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Aamco Transmissions, Inc v. James Dunlap

August 16, 2011


The opinion of the court was delivered by: Schiller, J.


Sometimes, a relationship must end. The issue now before this Court is whether that end has arrived for AAMCO Transmissions, Inc. ("AAMCO") and one of its franchisees, James Dunlap. Presently before the Court is AAMCO's motion for a preliminary injunction as well as Dunlap's motion to dismiss AAMCO's lawsuit and to compel arbitration. The Court held a hearing on August 9, 2011. For the reasons that follow, the Court will grant AAMCO's motion for a preliminary injunction but will stay this litigation and compel the parties to arbitrate their disputes.


AAMCO franchises and licenses the AAMCO name in the operation of transmission and general automotive repair centers throughout the United States and Canada. (AAMCO's Mot. for Prelim. Inj. Brian O'Donnell Aff. ¶ 5.) It has used the name AAMCO as its trade name, trademark, and service mark in connection with the operation of a network of transmission repair centers since at least 1963. (Id. ¶ 3.)

On June 5, 1981, Dunlap and AAMCO entered into a Franchise Agreement that permitted Dunlap to run an AAMCO transmission repair center at 1366 South Military Highway in Chesapeake, Virginia. (AAMCO's Mot. for Prelim. Inj. Ex. A [1981 Franchise Agreement].) The 1981 Franchise Agreement lasted for a term of fifteen years. (Id. ¶ 16.1.) Furthermore, "[u]nless either party gives written notice of its intention not to renew the agreement at least one (1) year prior to the expiration of the fifteen (15) year term, then this Franchise shall be renewed for fifteen years." (Id.) If the parties renewed their agreement, Dunlap also agreed to execute a franchise agreement of "the type then currently being used by AAMCO." (Id. ¶ 16.1(b).)

Under the 1981 Franchise Agreement, Dunlap agreed to a number of terms if it terminated. He consented to promptly pay AAMCO any money owed, "[i]mmediately and permanently discontinue the use of the mark AAMCO and all similar names or marks, and of any other designation tending to indicate that the Franchisee is an authorized AAMCO Franchisee," promptly destroy or surrender all AAMCO signs, stationary, forms and advertising, promptly transfer to AAMCO each telephone number listed under the AAMCO designation, and "[r]efrain from doing anything that would indicate that Franchisee is or ever was an authorized AAMCO dealer." (Id. ¶ 19.1.) Additionally, "Franchisee further agrees that for a period of 1 year following a termination of this Agreement he will not directly or indirectly engage in the transmission repair business within a radius of 10 miles of the subject center or of any other AAMCO center." (Id. ¶ 19.1(g).)

On November 14, 1988, AAMCO and Dunlap executed an amendment to the 1981 Franchise Agreement that included the following arbitration clause:

22.1 Mediation and Arbitration

(a) Non-binding mediation of disputes, controversies, or claims arising out of or relating to this Agreement shall be conducted in Philadelphia, Pennsylvania or in Chicago, Illinois, solely at Franchisee's option.

(b) All disputes, controversies or claims arising out of or relating to this Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association or its successor except for termination by AAMCO which is based in whole or in part, upon the fraudulent acts of Franchisee of Franchisee's failure to deal honestly and fairly with any customer of the center or Franchisee's failure to accurately report his gross receipts to AAMCO. Arbitration shall be conducted in Philadelphia, Pennsylvania, unless otherwise agreed to by the parties.

(AAMCO's Prelim. Inj. Hr'g Ex. P2 [1988 Amendment].) On August 31, 1998, Warren Berest, AAMCO's manager of franchise administration, sent Dunlap a letter that included three copies of a renewal franchise agreement for the Chesapeake, Virginia AAMCO center. (Dunlap's Mem. in Opp'n to AAMCO's Mot. for Prelim. Inj. [Dunlap's Opp'n] Ex. A [Berest Letter].) The letter directed Dunlap to sign two of the agreements, to initial them where indicated, and to return the two signed copies to Berest. (Id.) The letter informed Dunlap that he should not sign the contracts until September 2, 1998, "as that is when you will be legal to do so pursuant to your recent receipt of the AAMCO disclosure material." (Id.) The franchise agreement enclosed with the Berest Letter includes an amendment that reads:

WHEREAS, the Franchise Agreement is dated September 2, 1998, which date is the effective date of the Agreement . . .

1. The commencement date of the Franchise Agreement shall be June 5, 1997, and the Agreement, if not sooner terminated pursuant to provisions thereof, shall continue until June 4, 2012.

