holding that, in analyzing a motion for summary judgment, a franchise agreement should be considered as a whole and any ambiguities or inferences read in a light most favorable to the plaintiffSummary of this case from Harris v. Midas
Argued January 10, 1978.
Decided August 11, 1978.
Edward F. Silva, Jack E. Feinberg, Feinberg, Deutsch, Felgoise, McErlean Moldovsky, Philadelphia, Pa., for appellant.
Robert F. Rossiter, Joseph R. Davison, Obermayer, Rebmann, Maxwell Hippel, Philadelphia, Pa., for appellee.
Appeal from the United States District Court for the Eastern District of Pennsylvania.
Before ADAMS, BIGGS and WEIS, Circuit Judges.
OPINION OF THE COURT
This is an appeal, pursuant to 28 U.S.C. § 1291, from a final order of the United States District Court for the Eastern District of Pennsylvania, dated March 23, 1977, granting appellee's motion for summary judgment. The case presents difficult questions concerning the liability of a franchisor for the allegedly negligent acts of its franchisee. After a careful examination of the record, we conclude that unresolved issues of material fact exist as to both a real and an apparent master-servant or agency relationship between the franchisor and the franchisee. Accordingly, we will reverse the judgment of the district court and remand the case for further proceedings.
According to the complaint, plaintiff's husband, the decedent, had been given a prescription for the drug "Aldactone" which was properly filled on March 3, 1975, by Union Prescription Center, a retail drugstore located in Reading, Pennsylvania. On April 14, 1975, decedent returned to the same drugstore to have the prescription refilled. This time, however, decedent received not "Aldactone," a diuretic, but "Coumadin," a blood thinner. As a result of taking "Coumadin," decedent sustained massive traumatic injuries from which he died on May 12, 1975.
Plaintiff, appellant herein, instituted this diversity action for damages under the Pennsylvania wrongful death and survival statutes against defendant-appellee Union Prescription Centers, Inc. (UPC). The complaint, which charged UPC with "negligence and carelessness and malpractice" in improperly refilling the prescription, alleged that UPC was "the owner, operator, possessor and in control" of the Reading drugstore and that "[a]ll of the acts alleged to have been done or not to have been done by defendant were done or not done by defendant, its agents, servants, workmen, and/or employees, acting in the course and scope of their employment with and on behalf" of UPC.
The complaint alleged that plaintiff is a citizen of Pennsylvania, that defendant Union Prescription Centers, Inc., is a Delaware corporation with its principal place of business in Wisconsin, and that the amount in controversy exceeds $10,000.
Pa.Stat.Ann. tit. 12, §§ 1601 et seq. (Purdon); 20 Pa.Cons.Stat.Ann. §§ 3371 et seq. (purdon).
UPC filed a motion for summary judgment which stated, inter alia, that on October 15, 1974, UPC has entered into a franchise agreement with Joseph J. Todisco, Jr., whereby Todisco purchased from UPC the right to acquire and operate the Union Prescription Center in Reading; that UPC "was not at any time material to plaintiff's cause of action, the owner, operator, possessor, or in control" of the Reading store; that UPC had never supplied or sold any drugs or medication to the Reading store; that Todisco, acting as an "independent contractor," was not "an agent, servant, workman, and/or employee" of UPC; and that therefore defendant was not in a position whereby a duty of due care was owed plaintiff's decedent. A copy of the Franchise Agreement was attached as an exhibit to UPC's motion. Subsequently, in support of its motion for summary judgment, UPC submitted affidavits signed by Todisco, the franchisee, and by James B. Young, Esquire, corporate counsel for UPC. In opposing the motion for summary judgment, plaintiff submitted the deposition of Todisco, but filed no countervailing affidavits. On the basis of that record, the district court granted summary judgment for UPC in a written opinion, 428 F. Supp. 663 (E.D.Pa. 1977), and this appeal followed.
A copy of the Franchise Agreement is attached as an Appendix to this opinion.
These affidavits were filed with the district court on August 2, 1976, and appear as entry number 14 on the docket sheet. Both are included in the district court record and are set forth in full at note 11 infra. Young's affidavit was executed July 8, 1976, while Todisco's affidavit was executed July 22, 1976.
However, attached to appellee's brief as part of its appendix are two substantively different affidavits sworn by the same affiants: one by Young, at 1b-3b, executed January 7, 1977, and the other by Todisco, at 4b-6b, executed January 6, 1977. Suffice it to say that these appended affidavits are more favorable to appellee's cause than those submitted to the district court. Neither of the appended affidavits appears in the district court record, nor is there anything on the docket entries which reflects their existence. Although appellee refers extensively to the questioned affidavits in its brief, and, indeed, although there is little doubt that they have been submitted for our consideration, nowhere are we explicitly informed by appellee that the affidavits differ from those considered by the district court.
It is hornbook law that this court generally cannot consider evidence which was not before the court below. See Sound Ship Building Corp. v. Bethlehem Steel Co. (Inc.), 533 F.2d 96, 101 n.3 (3d Cir.), cert. denied, 429 U.S. 860, 97 S.Ct. 161, 50 L.Ed.2d 137 (1976), and cases cited therein; 10 C.A. Wright A. R. Miller, Federal Practice and Procedure § 2716, at 435. Therefore, all further references in this opinion to the affidavits of Young and Todisco refer to the two documents filed with the district court and included in the certified record, as described above. Our discussion here applies with equal force to the affidavit submitted by appellant. See note 24 infra.
II. VICARIOUS LIABILITY
Appellant contended in the district court and asserts on appeal that UPC is vicariously liable for Todisco's alleged negligence either because UPC retained sufficient control over the operation of the Reading drugstore to establish a master-servant relationship or because UPC "held itself out" to the public as the owner or operator of the Reading store. We shall examine these theories in turn. In so doing, we heed the well-established principles that the moving party in a motion for summary judgment must show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, Rule 56(c), Fed.R.Civ.P., 28 U.S.C.; Adickes v. S. H. Kress Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Goodman v. Mead Johnson Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977), and that the evidence and the inferences drawn therefrom must be considered in a light most favorable to the party opposing the summary judgment motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) (per curiam); Smith v. Pittsburgh Gage Supply Co., 464 F.2d 870, 874 (3d Cir. 1972); Long v. Parker, 390 F.2d 816, 821 (3d Cir. 1968), vacated on other grounds, 384 U.S. 32, 86 S.Ct. 1285, 16 L.Ed.2d 333 (1969).
