Sears Home Appliances Showrooms, LLC v. Appliance Alliance, LLC
| Decision Date | 03 March 2017 |
| Docket Number | 15-cv-4414 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | SEARS HOME APPLIANCES SHOWROOMS, LLC and SEARS AUTHORIZED HOMETOWN STORES, LLC, Plaintiffs/Counter-Defendants, v. APPLIANCE ALLIANCE, LLC, BRENT TURLEY, and MINENA TURLEY, Defendants/Counter-Plaintiffs, v. SAMANTHA WILKS, SEARS HOLDING CORPORATION d/b/a SEARS HOMETOWN & OUTLET and SEARS.COM, SEARS, ROEBUCK & CO., JEFFREY SCOTT TUCKER, and 2720 SH 121, LP, Third-Party Defendants. |
MEMORANDUM OPINION AND ORDER
Sears Home Appliances Showrooms, LLC ("SHAS") and Sears Authorized Hometown Stores, LLC ("SAHS") (together, "Plaintiffs") filed this lawsuit against Brent and Minena Turley ("the Turleys") and Appliance Alliance, LLC for breaching the parties' franchise agreements. In turn, the Turleys and Appliance Alliance ("Counter-Plaintiffs") brought counterclaims against SHAS and SAHS, as well as third-party defendants Sears Holding Corporation d/b/a Sears Hometown & Outlet and Sears.com ("Sears Holding"), Sears, Roebuck & Co. ("Sears Roebuck"), Samantha Wilks ("Wilks"), Jeffrey Scott Tucker ("Tucker"), and 2720 SH 121, LP.
In their First Amended Counterclaim ("FAC"), Counter-Plaintiffs allege breach of contract (Count I), conversion and trespass (Count II), tortious interference with contract and existing and prospective business relations (Count III), defamation, business disparagement, and unfair competition (Count IV), breach of fiduciary duty, economic duress and business coercion, oppressive conduct, and constructive trust (Count V), violations of the Texas Business Opportunity Act and Texas Deceptive Trade Practices Act (Count VI), and fraud (Count VII).
SHAS, SAHS, Sears Holding, Sears Roebuck, Wilks, and Tucker ("Sears Counter-Defendants") have moved to dismiss certain counts in the FAC. For the following reasons, the Sears Counter-Defendants' motion to dismiss [57] is granted in part and denied in part.
The events giving rise to this dispute began prior to 2010, when the Turleys—recently retired from careers at the National Aeronautics and Space Administration—began exploring investment opportunities. FAC ¶ 10, ECF No. 44. As part of their research, the Turleys reviewed a Sears "Franchise Disclosure Document" that SHAS was circulating. Id. ¶ 11. Based on "representations and assurances" included in the Franchise Disclosure Document and made by Sears,1 the Turleys elected to purchase four Sears franchises in Texas. Id. ¶¶ 12-13. TheTurleys executed the purchase in February 2010 through Appliance Alliance, LLC, which they own and control. Id. ¶ 12.
The Turleys' investment was initially successful. From 2010 through the beginning of 2012, their franchises were profitable. Id. ¶ 16. Based on their success, their course of dealing with Sears, and their understanding of the franchise relationship based on Sears's representations and franchise documents, the Turleys invested in two additional franchises. Id. ¶¶ 16-17. Shortly after acquiring the two additional franchises, however, the Turleys' relationship with Sears began to deteriorate. Id.
According to the Turleys, SHAS "split away" from Sears Holding, resulting in "inherent competition[] whereby Sears Holding enjoyed an unfair competitive edge." Id. ¶ 18. A number of problems then arose relating to their franchise relationship. See id. ¶ 19 (listing changes). These problems included the following. First, the Turleys allege that, in purchasing their franchises, Sears represented that it would impose territorial restrictions to prevent direct competition with their franchises and thereby protect the Turleys' investment. Id. ¶ 13. "[T]he franchise offering documents" failed to disclose, however, that the Turleys' franchises "would be subjected to price, product, financing, and ancillary services competition, directly from Sears, operating through one or more of its controlled entities or outlets." Id. Additionally, Sears's "offering circulars" represented that the Turleys would receive a certain minimum average commission as a percentage of merchandise sales, and in finalizing the franchise sales, Sears "encouraged its incoming franchisees tobelieve" they would receive even larger commissions. Id. ¶ 14. But shortly after the Turleys purchased their fifth and sixth franchises, Sears began reducing commissions below what they were promised. Id. ¶ 19. Similarly, despite promising to pay the Turleys a 2% "marketing fee," Sears refused to do so. Id. Finally, the Turleys were under the impression that they would have considerable freedom in dictating the operation of their franchises, but Sears instead exercised "total domination and control," fixing prices, hours, and inventory, among other things. Id. ¶ 73. In addition to these problems, Sears took a number of other actions that "operated together to make the continued profitable operations of [the Turleys'] business impossible to maintain." Id. ¶ 19.
