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Lippo v. MOBIL Oil Corp.

October 30, 1985


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 81 C 775-Thomas R. McMillen, Judge.

Author: Cudahy

Before CUMMINGS, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

CUDAHY, Chief Judge.

For a number of years plaintiff Bruce Lippo operated a gasoline service station in Schaumburg, Illinois, a franchisee of the defendant Mobile Oil Corporation. This case arises from Mobil's attempt to terminate the franchise prior to its expiration. After lengthy proceedings below, Lippo obtained judgment for $67,500 and an amount of attorney's fees to be determined. Mobil has appealed, raising five issues: 1) whether the attempted termination was permitted under the several franchise agreements of the Petroleum Marketing Practices Act, Pub. L. No. 95-297, 92 Stat. 322 (1978) (the "PMPA"), codified at 15 U.S.C. §§ 2801-2841; 2) whether the damages are proper; 3) whether summary judgment for Lippo on Mobil's counterclaim was proper; 4) whether Lippo is entitled to attorney's fees; and 5) whether denial of attorney's fees to Mobil on Lippo's punitive damages claim was proper. We affirm the district court in part and reverse in part.*fn1

On September 29, 1980, Lippo purchased on the spot market 7500 gallons of non-Mobil gasoline.*fn2 The non-Mobile gasoline was delivered to the station at 2:00 p.m. that afternoon, and sold to the public through Mobil equipment and under Mobil's signs until 4:00 p.m. September 20, 1980.*fn3 Under Mobil's direction Lippo then covered Mobil's pumps and signs with plastic and masking tape. He continued to sell the remaining non-Mobil gasoline, and also sold Mobil gasoline that was delivered on October 1, 1980.*fn4

On November 12, 1980, Mobil sent Lippo a Notice of Termination in response to his sale of non-Mobile gasoline.*fn5 The notice charged Lippo with violation of paragraphs 7(d) and 8 of the Service Station Lease and paragraphs 6 and 12 of the Retail Dealer Contract, and stated that the franchise would terminate on February 13, 1981.

On February 13, 1981, Lippo initiated the present action. His amended five-count complaint states claims for promissory estoppel, fraudulent misrepresentation, breach of contract, waiver and violation of the PMPA. On February 13, 1981, Lippo obtained a temporary restraining order enjoining Mobil from termination the franchise. The TRO was subsequently extended and later converted first to a preliminary and then to a permanent injunction by Judges Decker and McMillen. The complaint prayed for injunctive relief and for damages for lost profits and diminution in value of the automobile service and repair operation at the service station alleged to be caused by the attempted termination. Lippo remained in possession of the service station premises at all times. Pursuant to the injunctions Mobil continued the franchise relationship until the agreement expired on September 30, 1982. As could be expected, Mobil did not renew the franchise agreement.

Mobil filed an amended counterclaim on February 24, 1981. Its five counts alleged violations of sections 32(a) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a) & 1125(a), the Illinois common law of unfair competition, the Illinois Uniform Deceptive Trade Practices Act, Ill.REV. STAT. ch. 121 1/2, [P] 311 et seq., and breach of contract. All of Mobil's counterclaim are predicted upon Lippo's sale of non-Mobil gasoline through pumps and facilities of Mobil and under its trademarks and name.

The parties filed cross motions for summary judgment on liability. Mobil argued that misbranding was such a serious violation of the agreement that it could not be cured, and, even if the default was cured, Mobil did not violate the PMPA. Lippo argued that the default could be and had been cured, and so the attempted termination violated both the agreement and the PMPA.

On January 14, 1982, the district court granted summary judgment for Lippo on his breach of contract (Count III) and PMPA (Count V) claims and on all claims of Mobil's counterclaim. Mobil's cross motion for summary judgment was granted on Lippo's promissory estoppel (Count I), fraudulent misrepresentation (Count II) and waiver (Count IV) claims, but denied as to Counts III and V. The district court reasoned that, although Lippo violated his franchise agreement and the PMPA, his misbranding and commingling of non-Mobil gasoline was excused by the ten day cure provision of the Supplemental Agreement. The court found Lippo had cured his violation by selling of all the non-Mobil gasoline within ten days, and entered its judgment order within ten days, and entered its judgment order and permanent injunction enjoining the termination.

A trial on damages was conducted in May 1983. Lippo asserted that he had sustained a loss of profits and a diminution in the value of his automobile service and repair operation because of his fear of termination. A jury returned verdicts in Lippo's favor in the amount of $67,500. Mobil's post-trial motion for judgment n.o.v. or a new trial was denied.

In January 1984 the district conducted a hearing on Lippo's claim for punitive damages under the PMPA. A finding was made in Mobil's favor at the close of Lippo's evidence. Final judgment was entered on January 12, 1984, and this appeal followed.*fn6 The district court entered an order granting Lippo his attorney's fees in connection with his compensatory damages claim only (in an amount to be determined) and denying Mobil's request for attorney's fees with respect to Lippo's punitive damages claim.