(Berest Letter.)

Neither AAMCO nor Dunlap have been able to locate a renewal agreement signed by either party. Thus, the record contains no indication that the renewal agreement was ever signed by Dunlap or AAMCO, or initialed by Dunlap, nor is there evidence that Dunlap executed the amendment to this purported renewal agreement.

The parties did not enjoy a smooth ride. AAMCO contends that Dunlap often failed to meet his obligations as a franchisee, including paying fees and timely submitting sales figures. (O'Donnell Aff. ¶ 17.) As a result, AAMCO informed Dunlap in June and August of 2006 that it was terminating their relationship. (Id. ¶ 18.) Dunlap ignored these communications and continued to operate the Chesapeake AAMCO center using AAMCO's trade name and marks. (Id. ¶ 19.)

On January 18, 2007, AAMCO sued Dunlap to enforce the termination of the 1981 Franchise Agreement. (AAMCO's Prelim. Inj. Hr'g Ex. P13 (2007 Compl.) After Dunlap removed the case to federal court, the parties settled. (AAMCO's Mot. for Prelim. Inj. Ex. B [Settlement Agreement].) According to the Settlement Agreement, AAMCO and Dunlap agreed to rescind the termination of Dunlap's franchise agreement for the Chesapeake, Virginia AAMCO center. (Id.) Additionally, as of July 11, 2007, "the AAMCO franchise agreements are reinstated for a period not longer than the remaining term of the respective AAMCO franchise agreements (November 29, 2008 for the Portsmouth, VA AAMCO center and June 5, 2011 for the Chesapeake, VA AAMCO center) for the limited purpose of permitting Mr. Dunlap to operate the centers so that they can be sold as AAMCO centers to third party purchasers." (Id.)

Dunlap did not sell the Chesapeake AAMCO center. (O'Donnell Aff. ¶ 22.) And when June 5, 2011 rolled around, he continued to operate it. (Id. ¶ 23.) On June 13, 2011, AAMCO sent a letter to Dunlap informing him that his franchise had expired and that he "was no longer authorized to operate an AAMCO center at the location." (AAMCO's Mot. for Prelim. Inj. Ex. C [Termination Letter].) AAMCO demanded that Dunlap: (1) stop using the AAMCO mark; (2) destroy or surrender AAMCO signs, stationary and forms; (3) stop advertising as an AAMCO franchisee; (4) transfer to AAMCO his business telephone number; (5) refrain from doing anything that would indicate that he is or was an authorized AAMCO franchisee; (6) honor his non-compete clause; and (7) pay AAMCO any money he owed. (Id.)

This letter failed to kick Dunlap into gear. He has not removed the AAMCO name and trademark from the Chesapeake center and has continued to operate it using the AAMCO name.*fn1

(O'Donnell Aff. ¶¶ 24-25.) He also operates and controls a website that identifies his business as "AAMCO Transmissions." (Id. ¶ 26; AAMCO's Prelim. Inj. Ex. P10, P11, & P12 [Advertisements].) He continues to use the telephone number linked to AAMCO and use AAMCO repair orders that purport to provide customers with an AAMCO warranty. (O'Donnell Aff. ¶¶ 27; AAMCO's Mem. of Law in Supp. of Prelim. Inj. Mot. at 7.)

Dunlap has a different take on matters. According to Dunlap, AAMCO's associate general counsel, Karen von Dreusche, wrote to him in August of 1998, informing him that although AAMCO "continues to dispute the term of your franchise," the company recognized that Dunlap asserted that he was "currently operating at the [Chesapeake location] under a 15 year renewal of your original Franchise Agreement dated June 5, 1981." (Supplemental Dunlap Decl. Ex. A [Von Dreusche Letter].) The von Dreusche Letter stated that Dunlap was in default even if the 1981 Franchise Agreement renewed as Dunlap claimed. (Id.) The von Dreusche Letter indicated that she was also enclosing a copy of the form of the franchise agreement Dunlap would be obligated to sign. (Id.)

Dunlap also contends that the parties agreed to renew their franchise agreement in 1998, and that that agreement extended Dunlap's right to operate an AAMCO franchise at the Chesapeake location until June 4, 2012. (Dunlap's Opp'n at 3.) According to Dunlap, the parties have operated under the terms of the renewed franchise agreement since 1998. (Id. at 3-4.) As for the Settlement Agreement, Dunlap points out that it reinstated the existing 1998 ...

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