TO-AM EQUIPMENT COMPANY v. MITSUBISHI CATERPILLAR, 95 C 0836.

• Decision Date: 16 October 1995
• Docket Number: No. 95 C 0836.,95 C 0836.
• Citation: 913 F. Supp. 1148
• Parties: TO-AM EQUIPMENT COMPANY, INC., Plaintiff, v. MITSUBISHI CATERPILLAR FORKLIFT AMERICA, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

913 F. Supp. 1148

TO-AM EQUIPMENT COMPANY, INC., Plaintiff, v. MITSUBISHI CATERPILLAR FORKLIFT AMERICA, et al., Defendants.

No. 95 C 0836.

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

October 16, 1995.

Gary W. Leydig, Levin, McParland, Phillips, Leydig & Haberkorn, Chicago, IL, for To-Am Equipment Company, Inc. and Richard T. Todd.

John Edward Burke, Charles Daniel Knight, Burke, Weaver & Prell, Chicago, IL, Angela Marsh, Keck, Mahin & Cate, Chicago, IL, Jacqueline Williams Vlaming, Keck, Mahin & Cate, Oakbrook Terrace, IL, for defendants and counter-claimant.

MEMORANDUM OPINION AND ORDER

ASPEN, Chief Judge:

Plaintiff To-Am Equipment Company brings this diversity action against Mitsubishi Corporation, Mitsubishi Caterpillar Forklift America (MCFA), Mitsubishi Distribution, Inc. (MDI), and several corporate directors, officers, and employees of MCFA and MDI.¹ To-Am, a former franchisee of MCFA and MDI, alleges that the defendants violated provisions of the Franchise Disclosure Act of 1974, Ill.Rev.Stat. ch. 121½, ¶¶ 701-40 (1985), and the Franchise Disclosure Act of 1987, 815 ILCS 705/1-44 (1993 & Supp.1995). In addition, the plaintiff alleges that the defendants breached the franchise agreement that granted To-Am a franchise. MCFA asserts a counterclaim against To-Am and its president, Richard Todd, alleging that To-Am has failed to pay MCFA for equipment that To-Am ordered and received. Presently before this court are motions to dismiss filed by two groups of defendants, and MCFA's motion for summary judgment on its counterclaim. For the reasons set forth below, we grant the motions to dismiss as to certain defendants, deny the motions to dismiss as to other defendants, and grant MCFA's motion for summary judgment on the counterclaim.

I. Background

To-Am is a forklift dealership which sells, leases, and services forklifts from its Frankfort, Illinois location. MDI sold forklifts, to dealerships such as To-Am; MCFA is a successor corporation of MDI. In or around 1986,² To-Am and MDI entered into a Distributor Sales and Service Agreement (the "Agreement"), which designated To-Am as a distributor of MDI forklifts in specified Illinois and Indiana counties.

To-Am alleges that on February 2, 1994, MCFA, as MDI's successor corporation, notified To-Am that the agreement was terminated as of April 3, 1994. According to the plaintiff, the termination came just as To-Am was on the cusp of finally reaping the rewards of years of market development. The plaintiff further asserts that MCFA sold To-Am's distribution region to a competing forklift dealership.

To-Am filed this action in January 1995. In its first amended complaint, To-Am named seventeen defendants. We have granted several voluntary dismissals of parties and claims,³ but fifteen defendants and numerous claims remain. First, although presented as one count of the complaint, Count I crowds together claims against two discrete sets of defendants. To-Am alleges that MCFA: (1) offered and sold the forklift franchise to the plaintiff without first registering to sell franchises with the Attorney General, in violation of Ill.Rev.Stat. ch. 121½, ¶ 704(1); (2) offered and sold the franchise to the plaintiff without first providing a copy of a disclosure statement, in violation of Ill.Rev. Stat. ch. 121½, ¶ 704(2); (3) terminated the franchise without good cause, in violation of Ill.Rev.Stat. ch. 121½, ¶ 704.3(a) "and/or" 815 ILCS 705/19(a); and (4) unreasonably and materially discriminated against the plaintiff and in favor of other franchisees by terminating the franchise, in violation of Ill.Rev.Stat. ch. 121½, ¶ 704.2 "and/or" 815 ILCS 705/18. First Amended Compl. at ¶ 8(a)-(d).

In addition, Count I also alleges that the following defendants are jointly and severally liable for MCFA's acts: (1) Mitsubishi Corporation, controlling parent corporation of MDI; (2) Shimpei Hashimoto, President of MDI; (3) Toshimitsu Ishikawa, Secretary of MDI; (4) Tetsu Okuno, President of MCFA; (5) Lloyd Knapp, Secretary and Director of MCFA; (6) Richard Wagner, Vice President and General Manager of MCFA "and/or" MDI; (7) Pat Reilly, Product Marketing Manager of MCFA; (8) Robert Gilbride, District Sales Manager of MCFA; (9) Toshio Handa, Director of MCFA; (10) Larry Wuench, Director of MCFA; (11) Ryoji Odaka, Director of MCFA; (12) S. Toishi, Director of MDI; (13) Haruo Matsumoto, Director of MDI; (14) Asao Hirayama, Vice President, Treasurer, and General Manager of MDI. First Amended Compl. at ¶ 14(a)-(o).