Although it apparently was never questioned in the district court proceedings that Pennsylvania substantive law was to be applied in this diversity case, see Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964), both parties, at the request of this court, submitted additional briefs regarding a potential conflict-of-laws issue. As discussed infra, one of plaintiff's contentions is that a master-servant relationship existed between UPC and its franchisee as evidenced by the terms of the Franchise Agreement. The district court, applying Pennsylvania law, concluded that the Franchise Agreement did not demonstrate such a relationship and that UPC was entitled to summary judgment. However, section XXIII.I of the Franchise Agreement states: "This Agreement shall be interpreted, construed and governed under and by the laws of the state of Wisconsin." Thus, it could be argued that the district court, to the extent that it was required to interpret and construe the Agreement in determining the existence of a master-servant relationship, should have considered, under Pennsylvania choice-of-law theory, whether to give effect to section XXIII.I. Cf. Siata International U.S.A. Inc. v. Insurance Co. of North America, 498 F.2d 817, 820 (3d Cir. 1974); Boase v. Lee Rubber Tire Corp., 437 F.2d 527, 529-30 (3d Cir. 1970). Nevertheless, we are now satisfied, and both parties agree without objection, that whether the relationship between UPC and its franchisee is ultimately determined by the law of Wisconsin, in deference to section XXIII.I, rather than by the law of Pennsylvania, is inconsequential since the laws of both states are in accord in their treatment of the matters before us. See, e.g., Raasch v. Dulany, 273 F. Supp. 1015, 1018 n. 1 (E.D.Wis. 1967); Bond v. Harrel, 13 Wis.2d 369, 108 N.W.2d 552, 555 (1961). Having therefore concluded that no conflict of law exists, we find no reason to diverge from the position of both parties and the district court that Pennsylvania law governs in this case. Cf. Pierce v. Capital Cities Communications, Inc., 576 F.2d 495 (3d Cir. 1978).
A. Appellant's Master-Servant Theory
We first consider appellant's contention that summary judgment was erroneous because factual questions exist requiring jury resolution with respect to the precise nature of the relationship between UPC and its franchisee. Under Pennsylvania law, when an injury is done by an "independent contractor," the person employing him is generally not responsible to the person injured. Hader v. Coplay Cement Mfg. Co., 410 Pa. 139, 150-51, 189 A.2d 271, 277 (1963). However, when the relationship between the parties is that of "master-servant" or "employer-employee," as distinguished from "independent contractor-contractee," the master or employer is vicariously liable for the servant's or employee's negligent acts committed within the scope of his employment. Smalich v. Westfall, 440 Pa. 409, 415, 269 A.2d 476, 481 (1970). While Pennsylvania courts have set forth numerous criteria to determine whether a given person is an employee-servant or an independent contractor, see, e.g., Stepp v. Renn, 184 Pa. Super. 634, 637, 135 A.2d 794, 796 (1957), "the basic inquiry is whether such person is subject to the alleged employer's control or right to control with respect to his physical conduct in the performance of the services for which he was engaged. . . . The hallmark of an employee-employer relationship is that the employer not only controls the result of the work but has the right to direct the manner in which the work shall be accomplished; the hallmark of an independent contractee-contractor relationship is that the person engaged in the work has the exclusive control of the manner of performing it, being responsible only for the result." Green v. Independent Oil Co., 414 Pa. 477, 483-84, 201 A.2d 207, 210 (1964) (citations omitted); see Johnson v. Angretti, 364 Pa. 602, 607, 73 A.2d 666, 669 (1950); Feller v. New Amsterdam Casualty Co., 363 Pa. 483, 486, 70 A.2d 299, 300 (1950); Joseph v. United Workers Ass'n., 343 Pa. 636, 639, 23 A.2d 470, 472 (1942). Actual control of the manner of work is not essential; rather, it is the right to control which is determinative. Coleman v. Board of Education, 477 Pa. 414, 383 A.2d 1275, 1279 (1978); Yorston v. Pennell, 397 Pa. 28, 39, 153 A.2d 255, 260 (1959).
Difficulties arise, of course, in the application of these familiar principles to the facts of a given case. Each case must be decided on its own facts. George v. Nemeth, 426 Pa. 551, 554, 233 A.2d 231, 233 (1967); Namie v. DiGirolamo, 412 Pa. 589, 594, 195 A.2d 517, 519 (1963). The difficulties are perhaps especially evident where, as here, the alleged master and servant also occupy the status of franchisor and franchisee. Some degree of control by the franchisor over the franchisee would appear to be inherent in the franchise relationship, see generally Brown, Franchising — A Fiduciary Relationship, 49 Texas L.Rev. 650 (1971), and may even be mandated by federal law. However, as several courts have discerned, the mere existence of a franchise relationship does not necessarily trigger a master-servant relationship, nor does it automatically insulate the parties from such a relationship. Whether the control retained by the franchisor is also sufficient to establish a master-servant relationship depends in each case upon the nature and extent of such control as defined in the franchise agreement or by the actual practice of the parties. See Singleton v. International Dairy Queen, Inc., 332 A.2d 160, 162 (Del. Super.Ct. 1975); Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874, 877 (1975); Annots, 81 A.L.R.3d 764 (1977), 83 A.L.R.2d 1282 (1962) and authorities cited therein. The fact that the franchise agreement expressly denies the existence of an agency relationship is not in itself determinative of the matter. See Levin v. Wear Ever Aluminum, Inc., 442 F.2d 1307, 1309 n. 1 (3d Cir. 1971); George v. Nemeth, supra, 426 Pa. at 554, 233 A.2d at 233; Singleton v. International Dairy Queen, Inc., supra, 332 A.2d at 163; Murphy v. Holiday Inns, Inc., supra, 219 S.E.2d at 876-77.
Under the provisions of the Lanham Act, 15 U.S.C. §§ 1051 et seq., the owner of a trade mark may license his mark to a "related company," "provided such mark is not used in such manner as to deceive the public." Id. § 1055. A "related company" is defined as "any person who . . . is controlled by" the trade mark owner, and the owner may lose his mark by "abandonment" if its use is discontinued or if the manner of its use "causes the mark to lose its significance as an indication of origin." Id. § 1127 (emphasis added). We note that neither party herein has discussed the applicability or relevance of the Lanham Act to the facts of the present case.
The Franchise Agreement in the case at bar states that UPC and its franchisee "are not and shall not be considered joint venturers, partners or the agents of each other" (XXIII.D).
In the present case there is no evidence that UPC exercised actual control over the manner in which Todisco operated the Reading store. Instead, both parties rely upon various provisions of the Franchise Agreement as supporting their respective contentions regarding UPC's right to control Todisco's performance. While acknowledging that a franchise agreement may disguise what is essentially a master-servant relationship, appellee argues that the present Agreement at most creates only an independent contractor relationship. Under the terms of the Agreement, appellee observes, Todisco is merely the recipient of a license granted by UPC to operate a Union Prescription Center under that name and to use UPC's service mark and logo in conjunction therewith, in return for which Todisco pays to UPC a four and one-half percent monthly royalty out of the store's gross receipts (I.A, II.B). In fact, stresses appellee, the Agreement specifically provides that the franchisee pays all business expenses and taxes (XIII), bears the risk of litigation arising out of the store's operation (XX), has some say in choosing the inventory (VIII.A), and is required to identify himself as owner of the store on all signs and printed matter bearing the UPC mark (I.B).
