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JIFFY LUBE INTL., INC. v. JIFFY LUBE OF PENNSYLVAN

January 6, 1994

JIFFY LUBE INTERNATIONAL, INC., JIFFY LUBE INTERNATIONAL OF MARYLAND, INC., JIFFY LUBE LIMITED PARTNERSHIP II, and HERITAGE MERCHANDISING CO., INC., Plaintiffs,
v.
JIFFY LUBE OF PENNSYLVANIA, INC., ELPH AUTOMOTIVE SERVICES, INC., HOWARD G. GRAEFFE, and J. PETER GRAEFFE, Defendants and Third-Party Plaintiffs, v. JIFFY LUBE OF TENNESSEE, INC., PENNZOIL COMPANY, and PENNZOIL PRODUCTS, INC., Third Party Defendants.



The opinion of the court was delivered by: FRANKLIN S. VAN ANTWERPEN

 VAN ANTWERPEN, J.

 This case involves a protracted commercial dispute between plaintiffs Jiffy Lube International, Inc. and its related entities (hereinafter referred to collectively as "JLI"), *fn1" defendants and third-party plaintiffs Jiffy Lube of Pennsylvania, Inc. and its related persons and related entities (hereinafter referred to collectively as "Elph"), and third party defendants Jiffy Lube of Tennessee, Inc., Pennzoil Company and Pennzoil Products, Inc (Pennzoil entities hereinafter referred to collectively as "Pennzoil"). On January 27, 1992, we granted plaintiff's motion for a preliminary injunction. *fn2" See Jiffy Lube International, Inc. v. Jiffy Lube of Pennsylvania, Inc., 1992 U.S. Dist. LEXIS 788 (E.D.Pa. January 27, 1992). On April 14, 1992 we denied plaintiff's motion for a second hearing on a preliminary injunction. See Jiffy Lube International, Inc. v. Jiffy Lube of Pennsylvania, Inc., 1992 U.S. Dist. LEXIS 5121 (E.D.Pa. April 14, 1992). We now consider plaintiffs' and third party defendants' (hereinafter referred to collectively as "Movants") motion for summary judgment on the counterclaim and third party complaint. *fn3"

 I. STANDARD OF REVIEW

 Rule 56(c) of the Federal Rules of Civil Procedure provides for summary judgment where the:

 "The party moving for summary judgment must demonstrate that, under the undisputed facts, the non-movant has failed to introduce evidence supporting a necessary element of his case." In Re Phillips Petroleum Secur. Litigation, 881 F.2d 1236, 1243 (3d Cir. 1989). To defeat summary judgment, the non-moving party must respond with facts of record that contradict the facts identified by the movant and may not rest on mere denials. Celotex Corp v. Catrett, 477 U.S. 317, 321 n.3, 106 S. Ct. 2548, 2552 n.3, 91 L. Ed. 2d 265 (1986) (quoting Fed. R. Civ. P. 56(e)); see also First Nat. Bank v. Lincoln Nat. Life Ins. Co., 824 F.2d 277, 282 (3d Cir. 1987). The non-moving party must demonstrate the existence of evidence that would support a jury finding in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S. Ct. 2505, 2510-11, 91 L. Ed. 2d 202 (1986).

 II. FACTUAL BACKGROUND

 In our January 27, 1992 opinion, we made extensive findings of fact involving the parties and the relationships among the parties. The following is a brief overview of the undisputed facts relevant to defendants' counterclaims and third party complaint.

 On or about October 12, 1984, Howard Graeffe, Peter Graeffe, a former partner named Marvin Eglin, and Jiffy Lube International signed a Letter of Intent agreeing to form Jiffy Lube of Pennsylvania for the purpose of developing and operating Jiffy Lube service centers in the Lehigh Valley, Pennsylvania. Stock in Jiffy Lube of Pennsylvania was to be owned as follows: Peter Graeffe -- 25%; Howard Graeffe -- 25%; and Marvin Eglin -- 50%. On December 10, 1986, Howard and Peter Graeffe purchased all of Marvin Eglin's interest in Jiffy Lube of Pennsylvania.

 On or about October 24, 1984, Jiffy Lube International and Jiffy Lube of Pennsylvania entered into an Area Development Agreement, in which Jiffy Lube of Pennsylvania agreed to develop a number of authorized Jiffy Lube service centers in the Greater Philadelphia market, including Berks, Lehigh, and Northampton counties and parts of Montgomery and Berks Counties.

 Jiffy Lube of Pennsylvania entered into separate License Agreements with Jiffy Lube International for each Jiffy Lube service center Jiffy Lube of Pennsylvania developed. Pursuant to these License Agreements, Jiffy Lube International granted trademarks and service marks at these locations during the term of the License Agreement. Jiffy Lube of Pennsylvania agreed (a) to pay monthly royalty fees to Jiffy Lube International; (b) to make monthly contributions to a national advertising fund and/or a regional advertising cooperative association; (c) to make prompt payment for all products and supplies purchased from Jiffy Lube International or its related companies; (d) to submit periodically to Jiffy Lube International various financial statements, sales reports, and other statistical information; and (e) to maintain certain quality control standards in the operation of the authorized Jiffy Lube service center.

 From Jiffy Lube of Pennsylvania's inception, Jiffy Lube of Pennsylvania and Jiffy Lube International entered into a number of loan agreements under which Jiffy Lube of Pennsylvania executed and delivered a series of promissory notes to Jiffy Lube International for royalty and licensing fees due under the terms of the License Agreements. Under the terms of these loan agreements, Jiffy Lube International agreed to credit Jiffy Lube of Pennsylvania the amount of certain fees, which would otherwise accrue, as a loan to fund development of the Jiffy Lube service centers.

