Oshana et al v. Buchanan Energy et al
Filing
48
MEMORANDUM Opinion & Order Signed by the Honorable Joan B. Gottschall on 2/10/2012.Mailed notice(smm)
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
GEORGE OSHANA and
GTO INVESTMENTS, INC.
Plaintiffs,
v.
BUCHANAN ENERGY and
EXXONMOBIL OIL CORPORATION,
Defendants.
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Case No. 11 C 4135
Judge Joan B. Gottschall
MEMORANDUM OPINION & ORDER
Plaintiffs George Oshana and GTO Investments, Inc. (“GTO”) move to file their
First Amended Complaint. Defendants Buchanan Energy (“Buchanan”) and ExxonMobil
Corporation (“Mobil”) oppose the plaintiffs’ motion to amend and concurrently move to
dismiss the plaintiffs’ proposed amended complaint. For the reasons stated below, the
court grants the plaintiffs’ motion in part and grants them leave to file an amended
complaint consistent with this opinion. Additionally, the defendants’ motion to dismiss is
granted in part and denied in part.
I. BACKGROUND
The plaintiffs operated a Mobil-branded gasoline station in Itasca, Illinois
pursuant to a lease agreement entered into with Mobil in 2006 (the “Lease”), which was
later assigned to Buchanan in 2010. Oshana was the guarantor on the Lease, which was
formally in GTO’s name. The plaintiffs allege that the rent to be charged in the Lease
was to be set in accordance with Mobil’s National Rent Guidelines (the “Rent
Guidelines”). The plaintiffs, however, allege that they were not charged rent consistently
with those Guidelines. They also allege that the defendants have wrongfully withheld the
plaintiffs’ credit card receipts in violation of the Lease, and that the plaintiffs’ franchise
was eventually terminated by Buchanan for invalid and pretextual reasons. Accordingly,
the proposed amended complaint alleges that the defendants violated the Petroleum
Marketing Practices Act (the “PMPA”), 15 U.S.C. § 2801. Other counts allege that the
defendants committed various state law violations including breaches of contract and
conversion, and that their actions were justified by the doctrine of equitable recoupment.
This case was originally filed in the Circuit Court of DuPage County on May 10,
2011, but was removed to this court based on diversity. On June 23, 2011, the defendants
filed a motion to dismiss, after which the plaintiffs filed their current motion to amend
their complaint on December 6, 2011. After the defendants filed a second motion to
dismiss on December 21, 2011, the court consolidated the motions to amend and to
dismiss into a single briefing schedule. For this reason, the court considers the motions
concurrently.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 15 governs motions to amend complaints.
Complaints may be amended once as of right if the motion to amend is filed within
twenty-one days of the filing of a motion to dismiss. See Fed. R. Civ. P. 15(a)(1)(B). In
other cases, “a party may amend its pleading . . . with . . . the court’s leave. The court
should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). Courts
interpret this standard to allow amendment “when there is a potentially curable problem
with the complaint or other pleading.” Bausch v. Stryker Corp., 630 F.3d 546, 562 (7th
Cir. 2010). Nonetheless, “it is well settled that a district court may refuse leave to amend
2
where amendment would be futile.” Id. at *12 (citing Foster v. DeLuca, 545 F.3d 582,
584 (7th Cir. 2008)). And claims raised in a proposed amendment “[are] futile if [they]
would not withstand a motion to dismiss.” Vargas-Harrison v. Racine Unified Sch. Dist.,
272 F.3d 964, 974 (7th Cir. 2001).
When reviewing a motion to dismiss, the court notes that, under Rule 8(a)(2) of
the Federal Rules of Civil Procedure, a pleading must contain a “short and plain
statement of the claim showing that the pleader is entitled to relief.” Documents attached
to the pleadings may be considered when reviewing a motion to dismiss “if [those
documents] are referred to in the plaintiff’s complaint and are central to [the plaintiffs’]
claim[s].” Wright v. Associated Ins. Co. Inc., 29 F.3d 1244, 1248 (7th Cir. 1994). “To
survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 129
S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)). The pleadings must “provide the defendant with fair notice of the claim and its
basis.” Maddox v. Love, 655 F.3d 709, 718 (7th Cir. 2011). However, pleadings that are
mere conclusory statements of legal principles or elements of causes of action are not
entitled to the presumption of truth. Iqbal, 129 S.Ct. at 1949-50.
