978-1285770178 Case Printout Case CPC-01-03 Part 2

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owing under the agreements. This is not, therefore, a situation where the covenant of good faith

must be implied to “fill the gap” in a contract where the terms offer insufficiently clear guides to

interpretation. Baxter Healthcare Corp. v. O.R. Concepts, Inc., 69 F.3d 785, 792 (7th Cir.1995).

CB does not dispute that it failed to timely pay amounts due under the franchise agreements

effect at the time of its delinquency. Rather, it argues that the combination of the contractual

language and McDonald’s past actions created discretion with respect to two critical features of

the parties’ relationship: McDonald’s choice whether to subordinate its security interest, and

whether to terminate a franchisee behind in its payments. Specifically, CB argues that, although

there is no explicit duty to subordinate or defer termination pending a franchisee’s loan

retaliation for Burkes’ previously filed lawsuit, render the franchise termination a bad faith

exercise of discretion. CB attempts to establish improper motive by showing that McDonald’s

engaged in a pretextual scheme to terminate its franchises, demonstrated by its refusal to

subordinate its interests to FMAC, its untimely default notice, and James Flaum’s misleading

are violated by termination regardless of what other motives the franchisor might have.” 81

Ill.Dec. 156, 466 N.E.2d at 974. Therefore, the fact that Flaum, Comptroller Kathy Smith and

McDonald’s may have been part of a pretextual scheme to terminate is of no consequence for the

purposes of determining bad faith. The only relevant inquiry is whether McDonald’s had good

cause to terminate. Since there is no dispute that it did, CB cannot complain about McDonald’s

here. The parties were fully aware that at the time of contracting McDonald’s retained the right

to terminate in the event that any of the conditions specified in the franchise agreements came to

pass. CB cannot now argue that McDonald’s actions, in accordance with these provisions,. was

in bad faith simply because McDonald’s had from time to time decided to look the other way

when CB violated the contract, in an effort to help CB stay afloat. McDonald’s simply exercised

make compliance with the 30-day cure period set forth in the notice of default impossible, [FN5]

and that Flaum indicated that McDonald’s would not go forward with termination procedures

pending CB’s loan application—we must find that as a matter of law CB cannot show that

McDonald’s acted in bad faith and breached the franchise agreements. Accordingly, we find that

CB cannot use the breach-of-contract argument to defeat McDonald’s summary judgment motion.

subsequently able to apply for and obtain a loan for $200,000 from National City Bank within a

ten-day period (Burkes decl. ∂ 15).

[10] Next, CB contends that its claim against McDonald’s under the Illinois Franchise Disclosure

Act (IFDA) precludes McDonald’s summary judgment motion. Section 19 of the IFDA requires

a franchisor to have good cause prior to terminating a franchisee. 815 ILCS 705/19. Good

McDonald’s responds that the protections of the IFDA do not apply to the franchisees in this case,

as they are not located within the State of Illinois. The IFDA states that “[i]t shall be a violation

of this Act for a franchisor to terminate a franchised business located in this state … except for

‘good cause’ ….” 815 ILCS 705/19 (emphasis added). Since the St. Clair and Carnegie

McDonald’s are located in Cleveland, Ohio, McDonald’s contends that they do not fall within the

the IFDA and similar statutes to be strictly limited to franchises located within the home state.

See Highway Equipment Co. v. Caterpillar Inc., 908 F.2d 60, 62-64 (6th Cir.1990) (finding that

IFDA did not apply to Ohio franchisee despite contractual choice-of-law provision specifying

that Illinois law governed); Budget Rent-A-Car Corp. v. Shaffer, Inc., No. 91-C-2721, 1992 WL

137596, at *7-8 (N.D.Ill. June 2, 1992) (finding that IFDA did not apply to Alabama franchisee);

Corp., 601 F.Supp. 1192 (S.D.Miss.1984) (denying extraterritorial application to California

franchise act). However, there have been instances of courts finding that franchise statutes

apply extraterritorially, see Infomax, 976 F.Supp. at 1254 (finding that contractual choice-of-law

provision made the IFDA applicable to non-Illinois franchisee); Department of Motor Vehicles v.

Mercedes-Benz of N. Am., Inc., 408 So.2d 627 (Fla.Dist.Ct.App.1981) (finding New Jersey

originally passed in 1973, the Illinois Supreme Court had stated that it would not give

extraterritorial effect to Illinois statutes unless the legislature expressly directed it to do so. See

Graham v. General U.S. Grant Post No. 2665, V.F.W., 43 Ill.2d 1, 248 N.E.2d 657, 660 (1969).

The IFDA does not indicate any intention by the General Assembly to have the Act apply

extraterritorially. See Highway Equipment, 908 F.2d at 63. Moreover, when the Illinois

respect to the issue of extraterritoriality. 976 F.Supp. at 1253. Instead, the courtfound that since

applying the IFDA to non-Illinois franchisees did not affect any interests of the State of Illinois

and did not actually give extraterritorial effect to the “laws” of Illinois (it only gave effect to the

parties’ contract), the legislative intent was not the relevant focal point of analysis. Id. However,

we find this reasoning unpersuasive since it clearly is the Illinois law that is being given

[11] Even if we were to agree that the IFDA applies to non-Illinois franchisees, we nevertheless

would have to find that CB’s claim under the IFDA is deficient as a matter of law. Specifically,

even if we accepted the facts as alleged by CB, McDonald’s certainly had “good cause” to

terminate CB’s franchise under the terms of the IFDA. The statute makes clear that “good cause”

includes the failure of a franchisee to comply with the agreement’s provisions and to cure any

CB argues that McDonald’s failed to provide it with a “reasonable opportunity” to cure since it

sent the notice of default knowing that CB would require more than 30 days to cure and since

James Flaum misled Burkes into believing McDonald’s would not terminate by August 25, 1997.

However, the statute states that “reasonable opportunity” to cure need “in no event ” be more

than 30 days. We take the IFDA to mean what it says, see Connecticut Nat. Bank v. Germain,

Finally, we address CB’s affirmative defenses. CB argues that it has asserted affirmative

defenses that its termination was without good cause and actually motivated by bad faith and

retaliation. These defenses, it asserts, preclude summary judgment. However, we think that

CB’s “affirmative defenses” are merely reiterations of its counterclaims—specifically, that Burkes

was misled to believe that McDonald’s would subordinate its interests and would not pursue

In conclusion, we deny CB’s Rule 56(f) motion and grant McDonald’s motion to dismiss and, in

part, its motion for summary judgment [FN6] This means that McDonald’s is entitled to

immediate possession of the St. Clair and Carnegie McDonald’s and that CB is to comply with

the terms of the agreements regarding surrender of possession (cplt. Count I). It also means

that McDonald’s is entitled to damages for CB’s unlawful post-termination use of its trade names,