Servpro Industries, Inc. v. Schmidt, 94 C 5866.

• Decision Date: 07 November 1995
• Docket Number: No. 94 C 5866.,94 C 5866.
• Citation: 905 F. Supp. 475
• Parties: SERVPRO INDUSTRIES, INC., Plaintiff, v. William W. SCHMIDT and Servpro of Arlington Heights/Naperville, Inc., Defendants/Counterclaimants, v. SERVPRO INDUSTRIES, INC., Randall Isaacson, Ted Isaacson, Richard Isaacson, Richard Forster, Ted Habermann, James O'Connor, and William Weber, Counterdefendants.
• Court: U.S. District Court — Northern District of Illinois

905 F. Supp. 475

SERVPRO INDUSTRIES, INC., Plaintiff, v.William W. SCHMIDT and Servpro of Arlington Heights/Naperville, Inc., Defendants/Counterclaimants, v.SERVPRO INDUSTRIES, INC., Randall Isaacson, Ted Isaacson, Richard Isaacson, Richard Forster, Ted Habermann, James O'Connor, and William Weber, Counterdefendants.

No. 94 C 5866.

United States District Court, N.D. Illinois, Eastern Division.

November 7, 1995.

COPYRIGHT MATERIAL OMITTED

Gary Mark Sircus, John E. Mitchell, Scott Alan Lefelar, Rudnick & Wolfe, Chicago, Illinois, for plaintiff.

Wayne B. Giampietro, James Brian Dykehouse, Witwer, Burlage, Poltrock & Giampietro, Chicago, Illinois, for William Schmidt & Servpro of Arlington Heights/Naperville.

John Bell, Burke, Virginia, for Servpro of Arlington Heights/Naperville.

MEMORANDUM OPINION AND ORDER

ALESIA, District Judge.

Before the court is counterdefendants Servpro Industries, Inc.'s ("Servpro"), Randall Isaacson's, Ted Isaacson's, Richard Isaacson's, Richard Forster's, Ted Habermann's, and James O'Connor's ("individual counterdefendants")(collectively, "counterdefendants")¹motion to strike and to dismiss counterplaintiff William W. Schmidt's ("Schmidt") and Servpro of Arlington Heights/Naperville, Inc.'s ("SAHN")(collectively, "counterplaintiffs") third amended counterclaim and affirmative defenses.As set forth fully below, the court grants in part and denies in part counterdefendants' motion to strike and to dismiss.

I.BACKGROUND

Servpro, a Nevada corporation with its principal place of business in Tennessee, provides home and office cleaning services, and grants franchises for the operation of cleaning businesses using the Servpro system.Each of the individual counterdefendants is an officer, director, and/or employee of Servpro.All of the individual counterdefendants reside in Tennessee.Schmidt, a Servpro franchisee, and SAHN, Schmidt's Servpro franchises, are Illinois residents.

In April 1985 and January 1988, Schmidt entered into franchise agreements with Servpro for the territories of Arlington Heights and Naperville, Illinois, respectively, thus forming SAHN.In 1994, Servpro audited counterplaintiffs and found that counterplaintiffs had not paid all the royalties that Servpro claimed were due to it.Based on the results of this audit, in April 1994, Servpro sent counterplaintiffs a notice of breach letter claiming almost $104,000 in penalties, and in July 1994, terminated counterplaintiffs' franchise licenses.

In September 1994, Servpro sued counterplaintiffs on numerous grounds, including trademark infringement, unfair competition, and breach of contract.Counterplaintiffs then filed a counterclaim against Servpro and the individual counterdefendants, alleging breach of contract and covenant of good faith and fair dealing (Count I), fraudulent misrepresentation (Count II), violation of the Illinois Franchise Disclosure Act (Count III), fraudulent scheme (Count IV), acceptance of fruits of the fraud (Count V), conspiracy (Count VI), and tortious interference with economic expectancy (Count VII).²

Counterdefendants have moved to dismiss all seven of the counts of counterplaintiffs' third amended counterclaim pursuant to FED. R.CIV.P. 12(b)(6) for failure to state a claim upon which relief can be granted; to dismiss the counts against the individual counterdefendants, Counts IV and V, pursuant toFED. R.CIV.P. 12(b)(2) for lack of personal jurisdiction; to strike the fraud counts, Counts II, IV, and V, pursuant toFED.R.CIV.P. 9(b) because they are not pleaded with particularity; to strike the conspiracy count, Count VI, because it is not pleaded with particularity; to strike counterplaintiffs' third amended affirmative defenses pursuant to FED.R.CIV.P. 12(f); and to strike counterplaintiffs' ad damnum clauses as groundless.

For the following reasons, the court grants in part and denies in part counterdefendants' motion.

II.DISCUSSION

A.Failure to name counterdefendants in Counts IV and V

Though counterdefendants do not address it in their motion, the court notes that Ted Isaacson and Richard Isaacson are included as counterdefendants in the caption of this case, yet are not named in any of the counts set forth in the third amended counterclaim.Therefore, counterplaintiffs' third amended counterclaim states no cause of action against Ted Isaacson or Richard Isaacson.Accordingly, on the court's own motion, Ted Isaacson and Richard Isaacson are dismissed from the case as party counterdefendants.³

B.Failure to state a claim

Counterdefendants argue that Counts I through VII of counterplaintiffs' third amended counterclaim should be dismissed pursuant to FED.R.CIV.P. 12(b)(6) because those counts fail to state claims upon which relief can be granted.