III. ANALYSIS
Because this court must assess the plaintiffs’ proposed amended complaint for
futility, and the futility analysis blends with the analysis governing a motion to dismiss,
the court analyzes each of the relevant counts of the complaint as if this were a motion to
dismiss under Rule 12(b)(6).
3
A. Plaintiffs’ Breach of Contract Claims (Counts I & VI)
1. Count I
Count I alleges that the defendants have not properly set GTO’s rent. It alleges
that “Mobil and its successor in interest Buchanan are obligated to set the rent for the
Location in accordance with the Rent Guidelines,” (Prop. Am. Compl. ¶ 21), but that they
“breached the Lease by failing to set the rent in accordance with the Rent Guidelines and
collect[ed] more rent than was due according to the lease.” (Id. ¶ 23.) The court,
following the rule in the Seventh Circuit, incorporates both the Lease and the Rent
Guidelines into the pleadings, as well as the other documents that are referenced in the
plaintiffs’ complaint and are central to their claims. See Wright, 29 F.3d at 1248.
According to the Rent Guidelines, the rent Mobil charges its franchisees “is
determined by multiplying the total property value by 12% and adding the real property
tax charge.” (See Rent Guidelines at 1, ECF No. 1-1.) The total property value is
“established by a third party appraiser selected by ExxonMobil.” (Id.) Mobil’s rent
proposal that would govern GTO’s rent from 2011-2014 was dated August 13, 2010 and
was attached to plaintiffs’ complaint as Exhibit 2. It appraised the plaintiffs’ land at
$706,000 and stipulated monthly rent charges at or around $12,000 from 2011-2014.1
GTO refused to sign this proposal.
As Exhibit 4 to their complaint, however, the plaintiffs attach an appraisal (the
“Carbone Appraisal”) that they—not Mobil—solicited, indicating that the appraised
value of the property is $400,000, which the plaintiffs allege implies that their monthly
rent should be $4,000 ((12% of $400,000)/12 months). (See Prop. Am. Compl. ¶ 16.)
1
The plaintiffs, meanwhile, allege that a more recent rent proposal from Buchanan “demand[ed]
that the rent be set in excess of 7,500 [per month].” (Id. ¶ 19.). GTO has also refused to sign this proposal.
4
This appraisal was dated October 20, 2010. Further, they allege that the transfer price of
the property was only $300,000 when Mobil transferred the property to Buchanan, which
would imply a monthly rent of $3,000. Standing alone, however, these allegations are
problematic for the plaintiffs because the Rent Guidelines, as noted above, provide that
the rent determination is made using Mobil’s third party appraiser. The plaintiffs, by
referencing Exhibit 2, admit that Mobil’s appraiser estimated the land value at $706,000,
which would justify the proposed rent charges outlined by Mobil under the Rent
Guidelines.2
Nonetheless, the Rent Guidelines allow a lessee dealer to challenge Mobil’s rent
appraisal by “provid[ing] written notice to its territory manager within 10 days of receipt
of [an] appraisal summary from Mobil’s appraiser.” Such a challenge was made by GTO
in 2010, and the plaintiffs allege that they “disputed the increased rent in accordance with
the dispute procedures outlined by Mobil.” (Id. ¶ 14.)3 These procedures would have
required the plaintiffs to obtain their own third-party appraisal, which would then be
averaged with the defendants’ original appraisal and a second third-party appraisal
secured by the defendants. The Carbone Appraisal, as incorporated into the pleadings,
indicates that the plaintiffs obtained such an appraisal pursuant to the Rent Guidelines’
contemplated rent-challenge procedures.4 However, the plaintiffs also attach as Exhibit 6
2
Nothing in the contracts indicate that the transfer value of the property can be used as a substitute
for Mobil’s third-party appraisal.