After taking these actions, Sears allegedly "began manufacturing purported breaches and noncompliance with its required operations procedures." Id. ¶ 20. Sears then used these breaches and acts of noncompliance as grounds for threatening to hold the Turleys in default of their franchise agreements. Id. As part of this course of conduct, Sears assigned one of its employees, Wilks, to oversee the Turleys' stores. Id. ¶ 22. According to the Turleys, Wilks "was focused upon circumventing [the Turleys'] relationship with their employees[] and taking over the operations of the stores by usurping [the Turleys'] authority over their own employees." Id.
Ultimately, in April 2015, Sears declared the Turleys in default of their franchise agreements and ordered them to turn over the keys to their stores. Id. ¶ 25. Tucker, a district sales manager for Sears, took the keys to one of their storesand instructed the landlord to change the locks. Id. ¶ 26. Wilks called employees at the Turleys' other stores and told them to open the stores only "under her direction." Id. ¶ 28. According to the Turleys, Sears took control of all inventory at their stores and locked them out. Id. ¶ 29. Plaintiffs' action before this Court, and Counter-Plaintiffs' counterclaims in response, soon followed.
To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint or counterclaim must "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); accord Cozzi Iron & Metal, Inc. v. U.S. Office Equipment, Inc., 250 F.3d 570, 574 (7th Cir. 2001) (). "A claim has facial plausibility when the [counter-plaintiff] pleads factual content that allows the court to draw the reasonable inference that the [counter-defendant] is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Additionally, when considering motions to dismiss, the Court accepts "all well-pleaded factual allegations as true and view[s] them in the light most favorable to the [counter-claimant]." Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013) (citing Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014, 1027 (7th Cir. 2013)). At the same time, "allegations in the form of legal conclusions are insufficient to survive a Rule 12(b)(6) motion." McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 885 (7th Cir. 2012) (citing Iqbal, 556 U.S.at 678). As such, "[t]hreadbare recitals of the elements of the cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.
The number of parties and claims involved in the case invites confusion. In the interests of clarity, the Court will proceed as follows. First, the Court will address the Sears Counter-Defendants' motion to dismiss Counts I, II, III, and IV of the FAC as against Sears Holding and Sears Roebuck. Second, the Court will address the Sears Counter-Defendants' motion to dismiss Counts I, VI, and VII as against Wilks. And finally, the Court will address the remaining grounds on which the Sears Counter-Defendants seek to dismiss Counts I, III, IV, V, VI, and VII.
One preliminary piece of housekeeping: The Sears Counter-Defendants have also moved to dismiss all claims against Tucker. In their response, Counter-Plaintiffs state that "Jeffrey Tucker is not a Counter-Defendant identified as a party in the Counterclaim, so any motion to dismiss him should be denied as moot." Counter-Pls.' Resp. 8 n.3, ECF No. 64. The Sears Counter-Defendants interpreted this as an acknowledgement that Counter-Plaintiffs do not wish to pursue any claims against Tucker and requested that all claims against him be dismissed with prejudice. Counter-Defs.' Reply 5 n.3, ECF No. 69. The Court agrees and dismisses all claims against Tucker with prejudice.
The Sears Counter-Defendants move to dismiss Counts I, II, III, and IV as against Sears Holding and Sears Roebuck. In regard to Count I, they argue thatSears Holding and Sears Roebuck were not parties to the franchise agreements underlying Counter-Plaintiffs' breach of contract claim and thus cannot be liable for breach of contract. Counter-Defs.' Mot. Dismiss 3, ECF No. 57. In regard to Counts II, III, and IV, they argue that Sears Holding and Sears Roebuck likewise cannot be liable, on the ground that they are separate corporate entities from SHAS and SHOS, and Counter-Plaintiffs do not allege Sears Holding and Sears Roebuck were involved in the actions alleged under those counts. Id. at 4.
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