submitted by UPC,*fn10 are consistent with its assertion that it did not retain control over its franchisee's manner of operation, they are, as the district judge acknowledged, "essentially conclusory"*fn11 and lacking in specific facts, and of little assistance in reflecting the meaning of the control provisions of the Agreement. See Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir. 1972); McShane Contracting Co., Inc. v. United States Fidelity & Guaranty Co., 61 F.R.D. 478, 481 (W.D.Pa.1973). It is true, as appellee stresses, that appellant relied solely upon the Franchise Agreement and failed to submit counteraffidavits or other evidence*fn12 in support of her assertions of agency during the district court proceedings. However, the movant for summary judgment has the burden of demonstrating the absence of genuine issues of material fact, Lockhart v. Hoenstine, 411 F.2d 455, 458 (3d Cir.), Cert. denied, 396 U.S. 941, 90 S. Ct. 378, 24 L. Ed. 2d 244 (1969), and even if the opposing party fails to file contravening affidavits or other evidence, summary judgment must still be "appropriate" and will be denied where the movant's own papers demonstrate the existence of material factual issues. Rule 56(e), Fed.R.Civ.P., 28 U.S.C.; Adickes v. S. H. Kress & Co., 398 U.S. 144, 159-61, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Mutual Fund Investors, Inc. v. Putnam Management Co., Inc., 553 F.2d 620, 625 (9th Cir. 1977); Andersen v. Schulman, 337 F. Supp. 177, 181-82 (N.D.Ill.1971).

We therefore conclude that on the present record genuine issues of material fact exist regarding the nature of the relationship between appellee and its franchisee which preclude the entry of summary judgment.

B. Appellant's Holding Out or Apparent Agency Theory

As an alternative theory upon which to impose liability on UPC, appellant argues that UPC "held itself out" as the operator of the Reading store or as the employer of Todisco and thus should be vicariously liable for the alleged negligent acts of its franchisee. In essence, appellant contends that UPC led the public, including the decedent, to believe that it was dealing not with a local independent pharmacist, but rather with UPC, a nationally established and uniformly controlled establishment, or with a servant or employee thereof, and that such representations of agency were made to induce, and in fact did induce, reliance and confidence in consumers in the skill and reputation of the franchise entity, all in furtherance of UPC's own economic goals. In granting summary judgment in favor of UPC, the district court held that the " "holding out' theory has not been generally applied," and that in any event plaintiff had proffered insufficient evidence to raise a factual issue as to whether UPC held out Todisco as its agent or employee.

Appellant relies, Inter alia, upon § 267 of the Restatement (Second) of Agency (1958), which provides as follows:

One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.

Insofar as we are aware, no Pennsylvania court has discussed the applicability of § 267 to that state's agency law or otherwise squarely considered the liability of an ostensible principal for the negligence of an ostensible agent. It is thus our function in this diversity action to "predict" whether the Pennsylvania courts would apply a "holding out" or "apparent agency" theory, such as that formulated in § 267, on the facts presented in this case. Samuelson v. Susen, 576 F.2d 546 (3d Cir. 1978); Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146, 147 (3d Cir. 1974); In re Royal Electrotype Corp., 485 F.2d 394, 396 (3d Cir. 1973).

Considerable guidance in this matter is provided by the recent decision of Chief Judge Lord in Taylor v. Costa Lines, Inc., 441 F. Supp. 783 (E.D.Pa.1977). Taylor involved a negligence action brought by a cruise passenger against the vessel owner (Costa) and a ground tour operator (Alstons) for personal injuries sustained in an auto accident while she was on the ground tour. Alleging that Costa had represented that Alstons was its servant or agent, plaintiff contended that Costa was vicariously liable for Alstons' alleged negligence under the doctrines of "apparent authority" or "authority by estoppel." In denying Costa's motion for summary judgment, Chief Judge Lord predicted that the Supreme Court of Pennsylvania would adopt § 267 of the Restatement (Second) of Agency, stating as follows:

The applicability of this section to Pennsylvania agency law appears to be a matter of first impression, but we conclude that Pennsylvania would follow section 267 for two reasons: the Pennsylvania Supreme Court's customary adherence to the Restatement and the unanimous adoption of section 267 by those courts, including the Third Circuit, which have addressed this issue. Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir. 1971).

Costa could be liable under this theory if the plaintiff demonstrated that: (1) Costa represented that Alstons was its servant; (2) plaintiff relied on Alstons' skill as a result of that representation; and (3) such reliance was justifiable.