3
The fact that a challenge was properly made was verified by Buchanan’s letter of March 18, 2011,
which indicates that a rent reduction request was made by GTO “pursuant to the rent policy under the
PMPA Franchise Agreement.” (See Ex. 6 to Compl.).
4
The Carbone Appraisal lists two dates, October 20, 2010 and November 2, 2010. These dates
suggest that the proposal was requested by GTO shortly after it received the appraisal notice from Mobil on
August 13, 2010. This, in addition to Buchanan’s March 18, 2011 letter, further suggests that GTO
challenged the rent proposal for 2011-2014 in a timely fashion under the Rent Guidelines.
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to their complaint a letter from Buchanan dated March 18, 2011. This letter specifically
responds to the plaintiffs’ rent reduction requests, notes that Mobil obtained a third
appraisal in the amount of $1,040,000, and averages that proposal with the two other
appraisals using the averaging procedure contemplated in the Rent Guidelines. The
average appraisal was $715,000, which was more than Mobil’s original appraisal in the
amount of $706,000. As a result, Buchanan determined that the plaintiffs’ rent should
have been increased even more. None of the plaintiffs’ other allegations dispute the
contents of Buchanan’s March 18, 2011 letter.
All of the plaintiffs’ documents, when considered alongside the allegations in the
complaint, seem to indicate that the defendants followed the rent-setting procedures set
forth in the Rent Guidelines. Thus, they appear to refute the plaintiffs’ claim that the
defendants “fail[ed] to set the rent in accordance with the Rent Guidelines and collect[ed]
more rent than was due according to the Lease.” (Id. ¶ 23.) When a plaintiff “plead[s]
facts that show he has no legal claim,” a plaintiff “can plead himself out of court.” Atkins
v. City of Chi., 631 F.3d 823, 832 (7th Cir. 2011). Nonetheless, a claim must merely be
plausible to survive a motion to dismiss, and at this point the court is assessing the
complaint for futility. The complaint alleges that (1) GTO obtained its own appraisal of
the gas station that was only $400,000 (id. ¶ 15); (2) Buchanan only paid $300,000 for
the gas station (id. ¶ 18); and (3) the defendants have not made capital investments in the
property (Id. ¶ 11.). These allegations, when taken as a whole, adequately supporto an
inference that the defendants may have breached their obligation properly to appraise the
property in accordance with the Rent Guidelines. For example, the two appraisals
obtained by the defendants that were used to set the rent may not have complied with the
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Rent Guidelines’ requirement that “[t]he value of the land component of the appraisal
will be determined using the sales-comparison method and will be based on the highest
and best use of the land, regardless of current use or the nature of the underlying estate.”
(National Rent Guidelines at 1.) If they did not, a breach could be plausible. Accordingly,
the proposed amended complaint is not clearly futile on this count.5 Remaining issues
regarding this claim should be addressed on summary judgment and/or trial.6
2. Count VI
Under the Lease, the plaintiffs were also obligated to purchase gasoline from the
defendants. (Lease § 2.1.) Count VI, the plaintiffs’ second breach of contract claim,
alleges that “[p]ursuant to Plaintiffs’ PMPA fuel supply agreement and Lease, Buchanan
is obligated to sell [gasoline] to the Plaintiffs at prices set by Buchanan in good faith.”
(Proposed Am. Compl. ¶ 51.) Specifically, the Lease states that the “Franchise Dealer
shall pay ExxonMobil the price that is in effect at the time of loading of the delivery
vehicle.” (Lease § 2.2 (emphasis added).) Although the “price that is in effect” is not
specifically defined in the Lease, the plaintiffs allege that this pricing refers to an “open
price term,” which “is referred to in the industry as the ‘dealer tank wagon’ price or
‘DTW.’” (Proposed Am. Compl. ¶ 52.) According to the plaintiffs, the defendants
5
However, the claim is only valid to the extent that Mobil and Buchanan breached the Rent
Guidelines in setting the proposed rent that would take effect from 2011 forward. GTO cannot retroactively
challenge the rent that had been set by Mobil from 2006-2010 pursuant to the Lease. As the defendants
correctly note, these challenges must be made within ten days of receiving the summaries of appraised
values from Mobil, and nothing in the pleadings indicates that GTO challenged the rent that was set by
Mobil in either 2006 or 2009 pursuant to the rent-setting procedures of the Rent Guidelines. Thus, GTO
cannot claim a breach on those rent charges.
