IRVIN KAHN & SON, INC. et al v. MANNINGTON MILLS, INC. et al

Filing 79

ORDER granting Pltfs' 68 Motion for Leave to File Amended Complaint. Any objections to the Magistrate Judge's Order shall be filed with the Clerk in accordance with 28 U.S.C. § 636(b)(1) and Fe d. R. Civ. P. 72(a), and failure to file timely objections within fourteen days after service shall constitute a waiver of subsequent review absent a showing of good cause for such failure. Signed by Magistrate Judge Mark J. Dinsmore on 8/17/2012. (SWM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
IRVIN KAHN & SON, INC.,
IK INDY, INC. doing business as IRVIN
KAHN & SON, INC.,
Plaintiffs,
vs.
MANNINGTON MILLS, INC.,
DEALERS SUPPLY NORTH, INC.,
Defendants.

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No. 1:11-cv-01135-SEB-MJD

ORDER ON PLAINTIFF’S MOTION TO AMEND COMPLAINT
This matter is before the Court on Plaintiff Irvin Kahn & Son, Inc.’s (“Kahn”) Motion to
Amend its Complaint pursuant to Federal Rule of Civil Procedure 15(a)(2). [Dkt. 68.] The Court,
being duly advised, GRANTS Kahn’s Motion to Amend its Complaint.

I. Background
Kahn is a wholesale distributor of floor coverings. Mannington Mills, Inc.
(“Mannington”) is a manufacturer of residential and commercial flooring products. Kahn has
been a distributor of Mannington flooring for nearly thirty years in portions of Illinois, Indiana,
and Kentucky. Kahn and Mannington have entered into several distributor agreements, the latest
one being in September of 1999 (the “Agreement”).
A provision in the Agreement allowed for unilateral termination of the distributor
agreement for any reason with only thirty days notice. Allegedly, Mannington first informed
Kahn that they would be terminating the Agreement during a telephone conference on July 28,
2011. A hand delivered letter attesting to the same was delivered on August 1, 2011, advising

Kahn that the Agreement was to terminate on September 6, 2011. Kahn would, at that time, no
longer be authorized to sell the Mannington product line except as otherwise authorized by
Mannington.
Kahn filed suit on August 18, 2011 alleging, among other things, wrongful termination
by Mannington and unfair competition between Kahn and Dealers Supply North, Inc. (“DSN”),
Mannington’s wholly-owned subsidiary. Mannington filed a Motion for Judgment on the
Pleadings on Count I of Kahn’s Complaint, asserting that Kahn’s claim was not challenging the
actual termination of the Agreement absent good cause; rather it was challenging the provision
found within the Agreement that allowed for unilateral termination of the Agreement absent
good cause. Mannington argued that the Indiana Deceptive Franchise Practices Act (“Act”), Ind.
Code § 23-2-2.7-1, et seq., has a two year statute of limitations for such a violation of the Act
and that Kahn’s claim began to run from the date the parties entered into the Agreement. Ind.
Code § 23-2-2.7-7. Because more than two years have passed since the parties entered into the
Agreement, Mannington argued that Kahn’s claim is time barred. The Court agreed with
Mannington and granted the Motion on June 14, 2012. [Dkt. 66.] Kahn now seeks leave to
amend its Complaint in an attempt to cure pleading deficiencies in Count I, to update allegations
found in Count II, and to modify the caption because of corporate restructuring.

II. Legal Standard
A plaintiff may amend his complaint once as a matter of course, so long as the
amendment is made within twenty-one days after service of the answer or any motion under
Federal Rule of Civil Procedure 12. Fed. R. Civ. P. 15(a)(1)(B). In all other instances, Rule
15(a)(2) requires the plaintiff to either receive the opposing party’s written consent or the Court’s
leave in order to amend the complaint. Rule 15 also states that the Court should “freely give