441 F. Supp. at 786 (footnote omitted).

We agree, essentially for the reasons enunciated in Taylor, that the Supreme Court of Pennsylvania would adopt § 267 or some similar principle of "apparent agency." In an analogous context, Pennsylvania courts have long utilized the closely related doctrines of "apparent authority" and "agency by estoppel" in cases dealing with contractual liability and have approved the Restatement formulations of those theories.*fn13 While appellee asserts that such concepts are wholly inapposite to causes arising in tort,*fn14 no argument has been made that the policies or factual issues underlying apparent authority or agency by estoppel differ substantially from those upon which § 267 is predicated.*fn15

Indeed, the decision of the Pennsylvania Supreme Court in Fidelman-Danziger Inc. v. Statler Mgt., Inc., 390 Pa. 420, 136 A.2d 119 (1957),*fn16 buttresses our conclusion that Pennsylvania courts would approve the theory of apparent agency set forth in § 267. In that case plaintiff sued the operator of a hotel checkroom, along with the hotel and its management company, to recover the value of jewelry which had been checked in but not returned by the hotel checkroom. After determining that the relationship between plaintiff and the checkroom operator was a bailment and that liability was to be determined by relevant negligence principles, the court concluded that liability could be extended to the other defendants as well. Although the court relied analogously upon the rule that a possessor of land who in the course of business holds it open to members of the public is liable for bodily harm caused on part of the land leased to concessionaires, it stated:

Here the Pittsburgh Hotels, Inc., and its manager, Statler Management, Inc., permitted their concessionaire, Stanley Parkinson, to conduct business activities on the hotel premises in the name of the hotel. The conduct of the check room in that manner must certainly estop the "Pittsburgh Hotels, Inc.' as well as the Statler Company, its agent in charge, from now denying that apparent agency; and particularly in the present case since supervision over the concessionaire is reserved to the corporate defendants. To people using the check room, everything indicated they were dealing with the William Penn Hotel.

136 A.2d at 124 (emphasis added).

Of relevance, too, is this court's decision in Brown v. Moore, 247 F.2d 711 (3d Cir. 1957), Cert. denied, 355 U.S. 882, 78 S. Ct. 148, 2 L. Ed. 2d 112 (1957), a wrongful death and survival action in which plaintiff sought to hold the operators of a private sanitarium vicariously liable for the negligent malpractice of a physician at the sanitarium. Although the physician was found to be a servant or employee of the sanitarium, this court predicted that even if the physician were an independent contractor vis-a-vis the sanitarium, "where there has been a Holding out, a Representation to a patient or to his family as members of the public, that medical treatment is to be administered in a private hospital or sanitarium by a doctor employed therein, the Courts of the Commonwealth of Pennsylvania would apply the doctrine of Respondeat superior and hold the owners or operators of the sanitarium liable for the malpractice of the doctor. In other words Doctor Kelly could be regarded as having the status of an independent contractor in his relation to the partners in the Sanitarium but in his relation to Brown would be deemed to be an employee of the Sanitarium." Id. at 719-20 (emphasis in original); Accord, St. Paul Fire & Marine Insurance Co. v. Aetna Casualty & Surety Co., 394 F. Supp. 1274, 1275-76, Aff'd mem., 532 F.2d 747 (3d Cir. 1976).