6
This includes the one year suit limitation provision raised by the defendants. The court declines to
address this issue at this time because it would not categorically bar the plaintiffs’ claim; it would bar only
claims involving the defendants’ rent appraisals prior to May 10, 2010, as the defendants admit in their
brief. (See Def. Rep. Br. at 5.) The plausible claim that survives in this count involves conduct that
occurred after that date.
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“unilaterally and unreasonably rais[ed] fuel prices charged to the Plaintiffs in bad faith
calculated without reference to any good faith market rate formula or legitimate regional
policy but instead to Buchanan’s objective of terminating certain dealerships.” (Id. ¶ 55.)
The plaintiffs allege that the defendants breached their obligations under the
Illinois Commercial Code, which requires sellers who fix prices under a contract to fix
those prices in “good faith.” See 810 ILCS 5/2-305(2).7 This court has discussed a similar
“open price term” in another gasoline contract and has confirmed that it falls within the
scope of § 2-305, triggering the lessor’s obligation to “fix the price to Plaintiffs ‘in good
faith.’” Dixie Gas & Food, Inc. v. Shell Oil Co., No. 03 C 8210, 2008 WL 631106, at *5
(N.D. Ill. Mar. 3, 2008). While courts in Illinois have not gone to great lengths to clarify
the meaning of this “good faith” requirement, at least one court has suggested that bad
faith can arise where a seller forces a buyer “to accept terms that had not been
contemplated in the original contract and were not economically feasible for [the
7
The complete statute is quoted below:
Open price term. (1) The parties if they so intend can conclude a contract for sale even though the
price is not settled. In such a case the price is a reasonable price at the time for delivery if:
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a
third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed
through fault of one party the other may at his option treat the contract as cancelled or himself fix
a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is
not fixed or agreed there is no contract. In such a case the buyer must return any goods already
received or if unable so to do must pay their reasonable value at the time of delivery and the seller
must return any portion of the price paid on account.
810 ILCS 5/2-305.
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buyers].” Milex Prods., Inc. v. Alra Labs., Inc, 603 N.E.2d 1226, 1235 (Ill. App. Ct.
1992).
Here, the court concludes that the plaintiffs’ breach of contract claim under § 2305 of the Illinois Commercial Code is not futile. The allegations are sufficiently detailed
to place the defendants on notice that (1) there was an “open price term” in the contract;
(2) there was a duty of good faith associated with that term; and (3) the defendants may
have breached that duty of good faith by setting fuel prices in a manner that did not
comport with industry or other norms that were contemplated by the parties at the time
the contract was made. Indeed, the plaintiffs allege that their gas station was arbitrarily
charged higher prices than other gas stations. (Proposed Am. Compl. ¶ 58.) Thus,
notwithstanding the defendants’ various objections,8 this court should proceed.
B. Conversion Claim (Count II)
Count II of the plaintiffs’ complaint alleges conversion based on the defendants’
alleged withholding of credit card receipts from the plaintiffs. In Illinois, the tort of
conversion requires the plaintiffs to show that they (1) have “an absolute and
unconditional right to the immediate possession of [] property” and that (2) “the
defendant wrongfully and without authorization assumed control, dominion, or
8
The court finds all of the defendants’ objections to this count unpersuasive. First, even assuming
that § 2-305 has a pre-suit notice requirement, the complaint sufficiently alleges pre-suit notice. (See
Proposed Am. Compl. ¶ 58.) It would be premature to dismiss this count on that ground. Second, nothing
about Abbott v. Amoco Oil Co., 619 N.E.2d 789, 796 (Ill App. Ct. 1994), cited by the defendants, obviates
the defendants’ good faith obligation under § 2-305. In Abbott, the plaintiffs alleged bad faith based solely
upon “an unexpectedly high price”; that case did not involve a situation where an open price term allegedly
was applied differentially to various gas dealers. The defendants’ third and fourth objections cite cases
outside of this jurisdiction and simply repeat the common understanding that prices set in good faith should
be nondiscriminatory and within reasonable ranges for the relevant market. The plaintiffs specifically
allege that the prices “charged were different than other dealers and were outside of the range of dealer
prices charged by other refiners in Plaintiff’s relevant geographic market.” (Proposed Am. Compl. ¶ 58.)