When deposed by plaintiff, Todisco stated that during the one and one-half years that he had operated the store, several representatives of UPC had visited the establishment, but their functions were related to labor relations and future planning and unrelated to marketing. Appendix at 65-66. In any event, the absence of evidence relating to actual control would not necessarily preclude the finder of fact from inferring that UPC had the right to control the operation of the Reading store. See Taylor v. Costa Lines, Inc., 441 F. Supp. 783, 785 (E.D.Pa. 1977).
Appellant contends, conversely, that the Franchise Agreement, considered as a whole, provides sufficient indicia of control to raise a factual question respecting the nature of the relationship between UPC and its franchisee. Appellant relies upon numerous contractual provisions which allegedly accord UPC the right to control specific details of the store's operation and which restrict Todisco's exercise of personal managerial discretion. Thus, under the terms of the Agreement: the franchisee "acknowledges that the public image and good name of the Union Prescription Centers requires the perpetuation of quality standards . . . and further requires the management and marketing advice of UPC in order to avoid improper or degrading techniques" (preamble); the franchisee may operate only under the UPC name and logo (I.A, B); UPC approves the location of the store and has the right to inspect the premises during normal business hours (IV.A); the franchisee must maintain the exterior and interior of the store premises in a "clean, orderly and attractive condition and shall maintain all structures, furnishings, fixtures, equipment and decorations in such a manner as to insure an attractive appearance of the Prescription Center" (IV.C); the franchisee must adhere to UPC's interior and exterior standard colors, lighting, design, equipment, and fixtures, and any new construction, facilities, or equipment must conform to such "national standards" (VI.A, B); the franchisee must maintain a "neat, orderly arrangement of displayed merchandise and a high degree of cleanliness" (VI.B); the store must be operated "as part of a national organization securing its strength through adherence to UPC's uniformly high standards of service, appearance, quality of equipment and proved methods of operation," and the franchisee agrees to "conform strictly" to "all such national standards" and to the provisions of the Franchise Agreement (VI.C); UPC has the "unqualified right" both to review the store's operations and consult with the franchisee on operating problems and to inspect the store "so as to assure maintenance of the high standards of the Union Prescription Center program, the goodwill of the public, and compliance with the provisions of this Agreement and with various licensing laws" (VI.E).
The Agreement further provides that the franchisee must exercise best efforts to secure union members for all construction and repair work and to have all invoices, statements, letterheads, prescription blanks, and other printed materials printed in union shops (VII); UPC designates the nature and minimum inventory requirements for the store subject to the franchisee's approval and, at franchisee's request, will make available pharmaceutical items bearing the UPC label (VIII.A); the franchisee may not supplement his inventory with items not directly related to the prescription, convalescent, or medical field without UPC's written consent (VIII.A); the franchisee must deliver and maintain inventory control data, delivery receipts, and records as prescribed by law and such other inventory records as required by UPC (VIII.A); UPC uniformly designates the equipment and fixtures for each store, to be paid for by the franchisee, and the franchisee authorizes UPC to order on his behalf equipment and fixtures necessary, in the sole judgment of UPC, to commence the store's operation (VIII.B); the franchisee must keep the store open for business a minimum of 46 hours per week (IX); the franchisee must use UPC's standard forms in operating the store, including prescription labels and files, rental contracts, letterheads, business cards, and accounting and inventory records (X.A); the franchisee must use UPC's uniform accounting system and make monthly financial reports to UPC (X.B); the franchisee must schedule specified inventory dates and mail a copy of the results to UPC on forms acceptable to the Internal Revenue Service (X.C).
The Franchise Agreement states that the franchisee must preserve complete records of all sales and purchases in a manner and form prescribed by UPC (X.F); UPC may examine and audit the franchisee's books and records at any reasonable time (X.G); the franchisee must purchase and maintain various types of insurance policies prescribed by UPC and must name UPC as an insured (XI.A), and if the franchisee fails to do so, UPC may purchase such insurance on his behalf and at his cost (XI.B); the franchisee must use and pay for all advertising and promotional materials developed by UPC, and must submit any other materials to UPC for written approval prior to the distribution thereof (XII.B, E); the franchisee must utilize insignia, equipment, decals, personnel uniforms, truck signs and colors required by UPC (XII.C, D); the franchisee must conduct his business "in a manner that will reflect favorably at all times upon UPC . . . and the good name, goodwill and reputation thereof" (XII.H); UPC may terminate the license and Agreement if, inter alia, the franchisee breaches any provision of the Agreement (XV), in which case the franchisee must, at UPC's option, completely transfer to UPC a list of all employees, files, prescription lists, customers, and facilities, thereby effecting "a complete and effective transfer of the business" to UPC (XVI.B); the franchisee is subject to a restrictive covenant and UPC has a right of first refusal with regard to transfer of the business (XVII, XVIII); the franchisee indemnifies UPC against all liabilities of any kind arising out of the operation of the business (XX).
In determining that no master-servant relationship existed between UPC and Todisco, the learned district judge reasoned that the provisions of the Franchise Agreement cited by plaintiff
only give defendant-franchisor the tools with which to protect the proprietary interest in its name and goodwill. Nowhere in the agreement is there any provision giving defendant the right to control the manner in which Todisco was to perform the daily chores of the business. The restrictions in the agreement concerning the type of advertising, logos, and inventory do not give defendant the right to dictate the manner in which Todisco was to fill prescriptions; nor does the right retained by defendant-franchisor to inspect the premises and to terminate the agreement constitute such control over Todisco's manner of performance as to create vicarious liability. . . . Defendant was not concerned with the `means' by which Todisco conducted his pharmacy business; it was concerned only with the `results' of his work.
428 F. Supp. at 666 (citations omitted).
While bearing in mind that we must not strain to discover issues of fact where none exist, Lockhart v. Hoenstine, 411 F.2d 455, 459 (3d Cir.), cert. denied, 396 U.S. 941, 90 S.Ct. 378, 24 L.Ed.2d 244 (1969), we nevertheless conclude that the Agreement, considered as a whole, is not free of ambiguity or the possibility of inferences contrary to the district judge's construction and interpretation of that document. When read in its entirety and in a light most favorable to appellant, the Agreement appears so broadly drawn as to render uncertain the precise nature and scope of UPC's rights vis-a-vis its franchisee. Thus, in the absence of further evidence of what the subscribing parties to the Franchise Agreement meant and understood by its terms, it cannot be determined as a matter of law on the present record that UPC did not have the right to control the manner of Todisco's performance or that UPC was not the "master" of Todisco.