In addition to the above, we think that the Supreme Court of Pennsylvania's customary practice, when fashioning new principles of law, of according great weight to the decisions of other jurisdictions and the trend of recent cases*fn17 would lead it to follow the numerous courts, including the decision of this court in Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir.), Cert. denied, 404 U.S. 829, 92 S. Ct. 65, 30 L. Ed. 2d 57 (1971),*fn18 which have approved, at least in principle, § 267 or similar doctrines of apparent agency and authority in situations analogous to the present case. See e.g., Wood v. Holiday Inns, Inc., 508 F.2d 167 (5th Cir. 1975);*fn19 Amritt v. Paragon Homes, Inc., 474 F.2d 1251 (3d Cir. 1973); Standard Oil Co. v. Gentry, 241 Ala. 62, 1 So.2d 29 (1941); Kuchta v. Allied Builders Corp., 21 Cal.App.3d 541, 98 Cal.Rptr. 588 (1971); Singleton v. International Dairy Queen, Inc., 332 A.2d 160 (Del.Super.Ct.1975);*fn20 Sapp v. City of Tallahassee, 348 So.2d 363 (Fla.Dist.Ct.App.1977), Cert. denied, 354 So.2d 985 (Fla.1977); Buchanan v. Canada Dry Corp., 138 Ga.App. 588, 226 S.E.2d 613 (1976); Mehlman v. Powell, 281 Md. 269, 378 A.2d 1121 (1977); Mabe v. B.P. Oil Corp., 31 Md.App. 221, 356 A.2d 304 (1976), Rev'd on other grounds, 279 Md. 632, 370 A.2d 554 (1977); Thomas v. Checker Cab Co., Inc., 66 Mich.App. 152, 238 N.W.2d 558 (1975); Montgomery Ward & Co. v. Stevens, 60 Nev. 358, 109 P.2d 895 (1941); Chevron Oil Co. v. Sutton, 85 N.M. 679, 515 P.2d 1283 (1973). See generally, Annot., 81 A.L.R.3d 764 (1977); Comment, Liability of a Franchisor for Acts of the Franchisee, 41 So.Cal.L.Rev. 143 (1968); Comment, A Franchisor's Liability for the Torts of His Franchisee, 5 U.San Fran.L.Rev. 118 (1970). But see Slack v. Treadway Inn of Lake Harmony, Inc., 388 F. Supp. 15 (M.D.Pa.1974).*fn21

Having determined that Pennsylvania courts would sanction the "apparent agency" theory advanced by appellant,*fn22 we next consider appellant's contention that whether or not UPC held itself out as the owner or operator of the Reading store was a question of fact for the jury to resolve and that the district court thus erred in holding as a matter of law that the evidence produced by plaintiff was "too slender a reed upon which to base a material issue for trial on the purported issue that the defendant held Todisco out as its employee." After a careful examination of the record in this case, we conclude that factual questions exist as to whether appellee had held out or represented its franchisee to be its servant or employee.

Contending that no affirmative holding out ever occurred, and, indeed, that it took substantial steps to ensure that the public was accurately apprised of Todisco's status, appellee relies upon the following provision of the Franchise Agreement: "The Owner (franchisee) shall show his name (corporate, partnership or individual) in connection with the use of such licensed mark following "Union Prescription Center' in conjunction with the word "license' or otherwise identify himself as the owner of the Union Prescription Center under a license from UPC, on all invoices, statements, letterheads, prescription blanks and other printed matter, as well as on all signs posted on the Union Prescription Center premises. Applications for local licenses or other entries in public records will be made in the Owner's name" (I.B). In addition, stresses appellee, Todisco, when deposed, stated that a nameplate reading "Joseph J. Todisco, Jr., Registered Pharmacist" was displayed on the counter in front of him in the store; that he had registered in the fictitious names index for Berks County under the fictitious name "Union Prescription Center"; and that he had registered with the state Board of Pharmacy under the name "Union Prescription Center" as well as under his own name.

Appellant, however, relies upon evidence tending to demonstrate that in fact customers of the Reading store were led to believe that they were dealing with the corporate defendant, UPC, and that they were given no notice that the store was an entity independently owned and operated by Todisco. When deposed by plaintiff, Todisco stated that there was no place in the store where customers could note that he was a "franchisee." The bags, prescription labels, and cash register receipts used by the Reading store (appended as exhibits to the deposition transcript) all bear the name "Union Prescription Centers" or "Union Prescription Center," the bags also bearing a logo, and fail to identify Todisco as the owner or operator of the store. Similarly, Todisco testified that the store's local advertising, through media such as ball point pens, local newspapers, and nail files, all say "Union Prescription Center" and omit any mention of Todisco's name. Todisco further stated that the store is listed in the Reading phone directory as "Union Prescription Center" and that the telephone is answered "Union Prescription Center."