Although these allegations could be more specific, they are sufficient at this stage of the litigation. The
defendants’ final objection merely reiterates the defendants’ belief that the allegations are too vague, but
the court disagrees.
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ownership over the property.” Johnson v. Grossinger Motorcorp, Inc., 753 N.E.2d 431,
438 (Ill. App. Ct. 2001). These are the elements of the prima facie case for conversion,
meaning that they go above and beyond the pleading requirements of Rule 8.
Nonetheless, the plaintiffs’ complaint pleads both of the elements of the conversion tort.
Specifically, they allege that, after “Buchanan sent a termination notice to the Plaintiffs
advising the Plaintiffs that the PMPA Lease Agreement was being terminated,”
(Proposed Am. Compl. ¶ 27), “Buchanan unilaterally converted all of the Plaintiffs’
credit card receipts, to which Plaintiffs[] had an unconditional and absolute right to
immediate possession . . . .” (id. ¶ 28.) These allegations are sufficiently specific to
inform the defendants of what the claim entails.
The defendants argue that the Lease agreement “expressly authorized” Buchanan
to retain credit card receipts and other sums as security to offset the plaintiffs’
indebtedness, which would imply that the plaintiffs did not have an “unconditional and
absolute right to immediate possession” of the credit card proceeds. If that were true, the
plaintiffs’ conversion claim would be futile as a matter of law.
Nonetheless, the court cannot conclude at this time that the defendants were
entitled to the plaintiffs’ credit card receipts. The Lease provisions that Buchanan argues
allow it to engage in such withholding of credit card receipts and other sums do not
necessarily apply here. Section 2.4 of the Lease allows the defendants to “maintain
security sufficient to secure payment” (“Product Security”). However, the provision
specifically states that the Product Security may be collected from the plaintiffs only “if
requested,” and nothing in the proposed amended complaint or attached documents
indicates that Mobil or Buchanan made such a request to collect Product Security from
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the plaintiffs. Section 2.5, meanwhile, allows the defendants to set aside Product
Security, but this provision would be irrelevant if the defendants never requested to
withhold such security in the first place.
Section 14.4 on the Lease, finally, would allow the defendants to “apply . . . sums
or security” other than the Product Security to pay down the indebtedness of a party that
had defaulted under the Lease, but whether or not a default occurred here (as default
would be defined under the Lease) is a question that needs to be resolved at summary
judgment or trial. Although the defendants argue that Section 14.4 is triggered by
Buchanan’s letter of September 1, 2011, which stated that the plaintiffs were “in default
[or violation] of your PMPA Franchise Agreement” because GTO’s gas station was out
of special and super gasolines, it is not entirely clear that this would have triggered
Section 14.4. Indeed, the nature of the September 1, 2011 letter suggests that it is a form
letter that is used by Buchanan whenever a default or violation occurs with respect to one
of its gas stations, and it is not clear whether the problems with the plaintiffs’ gas station
inventory would constitute a violation as opposed to a default under the Lease. These
contractual interpretation issues necessitate further analysis and discovery and will be
more appropriately addressed at a later stage of this litigation. Accordingly, the court
cannot conclude that the plaintiffs’ conversion claim is futile.