Many of the provisions cited by appellant indicate that UPC reserved the right to control numerous specific facets of the franchisee's business operation, ranging from the appearance and contents of the store, its advertising and promotional programs, and its accounting, inventory, and record-keeping systems, to the minimum number of weekly operating hours, the type of prescription labels and files, personnel uniforms, and the color of delivery trucks. However, even assuming, as the district judge observed, that these more specific manifestations of control only evidence UPC's concern with the "result" of the store's operation rather than the "means" by which it was operated, other provisions of the Agreement are so nebulously and generally phrased as to suggest that UPC retained a broad discretionary power to impose upon the franchisee virtually any control, restriction, or regulation it deemed appropriate or warranted. When a franchisee is required, inter alia, to perpetuate "quality standards," to submit to UPC's management and marketing advice "to avoid improper or degrading techniques," to maintain the premises and equipment in an "attractive condition," to ensure "a high degree of cleanliness" and a "neat, orderly arrangement" of merchandise, to conform all equipment and facilities to UPC's "national standards," to adhere strictly to UPC's "uniformly high standards of service, appearance, quality of equipment and proved methods of operation," and to conduct his business "in a manner that will reflect favorably at all times upon UPC," and when the franchisor has the "unqualified right" to review the store's operations and to inspect the store "to assure maintenance of [UPC's] high standards . . ., the goodwill of the public, and compliance with the provisions of this Agreement and with various licensing laws," as well as the right to terminate the relationship for breach of any provision of the Agreement, including those here cited, we believe that reasonable minds could differ as to whether or not UPC had the right to control Todisco's physical conduct and the manner in which he operated the store, including the prescription-filling activity. As one commentator has noted:
Compare, however, the following language from Singleton v. International Dairy Queen, Inc., supra, 332 A.2d at 162-63: "When an entity can control the size, shape, and appearance of its [franchisee's] establishment, impose the nationally known sign `Dairy Queen' as the only sign for the premises, require all containers to show the name of the parent company, dictate portion control, the size and shape of containers, the uniforms of the employees, subject the franchisor to the obligation to obey subsequent rules and regulations, reserve the right to inspect the premises . . ., name the suppliers and even dictate what else may be sold on the premises, there appears little else to establish agency. The very lifeblood of the agent is in the hands of the franchisor."
Under Pennsylvania law, both the right to inspect the work of another and to terminate the employment of another are important factors in determining the existence of a master-servant relationship, though not controlling in and of themselves. See George v. Nemeth, supra, 426 Pa. at 556, 233 A.2d at 233; Cox v. Caeti, 444 Pa. 143, 148, 279 A.2d 756, 758 (1971).
Through a franchise agreement containing broadly worded clauses a franchisor can very effectively control the day to day operation of the franchise. For example,
`The franchise is required to conduct his business in strict accordance with the parent company's policies and regulations and as these policies or regulations may be promulgated from time to time by the parent company.'
A clause, such as this can hardly be considered anything but a means of dictating the most minute details of how the outlet should be run.
Comment, A Franchisor's Liability for the Torts of His Franchisee, 5 U.San Fran.L. Rev. 118, 127 (1970) (footnote omitted). Compare, for example, section VI.C of the present Agreement, which requires the franchisee to "conform strictly" to "UPC's uniformly high [national] standards of service, appearance, quality of equipment and proved methods of operation." Thus, although the district judge determined that "[ n] owhere in the agreement is there any provision giving defendant the right to control the manner in which Todisco was to perform the daily chores of the business" (emphasis added), we believe that that issue cannot be resolved conclusively on the present record without drawing inferences favorable to the moving party, which is forbidden in ruling on a motion for summary judgment. See Thompson-Starrett International, Inc. v. Tropic Plumbing, Inc., 457 F.2d 1349, 1352 (3d Cir. 1972).
Although the affidavits of Todisco and Young, submitted by UPC, are consistent with its assertion that it did not retain control over its franchisee's manner of operation, they are, as the district judge acknowledged, "essentially conclusory" and lacking in specific facts, and of little assistance in reflecting the meaning of the control provisions of the Agreement. See Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir. 1972); McShane Contracting Co., Inc. v. United States Fidelity Guaranty Co., 61 F.R.D. 478, 481 (W.D.Pa. 1973). It is true, as appellee stresses, that appellant relied solely upon the Franchise Agreement and failed to submit counteraffidavits or other evidence in support of her assertions of agency during the district court proceedings. However, the movant for summary judgment has the burden of demonstrating the absence of genuine issues of material fact, Lockhart v. Hoenstine, 411 F.2d 455, 458 (3d Cir.), cert. denied, 396 U.S. 941, 90 S.Ct. 378, 24 L.Ed.2d 244 (1969), and even if the opposing party fails to file contravening affidavits or other evidence, summary judgment must still be "appropriate" and will be denied where the movant's own papers demonstrate the existence of material factual issues. Rule 56(e), Fed.R.Civ.P., 28 U.S.C.; Adickes v. S.H. Kress Co., 398 U.S. 144, 159-61, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Mutual Fund Investors, Inc. v. Putnam Management Co., Inc., 553 F.2d 620, 625 (9th Cir. 1977); Andersen v. Schulman, 337 F. Supp. 177, 181-82 (N.D.Ill. 1971).
See note 4 supra concerning these affidavits.
The two affidavits are identical in substance and read in pertinent part as follows:
1. Defendant, Union Prescription Centers, Inc., was not at any time material to plaintiff's claim, the owner, operator, possessor, or in control of the drug store known as Union Prescription Center. . . . Further, at no time relevant hereto did Union Prescription Centers, Inc. have any interest whatsoever in the aforesaid retail drug store.
2. Defendant . . . has never supplied or sold any medication to the drug store. . . .
3. Defendant . . . and . . . Todisco entered into a franchise agreement . . whereby Todisco purchased from defendant the right to acquire and operate a Union Prescription Center. . . .
4. Joseph J. Todisco, Jr., acting as an independent contractor in acquiring ownership of the franchise from defendant . . . is not nor ever has been an agent, servant, workman and/or employee of defendant. . . .
5. The defendant . . . never controlled nor had the right to control the physical conduct of . . . Todisco . . . in performing his services to the public as a licensed pharmacist.
6. None of the acts which the plaintiff alleges were done by defendant . . . were ever done by defendant, its agents, servants, workmen and/or employees, acting in the course and scope of their employment with and on behalf of the defendant.
7. At no time material to plaintiff's cause of action was there even the remotest contact between Union Prescription Centers, Inc., any of its agents, servants, workmen and/or employees and plaintiff and/or her decedent.
As the district judge observed, the deposition of Todisco, taken and submitted by plaintiff, does little to buttress plaintiff's allegation of control.
We therefore conclude that on the present record genuine issues of material fact exist regarding the nature of the relationship between appellee and its franchisee which preclude the entry of summary judgment.
