McDonald's Corp. v. C.B. Management Co., Inc., 97 C 6176.
| Decision Date | 01 April 1998 |
| Docket Number | No. 97 C 6176.,97 C 6176. |
| Citation | 13 F.Supp.2d 705 |
| Parties | McDONALD'S CORPORATION, a Delaware corporation, Plaintiff, v. C.B. MANAGEMENT CO., INC., an Ohio corporation doing business in Ohio, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Eric A. Oesterle, Alan H. Silberman, Sonnenschein, Nath & Rosenthal, Chicago, IL, for Plaintiff.
James J. Riebandt, Riebandt & Dewald, P.C., Arlington Heights, IL, Robert M. Einhorn, Omar J. Arcia, Zarco & Pardo, P.A., Miami, FL, Robert Zarco, Zarco & Associates, Miami, FL, for Defendant.
Plaintiff McDonald's Corporation (McDonald's) originally filed this action against defendant C.B. Management Co., Inc. (CB) on August 29, 1997, seeking injunctive and monetary relief for CB's alleged violation of its franchise agreement and illegal use of McDonald's trademarks. This court's jurisdiction arises under 28 U.S.C. § 1332, and 28 U.S.C. § 1338. On November 12, 1997, CB filed an answer and a two-count counterclaim asserting that McDonald's had breached the implied covenant of good faith and fair dealing and had violated the Illinois Franchise Disclosure Act, 815 ILCS 705, et seq. McDonald's then moved for summary judgment, arguing that CB's failure to make timely payments of amounts due under the franchise agreement 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, 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 merits (but not withdrawing its 56(f) motion). In addition, on January 8, 1998, CB filed a motion to compel production of documents from McDonald's. For the reasons stated herein we grant McDonald's motion for summary judgment in part and continue it in part, and we grant its motion to dismiss CB's counterclaims. We deny CB's Rule 56(f) motion and dismiss its motion 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 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. Caesar Burkes (Burkes) is the president of CB.
On October 14, 1986, Burkes assigned to CB his interest in a franchise agreement and operator's lease, both dated February 28, 1986, which created the right to operate a McDonald's restaurant located at 10411 St. Clair Avenue, Cleveland, Ohio (St. Clair McDonald's). On December 29, 1992, Burkes assigned to CB his interest in a franchise agreement and operator's lease, both dated May 29, 1979, which created a similar right to operate a McDonald's restaurant located at 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 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, Franchise Letter Agreement ¶ 4(c), (d)). CB agreed to submit bi-monthly statements of receipts, monthly operating statements and statistical reports in forms satisfactory to McDonald's, and any other financial, operating and other information and reports reasonably requested by McDonald's. (Id., License Agreement ¶ 10; Operator's Lease § 3.03).
The parties agreed that McDonald's could terminate the agreement in the event that any "service 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 terminate the agreement. (Id., License Agreement ¶ 18(c),(d), (m)).
The parties agreed that amounts due to McDonald's as service fees and not paid should bear interest at the highest rate of interest permitted by law and that amounts due to McDonald's as rents, real estate taxes and similar payments and not paid should bear interest at the rate of ten percent (10%) per annum. (Id., License Agreement ¶ 8; Operator's Lease § 3.05). "Upon termination" of the franchise agreement, CB was required to "discontinue the use of the 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 § 7.05).
In the event of a material breach, McDonald's was given an immediate right to enter and take possession of the restaurants. (Id., License Agreement ¶ 20(a); Operator's Lease § 7.04).
CB granted McDonald's a lien upon all CB's property for "all rent and other sums due, from time to time, from [CB to McDonald's] under the provisions" of the lease. (Id., Operator's Lease § 3.06).
McDonald's was entitled to recover reasonable attorneys' fees, court costs, and litigation expenses associated with legal actions brought to protect its rights under the agreements. (Id., 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 McDonald's for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contractual relations, and civil rights violations. These allegations stemmed from the sale of Burkes' Cedar Lee McDonald's store to a white couple (the Pikkels). Burkes, who is an African American, alleged that McDonald's ordered him to reduce the store price for the benefit of the Pikkels, not because the price was unreasonable but because the Pikkels would not have been able to realize enough profit.
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) (). The court also dismissed the remaining claims on the basis that they were time-barred under the applicable statutes of limitation. Id. at 7-9.
On July 25, 1997, McDonald's sent a notice of default to CB, informing it that it was in default under the terms of the franchise agreements for the Carnegie and St. Clair McDonald's for failure to pay McDonald's $223,576.83 in rent, service fees, real estate taxes and interests (cplt.exh.E). The notice also advised CB that it was in breach of the applicable franchise agreements because 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.1
On September 6, 1997, CB tendered to McDonald's checks totaling $200,000. McDonald's returned those checks uncashed. CB also tendered other checks to McDonald's after the August 25, 1997 termination, and all of those checks were also returned. McDonald's has demanded that CB immediately vacate the premises of the Carnegie and St. Clair McDonald's. To this date, CB has refused to vacate.
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 World, Inc. v. The Kingdom of Saudi Arabia, 73 F.3d 1423, 1429 (7th Cir.1996). CB's factual account supplements the version already set forth in the following way.
On June 18, 1997, shortly after Burkes' lawsuit was dismissed by Judge Conlon, CB applied for a loan with the Franchise Mortgage Assistance Corporation (FMAC) in Atlanta, Georgia, which would have permitted it to cure any amounts then owed to McDonald's and to remain current with all financial obligations on an ongoing basis. Prior to making the application, CB advised 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...
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