In Count II, To-Am asserts that MCFA breached the franchise agreement by failing to repurchase equipment that To-Am purchased from MCFA prior to the franchise's termination, and that is currently in To-Am's possession. According to To-Am, the equipment is worth approximately $49,000.

In addition to denying liability on To-Am's claims, MCFA brings a counterclaim against To-Am and its president, Richard Todd. MCFA alleges that To-Am has failed to pay for equipment sent to To-Am pursuant to purchase orders that the dealership submitted to MCFA. According to MCFA, the outstanding balance is $76,276.51. Furthermore, MCFA claims that Todd executed a personal guaranty for To-Am's debts on August 10, 1992, and that Todd has breached the guaranty by refusing to pay the outstanding invoices.

Presently before the court are three motions. First, the individual defendants associated with MCFA — Reilly, Wagner, Gilbride, Okuno, Knapp, Handa, Wuench, and Odaka (the "MCFA defendants") — move to dismiss, contending that absent an allegation that they materially participated in MCFA's allegedly wrongful acts, they cannot be held liable under the Franchise Disclosure Act. Second, Mitsubishi Corporation, and the individual defendants associated with MDI — Hashimoto, Ishikawa, Toishi, Matsumoto, and Hirayama (the "MDI defendants") — move to dismiss, arguing improper service, lack of personal jurisdiction, and like the MCFA defendants, failure to state a claim because To-Am did not allege that Mitsubishi Corporation and the MDI defendants materially participated in MCFA's acts. Finally, MCFA moves for summary judgment on its counterclaim against To-Am — but not Todd — arguing that there exists no dispute that To-Am has failed to pay for the ordered equipment. Because the same question of law governs both motions to dismiss, we discuss them together and turn to them first.

II. Motions to Dismiss: MCFA Defendants, Mitsubishi Corporation, and MDI Defendants

A. Standard for Reviewing Motions to Dismiss

A motion to dismiss should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); see also Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 644 (7th Cir.1995); Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986). We take as true the well-pleaded factual allegations of the complaint and view them, as well as reasonable inferences drawn from them, in the light most favorable to the plaintiff. Cornfield v. Consolidated High Sch. Dist. 230, 991 F.2d 1316, 1324 (7th Cir.1993) (citing Ellsworth, 774 F.2d at 184).

B. Franchise Disclosure Act⁴

The MCFA defendants, Mitsubishi Corporation, and the MDI defendants primarily contend that, absent allegations that the defendants materially participated in MCFA's acts, To-Am has failed to state a claim under the Illinois Franchise Disclosure Act.⁵ The parties pay scant attention to deciphering which version of the Franchise Disclosure Act — the Act of 1974 or the Act of 1987, which repealed the 1974 version — governs the franchise agreement at issue. The plaintiff and the MCFA defendants refer to the Act of 1987 version, 815 ILCS 705/1-44, which is the current version, while Mitsubishi Corporation and the MDI defendants refer to the Act of 1974, Ill.Rev.Stat. ch. 121½, ¶¶ 701-40 (1985). We are confident that the Act of 1974 applies to the Agreement, which was entered into prior to the effective date of the Act of 1987.⁶

The statutory scheme sets forth the duties of franchisors who wish to sell franchises in Illinois; several duties are relevant here. First, franchisors must register with the Attorney General prior to offering franchises for sale. Ill.Rev.Stat. ch. 121½, ¶¶ 704(1), 716.1. In addition, franchisors must provide prospective franchisees with "a copy of an effective disclosure statement" prior to the franchise agreement's execution or prior to the franchisor's receipt of consideration for the franchise. ¶ 704(2). During the franchising relationship, the franchisor may not "unreasonably and materially discriminate between franchisees in the charges offered or made for franchise fees, royalties, goods, services, equipment, rentals or advertising services." ¶ 704.2. Finally, a franchisor may not "terminate a franchise prior to the expiration of its term except for `good cause.'" ¶ 704.3.

The Act of 1974 also creates private causes of action for statutory violations; ¶ 721(1) imposes direct liability against certain categories of persons, while ¶ 721(3) imposes joint and several liability against others:

(1) Any franchisee ... may bring an action for violation of this Act to recover damages sustained by reason of such violation against the franchisor, subfranchisor, franchise broker or salesperson or other person by or on behalf of whom such sale was made or who shall have participated or aided in any way in making such sale....

....

(3) Every person who directly or indirectly controls a person liable under Section 21(1) paragraph 721(1) ..., every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially

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