Dawson v. General Motors Corp., No. 91-2347

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Writing for the Court: Before CUDAHY, EASTERBROOK and KANNE; CUDAHY
• Citation: 977 F.2d 369
• Decision Date: 13 October 1992
• Docket Number: No. 91-2347
• Parties: Hanley DAWSON, Jr., an individual, and Hanley Dawson Cadillac Company, an Illinois corporation, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION, a Delaware and Michigan corporation, Defendant-Appellee.

Page 369

977 F.2d 369 23 Fed.R.Serv.3d 1344 Hanley DAWSON, Jr., an individual, and Hanley Dawson
Cadillac Company, an Illinois corporation,
Plaintiffs-Appellants,
v.
GENERAL MOTORS CORPORATION, a Delaware and Michigan
corporation, Defendant-Appellee. No. 91-2347. United States Court of Appeals,
Seventh Circuit. Argued April 13, 1992.
Decided Oct. 13, 1992.

Page 370

Malcolm M. Gaynor, Robert D. Nachman, Franklin S. Schwerin, A. Daniel Feldman (argued), Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., for plaintiffs-appellants.

Richard C. Godfrey (argued), Martin T. Tully, Kirkland & Ellis, Chicago, Ill., for defendant-appellee.

Before CUDAHY, EASTERBROOK and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

Hanley Dawson, Jr. (Dawson) and Hanley Dawson Cadillac Company (HDCC) sued General Motors Corporation (GM) for breach of contract, alleging that GM had promised the dealership certain lease terms and then reneged a year later. The district court dismissed the plaintiffs' complaint for failure to state a claim. Because we conclude that the plaintiffs' allegation of a binding promise is sufficient to survive a motion to dismiss, we reverse.

I.

The facts, as alleged by the plaintiffs, are as follows. From 1971 to 1988, Dawson (through HDCC) operated a Cadillac franchise dealership at 630 North Rush Street in Chicago. Cadillac is a division of GM. GM, the lessee of the Rush Street facility, subleased the facility to HDCC under a sublease agreement due to expire on February 28, 1988--unless GM exercised the first of its four remaining five-year options under the lease.

Since 1980, HDCC had sold and serviced Nissan (non-GM) vehicles in addition to Cadillacs at the Rush Street facility. By 1986, Dawson had also become a franchised dealer for Toyota, Mitsubishi, Saab, Subaru, Chrysler and Plymouth vehicles; these non-GM vehicles, however, were sold and serviced at a separate building located at 640 North LaSalle Street.

By 1976, Dawson had come up with an idea for increasing revenue and cutting costs. He wanted to separate the sales and service functions of all his franchises, using the prime Rush Street location as a multi-line showroom and moving the service and parts functions to a lower-cost site. Under his plan, the Rush Street facility would be converted to a sales facility for Dawson's six other franchises in addition to Cadillac and Nissan. Dawson communicated his proposal to GM on several occasions from 1976 through 1986.

The time for Dawson to act came in 1986. He had acquired a site for a service-and-parts facility on North Avenue at the Chicago River. His option to extend his lease on the LaSalle Street property was exercisable only until October 1, 1986. And he would need to make a major investment of

Page 371

money to renovate the Rush Street facility under his plan. Dawson therefore told GM that he needed an answer--that he could not follow through with his plan unless he had GM's assurance that the Rush Street site would continue to be available to him until the year 2008 at substantially the same base rent as that provided under his existing lease, which was $0.76 per square foot.

GM responded with a letter dated September 15, 1986, which stated:

In response to your inquiry regarding the sublease ... the current five year sublease option will expire February 29, 1988 and four (4) five year options remain for renewal.... It is ... Cadillac Motor Car Division's plan to exercise the remaining five year options extending through 2011.

.... While Cadillac cannot guarantee the annual lease rate will not increase, it is anticipated the percent of increase will be a maximum of three percent for each five year option which is to be exercised. Since our plans indicate the continued need for dealer representation for Cadillac in the foreseeable future, Cadillac is not in a position to insure a stabilized rent factor, hence the possibility of an increase. We trust this information will assist in your final decision regarding the planned major rennovation [sic] of the 630 N. Rush Street facility.

On September 25, 1986, Dawson wrote to Cadillac:

We are very pleased to know that Cadillac intends to exercise all of the remaining five year options to extend its lease through 2011 on the property at 630 North Rush Street which it sublets to us.

As we have advised Cadillac, we are working on designs and layouts of major renovations to modernize these facilities which we could not do unless we had firm assurances from General Motors that it will continue to sublet the property to us throughout the entire remaining period of its available options on the base lease on substantially the same terms as our existing sublease.

In reliance upon the assurances of Cadillac that it will continue to sublease the property to us and that our annual lease payment of $185,800 will not increase more than 3% for each of the five year sublease terms, we have authorized our architects to complete their drawings and we have committed to the multimillion dollar expenditures required to implement our plans.

Dawson then let his option to renew the LaSalle Street lease expire, instructed a contractor to proceed on the Rush Street renovation and added to his commitment in the North Avenue facility.

A year later, on September 17, 1987, Cadillac sent Dawson another letter. This letter announced a "General Motors decision to offer [HDCC] a new five year sublease"--but on different terms. Noting that "GM cannot continue to provide you below market rental rates for the portion of the property you use for selling competitive products," the letter offered to lease space used for Cadillac operations at $2.08 per square foot, and space used for Nissan products at $20.00 per square foot. Further, it forbade Dawson to use any of the Rush Street property for non-GM franchises other than Nissan.

Dawson could not afford to remain at the Rush Street location under the new lease terms. He went back to the owner of the LaSalle Street property which he had given up, but only 60 percent of it was available. Nevertheless, Dawson rented the remaining LaSalle Street space (at $15.00 per square foot) and, by 1988, when his Rush Street lease expired, he had moved all his operations to the LaSalle Street and North Avenue locations. Due to the costs of the move, limited space and the inferior location, as well as expenses incurred through the renovation plans, Dawson and HDCC soon went out of business.

Dawson and HDCC brought a three-count complaint in Illinois state court. Count I sought damages for breach of contract. Count II alleged a violation of §§ 4(b) and 13 of the Illinois Motor Vehicle Franchise Act, Ill.Rev.Stat. ch. 121 1/2, §§ 754 & 763 (1987). And Count III alleged

Page 372

that GM's refusal to allow Dawson to move his non-GM franchises into the Rush Street facility was an intentional interference with an economic expectancy. GM removed the action to federal court on the basis of diversity of citizenship.

The district court granted GM's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). The court held that Cadillac's September 15, 1986, letter did not constitute an offer that could form the basis of a binding contract. Since Count II also rested on a breach of contract, it fell along with Count I. As for Count III, the district court reasoned that Dawson had no valid expectancy that GM would permit him to sell non-GM vehicles in the Rush Street facility, and that in any event GM's action was not unjustified.

II.

We review a dismissal under Rule 12(b)(6) de novo, accepting as true all well-pleaded factual allegations and drawing all reasonable inferences in favor of the plaintiff. Yeksigian v. Nappi, 900 F.2d 101, 102 (7th Cir.1990). The plaintiffs' claims must survive dismissal if "relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984).

The parties agree that the substantive law of Illinois applies to the dispute. The principal issue we face is whether the plaintiffs have adequately alleged an enforceable contract with GM.

GM focuses exclusively on the letters exchanged in September 1986, arguing that Cadillac's 1986...