C. Petroleum Management Practices Act (PMPA) Claims (Counts III & IV)
1. Count III
Count III of the plaintiffs’ complaint alleges that Buchanan’s September 1, 2011
notice “failed to comply with the advance notice requirement of the PMPA and failed to
provide a basis to terminate recognized by the PMPA.” (Proposed Am. Compl. ¶ 38.)
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They further allege that the September 1, 2011 notice “terminat[ed] the Plaintiff’s
franchise,” (id.), which would trigger the notification requirements of the PMPA. See 15
U.S.C. § 2802(b)(1)(A); 15 U.S.C. § 2804(a).
However, an examination of the September 1, 2011 letter indicates that it was not
a notice stating an intent to terminate the plaintiffs’ franchise. While, as noted above, it
indicated that the plaintiffs had either defaulted on or had violated their obligation to
maintain certain levels of inventory, and it stated that a consequence of failure to correct
the violation could result in termination of the PMPA franchise agreement, the September
1, 2011 notice was not actionable under the PMPA because it did not indicate that the
Lease would be terminated or non-renewed. See, e.g., Garcia v. BP Prods. N. Am., Inc.,
No. 09-2675, 341 F. App’x 217, 219 (7th Cir. Aug. 13, 2009) (affirming a district court’s
determination that a letter cannot be construed a termination or nonrenewal where that
letter “d[oes] not specifically say that it was a termination or nonrenewal”). Meanwhile,
“it is the franchisee’s initial burden under the PMPA to establish that its franchise has
been terminated or not renewed.” Garcia, 341 Fed. App’x at 219 (citing 15 U.S.C. §
2805(c); Brach v. Amoco Oil Co., 677 F.2d 1213, 1216 (7th Cir. 1982)). Thus, at least
with respect to Count III, the plaintiffs will not be able to show that, as of September 1,
2011, their lease had been terminated or non-renewed. And when the defendants
subsequently sent the plaintiffs a notice of termination on November 2, 2011, that notice
complied with all of the notification requirements of the PMPA: it was in writing, was
sent certified mail, and contained a statement indicating an intention to terminate the
franchise along with the date on which that nonrenewal takes effect. See 15 U.S.C. §
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2804(c); (Proposed Am. Compl. Ex. 8.) Thus, the court concludes that Count III is futile;
the plaintiffs may not include this count in their amended complaint.9
2. Count IV
Count IV alleges that Buchanan violated the PMPA by terminating the plaintiffs’
franchise without just cause. Preventing such arbitrary terminations of gasoline
franchisees is one of the central goals of the PMPA. Indeed, “Congress enacted the
PMPA in an effort to protect ‘franchisees from arbitrary or discriminatory termination or
non-renewal of their franchises.’” Garcia, 341 Fed. App’x at 218 (quoting S. Rep. No.
95-731, at 15, reprinted in 1978 U.S.C.C.A.N. 873, 874).
This count is not futile. It specifically alleges that the first reason proffered for
Buchanan’s termination of the plaintiffs’ franchise—that the plaintiffs failed to pay
rent—was invalid because “[t]he Plaintiff was ready, willing and able to pay the rent but
Buchanan failed to EFT the rent in order to set up a false reason for terminating the
Plaintiff’s franchise.” (Proposed Am. Compl. ¶ 41.) Thus, even though failing to pay rent
would be a valid reason to terminate the franchise under 15 U.S.C. § 2802(b)(2)(C) of the
PMPA, the stated reason may not have been made in good faith. See, e.g., Beck Oil Co.,
Inc. v. Texaco Refining & Mktg, Inc., 25 F.3d 559, 562 (7th Cir. 1994) (noting in an
analogous context that meeting a burden of good faith under the PMPA requires that a
franchisor not have a discriminatory motive and that the reasons for its decisions “are not
a pretext disguising an improper purpose”).
Although the plaintiffs do not make allegations challenging Buchanan’s second
stated reason for termination—that the plaintiffs failed to sign the defendants’ new lease
9
The court further notes that the plaintiffs did not raise any arguments in support of Count III in
their opposition brief to the defendants’ motion to dismiss.