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leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). Defendants did not give written
consent, thus Kahn seeks leave to amend.
When a party seeks to amend a pleading after the expiration of the amendment deadline
established in the court’s Case Management Plan, the moving party must establish “good cause”
under Federal Rule of Civil Procedure 16(b)(4). Trustmark Ins. Co. v. Gen. & Cologne Life Re of
Am., 424 F.3d 542, 553 (7th Cir. 2005). “Good cause” under Rule 16(b) considers the diligence
of the party seeking amendment and also considers prejudice to the opposing party. Cmty. Bank
v. Progressive Cas. Ins. Co., No. 1:08-cv-01443-WTL-JMS, 2010 WL 396351, *1 (S.D. Ind.
Jan. 25, 2010).
District courts have discretion to deny leave to amend a complaint when the amendment
would be futile. Johnson v. Cypress Hill, 641 F.3d 867, 872 (7th Cir. 2011) (quoting Hukic v.
Aurora Loan Servs., 588 F.3d 420, 432 (7th Cir. 2009)); see also Feldman v. Am. Mann. Life Ins.
Co., 196 F.3d 783, 793 (7th Cir. 1999). Amending a complaint is futile if the complaint, as
amended, would fail to state a claim upon which relief may be granted under Rule 12(b)(6). Gen.
Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1085 (7th Cir. 1997). However,
“[i]f the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of
relief, he ought to be afforded an opportunity to test his claim on the merits.” Forman v. Davis,
371 U.S. 178, 182 (1962).

III. Discussion
For the purposes of this motion only, Mannington stipulates that they and Kahn entered
into a franchise relationship for the purposes of the Act. [Dkt. 72 n.2.] Kahn seeks leave to
amend Counts I and II of its Complaint. The amendments to Count I seek to clarify Kahn’s
position that the Act proscribes the act of terminating a franchise relationship absent good cause.

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The amendments to Count II seek to add factual material allegedly obtained through discovery.
Mannington argues the amendments to Count I are futile because, as determined by the Court’s
prior order, Kahn’s only claim under the Act – a challenge to an unlawful provision allowing for
unilateral termination of the franchise agreement absent good cause – is time barred. Mannington
further argues that Kahn does not have good cause for the amendments to Count II and also
argues they are futile. Kahn, however, argues that it is not challenging the agreement itself, but
rather that the termination was unlawful under the Act based upon their status as a franchisee.
The Court will deal with each Count in turn.
A. Amendments to Count I
The first count in Kahn’s original Complaint was determined by the Court to challenge
paragraph 6.1 of the Agreement, which allowed for unilateral termination of the Agreement
without good cause. The Court also determined this claim was now time barred. [Dkt. 66.] Kahn
argues that the amendments to Count I are meant to correct an error in pleading. Kahn’s
amendments remove all references to the Agreement and to specific parts of the Act, in
particular, Ind. Code § 23-2-2.7-1(7). Kahn continues to argue that it is not challenging a
provision of the Agreement between Kahn and Mannington allowing for termination of the
Agreement absent good cause, but rather it is challenging the actual termination of the
Agreement, arguing there was no good cause for termination as purportedly required by the Act.
Mannington argues there is no statutory violation for the act of terminating a franchise agreement
absent good cause if a franchise agreement, such as the Agreement here, contains a provision
that allows for terminating the agreement without good cause, and that the Court has already
determined that Kahn cannot challenge that provision, because the statute of limitations to
challenge the provision located in the Agreement has run.

