978-1285770178 Case Printout Case CPC-01-03 Part 1

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13 F.Supp.2d 705

United States District Court,

N.D. Illinois,

Eastern Division.

C.B. MANAGEMENT CO., INC., an Ohio corporation doing business in Ohio,

Defendant.

No. 97 C 6176.

April 1, 1998.

MORAN, Senior District Judge.

constituted a material breach of the franchise agreement’s warranting termination. On December

4, 1997, CB answered by filing a motion under Fed.R.Civ.P. 56(f) to postpone review of

McDonald’s summary judgment motion pending discovery. On December 22, 1997,

to compel as moot

As we are faced here with a motion for summary judgment and a motion to dismiss, we must be

mindful of the different standards of judging the facts. For the purposes of evaluating

McDonald’s summary judgment motion, we set forth the following undisputed facts. Plaintiff

3050 Carnegie Avenue, Cleveland, Ohio (Carnegie McDonald’s).

The franchise agreements governing the operation of the St. Clair and Carnegie McDonald’s

(hereinafter, franchise agreements) contained the following provisions relevant to McDonald’s

McDONALD’S CORPORATION, a Delaware corporation, Plaintiff,

Plaintiff McDonald’s Corporation (McDonald’s) originally filed this action against defendant C.B.

court’s jurisdiction arises under 28 U.S.C. ß 1332, and 28 U.S.C. ß 1338. On November 12,

McDonald’s filed a motion to dismiss CB’s counterclaims. CB responded by filing opposition

briefs to both the summary judgment motion and the motion to dismiss, challenging each on the

McDonald’s is a Delaware corporation with its principal place of business in Oak Park, Illinois.

Defendant CB is an Ohio corporation registered to do business and doing business in Ohio.

On October 14, 1986, Burkes assigned to CB his interest in a franchise agreement and operator’s

claims in this case:

During the time of the franchise, CB was obligated to pay to McDonald’s a monthly payment of

3.0% of monthly gross sales, and a monthly rental payment plus 8.5% of monthly gross sales in

excess of amounts specified for given time periods. CB was also obligated to pay all real estate

taxes and special and general assessments levied against the restaurants. (Plf.App.Exh. B1,

fee owing to [McDonald’s] is not paid within thirty (30) days after the date such payment is due”

or any “judgment or judgments aggregating in excess of $5,000.00 against [CB] or any federal,

state or local tax lien in excess of $5,000.00 against [CB]’s property shall remain unsatisfied or

unbonded of record in excess of thirty (30) days.” The agreement further stated that if CB failed

or delayed in making prompt payments of rent and service fees, McDonald’s had the right to

McDonald’s System and its associated trade names, service marks and trademarks,” return to

McDonald’s all “material containing trade secrets, operating instructions or business practices,”

and to immediately deliver the premises to McDonald’s. (Id., License Agreement ∂ 20;

Operator’s Lease ß 7.05).

In the event of a material breach, McDonald’s was given an immediate right to enter and take

License Agreement ∂ 23).

McDonald’s agreed to “make available to [CB] all additional services, facilities, rights and

privileges which [McDonald’s] makes generally available, from time to time, to all its licensees

operating McDonald’s Restaurants.” (Id., License Agreement ∂ 3).

On October 30, 1996, Burkes and CB filed a complaint in federal district court against

On January 14, 1997, Judge Suzanne B. Colon dismissed Burkes’ and CB’s lawsuit pursuant to

Fed.R.Civ.P. 12(b). In doing so, the court found that since CB had already transferred its rights

under the franchise agreement to the Pikkels, it could not maintain its claims for breach of

contract and breach of the implied covenant. Burkes v. McDonald‘s Corporation, No. 96-C-7093,

1997 WL 28300 at 5 (N.D.Ill. Jan. 21, 1997) (CB mo.to file am.ans.exh.B). The court also

it failed to submit the financial statements for the restaurants required under the agreements.

The notice gave CB the opportunity to cure all of its defaults by August 25, 1997, and, if it did

not, its franchises would terminate on August 26, 1997 at 12:01 a.m. CB did not make the

required payments by August 25 and McDonald’s terminated its franchises. [FN1]

FN1. CB, of course, disputes that the termination was legal, but does not dispute that the fact that

There is a different version of the events set forth by CB. This version is important both because

we must determine whether it creates a genuine issue of material fact that would preclude

McDonald’s motion for summary judgment, Renovitch v. Kaufman, 905 F.2d 1040, 1044 (7th

Cir.1990), and, in evaluating McDonald’s motion to dismiss CB’s counterclaims, we are required

to accept the well-pled factual allegations set forth by CB as true. See Travel All Over the

Jim Flaum (Flaum), McDonald’s regional manager, that it intended to repay the outstanding sum

and ongoing obligations from the FMAC loan. In its previous dealings with CB and other

franchisee’s, McDonald’s had regularly consented to the subordination of its interests to those of

the franchisee’s chosen lending institution. Flaum failed to advise CB that McDonald’s planned

not to subordinate its interests to those of FMAC.

period set forth in the notice.

