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SMITH v. ATLANTIC RICHFIELD CO.

February 12, 1982

Herbert B. SMITH
v.
ATLANTIC RICHFIELD COMPANY



The opinion of the court was delivered by: BECKER

I. Preliminary Statement

It was only a matter of time until the video game rage gave rise to litigation. This case is before us in the wake of the termination by defendant Atlantic Richfield Company ("ARCO") of an agreement between it and plaintiff Herbert B. Smith for the operation of an "am/pm" convenience store in Wynnewood, Pennsylvania, because of plaintiff's failure to remove several coin-operated video games from the store's premises. *fn1" The convenience store is adjacent to an ARCO gasoline station operated by plaintiff under a separate lease. Plaintiff, relying upon the fact that these two operations are conducted on the same premises, has invoked the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. ("PMPA"), in an effort to enjoin the termination of the "am/pm" convenience store agreement. The PMPA provides that when a motor fuel franchisor terminates or fails to renew a motor fuel distribution franchise in any way inconsistent with the PMPA's procedural requirements, the franchisee may bring a civil action, without regard to the amount in controversy, in an appropriate federal district court. PMPA § 2805(a).

 Contending that this case does not involve a franchise termination under the PMPA, Atlantic Richfield Company ("ARCO") has moved to dismiss this case for lack of jurisdiction pursuant to F.R.Civ.P. 12(b)(1). There being no other alleged federal jurisdictional basis for plaintiff's suit, our determination of the PMPA's scope will determine whether this case may be maintained in this court. The case presents us with a question of first impression concerning the scope of the jurisdictional provisions of the act: May the PMPA be applied to the termination of an agreement pertaining to a retail franchise operated on the same premises as a gasoline retail franchise, even though the termination impairs neither the gasoline station franchise nor the lease of the premises, including the right to operate a commercial or other kind of store without the franchise? We turn now to statement of the background facts and then to a discussion of our findings of fact and conclusions of law. *fn2" For the reasons that follow, we dismiss plaintiff's complaint for lack of jurisdiction.

 II. The Factual Background *fn3"

 On November 25, 1977, the plaintiff entered into a lease and ancillary agreements with ARCO for the operation of a gasoline station and convenience store at Lancaster Pike and Wynnewood Road, in Wynnewood, Pennsylvania. This agreement was superseded when, on December 17, 1979, the parties entered into an "am/pm" Convenience Store Agreement and an "am/pm" Premises Lease with Addenda. The "am/pm" Convenience Store Agreement established plaintiff as a franchisee of ARCO's "am/pm" trademark and convenience store marketing scheme.

 Under the gasoline station agreement, rent on the gasoline station is paid separately from payments on the convenience store building made pursuant to the Convenience Store Agreement. Rent on the gasoline station facilities was set at a rate of two cents per gallon of fuel sold or otherwise delivered from the premises per month, provided that the minimum monthly rental payment is no less than $ 1,705.

 Under the Convenience Store Agreement, if plaintiff operates the store 24 hours a day, he must pay a monthly royalty equal to 12% of gross sales, compensation, and commissions, *fn4" with a minimum monthly royalty of $ 1,732. *fn5" If plaintiff fails to keep the store open around the clock he must remit royalties based on 14% of gross sales. *fn6"

 The Convenience Store Agreement and Premises Lease, although separate agreements, exhibit some degree of interrelation. If the Premises Lease terminates for any reason, then the Convenience Store Agreement also terminates. On the other hand, plaintiff can lose the Convenience Store Agreement but retain all his rights under the Premises Lease to operate a gasoline station and to put the store building to any use he chooses. In the event that the Convenience Store Agreement terminates, a rental schedule pertaining to the store building contained in the Premises Lease is substituted for the equivalent provisions in the Convenience Store Agreement. Under these substituted provisions, plaintiff's rental obligations for the store would be modified so that the monthly royalty payments would increase to 14% from 12% of gross sales; the minimum monthly rental payment, however, would drop from $ 1,732 to $ 1,558 per month.

 In order to increase the revenue generated by his convenience store facility, plaintiff, in April 1981, installed two coin-operated electronic video game machines in the store. He has since added two more. These machines return about $ 200 per week, on which plaintiff has faithfully paid the 12% monthly royalty owed to ARCO. Plaintiff maintains that without the revenue generated by the video games he would be forced to close the convenience store. ARCO, however, disagrees and avers that most "am/pm" convenience stores operate profitably without video game receipts.

 ARCO objects to the presence of these machines in the convenience store. ARCO sent three notices of its objection to plaintiff. These notices demanded removal of the machines and further stated that, under Article 6.02 of the Convenience Store Agreement, the machines' presence in the store placed plaintiff in default. Article 6.02 provides that the operator of an "am/pm" convenience store "may not install additional equipment, fixtures or machines" in the store without ARCO's prior written consent.

 Plaintiff ignored ARCO's demands to remove the machines. Consequently, on August 13, 1981, ARCO notified plaintiff that the Convenience Store Agreement would be terminated as of September 16, 1981. Plaintiff promptly filed this suit, which alleges violation of the PMPA, and pleaded several pendent state law claims. Plaintiff also moved for a preliminary injunction under the PMPA against the termination of the Convenience Store Agreement. *fn7" Proceedings on this motion were delayed when ARCO postponed termination of the Convenience Store Agreement while the parties attempted to negotiate a settlement. Those conciliatory efforts have proven to be fruitless and the litigation is now being actively pursued.

 As we have explained, ARCO has moved that plaintiff's suit be dismissed for lack of federal jurisdiction. ARCO claims that the jurisdictional provisions of the PMPA are inapplicable to this litigation because the subject matter of plaintiff's complaint involves not the termination of a motor fuel franchise, to which the PMPA applies, but only the termination of a trademark and convenience store franchise, which is not covered by the PMPA. The material facts are uncontested. The only factual dispute stems from plaintiff's assertion that it would be physically and economically impossible to operate the gasoline station franchise without the benefit of the "am/pm" convenience store agreement. ARCO denies this. As is explained in the following section of this memorandum, we also believe this assertion to be without foundation and, at all events, not material to the result.

 Having recited the facts as stated in plaintiff's complaint, we turn now to address the novel issue of what constitutes a ...


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