13
agreement presented to them in April 2011—this stated reason may also be invalid under
the PMPA. Section 2802(b)(3)(A) of the PMPA allows a franchisor to decline to renew a
franchise relationship where the franchisor and franchisee “fail to agree to changes or
additions to the provisions of the franchise.” However, such failures to agree to new
terms warrant non-renewal only if the franchisor’s proposed changes are (1) “made by
the franchisor in good faith and in the normal course of business”; and (2) are “not the
result of the franchisor’s insistence upon such changes or additions for the purpose of . . .
preventing the renewal of the franchise relationship.” See 15 U.S.C. § 2802(b)(3)(A)(i)(ii). Thus, if the terms of the proposed 2011 lease were not made in good faith—for
example, if Buchanan’s rent appraisal for that lease was made in bad faith—the plaintiffs’
refusal to sign that lease cannot be a valid ground for termination. Moreover, if the
plaintiffs are able to show that the April 2011 proposal was created with the goal of
preventing the plaintiffs from renewing their lease, that would furnish another reason to
make the defendants’ second stated ground for termination invalid. Because the
complaint makes allegations that make such inferences plausible, the court cannot
conclude that the plaintiffs’ PMPA claim in Count IV is futile. The plaintiffs could
plausibly show that Buchanan did not justify its proposed termination of the plaintiffs’
franchise for a valid reason under the PMPA. Accordingly, Count IV is not dismissed and
may proceed.
D. Equitable Recoupment (Count V)
The court agrees with the defendants, however, that the plaintiffs’ equitable
recoupment claim is futile. As Judge Coar properly noted in Singh v. BP Products North
America, Inc., No. 04 C 2088, 2006 WL 273542, at *7 (N.D. Ill. Jan. 31, 2006),
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“equitable recoupment is a counterclaim brought to diminish or defeat a party’s
(generally, plaintiff’s) recovery.” Here, although the plaintiffs contend that the claim is
“made in response to Buchanan’s termination of the Plaintiff’s franchise and [is] made in
the nature of the counterclaim,” (Proposed Am. Compl. ¶ 12), that does not make it a
counterclaim. The very case the plaintiffs cite to show that their equitable recoupment
claim is justified, Cox v. Doctor’s Associates, Inc., 613 N.E.2d 1306 (Ill. App. Ct. 1993),
actually undermines the plaintiffs’ position.10 In Cox, the plaintiffs—franchisees of
Subway—were able to assert equitable recoupment as a counterclaim against counterdefendants who had filed their own counterclaim seeking damages for the plaintiffs’
continued use of the Subway trademark without authorization. See id. at 1314-15. The
plaintiffs sought to justify their continued use of the mark through the doctrine of
equitable recoupment, which would have enabled them to reduce any damages Subway
received on its trademark counterclaim. Specifically, the theory was that Subway was not
entitled to all of its damages on the trademark infringement counterclaim, given that the
plaintiff had not fully recovered—or recouped—its investment in the franchise.
However, the situation here is not analogous to Cox. The plaintiffs are not
engaging in wrongful conduct (for example, continuing to operate their Mobil-branded
gas station without authorization) to recoup losses. Specifically, the plaintiffs are not
seeking to reduce any damages that, as a result of their own conduct, they may have
imposed on the defendants. Rather, they are seeking damages against the defendants for
the defendants’ allegedly wrongful conduct. Thus, equitable recoupment is inapplicable
here, and all of the damages sought by plaintiffs against the defendants in the remaining
10
Indeed, Judge Coar specifically cited Cox for the proposition that equitable recoupment must be a
counterclaim in Illinois. See Singh, 2006 WL 273542, at *7. As the analysis below indicates, the court
agrees with that reading of Cox.
15
counts will sufficiently compensate them for any losses they may have suffered. The
plaintiffs’ equitable recoupment theory is flawed, and this claim is dismissed as a result
of its futility.