On July 28, 1997, Flaum and Burkes attended a lunch meeting in Cleveland during which Flaum

indicated that McDonald’s would not pursue termination procedures, at least until CB’s new loan

application was processed. Despite this understanding, McDonald’s terminated the franchise

agreements on August 25, 1997, and four days later filed the instant complaint. When it learned

contractual provisions regarding termination. Count II asks for declaratory, injunctive, and

monetary relief for CB’s alleged unauthorized use of McDonald’s trade names, service marks,

and trademarks in violation of the Lanham Act. Count III asks for all payments due under the

franchise agreements which at the time of filing amounted to $270,607.59. On November 12,

1997, CB counterclaimed, stating that McDonald’s had breached the implied covenant of good

may be granted where the pleadings and evidence present no genuine issues of fact and the

movant is consequently entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Renovitch,

905 F.2d at 1044. The movant must point to those portions of the record that demonstrate the

absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106

S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment should be entered against a party who

appropriate for the defendant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct.

2505, 91 L.Ed.2d 202 (1986). Summary judgment is especially appropriate in a matter of

contract interpretation where no issues of fact exist, because the language of the contract is

unambiguous. Grundstad v. Ritt, 106 F.3d 201, 205 (7th Cir.1997).

[1] McDonald’s claims require that we interpret the language of the franchise agreements.

102 Ill.Dec. 538, 500 N.E.2d 431, 434 (1st Dist.1986).

FN2. In cases involving contractual disputes, “Illinois law respects the contract’s choice-of-law

clause as long as the contract is valid.” Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1185 (7th

Cir.1996). Since the franchise agreement in this case provides that the “terms and provisions of

this License shall be interpreted in accordance with and governed by the laws of the State of

failure to timely make such payments constitutes a material breach of the contract justifying the

termination of the franchise (license agrmt. ∂ 18). Although it did not have to do so under the

explicit terms of the agreements, on July 25, 1997, McDonald’s afforded CB a one-month cure

period to make current its outstanding obligations. Nevertheless, CB failed to make payments

by August 25, and the franchises were terminated. Upon termination, CB was required to

[2][3] CB makes several arguments in response. It initially contends that this court should deny

or postpone McDonald’s motion for summary judgment under Fed.R.Civ.P. 56(f). Rule 56(f)

provides as follows:

Should it appear from the affidavits of a party opposing the motion that the party cannot for

reasons stated present by affidavit facts essential to justify the party‘s opposition, the court may

reasons for a claimant’s inability to submit the necessary material to the court. Id.

[4] CB presents the declaration of Caesar Burkes, [FN3] in which he states the reasons why this

court should at least postpone McDonald’s summary judgment motion. To begin with, CB has

not conducted any discovery of the merits of McDonald’s claims, CB’s affirmative defenses, or

CB’s counterclaims (Burke decl. ∂ 7). This has been due, according to CB, to McDonald’s

McDonald’s would not pursue termination proceedings until CB’s new loan was processed. On

this basis, CB requests that resolution of McDonald’s motion be postponed pending further

discovery.

FN3. Burkes’ statement is presented in the form of a declaration which, under 28 U.S.C. ß 1746,

satisfies the requirement for a sworn affidavit under Rule 56(f).

purposes of responding to McDonald’s summary judgment motion. Similarly, it seems

unnecessary to defer our ruling based on Burkes’ contention that discovery would reveal that

Flaum gave Burkes assurances that McDonald’s would not pursue termination procedures

pending the new loan application (which did not require McDonald’s subordination). Again,

Burkes own statements would seem sufficient. Finally, Burkes would seem to possess the

contractual discretion in refusing to subordinate its interests to FMAC and in terminating the

franchise agreements. CB argues that McDonald’s exercised discretion in making these decisions

since it had established a course of dealing with CB and similarly situated franchisees whereby it

would regularly subordinate its interests in order to help struggling franchises fulfill their

financial obligations. This discretion, according to CB, is written into the franchise agreement.

that McDonald’s engaged in a retaliatory scheme to unfairly terminate its franchises and

therefore abused its contractual discretion in violation of its obligation to act in good faith. This,

CB concludes, precludes McDonald’s summary judgment motion.

[5][6] Under Illinois law a covenant of good faith and fair dealing is implied in every contract

unless expressly disavowed. Dayan v. McDonald’s Corp., 125 Ill.App.3d 972, 81 Ill.Dec. 156,

construction of explicit terms in the agreement. Echo, Inc. v. Whitson Co., Inc., 121 F.3d 1099,

1106 (7th Cir.1997).

In this case the explicit terms of the agreement are clear: McDonald’s had the right to terminate

the franchises if CB failed to make prompt payments of rent and services fees due under the

agreements (plf.app.exh. B1; license agrmt. ∂ 18). It is also clear that McDonald’s was entitled

to take possession of the franchises immediately following the failure to timely make payments,

and was in no way obligated to provide any grace period beyond the contractually provided for

cure period (license agrmt. ∂ 20). These terms are not ambiguous and do not confer discretion.

Rather, they make clear that McDonald’s had the unfettered “right” to terminate in the event of a

material breach, defined to mean, inter alia, the failure to make timely payments of amounts