Mobil's first argument is that it was entitled to terminate its franchise relationship with Lippo after Lippo sold non-Mobil gasoline under Mobil's mark and name and through Mobil's pumps and facilities. The district court ruled the franchise agreements gave Lippo a right to cure the default, and that he had done so*fn7, and thus that Mobil's attempted termination was a breach of the franchise and a violation of the PMPA. Mobil argues that the franchise agreements between itself and Lippo did not allow Lippo to cure his sale of non-Mobil gasoline, and hence that it did not breach the franchise agreements or violate the PMPA.

The franchise relationship between Mobil and Lippo is evidenced by five documents: (1) the Retail Dealer Contract, (2) the Service Station Lease, (3) the Supplemental Agreement, (4) the Sign and Equipment Rider, and (5) the Equipment Loan Agreement. These documents were all executed on March 1, 1979. All the documents were form contracts drafted by Mobil and were executed by Lippo as presented.

Paragraph 6 of the Retail Dealer Contract expressly prohibits the sale of non-Mobil gasoline through Mobil equipment. It provides:

6. Brand Names, Trademarks, Advertising. Buyer shall use Seller's trademarks and brand names to identify and advertise Seller's products, and shall not use such trademarks and brand names for any other purpose. Buyer shall not mix any other products with Seller's trademarks or brand names in connection with the storage, handling, dispensing or sale of any adulterated, mixed or substituted products. All advertising, including color schemes, of Seller's approval. Any violation of the provisions of this paragraph by Buyer shall give Seller the right to immediately terminate this contract, Buyer shall cause all reference to Seller and all use of Seller's color schemes, trademarks, brand names, slogans and advertising to be discontinued and shall return to Seller all such advertising and promotional material in Buyer's possession. Buyer acknowledges and recognizes that injunctive relief is essential for the adequate remedy of any violation of the provisions of this paragraph by Buyer.

App. 31. In relevant part, paragraph A of article 4 of the Supplemental Agreement provides:

A. The duties and obligations set forth in this supplemental agreement, the Service Station Lease and the Retail Dealer Contract are agreed by the parties to be material to the relationship between Mobil and Dealer. The parties hereby agree that should either party default in the performance of any duty, responsibility or obligation imposed by this supplemental agreement, the Service Station Lease or the Retail Dealer Contract, and such default continue uncorrected for ten (10) days after written notification of such default (or if the default cannot be corrected within ten (10) days, if the work of correcting same has not been commenced within such period) then the party aggrieved by such default may forthwith upon additional written notice to the other party given, terminate the Service Station Lease and the Retail Dealer Contract, and cease doing further business with the other party as of the date of said notice, unless a longer time be required by law. In the event a longer period is required by law, the parties shall cease doing further business at the end of the minimum period required by such statute.

App. 42.

Paragraph 6 of the Retail Dealer Contract imposes a duty not to sell non-Mobil products through Mobil equipment or under Mobil signs, and gives Mobil a right to immediate termination if the provisions of the paragraph are violated. Article 4A of the Supplemental Agreement applies to "any duty, responsibility or obligation imposed by ... the Retail Dealer Contract" (emphasis supplied) days before the Retail Dealer Contract can be terminated. Mobil argues that ten day cure provisions of article 4A does not apply to the duties and obligations specified in paragraph 6.*fn8

Mobil's first argument in support of its position in the assertion that he decision in Wisser Co. v. Mobil Oil Corp., 730 F.2d 54 (2d Cir. 1984), controls this case. Wisser arose out of a challenge to the termination of a franchise relationship governed by contract provisions virtually identical to those at issue here.*fn9 The facts of Wisser, however, are quite different from the instant facts because they suggest that the dealer had engaged in a continuing practice of selling misbranded gasoline. There was evidence before the district court that Wisser had misbranded for as long as six months before Mobil was able to confirm it and commence termination proceedings. There was also evidence Mobil had warned Wisser on several occasions over this period of its suspicions. Finally, Wisser owned his station and so was not evicted from the premises by the termination.*fn10 Wisser, 730 F.2d at 56, 60.

The district court in Wisser denied preliminary injunctive relief to the franchisee on the grounds that he balance of hardships favored the franchiser and the franchiser would prevail on the merits. The Second Circuit affirmed. Wisser had argued that the cure provisions of the rider to paragraph 12 applied to defaults listed in paragraph 6 of his contract. The Second Circuit rejected this argument as "not withstand[ing] an examination of the language and the structure of the contract." Wisser, 730 F.2d a5t 58. The court reasoned that

Printed para. 12 provides for termination "on notice" for defaults generally, and printed para. 6 dispenses with notice for certain defaults, including the "use [of] Seller's trademarks or brand names in connection with the storage, handling, dispensing or sale of any ... substituted products." The typewritten rider to para. 12 expands it to require notice of default and a 20-day opportunity to cure before notice of termination can be given. The typewritten rider to para. 6 adds to it express permission to sell non-Mobil products, but not to misbrand. The rider does not modify or eliminate Mobil's right granted in printed para. 6 to terminate immediately for misbranding. The structure of the printed contract is thereby preserved: Para. 12 and its rider require notice and opportunity to cure for defaults generally; para. 6 and its rider specify particular defaults for which such notice and opportunity to care not required before termination. Wisser's default falls within para. 6; accordingly, Mobil was not required under the contract to give notice and an opportunity to cure.


Mobil argues that his Second Circuit decision controls this case, but we disagree. We agree that the relevant provisions of the contracts are similar, though there is evidence of ...

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