E. Oshana’s Standing
Finally, the defendants argue that plaintiff Oshana should be dismissed as a
plaintiff from this suit, which would leave GTO as the sole plaintiff in this case. The
court agrees. The discussion above indicates that all of the plaintiffs’ claims, even the
PMPA and conversion claims, in some way bear a connection to various provisions of the
Lease. Meanwhile, the Lease specifically states that “no person or entity not a party to
this Agreement has any rights or remedies under this agreement.” (Lease § 20.10.) The
Lease defines “party” as Mobil and its assigns (in this case, Buchanan) and the Franchise
Dealer as defined in the agreement. (Id. at 46.) The Franchise Dealer, as defined in the
Lease’s preamble, (see id. at 45) solely refers to GTO Investments, (see id. at 5) and not
to George Oshana in his individual capacity. While a Franchise Dealer can be an
individual in some instances,11 Oshana chose to make GTO Investments the legal
franchisee. Accordingly, Oshana is only a personal representative of the Franchise
Dealer, GTO Investments, and he does not have any legal rights under the Lease.12 This
was what Oshana agreed to when he assigned the defendants’ Key Individual Guaranty
agreement, which further underscores the fact that becoming the Key Individual in no
11
The Lease specifically contemplates a single Franchise Dealer in the event that the dealer is an
individual. If, however, the Franchise Dealer is a corporate entity, Mobil designates a Key Individual to
serve as a personal representative for the Franchise Dealer. This Key Individual is designated through a
“Key Individual Guaranty” agreement, which George Oshana signed.
12
Although the court acknowledges that Oshana is the Key Individual for the purposes of the Lease,
nothing in the Lease suggests that the Key Individual is a party to the Lease agreement. Only parties to the
Lease agreement have rights under it.
16
way gave Oshana any rights as a Franchise Dealer or “any rights in or under the [Lease],
any related or supplemental agreement or any related franchise or franchise relationship.”
(See Key Individual Guaranty § 5.E(i)-(ii).) Thus, Oshana does not have standing to sue
for injuries inflicted on the Franchise Dealer—GTO Investments—that arise from
breaches of the Lease. Moreover, Oshana is not a franchisee for the purposes of the
PMPA, so he has no remedies under the PMPA.13
Beyond the fact that the Lease counsels dismissing Oshana, he must also be
dismissed as a party because he serves as a guarantor to his own corporation. When
guarantors (like Oshana) provide performance assurances to businesses in exchange for
the right to create a corporate franchisee (like GTO), they disclaim their rights to sue in
their individual capacity because they are not directly injured by the defendants’ conduct,
insofar as that conduct inflicts harm only on the corporation; as a result, they may sue
only if they are injured independently from the firm’s injury. See, e.g., Mid–State
Fertilizer Co. v. Exchange Nat’l Bank, 877 F.2d 1333, 1335–36 (7th Cir.1989) (noting
that “creditors cannot recover directly for injury inflicted on a firm, so guarantors as
potential creditors likewise cannot recover”). Oshana cannot make any damage claims
that are independent from the damages inflicted on GTO as the Franchise Dealer, and
accordingly he must be dismissed from this suit in his individual capacity.
IV. CONCLUSION
For the reasons stated above, the plaintiffs’ motion for leave to file an amended
complaint is granted, insofar as the amended complaint complies with the dictates of this
13
Only a franchisee may sue under the PMPA, see 15 U.S.C. § 2805(a), and a franchisee is defined
as a “retailer or distributor (as the case may be) who is authorized or permitted, under a franchise, to use a
trademark in connection with the sale, consignment, or distribution of motor fuel.” Id. § 2801(4). Oshana is
not authorized, in his individual capacity, to use Mobil’s trademark. (See Lease § 7.1 (noting that only the
“Franchise Dealer”—in this case GTO—has rights in the use of proprietary marks under the Lease)).
17
order. The defendants’ motion to dismiss is granted as to Counts III and V, but is denied
as to Counts I, II, IV, and VI, which should be included in the plaintiffs’ amended
complaint. Oshana, in his individual capacity, is dismissed as a party to this suit. The
plaintiffs have 30 days from the entry of this order to file their amended complaint.
ENTER:
/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: February 10, 2012
18
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