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BPALOMBI v. GETTY OIL CO.

October 27, 1980

William L. BPALOMBI
v.
GETTY OIL COMPANY t/a Getty



The opinion of the court was delivered by: BECHTLE

MEMORANDUM OPINION

This action arose out of defendant Getty Oil Company's ("Getty") termination of plaintiff William L. Palombi ("Palombi") as the operator of a service station following some events deemed by defendant to be grounds upon which the franchise should be terminated, including Palombi's conviction in the United States District Court for price-gouging. This Memorandum Opinion is filed in support of the Court's Order of September 8, 1980, granting defendant's motion for summary judgment on plaintiff's only remaining claim. *fn1"

 Based on these standards, the Court finds that the record supports the following findings of fact: In 1968, Palombi entered into a "lease" for a service station from Getty for a term of one year. The lease was renewable annually "subject to termination at the end of the initial period or any subsequent year by either party upon ten days' prior written notice to the other." See Amended Complaint, Ex. A, P 2. Monthly rent was based on the number of gallons delivered. The lease provided that the premises were to be used "solely ... as a motor vehicle service station, and for the sale of such commodities and services as are usually sold at such stations." Amended Complaint, Ex. A, P 4. The lease also required that the service station be kept open between specified hours and that Palombi, as lessee, maintain an adequate stock of tires, batteries and accessories. Palombi was further required to maintain the premises "in a good, clean, and tidy condition at all times" and to obtain Getty's approval of any advertising located on the premises.

 Under this agreement and subsequent renewals, Palombi operated the service station for several years without incident. Indeed, Palombi ranked first in sales of gasoline by-volume in the Philadelphia metropolitan area in each of the four years 1970-1973. See Motion of Defendant Getty Oil Company for Summary Judgment, Ex. 1; Answer to Interrogatory 21, at 13.

 In 1974, the Government instituted criminal proceedings in this district charging Palombi with, inter alia, selling gasoline at prices exceeding limits established by the Federal Emergency Petroleum Allocation Act of 1973, 15 U.S.C. ยงยง 751 et seq. (1976), and regulations promulgated thereunder-to which Palombi pleaded guilty. See Motion of Defendant Getty Oil Company for Summary Judgment, Ex. 5. Immediately thereafter, Palombi's gasoline sales fell and remained at a low level throughout the remainder of his tenure at the service station. See Motion of Defendant Getty Oil Company, Ex. 1; Answers to Interrogatories 15 and 21, at 10 and 13.

 On March 31, 1975, Getty terminated Palombi's lease. *fn2" A memorandum seeking clearance of the termination from Getty's legal department recited a host of reasons for the decision. *fn3" The last paragraph devoted to this itemization includes the following statement:

 
Perhaps the most damaging of all to the reputation of this particular station, Getty Oil Eastern and our Getty Dealer organization, were charges ... when (sic ) the United States Attorney's office had filed criminal and civil actions against Mr. Palombi for allegedly overcharging customers ... and with falsifying records to the Internal Revenue Service to justify higher prices.

 Motion of Defendant Getty Oil Company for Summary Judgment, Ex. 3, at 3. The price-gouging charge and subsequent conviction are also the initial reasons specified by Getty in answer to the plaintiff's interrogatory seeking Getty's grounds for termination. Id., Ex. 1; Answer to Interrogatory 8, at 4.

 Nearly four years later, Palombi filed this action. Palombi's sole surviving claim at this stage of the litigation is that the gasoline station lease involved here constituted a franchise agreement and that Getty's termination of Palombi's franchise did not comply with the principles established by the Supreme Court of Pennsylvania in Atlantic Richfield Co. v. Razumic, 480 Pa. 366, 390 A.2d 736 (1978). *fn4" Like the instant case, Razumic involved the termination of a service station "lease" by the leasing oil company. The parties had signed what was captioned a "DEALER LEASE," authorizing the lessee to operate a service station for a term of three years, subject to the right of the lessee to terminate the lease on any anniversary date by giving 60 days' advance written notice to the lessor. Id. at 377, 390 A.2d at 741. The agreement in Razumic, much like the agreement here, determined rent by monthly volume of gasoline sold and required the dealer to provide a certified statement containing all the information necessary to calculate the monthly rental. The agreement also did not allow the dealer to "make any additions, alterations or improvement to the leased premises nor place, alter, remove, deface, or obliterate any signs, trademarks or color arrangements appearing thereon" without the lessor's consent. Further, one of several standardized riders accompanying the "DEALER LEASE" required that the service station be operated "in such a manner as to reflect favorably on (the lessor supplier's) goodwill, trademarks and trade names." Finally, the same rider required the dealer to operate the service station 24-hours-a-day/7-days-a-week; stock a sufficient inventory of tires, batteries and accessories; provide adequate lighting; and, "maintain adequate and sufficient attendants." Id. at 374-376, 390 A.2d at 740-741.

 The Razumic court held that such an agreement established a franchise relationship between the parties. Id. at 374, 390 A.2d at 740. That court noted that in such a relationship the franchisee benefits from the goodwill associated with the franchisor's trademark and products. However, as the court also noted, the continued value of that goodwill is heavily dependent upon the quality of the franchisee's service delivered in the name of the franchisor. The court reasoned that the investments necessarily undertaken justify the franchisee's expectation that those investments "will not be destroyed as a result of (the franchisor's) arbitrary decision to terminate their franchise relationship." Id. at 378, 390 A.2d at 742. Therefore, the Pennsylvania Supreme Court held that, ["consistent] with these reasonable expectations, and (a franchisor's) obligation to deal with its franchisees in good faith and in a commercially reasonable manner, (a franchisor) cannot arbitrarily sever its franchise relationship." Id. (emphasis added).

 The agreement involved in this case clearly contemplates a franchise relationship. As our recitation of the facts should indicate, the agreement here contains substantially the same provisions as the agreement involved in Razumic.

 Getty argues, however, that Palombi's termination was not arbitrary but was based, at least in part, upon Palombi's price-gouging conviction. In answer, Palombi contends that under Razumic a termination must be found to be reasonable under all the circumstances. Since the Court must be apprised of all the facts, Palombi argues, summary judgment is inappropriate.

 The Court rejects Palombi's interpretation of Razumic. The significant language in Razumic, quoted earlier, declares only that there is a duty upon the franchisor not to act arbitrarily. *fn5" The Court interprets this language to mean that, if the franchisor can show at least ...


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