B. Appellant's Holding Out or Apparent Agency Theory
As an alternative theory upon which to impose liability on UPC, appellant argues that UPC "held itself out" as the operator of the Reading store or as the employer of Todisco and thus should be vicariously liable for the alleged negligent acts of its franchisee. In essence, appellant contends that UPC led the public, including the decedent, to believe that it was dealing not with a local independent pharmacist, but rather with UPC, a nationally established and uniformly controlled establishment, or with a servant or employee thereof, and that such representations of agency were made to induce, and in fact did induce, reliance and confidence in consumers in the skill and reputation of the franchise entity, all in furtherance of UPC's own economic goals. In granting summary judgment in favor of UPC, the district court held that the "`holding out' theory has not been generally applied," and that in any event plaintiff had proffered insufficient evidence to raise a factual issue as to whether UPC held out Todisco as its agent or employee.
Appellant relies, inter alia, upon § 267 of the Restatement (Second) of Agency (1958), which provides as follows:
One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.
Insofar as we are aware, no Pennsylvania court has discussed the applicability of § 267 to that state's agency law or otherwise squarely considered the liability of an ostensible principal for the negligence of an ostensible agent. It is thus our function in this diversity action to "predict" whether the Pennsylvania courts would apply a "holding out" or "apparent agency" theory, such as that formulated in § 267, on the facts presented in this case. Samuelson v. Susen, 576 F.2d 546 (3d Cir. 1978); Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146, 147 (3d Cir. 1974); In re Royal Electrotype Corp., 485 F.2d 394, 396 (3d Cir. 1973).
Considerable guidance in this matter is provided by the recent decision of Chief Judge Lord in Taylor v. Costa Lines, Inc., 441 F. Supp. 783 (E.D.Pa. 1977). Taylor involved a negligence action brought by a cruise passenger against the vessel owner (Costa) and a ground tour operator (Alstons) for personal injuries sustained in an auto accident while she was on the ground tour. Alleging that Costa had represented that Alstons was its servant or agent, plaintiff contended that Costa was vicariously liable for Alstons' alleged negligence under the doctrines of "apparent authority" or "authority by estoppel." In denying Costa's motion for summary judgment, Chief Judge Lord predicted that the Supreme Court of Pennsylvania would adopt § 267 of the Restatement (second) of Agency, stating as follows:
The applicability of this section to Pennsylvania agency law appears to be a matter of first impression, but we conclude that Pennsylvania would follow section 267 for two reasons: the Pennsylvania Supreme Court's customary adherence to the Restatement and the unanimous adoption of section 267 by those courts, including the Third Circuit, which have addressed this issue. Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir. 1971).
Costa could be liable under this theory if the plaintiff demonstrated that: (1) Costa represented that Alstons was its servant; (2) plaintiff relied on Alstons' skill as a result of that representation; and (3) such reliance was justifiable.
441 F. Supp. at 786 (footnote omitted).
We agree, essentially for the reasons enunciated in Taylor, that the Supreme Court of Pennsylvania would adopt § 267 or some similar principle of "apparent agency." In an analogous context, Pennsylvania courts have long utilized the closely related doctrines of "apparent authority" and "agency by estoppel" in cases dealing with contractual liability and have approved the Restatement formulations of those theories. While appellee asserts that such concepts are wholly inapposite to causes arising in tort, no argument has been made that the policies or factual issues underlying apparent authority or agency by estoppel differ substantially from those upon which § 267 is predicated.
Thus, "apparent authority" is the "power to bind a principal which the principal has not actually granted but which he leads persons with whom his agent deals to believe that he has granted. Persons with whom the agent deals can reasonably believe that the agent has power to bind his principal if, for instance, the principal knowingly permits the agent to exercise such power or if the principal holds the agent out as possessing such power." Revere Press, Inc. v. Blumberg, 431 Pa. 370, 375, 246 A.2d 407, 410 (1968), citing, inter alia, Restatement (Second) of Agency §§ 8, 27; see Apex Financial Corp. v. Decker, 245 Pa. Super. 439, 369 A.2d 483 (1976).
With respect to "agency by estoppel," the Pennsylvania Supreme Court has stated: "Agency by estoppel is defined in section 8B. of the Restatement (Second) of Agency and the doctrine has been embraced by this Court in Reifsnyder v. Dougherty, 301 Pa. 328, 152 A. 98 (1930). Reifsnyder emphasized two basic elements of agency by estoppel: (1) there must be negligence on the part of the principal in failing to correct the belief of the third party concerning the agent; and (2) there must be justifiable reliance by the third party. . . . Agency by estoppel is generally deemed to be closely related to apparent authority. . . . Thus, alternatively stated, a principal who clothes his agent with apparent authority is estopped to deny such authority." Turnway Corp. v. Soffer, 461 Pa. 447, 457, 336 A.2d 871, 876 (1975) (citations and footnote omitted).
Although appellee cites Janeczko v. Manheimer, 77 F.2d 205 (7th Cir. 1935), as authority for the proposition that Pennsylvania courts have traditionally rejected the application of apparent agency or authority and agency by estoppel to all tort actions, we do not deem a pronouncement of the Seventh Circuit binding on a matter of Pennsylvania law, nor do we find the cases cited therein apposite to the case at bar. While Trautwein v. Loeb, 19 Pa.D. C. 394 (Phila.Co. 1933), might better fuel appellee's argument, that case involved a suit for libel where it was clear that plaintiff could not establish the element of reliance. Id. at 395.
See Taylor v. Costa Lines, Inc., supra, 441 F. Supp. at 786 n.1. In Mabe v. B.P. Oil Corp., 31 Md. App. 221, 356 A.2d 304 (1976), rev'd on other grounds, 279 Md. 632, 370 A.2d 554 (1977), the court noted: "Although there is no Maryland case law dealing with the liability for tortious acts of apparent servants, the definition adopted by the Court of Appeals to describe apparent authority or authority by estoppel in cases based on contractual liability is sufficiently comprehensive to include tort liability as well." 356 A.2d at 307.
Indeed, the decision of the Pennsylvania Supreme Court in Fidelman-Danziger Inc. v. Statler Mgt., Inc., 390 Pa. 420, 136 A.2d 119 (1957), buttresses our conclusion that Pennsylvania courts would approve the theory of apparent agency set forth in § 267. In that case plaintiff sued the operator of a hotel checkroom, along with the hotel and its management company, to recover the value of jewelry which had been checked in but not returned by the hotel checkroom. After determining that the relationship between plaintiff and the checkroom operator was a bailment and that liability was to be determined by relevant negligence principles, the court concluded that liability could be extended to the other defendants as well. Although the court relied analogously upon the rule that a possessor of land who in the course of business holds it open to members of the public is liable for bodily harm caused on part of the land leased to concessionaires, it stated:
The court, per curiam, adopted the opinion of the trial court, reported at 9 Pa.D. C.2d 677; the trial court opinion is reprinted in full at the given Atlantic Reporter citation.