According to appellant, such indicia of apparent agency are directly attributable to UPC, the ostensible principal, because UPC, through the regulatory provisions of the Franchise Agreement, controlled the manner in which the Reading store was perceived by the public. Appellant points to the following provisions of the Agreement: The franchisee (owner) may promote and advertise only with the logo, service mark, or insignia prepared and submitted by UPC to the owner (I.A); UPC has established interior and exterior standard colors, lighting, design, equipment and fixtures designed to provide national identification (VI.A); "Owner acknowledges UPC's rights to and interest in its present and future distinguishing characteristics, and UPC's exclusive rights to such characteristics. These characteristics include the service mark "Union Prescription Center" and the Union Prescription Center logo, used in any form and in any design, alone or in combination and all present and future names, service marks, trademarks, trade names, insignia, slogans, emblems, symbols, designs or other characteristics used in connection with the Union Prescription Centers. Owner hereby acknowledges that these distinguishing characteristics have acquired a secondary meaning which indicates that the Union Prescription Center is operated by or with the approval of UPC " (VI.D) (emphasis added); UPC has developed an effective launch program for introducing the Union Prescription Centers for which the owner must pay (XII.A); Owner is required to utilize insignia, equipment, decals, personnel uniforms, truck signs and colors, indoor signs and posters, and such other advertising and promotional materials as may be required by UPC to maintain uniformity of appearance, national recognition, point of purchase impact and full penetration of promotional opportunities (XII.C); Owner must submit to UPC for written approval prior to dissemination any advertising or promotional material that has not been developed by UPC (XII.E); Owner is required to use the standard Union Prescription Center sign or signs as specified by UPC (XII.D); UPC specifies that owner shall use standard forms in the operation of the Prescription Center, including prescription labels, letterheads, and business cards (X.A).

Although the district judge concluded that in light of the evidence submitted by UPC, "the absence of Todisco's name on the prescription labels, bags and advertising is too slender a reed upon which to base a material issue for trial on the purported issue that the defendant held Todisco out as its employee," we believe that reasonable persons could differ as to whether UPC clothed its franchisee with indicia of agency or authority. Indeed, the evidence, considered as a whole and in a light most favorable to appellant, may be viewed as giving rise to conflicting inferences of fact which resist the summary judgment process.

Appellee's assertion that no representations of agency or authority were ever made is contradicted by appellant's evidence suggesting that in fact UPC, by strictly controlling the manner in which the franchisee was perceived by the public, created an appearance of ownership and control purposefully designed to attract the patronage of the public. See Wood v. Holiday Inns, Inc., discussed at note 19 Supra. While appellee, emphasizing that the Franchise Agreement required the franchisee to identify himself as owner of the store in conjunction with his use of UPC's mark and logo, asserts that it cannot be held accountable for Todisco's failure in this regard and that it had no notice of it, a review of all the evidence reveals that several representatives of UPC actually visited Todisco's store on numerous occasions (see note 7 Supra ) and that UPC had an unqualified right to inspect the Reading store (Franchise Agreement, VI.E). Thus, a potential question is presented as to whether UPC had actual or constructive knowledge of Todisco's failure to appraise the public of his status and acquiesced therein. See Gizzi v. Texaco, Inc., supra, 437 F.2d at 310; Mabe v. B.P. Oil Corp., supra, 356 A.2d at 309-10 & n. 3, Rev'd on other grounds, 370 A.2d 613. The issue, we note, is not what agreements were entered into between UPC and Todisco to establish a relationship other than agency, but rather what representations were actually made to the customers of the Reading store. Amritt v. Paragon Homes, Inc., supra, 474 F.2d at 1252. Moreover, the sign identifying Todisco as "Registered Pharmacist" could reasonably be viewed as merely a statement of professional qualification rather than, as appellee insists, a clear indication Todisco independently owned and operated the store. So, too, while it is urged that Todisco manifested ownership in registering with both the county and the state pharmacy board, there is no evidence that decedent was or should have been aware of such facts. These are all factors to be weighed and considered by the finder of fact in determining whether the elements of apparent agency have been established.*fn23

We stress that our decision here expresses no view whatsoever as to the ultimate outcome or disposition of this case. In order to recover on a theory of apparent agency, plaintiff must establish not only the element of representations but also that of justifiable reliance on those representations. Gizzi v. Texaco, Inc., supra; Taylor v. Costa Lines, Inc., supra. An examination of the district court record reveals that neither party submitted evidence bearing directly on the critical question of reliance. Nor is it apparent that the district judge considered that element in granting summary judgment. However, because it was the burden of defendant, the movant for summary judgment, to establish the absence of genuine issues of material fact, we cannot deem plaintiff's failure to submit evidence of reliance as fatal to her cause at this stage of the proceedings.*fn24 Cf. Gray v. Greyhound Lines, East, 178 U.S.App.D.C. 91, 96-7, 545 F.2d 169, 174-75 (1976); Heirs of Fruge v. Blood Services, 506 F.2d 841, 844 (5th Cir. 1975); Thomas v. Petro-Wash, Inc., 429 F. Supp. 808, 816 (M.D.N.C.1977).

The judgment will be reversed and the cause remanded for proceedings consistent with this opinion.



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