Dunkin' Donuts Inc. v. N.A.S.T., Inc.

428 F.Supp.2d 761

DUNKIN' DONUTS INCORPORATED, Plaintiff, v. N.A.S.T., INC., et al., Defendants.

No. 02 C 1272.

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

December 28, 2005.

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David E. Worthen, Robert L. Zisk, Tristan B.L. Siegel, Schmeltzer, Aptaker & Sheppard, P.C., Washington, DC, Steven J. Yatvin, William Scott Porterfield, Barack, Ferrazzano, Kirschbaum, Perlman & Nagelberg, Chicago, IL, for Plaintiff.

Rory A. Valas, Valas and Associates, P.C., Boston, MA, Bryan R. Sup, Carmen David Caruso, Schwartz, Cooper, Greenberg & Krauss, Edward L. Osowski, Law Office of Edward L. Osowski, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, Senior District Judge.

This action began with a Complaint by Dunkin' Donuts Inc. ("Dunkin"') against four defendants—N.A.S.T., Inc., SK Donuts, Inc., Sunny Cherian and Robert Stambolic—based on their alleged fraud, breach of contract and trademark infringement in connection with the operation of several Dunkin' franchises. Sunny Cherian and N.A.S.T. (hereafter collectively referred to as "Cherian," treated as a personified male noun) initially responded with a nine-count Counterclaim. After Cherian had voluntarily dropped some of the counts in that Counterclaim and other counts were dismissed on Dunkin's first motion for summary judgment,¹ extensive additional work has been done by both sides on all of their respective claims, including the remaining counts in the Counterclaim.

Now Dunkin' has filed another motion for summary judgment, seeking the dismissal of Cherian's remaining counterclaims, which assert (1) violation of the Illinois Franchise Disclosure Act ("Act," 815 ILCS 705/1 to 705/44²) due to unlawful termination, (2) breach of contract due to unlawful termination, (3) breach of contract due to inadequate training and (4) breach of the implied covenant of good faith and fair dealing, as well as stating (5) a purported claim for "preliminary and permanent injunctive relief."³ This memorandum opinion and order grants Dunkin's motion as to all of those counts except for the charge of breach of contract due to unlawful termination. And although that assertion survives for the present, only nominal damages are awardable even if Cherian prevails on the merits at trial.

Summary Judgment Standards

Familiar Fed.R.Civ.P. ("Rule") 56 principles impose on movant Dunkin' the burden of establishing the lack of a genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). For that purpose this Court must "consider the evidentiary record in the light most favorable to the nonmoving party ... and draw all reasonable inferences in his favor" (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir.2002)).⁴ That said, to avoid summary judgment a nonmovant still "must produce more than a scintilla of evidence to support his position" that a genuine issue of material fact exists (Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir.2001)). In the end, summary judgment is warranted only if a reasonable jury could not return a verdict for the nonmovant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). What follows is a summary of the facts viewed in the light most favorable to Cherian, but only so long as those facts are supported by record evidence.⁵

Background

Beginning in 1990 Cherian and Dunkin' entered into a series of four separate Franchise Agreements ("Agreements") that granted Cherian franchises, three located in Illinois and one in Wisconsin (D. Exs. 1A to 1D). In part the Agreements outlined (1) the actions or circumstances that would result in default by Cherian, (2) the termination process to be followed by Dunkin' upon such a default (including the appropriate notice and cure period that might be required) and (3) the extent of training that Dunkin' was expected to provide (Agreements ¶¶ 3.A-3.B and 9.A.1-9.E, ¶¶ 3.1-3.2 and 9.1-9.4).⁶

On February 14, 2002 Dunkin' sent Cherian a Notice of Default and Termination ("Notice") that terminated each of Cherian's franchises based on allegations of "underreporting of sales, fraud, failure to obey all laws relating to taxation, failure to maintain accurate records, and other breaches of the Franchise Agreements" (D.St.¶ 1). Although speaking in terms of an immediate termination, the Notice said that Dunkin' would "submit the matter to a court" if Cherian chose to contest the alleged defaults (id. ¶ 2). If no good cause were found for the termination, the Notice would be considered void (id.). In addition the Notice stated that "if it should be determined as a matter of law that [Cherian's] defaults are curable," Dunkin' would provide an opportunity to cure (C. Exs.2, 4).

Just a week later (on February 21, 2002) Dunkin' filed this action (C. R.St. ¶ 1 says that was the same day that Cherian received the Notice), charging Cherian, among other things, with fraud and breach of contract (C. Add.St.114, C. R.St. ¶ 1, D.Cmplt.¶¶ 31-54). Cherian responded in part with his Counterclaim, and as stated at the outset of this opinion, five of Cherian's original nine Counterclaim counts are at issue here.