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Mannington argues that Kahn cannot use Ind. Code § 23-2-2.7-1(7) to challenge the
actual termination of the agreement, because only such a provision is unlawful, not the actual act
of termination. Mannington points out that Indiana Code § 23-2-2.7-2 lists unlawful acts and
practices, and termination of a franchise agreement without good cause is not found therein.
However, Kahn points to a line of cases for the proposition that the Act can be used not only to
challenge a provision of a franchise agreement that allows for unilateral termination of the
franchise agreement absent good cause, but to challenge the actual termination of such an
agreement absent good cause. See Cont’l Basketball Ass’n, Inc. v. Ellenstein Enter., 669 N.E.2d
134, 139 (Ind. 1996); Ray Skillman Oldsmobile & GMC Truck, Inc. v. Gen. Motors Corp., No.
1:05-cv-0204-DFH-WTL, 2006 WL 694561, *2 (S.D. Ind. March 14, 2006); Hubbard Auto Ctr.,
Inc. v. General Motors Corp., 422 F.Supp. 2d 999, 1002 (N.D. Ind. 2006).
In Continental Basketball, the Indiana Supreme Court stated that “the Practices Act
expressly provides for a cause of action against the franchisor in cases where a franchise
agreement contains a provision prohibited by the Practices Act, and/or where the franchise
agreement is terminated without good cause or not renewed without good cause.” Cont'l
Basketball Ass'n, Inc., 669 N.E.2d at 139 (emphasis added); see also Ray Skillman, 2006 WL
694561 at *2; Hubbard Auto Center, 422 F. Supp. 2d. at 1002. In Continental Basketball, the
Indiana Supreme Court suggests that a franchisee may maintain a separate cause of action for the
act of termination without good cause, which means that the cause of action would not accrue –
and thus the statute of limitations would not begin to run – until the termination of the
agreement, not upon its execution. Thus, Kahn’s amended Complaint asserts facts, plausible on
their face, upon which relief may be granted. The Court holds that Kahn’s proposed amended
Complaint overcomes the futility standard and hereby allows the amendments to Count I.

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B. Amendments to Count II
The proposed second count of Kahn’s Complaint alleges the same purported violation of
the Act as the original count did, specifically, unfair competition under Ind. Code § 23-2-2.72(4). The amendments to Count II seek to add factual material with regard to the claim of unfair
competition. Kahn argues the amendments simply bring the Complaint into conformity with
current knowledge obtained through discovery. Mannington argues these amendments are a way
to add a legal claim to Count II that was not there to begin with, and so the good cause
requirement has not been met due to prejudice to Mannington. In particular, Mannington views
some of the amendments to Count II as “shoehorning” the wrongful termination claim from
Count I into Count II under the assumption that the Count I wrongful termination claim was
found to not be cognizable. Moreover, Mannington argues, the amendments are futile because
the information can be used at trial and does not need to be included in the Complaint.
As discussed above, bringing a claim for wrongful termination of the franchise agreement
under the Act appears to be a cognizable one, and so Mannington’s “shoehorning” arguments as
to the amendments to Count II are moot. As to the remainder of the amendments to Count II,
Mannington argues they are unnecessary and not relevant to the claim. The Court fails to see
how this is so. The amendments assert factual information related to the alleged unfair
competition between Kahn and Mannington’s wholly-owned subsidiary, DNS. In order to show
good cause, Kahn need only show that the amendments are not prejudicial as to Mannington and
that they were diligent in amending the complaint. Cmty. Bank, 2010 WL 396351, at *1. There is
sufficient evidence that Kahn was diligent in bringing the amendments to Count II following its
discovery of the information, and Mannington fails to demonstrate it will be prejudiced by the
additional information found within the amendments. Thus, the amendments to Count II are

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allowed.
C.

Amendment to the Caption
Kahn also seeks to amend the caption of the complaint and other filings based upon

corporate restructuring of Irvin Kahn & Son, Inc. Specifically, Kahn seeks to remove IK Indy,
Inc. as a party, as it has been merged into Irvin Kahn & Son, Inc. and no longer exists as a
separate entity. Mannington does not challenge this amendment, and the Court finds it is proper
in order to comply with Rule 17(a).

VI. Conclusion
For the above mentioned reasons, Kahn’s Motion for Leave to Amend Complaint is
hereby GRANTED. The Clerk is directed to file the Amended Complaint, [Dkt. 68-1], as of the
date of this Order.
Any objections to the Magistrate Judge’s Order shall be filed with the Clerk in
accordance with 28 U.S.C. § 636(b)(1) and Fed. R. Civ. P. 72(a), and failure to file timely
objections within fourteen days after service shall constitute a waiver of subsequent review
absent a showing of good cause for such failure.
SO ORDERED.

Date: _____________
08/17/2012

Mark J. Dinsmore
United States Magistrate Judge
Southern District of Indiana

Distribution:
All ECF-registered counsel of record via email

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