 By October, 1987, Jiffy Lube of Pennsylvania had developed and opened ten (10) Jiffy Lube service centers. These Jiffy Lube service centers were running at a deficit, and realizing that the loan-deferral arrangement described above was no longer sufficient, Jiffy Lube International and Jiffy Lube of Pennsylvania entered into an Asset Transfer Agreement, whereby Jiffy Lube International would acquire five (5) of the ten (10) operating Jiffy Lube service centers, together with one-half the liabilities of Jiffy Lube of Pennsylvania and Jiffy Lube of Pennsylvania would operate the remaining five (5) Jiffy Lube service centers, assuming one half of the liabilities of Jiffy Lube of Pennsylvania.

 Pursuant to the 1987 Asset Transfer Agreement, Jiffy Lube of Pennsylvania gave up its right to use the Jiffy Lube name in its corporate name. Accordingly, Elph Automotive was formed. In August, 1990, Elph Automotive, Peter Graeffe, Howard Graeffe, and twelve (12) other Jiffy Lube franchisees and related entities filed suit against Jiffy Lube International, among others, in the Court of Common Pleas, Philadelphia County, captioned Brandywine Lubrication Services, Inc., et al. v. Jiffy Lube International, Inc., et al., August Term 1990, No. 5578.

 In its Common Pleas action, Elph Automotive asserted that Jiffy Lube International and Jiffy Lube of Pennsylvania were at all relevant times joint venture partners, owing each other fiduciary duties, and that Jiffy Lube International lured Jiffy Lube of Pennsylvania into franchise agreements by fraudulently misrepresenting the profitability of existing Jiffy Lube franchises and by violating certain Federal Trade Commission rules. Accordingly, the Common Pleas Complaint sought rescission of the License Agreement, restitution for plaintiffs' investment and related expenses, and damages for Jiffy Lube International's alleged fraud and deceit.

 In September or October, 1990, Jiffy Lube International made a blanket settlement offer to all plaintiffs in the Common Pleas action. With the exception of Elph Automotive and its related entities, all of the plaintiffs to the Common Pleas action settled their claims with Jiffy Lube International.

 On November 1, 1991, after Jiffy Lube of Pennsylvania rejected Jiffy Lube International's omnibus offer, Jiffy Lube International filed the present action alleging claims for trademark infringement and unfair competition. On February 18, 1992, Elph filed its counterclaim and third party complaint. Many of Elph's claims in its counterclaims and third party complaint are similar to those in its state court action. On February 28, 1992, Elph voluntarily discontinued its state court action.

 The crux of Elph's complaint involves Movants' allegedly fraudulent inducement of Elph to enter into a franchisor-franchisee relationship. Among its numerous allegations, Elph complains that JLI: misrepresented its financial condition and the financial condition of its other franchisees, failed to disclose an alleged scheme by Pennzoil to gain control of JLI, fraudulently induced Elph to undertake various loan agreements and contractual obligations with JLI, conspired with Pennzoil to tie Pennzoil products to the Jiffy Lube franchise system. *fn4"

 III. DISCUSSION

 Movants seek summary judgment on four separate grounds: (A) that a release that Elph executed bars many, if not all, claims against Movants; (B) that no evidence exists to hold Pennzoil Company or Pennzoil Products Company liable as "alter-egos" of Jiffy Lube International, Inc.; (C) that there is a fatal failure of proof with respect to the RICO claims asserted in the counterclaim and third party complaint; and (D) that the statutes of limitations applicable to most, if not all, of the claims against Movants expired before Elph filed its counterclaim and third party complaint in this Court.

 A. The Release

 On October 26, 1987, counterclaimants and third party plaintiffs Jiffy Lube of Pennsylvania, Howard Graeffe and J. Peter Graeffe entered into the aforementioned "Asset Transfer Agreement" with JLI. *fn5" The Asset Transfer Agreement contains the following release:

 
J.L. of PA for itself and its successors, assigns, and all other persons acting on its behalf or claiming under it and each of the Stockholders does fully and forever hereby release, remise, acquit, exonerate, and discharge JLI, its successors, assigns, affiliates, officers, directors, agents and/or employees of and from any and all actions, causes of actions, suits, claims, damages, expenses, debts, bills, covenants, contracts, controversies, agreements, promises, judgments, and demands of whatever kind or nature in law or in equity, against which J.L. of PA and each of the Stockholders may have ever had, now has or which any successors and assigns hereafter can, shall, or may have, upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to the date of this Agreement.

 Plaintiff's Exhibit "A", Asset Transfer Agreement at pages 10-11, P 11(a). JLI claims that this release bars claims based on pre-1987 conduct against all plaintiffs and third party defendants (with the exception of the Pennzoil entities, the only non-signatories to the 1987 Asset Transfer Agreement). *fn6"

 JLI further asserts that the entirety of Elph's claims are based on pre-1987 conduct. Its basis for this assertion is the following exchange, excerpted from the October 18, 1993 Deposition of J. Peter Graeffe:

 
Q: Did you sustain any losses as a result of Jiffy Lube International breaching, as you contend, its obligations under the joint venture agreement after October 26, 1987?
 
A: I believe that all of our losses since 1987 are a consequence of their breaches prior to 1987.
 
Q: And when you say all of your losses, you mean the entirety of your claim; is that correct?
 
A: Yes.
 
Q: The $ 3 million-some-odd number that's articulated in your Answers to ...

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