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13 F.Supp.2d 705
United States District Court,
N.D. Illinois,
Eastern Division.
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
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