Choice of Law

In a diversity case such as this one, the applicable substantive law is determined by the choice-of-law rules of the forum state (Thomas v. Guardsmark, Inc., 381 F.3d 701, 704-05 (7th Cir.2004)). Because Illinois courts generally honor a contract's choice-of-law provision (id. at 705), this opinion will adhere to the Agreements' stipulation that they are to be "interpreted, construed and governed" in terms of Massachusetts law (Agreement ¶ 16A, ¶ 16.0) as the parties have done (D. Mem. 3, 11 C. Mem. 1-2).

That said, however, this Court will still entertain Cherian's claim under the Act for two reasons. First, each Agreement provides that applicable state statutory cure periods, if longer than the one provided for in the Agreement, are to be applied (Agreement ¶ 9.B, ¶ 9.2). Second, Act § 41's "non-waiver" provision prevents parties to Illinois franchise agreements from opting out of the Act's coverage via choice-of-law provisions (To-Am Equip. Co. v. Mitsubishi Caterpillar Forklift Am., Inc., 152 F.3d 658, 662 (7th Cir.1998)).

Count I: Violation of the Act

Cherian first charges that Dunkin' violated the Act by terminating the parties' franchise agreement "without good cause and without providing any opportunity to cure" (C. Claim ¶¶ 42-43).⁷ Dunkin' responds with three arguments:

1. that the Act permits termination without notice and an opportunity to cure in cases such as this, where the termination is based on fraudulent underreporting of a franchisee's sales;

2. that even if the Act does require an opportunity to cure in the present situation, Dunkin' provided that opportunity; and

3. that even if Dunkin' were to have violated the Act, Cherian failed to raise a substantial question of material fact as to any resulting damages.

As to the last of those arguments, Dunkin' contends that Cherian's shortfall is fatal because damages are an essential element of Cherian's Act-based claim. And because that final argument indeed suffices to warrant summary judgment in Dunkin's favor, this opinion need not address its other contentions.

In providing a private right of action for a franchisor's violation of the Act, its Section 26 requires that there be "damages caused thereby."⁸ As courts have held in a variety of contexts, a nonmovant's failure to produce sufficient evidence of the damages element of its claim calls for the entry of summary judgment against that party (see, e.g., Camp Creek Hospitality Inns v. Sheraton Franchise Corp., 139 F.3d 1396, 1406 (11th Cir.1998)(applying Massachusetts law); Kemper/Prime Indus. Partners v. Montgomery Watson Ams., Inc., 97 C 4278, 2004 WL 725223, at *5 (N.D.Ill. Mar. 31, 2004)(applying Illinois law)). While damages "need not be proven with absolute certainty" (Equity Ins. Managers of Ill., LLC v. McNichols, 324 Ill.App.3d 830, 837, 257 Ill.Dec. 973, 755 N.E.2d 75, 80 (2001)), they do need to be demonstrated "to a reasonable degree of certainty" and "may not be awarded on the basis of conjecture or speculation" (Telemark Dev. Group v. Mengelt, 313 F.3d 972, 983 (7th Cir.2002); Snelling & Snelling of Mass., Inc. v. Wall, 345 Mass. 634, 189 N.E.2d 231, 232 (1963)). Here the evidence Cherian has tendered fails to raise a genuine issue of fact as to his ability to meet this standard.

To begin with, Cherian himself evinces confusion over just what the purported sources of his damages are. Over the course of this litigation he has variously pointed to an amorphous and ill-defined collection of claimed injuries.⁹ In the end this Court has been able to discern only two potentially legitimate bases for recovery: losses due to Cherian's consequent inability (1) to sell his franchises and (2) to remodel the franchises. But before those two possibilities are explored, this opinion pauses a bit to review Cherian's scattershot contentions.

For example, some claimed injuries (such as losses due to Dunkin's alleged inadequate provision of training and supervision, SC Dep. 428-30)—even if actually sustained—were clearly not caused by Dunkin's violation of the Act and thus cannot support Cherian's Count I claim. Others, such as Cherian's claim for losses due to his inability to relocate his franchises (C. Mem.10), are negated by the express terms of the Agreements. As Dunkin' observes, each Agreement specifically grants Cherian a franchise "at one location only" (Agreements ¶ 1.A, ¶¶ 1.0-1.1). Hence the termination of the Agreements made Cherian no loss able to relocate than he was before the termination.

As for Cherian's other two asserted grounds for recovering damages, this Court finds Dunkin's non-quantitative objections unpersuasive. For example, while Dunkin' claims that its Notice "unambiguously"...