When deciding a motion to dismiss under FED.R.CIV.P. 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff.Cromley v. Board of Educ. of Lockport,699 F.Supp. 1283, 1285(N.D.Ill.1988).If, when viewed in the light most favorable to the plaintiff, the complaint fails to state a claim upon which relief can be granted, the court must dismiss the case.SeeFED.R.CIV.P. 12(b)(6);Gomez v. Illinois State Board of Educ.,811 F.2d 1030, 1039(7th Cir.1987).However, the court may dismiss the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claims that would entitle it to relief.Conley v. Gibson,355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80(1957).

1.Count I — Breach of contract/covenant of good faith and fair dealing

To state a claim for breach of contract, counterplaintiffs must allege that a contract between them and Servpro existed, that counterplaintiffs performed their contractual obligations, that Servpro breached the contract, and that counterplaintiffs suffered damages due to the breach.SeeDerson Group, Ltd. v. Right Management Consultants,683 F.Supp. 1224, 1230(N.D.Ill.1988).However, a conclusory allegation of a breach is insufficient; counterplaintiffs must state the facts underlying the breach.Janivo Holding, B.V. v. Continental Bank, N.A.,No. 91 C 7728, 1992 WL 345391, *3-4, 1992 U.S.Dist. LEXIS 17657, *10(N.D.Ill.1992)(citingKane, McKenna and Assoc., Inc. v. Remcorp, Inc.,1988 WL 9108, *4, 1988 U.S.Dist. LEXIS 955, *11-12(N.D.Ill.1988)).

Counterplaintiffs plead the foregoing elements of breach of contract, but in a wholly conclusory fashion.Counterplaintiffs set forth five circumstances in which Servpro allegedly changed rules, standards and policies; breached promises it had made to counterplaintiffs; and illegally terminated counterplaintiffs' franchise licenses.However, counterplaintiffs fail to state what rules, standards, and policies Servpro changed; what promises it breached; or how the termination of the franchise licenses breached the franchise agreements.In short, counterplaintiffs fail to state any of the facts underlying the alleged breaches of contract or covenant of good faith and fair dealing.

The court acknowledges that the Federal Rules of Civil Procedure simply require "`a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests."Conley,355 U.S. at 47, 78 S.Ct. at 102(quotingFED.R.CIV.P. 8(a)(2)).However, the court is unable to discern what legal and factual issues are raised in Count I.If the court is unable to determine the basis of counterplaintiffs' claim, there is no reason to assume Servpro will fare any better.Therefore, the court finds that Count I falls short of providing fair notice to Servpro of counterplaintiffs' breach of contract and covenant of good faith and fair dealing claim and the grounds on which it rests.

Accordingly, the court grants Servpro's motion to dismiss Count I of counterplaintiffs' third amended counterclaim.

2.Count II — Fraudulent misrepresentation

To state a claim for fraud, counter-plaintiffs must allege that (1) Servpro made a false statement of material fact; (2) knowing it was false; (3) with the intent to induce counterplaintiffs to rely upon it; and that (4) counterplaintiffs reasonably relied upon the misrepresentation (5) to their detriment.See, e.g., Redarowicz v. Ohlendorf,92 Ill.2d 171, 185-86, 65 Ill.Dec. 411, 418, 441 N.E.2d 324, 331(1982).Furthermore, the Federal Rules of Civil Procedure require that "in all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity."FED. R.CIV.P. 9(b).Thus, the complaint must set forth the circumstances of fraud, including the time and place of the fraud, the contents of the omissions or misrepresentations, and the identity of the party perpetrating the fraud.Marc Development, Inc. v. Wolin,No. 93 C 2037, 1993 WL 410726, *6-7, 1993 U.S.Dist. LEXIS 13601, *19-20(N.D.Ill.1993)(citingIn re Olympia Brewing Co. Securities Litigation,674 F.Supp. 597, 619(N.D.Ill.1987)).

In their fraudulent misrepresentation count, counterplaintiffs allege that Servpro made five fraudulent misrepresentations.The court finds that each of the five allegations fails to state a claim for fraud.Four of the five paragraphs fail to allege one or more of the elements of fraud, as set forth in Redarowicz,92 Ill.2d at 185-86, 65 Ill.Dec. 411, 441 N.E.2d 324.All of the paragraphs fail to state with particularity the time, place, and other relevant circumstances of the alleged fraudulent misrepresentations, as required by FED.R.CIV.P. 9(b).As with the breach of contract count, the result of these deficiencies is that the pleading fails to give Servpro fair notice of the nature and grounds of the claim against it.SeeConley,355 U.S. at 47, 78 S.Ct. at 102.Thus, the court finds that Count II fails to state a claim for fraudulent misrepresentation.

Accordingly, the court grants Servpro's ...