Here the Pittsburgh Hotels, Inc., and its manager, Statler Management, Inc., permitted their concessionaire, Stanley Parkinson, to conduct business activities on the hotel premises in the name of the hotel. The conduct of the check room in that manner must certainly estop the `Pittsburgh Hotels, Inc.' as well as the Statler Company, its agent in charge, from now denying that apparent agency; and particularly in the present case since supervision over the concessionaire is reserved to the corporate defendants. To people using the check room, everything indicated they were dealing with the William Penn Hotel.
136 A.2d at 124 (emphasis added).
Of relevance, too, is this court's decision in Brown v. Moore, 247 F.2d 711 (3d Cir. 1957), cert. denied, 355 U.S. 882, 78 S.Ct. 148, 2 L.Ed.2d 112 (1957), a wrongful death and survival action in which plaintiff sought to hold the operators of a private sanitarium vicariously liable for the negligent malpractice of a physician at the sanitarium. Although the physician was found to be a servant or employee of the sanitarium, this court predicted that even if the physician were an independent contractor vis-a-vis the sanitarium, "where there has been a holding out, a representation to a patient or to his family as members of the public, that medical treatment is to be administered in a private hospital or sanitarium by a doctor employed therein, the Courts of the Commonwealth of Pennsylvania would apply the doctrine of respondeat superior and hold the owners or operators of the sanitarium liable for the malpractice of the doctor. In other words Doctor Kelly could be regarded as having the status of an independent contractor in his relation to the partners in the Sanitarium but in his relation to Brown would be deemed to be an employee of the Sanitarium." Id. at 719-20 (emphasis in original); accord, St. Paul Fire Marine Insurance Co. v. Aetna Casualty Surety Co., 394 F. Supp. 1274, 1275-76, aff'd mem., 532 F.2d 747 (3d Cir. 1976).
In addition to the above, we think that the Supreme Court of Pennsylvania's customary practice, when fashioning new principles of law, of according great weight to the decisions of other jurisdictions and the trend of recent cases would lead it to follow the numerous courts, including the decision of this court in Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir.), cert. denied, 404 U.S. 829, 92 S.Ct. 65, 30 L.Ed.2d 57 (1971), which have approved, at least in principle, § 267 or similar doctrines of apparent agency and authority in situations analogous to the present case. See e.g., Wood v. Holiday Inns, Inc., 508 F.2d 167 (5th Cir. 1975); Amritt v. Paragon Homes, Inc., 474 F.2d 1251 (3d Cir. 1973); Standard Oil Co. v. Gentry, 241 Ala. 62, 1 So.2d 29 (1941); Kuchta v. Allied Builders Corp., 21 Cal.App.3d 541, 98 Cal.Rptr. 588 (1971); Singleton v. International Dairy Queen, Inc., 332 A.2d 160 (Del.Super.Ct. 1975); Sapp v. City of Tallahassee, 348 So.2d 363 (Fla.Dist. Ct.App. 1977), cert. denied, 354 So.2d 985 (Fla. 1977); Buchanan v. Canada Dry Corp., 138 Ga. App. 588, 226 S.E.2d 613 (1976); Mehlman v. Powell, 281 Md. 269, 378 A.2d 1121 (1977); Mabe v. B.P. Oil Corp., 31 Md. App. 221, 356 A.2d 304 (1976), rev'd on other grounds, 279 Md. 632, 370 A.2d 554 (1977); Thomas v. Checker Cab Co., Inc., 66 Mich. App. 152, 238 N.W.2d 558 (1975); Montgomery Ward Co. v. Stevens, 60 Nev. 358, 109 P.2d 895 (1941); Chevron Oil Co. v. Sutton, 85 N.M. 679, 515 P.2d 1283 (1973). See generally, Annot., 81 A.L.R.3d 764 (1977); Comment, Liability of a Franchisor for Acts of the Franchisee, 41 So.Cal.L.Rev. 143 (1968); Comment, A Franchisor's Liability for the Torts of His Franchisee, 5 U.San Fran.L.Rev. 118 (1970). But see Slack v. Treadway Inn of Lake Harmony, Inc., 388 F. Supp. 15 (M.D.Pa. 1974).
See, e.g., Ayala v. Philadelphia Board of Public Education, 453 Pa. 584, 305 A.2d 877 (1973); Falco v. Pados, 444 Pa. 372, 282 A.2d 351 (1971); Niederman v. Brodsky, 436 Pa. 401, 261 A.2d 84 (1970); Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964).
Plaintiff in Gizzi sustained personal injuries when a van which he was driving crashed because of defective brakes. The van had been purchased from a Texaco station operator who had installed and tested the brake system. Plaintiff contended that Texaco, Inc. was liable on the ground that it had clothed the station operator with apparent authority to make the repairs and sell the vehicle on its behalf and plaintiff had relied upon such representations and had reasonably assumed that Texaco, Inc. would be responsible for any defects. Reversing a directed verdict in favor of Texaco, Inc., this court, applying New Jersey law, held that the question of apparent authority was for the jury, stating as follows: "The concepts of apparent authority, and agency by estoppel are closely related. Both depend on manifestations by the alleged principal to a third person, and reasonable belief by the third person that the alleged agent is authorized to bind the principal. The manifestations of the principal may be made directly to the third person, or may be made to the community, by signs or advertising. Restatement (Second), Agency §§ 8, 8B, 27 (1957). In order for the third person to recover against the principal, he must have relied on the indicia of authority originated by the principal, Bowman v. Home Life Ins. Co. of America, 260 F.2d 521 (3 Cir. 1958); Restatement (Second), Agency § 267 and such reliance must have been reasonable under the circumstances." 437 F.2d at 309.
In Wood, the holder of an oil company credit card which, at the direction of a credit information company, was taken and retained by a clerk at the franchised Holiday Inn at which plaintiff was a guest, brought an action for damages against the oil company, the franchisor (Holiday Inns, Inc.), the franchisee (Interstate), and the motel clerk (Goynes). After a jury verdict for plaintiff, the district court granted the franchisor's motion for judgment notwithstanding the verdict. Observing that an "agency relationship may arise from acts and appearances which lead others to believe that such a relationship has been created," the Fifth Circuit concluded that a jury question was presented as to whether the motel clerk was an apparent servant or agent of the franchisor, Holiday Inns, Inc. The court reasoned as follows: "The license agreement between Holiday Inns, Inc., and Interstate provided that the Phenix City facility should be constructed and operated so that it would be `readily recognizable by the public as part of the national system of "Holiday Inns."' Indeed, the Phenix City facility was required to use the same service marks and trademarks, the exterior and interior decor as the Holiday Inns owned by the parent company. A jury could therefore, reasonably conclude that the license agreement required the Phenix City facility to be of such an appearance that travelers would believe it was owned by Holiday Inns, Inc. . . . [T]here is virtually no way Wood could have known that the servants in the Phenix City facility were servants of Interstate, not of Holiday Inns, Inc. Indeed, the manifestations that Holiday Inns, Inc., required Interstate to make could only have served to convince Wood that Jessie Goynes was a servant of the parent company." 508 F.2d at 176.
