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Libby-broadway Drive-in v. Mcdonald's Sys.





APPEAL from the Circuit Court of Cook County; the Hon. WALTER J. KOWALSKI, Judge, presiding.


Rehearing denied June 27, 1979.

Plaintiffs appeal from an order of the circuit court of Cook County granting defendants' motion for summary judgment on both counts of plaintiffs' third amended complaint. The trial court found the alleged oral agreement which formed the basis of count I to be unenforceable as a matter of law. As to count II, the court found that defendants did not grant a franchise to a third party to operate a restaurant within the exclusive territory granted to plaintiffs.

The parties are as follows: plaintiffs are Libby-Broadway Drive-In, Inc., and four individuals who are or were formerly shareholders in several corporations, including Libby-Broadway, licensed to operate franchises for defendant McDonald's. Defendants are McDonald's System, Inc., which is the franchisor under which plaintiffs, as assignees, conducted their business, and Franchise Realty Interstate Company, which is the owner and lessor of the property and store leased by plaintiffs for use in their business. Defendants hereafter will be referred to collectively as "McDonald's."

In July 1967, plaintiffs purchased an assignment of the franchises for two existing McDonald's restaurants in Cleveland, Ohio. One restaurant was located at Libby and Broadway Avenues and the other at 8230 Euclid Avenue. In October 1968, plaintiffs were given an option to operate a franchise to be developed at 107th and Euclid Avenue. The Euclid locations were in primarily black neighborhoods.

In 1969 various activist groups began to exert pressure upon McDonald's to make franchises available to black owners. They also demanded that existing franchises located in black areas be sold to black businesses or individuals. The demands were accompanied by threats of violence and arson. In July 1969, picketing and boycotts began at plaintiffs' restaurant at 8230 Euclid. As a result, business dropped off sharply and at times the restaurant had to be closed. McDonald's representatives recommended to plaintiffs that they release their option on the one Euclid location and sell their other Euclid restaurant to a qualified black buyer. On July 23, 1969, plaintiffs released the option in question. In March 1970, plaintiffs sold the other Euclid restaurant to a black franchisee for $292,000 plus a $15,000 security deposit. Plaintiffs had paid $324,000 for the restaurant in 1967.

In count I of their third amended complaint plaintiffs alleged that, during the summer of 1969, in exchange for the relinquishment of their option on the one restaurant and for the sale of the other, agents of McDonald's orally promised that plaintiffs would be granted two franchises "of comparable location, size, and profit." Plaintiffs further charged that their actions in response were premised on the belief that this commitment would be fulfilled. The complaint recited that this agreement was never put in writing and that plaintiffs have never obtained substitute franchises. Plaintiff sought damages in the sum of $5,000,000.

Count II alleged that as part of the franchise agreement, McDonald's covenanted that it would not grant a franchise to anyone to operate a similar establishment within the exclusive territory granted to plaintiffs. The area was described as "bound * * * on the north by the south side of Miles Avenue; on the west and south by Turney Road; on the east by Warrensville Center Road." Plaintiffs alleged that on December 7, 1976, McDonald's granted a franchise located on the west side of Turney Road to a third party and that the franchise was within their exclusive territory. Plaintiffs sought damages in the amount of $500,000.

Defendants' answer denied the material allegations of both counts. On May 29, 1978, the trial court granted defendants' motion for summary judgment on both counts of the complaint.

Portions of depositions were made part of the record. Plaintiff, Leonard Minck, testified that in 1969, Edward Bood, an officer and franchise director of McDonald's, suggested that plaintiffs give up the option and sell the other restaurant. Minck was not present on July 23 when two of his partners met with Bood and agreed to give up the option. Minck was informed, however, by one partner, Abraham Grossman, that Bood stated it was not McDonald's policy to put anything in writing concerning a substitute unit, but that if Minck and his partners would cooperate, McDonald's would "take care" of them. Minck stated that in August 1969 during the picketing and boycott, a meeting was held at McDonald's offices in Chicago. Fred Turner, McDonald's president, and other McDonald's personnel were present, as well as Minck, Grossman, and two other partners, Solomon Hoit and Allen Kite. The sale of the restaurant was discussed. Minck and his partners requested that McDonald's make available substitute franchises to them. Minck stated that Turner told them, "If you cooperate and if you play ball with us, we will play ball with you."

Hoit testified at his deposition to a substantially similar response from Turner at that meeting. Seymour Terrell, an attorney, was also at the Chicago meeting. He stated that the subject of substitute units for plaintiffs was discussed. Turner said, in reply to plaintiffs' requests, "`We'll see to it that nobody loses' or words to that effect." Terrell, because of the violent situation in Cleveland, urged plaintiffs to sell the Euclid restaurant.

Grossman, who performed accounting services for plaintiffs, died during the pendency of this litigation. His time sheets reflect an entry for the August meeting in Chicago. In part, the entry reads: "Turner said if we played ball — he would see that we get another unit to replace 8230."

At deposition Fred Turner stated that because of racial tensions in Cleveland, McDonald's recommended that white owners consider selling to qualified black buyers. As to the Chicago meeting, he recalled that plaintiffs were told McDonald's was not prepared to make a commitment to give them replacement units. Such a promise had been made to certain other franchisees in Cleveland. Turner stated that he did not specifically remember, but that he could have said, "If you play ball with us, we will play ball with you."

Edward Bood testified that although McDonald's recommended that white franchisees sell their units, such a sale could not be compelled by McDonald's. The purchase price would be negotiated between the owner-operator and a potential buyer. McDonald's approval of a prospective franchisee would be necessary. Bood did not know about any specific ...

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