In Singleton, the father of a child who was injured when she fell through a door of a franchised ice cream store brought suit against both the franchisee and the franchisor. Denying the franchisor's motion for summary judgment, the court held that a factual question existed as to whether the franchisee was an apparent servant or agent of the franchisor. The court stated: "The concept of `apparent' authority or whether one is the `apparent servant or agent' of another depends on manifestations by one party which lead third parties to believe another is his agent. . . . Additionally, one who represents through `apparent authority' that another is his servant and causes a third person to justifiably and reasonably rely upon the care and skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant as if he were such. Re. of Agency 2d Sect. 267. This concept was recognized in Gizzi v. Texaco, Inc. . . ." 332 A.2d at 163 (citation omitted).
In Murphy v. Holiday Inns, Inc., 216 Va. 490, 219 S.E.2d 874 (1975), plaintiff filed suit against the franchisor for personal injuries resulting from a fall on the premises of the franchised motel at which she was a guest. On appeal from summary judgment in favor of the franchisor, plaintiff alleged that "`[b]y holding out the operation of the motel as a "Holiday Inn" motel [defendant] . . . has created the appearance that a master/servant relationship exists, and where a third party so relies, the principal should be estopped to deny the existence of this relationship.'" The court, however, found that plaintiff's "holding out" theory had not been considered by the trial court in the first instance and therefore declined to decide it on appeal. 219 S.E.2d at 875.
Having determined that Pennsylvania courts would sanction the "apparent agency" theory advanced by appellant, we next consider appellant's contention that whether or not UPC held itself out as the owner or operator of the Reading store was a question of fact for the jury to resolve and that the district court thus erred in holding as a matter of law that the evidence produced by plaintiff was "too slender a reed upon which to base a material issue for trial on the purported issue that the defendant held Todisco out as its employee." After a careful examination of the record in this case, we conclude that factual questions exist as to whether appellee had held out or represented its franchisee to be its servant or employee.
We note, in light of our determination that Pennsylvania courts would apply § 267 or some similar theory, that § 267 was apparently not relied upon specifically by plaintiff in the district court proceedings. Nevertheless, because the general theory of apparent agency was clearly before the district court, we need not remand the case for a preliminary determination by the district court as to the applicability of § 267. Compare Mustang Fuel Corp. v. Youngstown Sheet Tube Co., 516 F.2d 33 (10th Cir. 1975), in which the court of appeals remanded the case to the district court because the state supreme court adopted strict liability in tort after the district court entered summary judgment for the defendant but also because it did not appear that strict liability theory had ever been argued to the district court, though it had been argued to the court of appeals. Id. at 40-41.
Contending that no affirmative holding out ever occurred, and, indeed, that it took substantial steps to ensure that the public was accurately apprised of Todisco's status, appellee relies upon the following provision of the Franchise Agreement: "The Owner [franchisee] shall show his name (corporate, partnership or individual) in connection with the use of such licensed mark following `Union Prescription Center' in conjunction with the word `license' or otherwise identify himself as the owner of the Union Prescription Center under a license from UPC, on all invoices, statements, letterheads, prescription blanks and other printed matter, as well as on all signs posted on the Union Prescription Center premises. Applications for local licenses or other entries in public records will be made in the Owner's name" (I.B). In addition, stresses appellee, Todisco, when deposed, stated that a nameplate reading "Joseph J. Todisco, Jr., Registered Pharmacist" was displayed on the counter in front of him in the store; that he had registered in the fictitious names index for Berks County under the fictitious name "Union Prescription Center"; and that he had registered with the state Board of Pharmacy under the name "Union Prescription Center" as well as under his own name.
Appellant, however, relies upon evidence tending to demonstrate that in fact customers of the Reading store were led to believe that they were dealing with the corporate defendant, UPC, and that they were given no notice that the store was an entity independently owned and operated by Todisco. When deposed by plaintiff, Todisco stated that there was no place in the store where customers could note that he was a "franchisee." The bags, prescription labels, and cash register receipts used by the Reading store (appended as exhibits to the deposition transcript) all bear the name "Union Prescription Centers" or "Union Prescription Center," the bags also bearing a logo, and fail to identify Todisco as the owner or operator of the store. Similarly, Todisco testified that the store's local advertising, through media such as ball point pens, local newspapers, and nail files, all say "Union Prescription Center" and omit any mention of Todisco's name. Todisco further stated that the store is listed in the Reading phone directory as "Union Prescription Center" and that the telephone is answered "Union Prescription Center."
According to appellant, such indicia of apparent agency are directly attributable to UPC, the ostensible principal, because UPC, through the regulatory provisions of the Franchise Agreement, controlled the manner in which the Reading store was perceived by the public. Appellant points to the following provisions of the Agreement: The franchisee [owner] may promote and advertise only with the logo, service mark, or insignia prepared and submitted by UPC to the owner (I.A); UPC has established interior and exterior standard colors, lighting, design, equipment and fixtures designed to provide national identification (VI.A); "Owner acknowledges UPC's rights to and interest in its present and future distinguishing characteristics, and UPC's exclusive rights to such characteristics. These characteristics include the service mark "Union Prescription Center" and the Union Prescription Center logo, used in any form and in any design, alone or in combination and all present and future names, service marks, trademarks, trade names, insignia, slogans, emblems, symbols, designs or other characteristics used in connection with the Union Prescription Centers. Owner hereby acknowledges that these distinguishing characteristics have acquired a secondary meaning which indicates that the Union Prescription Center is operated by or with the approval of UPC" (VI.D) (emphasis added); UPC has developed an effective launch program for introducing the Union Prescription Centers for which the owner must pay (XII.A); Owner is required to utilize insignia, equipment, decals, personnel uniforms, truck signs and colors, indoor signs and posters, and such other advertising and promotional materials as may be required by UPC to maintain uniformity of appearance, national recognition, point of purchase impact and full penetration of promotional opportunities (XII.C); Owner must submit to UPC for written approval prior to dissemination any advertising or promotional material that has not been developed by UPC (XII.E); Owner is required to use the standard Union Prescription Center sign or signs as specified by UPC (XII.D); UPC specifies that owner shall use standard forms in the operation of the Prescription Center, including prescription labels, letterheads, and business cards (X.A).
Although the district judge concluded that in light of the evidence submitted by UPC, "the absence of Todisco's name on the prescription labels, bags and advertising is too slender a reed upon which to base a material issue for trial on the purported issue that the defendant held Todisco out as its employee," we believe that reasonable persons could differ as to whether UPC clothed its franchisee with indicia of agency or authority. Indeed, the evidence, considered as a whole and in a light most favorable to appellant, may be viewed as giving rise to conflicting inferences of fact which resist the summary judgment process.
Appellee's assertion that no representations of agency or authority were ever made is contradicted by appellant's evidence suggesting that in fact UPC, by strictly controlling the manner in which the franchisee was perceived by the public, created an appearance of ownership and control purposefully designed to attract the patronage of the public. See Wood v. Holiday Inns, Inc., discussed at note 19 supra. While appellee, emphasizing that the Franchise Agreement required the franchisee to identify himself as owner of the store in conjunction with his use of UPC's mark and logo, asserts that it cannot be held accountable for Todisco's failure in this regard and that it had no notice of it, a review of all the evidence reveals that several representatives of UPC actually visited Todisco's store on numerous occasions (see note 7 supra) and that UPC had an unqualified right to inspect the Reading store (Franchise Agreement, VI.E). Thus, a potential question is presented as to whether UPC had actual or constructive knowledge of Todisco's failure to appraise the public of his status and acquiesced therein. See Gizzi v. Texaco, Inc., supra, 437 F.2d at 310; Mabe v. B.P. Oil Corp., supra, 356 A.2d at 309-10 n. 3, rev'd on other grounds, 370 A.2d 613. The issue, we note, is not what agreements were entered into between UPC and Todisco to establish a relationship other than agency, but rather what representations were actually made to the customers of the Reading store. Amritt v. Paragon Homes, Inc., supra, 474 F.2d at 1252. Moreover, the sign identifying Todisco as "Registered Pharmacist" could reasonably be viewed as merely a statement of professional qualification rather than, as appellee insists, a clear indication Todisco independently owned and operated the store. So, too, while it is urged that Todisco manifested ownership in registering with both the county and the state pharmacy board, there is no evidence that decedent was or should have been aware of such facts. These are all factors to be weighed and considered by the finder of fact in determining whether the elements of apparent agency have been established.
Appellee cites numerous cases, mostly involving oil company-dealer franchise relationships, which appear to hold that as a matter of law the mere use of signs and advertising bearing the oil company's name or trademark does not create an ostensible agency issue for the jury. See, e.g., Apple v. Standard Oil Division of American Oil Co., 307 F. Supp. 107 (N.D.Cal. 1969); Coe v. Esau, 377 P.2d 815 (Okl. 1963); Cawthon v. Phillips Petroleum Co., 124 So.2d 517 (Fla.App. 1960); Sherman v. Texas Co., 340 Mass. 606, 165 N.E.2d 916 (1960). The fountainhead of this rule would appear to be Reynolds v. Skelly Oil Co., 227 Iowa 163, 287 N.W. 823 (1939), which held that "[i]t is a matter of common knowledge that these trademark signs [of oil companies] are displayed throughout the country by independent dealers [of oil company products]." 287 N.W. at 827 (emphasis added). Other authorities, however, suggest that application of the common knowledge rule has been confined largely to the context of oil company franchise relationships and certain other specific business operations. See, e.g., Beck v. Arthur Murray, Inc., 245 Cal.App.2d 976, 54 Cal.Rptr. 328 (1966), where the court stated: Defendant properly argues that the mere licensing of trade names does not create agency relationships either ostensible or actual. Defendant's cases in support of this proposition hold that no agency existed, often on the grounds that in those particular businesses, it was `common knowledge' that those businesses were run by independent dealers. . . . [J]ust because it is `common knowledge' that certain businesses are independently owned, this is not a matter of `common knowledge' for all businesses. On the contrary, it is equally `common knowledge' that certain nationwide businesses are not independently owned but are owned by a single organization which operates by chains or branches." 245 Cal.App.2d at 981, 54 Cal.Rptr. at 331-32. Indeed, in Gizzi v. Texaco, Inc., supra, itself an oil company franchise case, this court stated that the "manifestations of the principal may be made directly to the third person, or may be made to the community, by signs or advertising." 437 F.2d at 309 (citations omitted). In sum, we do not think that the common knowledge rule, whatever its viability in the cases cited by appellee, has application in the case at bar. As one commentator has observed: "The reality of the situation is that the trade name in franchising is indispensible. Very often it is the name alone which sells the product. For example, a hungry motorist, needing a quick meal in an unfamiliar town, is likely to go into any drive-in that he sees, if the only identifying signs were Bill's Hamburgers of Joe's Tacos. However, this is clearly not the case if, instead the signs read McDonald's or Dairy Queen. The motorist is much more likely to choose the drive-in whose name he recognizes and associates with a particular kind of service and food. The franchisor, by displaying the brand name, is saying to the public that at this particular drive-in you will receive the same kind of food and beverages that you receive at any other drive-in at which this sign is displayed. In short, the franchisor is `holding out' all the franchises as the same. If the signs are accepted as `holding out' all the retail dealers as the same, reasonable reliance is not far behind. The mass media advertising employed by the franchisors can only help to reinforce the public's reliance on the brand name. It is not hard to believe that there are many people . . . who believe that all service stations or drive-ins or clothes cleaners displaying the same name are run by the same company." Comment, " A Franchisor's Liability for the Torts of His Franchisee," 5 U.San Fran.L.Rev. 118, 130 (1970).
We stress that our decision here expresses no view whatsoever as to the ultimate outcome or disposition of this case. In order to recover on a theory of apparent agency, plaintiff must establish not only the element of representations but also that of justifiable reliance on those representations. Gizzi v. Texaco, Inc., supra; Taylor v. Costa Lines, Inc., supra. An examination of the district court record reveals that neither party submitted evidence bearing directly on the critical question of reliance. Nor is it apparent that the district judge considered that element in granting summary judgment. However, because it was the burden of defendant, the movant for summary judgment, to establish the absence of genuine issues of material fact, we cannot deem plaintiff's failure to submit evidence of reliance as fatal to her cause at this stage of the proceedings. Cf. Gray v. Greyhound Lines, East, 178 U.S.App.D.C. 91, 96-7, 545 F.2d 169, 174-75 (1976); Heirs of Fruge v. Blood Services, 506 F.2d 841, 844 (5th Cir. 1975); Thomas v. Petro-Wash, Inc., 429 F. Supp. 808, 816 (M.D.N.C. 1977).
We must add that appended to appellant's brief is an affidavit signed by Mrs. Drexel, the substance of which is an allegation of reliance. The affidavit was executed June 13, 1977, several months after the March 1977 order of the district court granting summary judgment. We have earlier in this opinion, discussed the impropriety of supplementing the record with materials not before the district court, and what we have said there (see note 4 supra) in reference to appellee's affidavits applies with equal force to appellant's affidavit.
The judgment will be reversed and the cause remanded for proceedings consistent with this opinion.