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Slates v. Int'l House of Pancakes





APPEAL from the Circuit Court of Champaign County; the Hon. HAROLD L. JENSEN, Judge, presiding.


We deal here with a question of service of process upon a foreign corporation. And with subaltern inquiries of agency and franchises.

On February 15, 1979, a default judgment was entered against the defendant, International House of Pancakes, a California corporation (IHOP-Cal). On February 20, 1980, the trial court entered an order quashing the service of process upon the defendant, sustaining defendant's objections to the jurisdiction of the court to enter a default judgment and vacating the default order and written judgment. Plaintiff now appeals, asserting that service of process was properly made upon the defendant corporation.

We affirm. But first, a brief recitation of the facts.

Plaintiff commenced this action by filing a complaint on February 21, 1978. Count I of the complaint alleged that defendant negligently, through a waitress, spilled scalding water upon plaintiff's lap, thereby inflicting severe injuries. The second count asserted that the defendant negligently employed the waitress. Two days later, a deputy sheriff served a summons upon Randy Kurtz. The summons was issued for "International House of Pancakes, Inc., 308 East Green, Champaign, Illinois" (IHOP-Champaign).

Almost one year later — February 15, 1979 — the trial court entered a default judgment in favor of the plaintiff, the defendant having failed to appear. A jury trial, solely on the issue of damages, resulted in an award to the plaintiff of $90,000.

On March 16, 1979, a citation to discover assets was filed upon "International House of Pancakes, Inc., c/o C.T. Corporation Systems, Inc., 208 S. LaSalle Street, Chicago, Illinois 60604 registered agent."

Twelve days later, defendant filed a special and limited appearance to quash the return of service, object to jurisdiction and vacate the default judgment. The motion alleged that on the date of service, Randy Kurtz was an employee of Champaign Restaurants Limited (CRL) and not IHOP-Cal. The motion asserted that CRL was a "franchisee" of IHOP-Cal and that Kurtz was not paid, supervised, controlled or directed by defendant. IHOP-Cal claimed it was not aware of the suit until March 20, 1979, when the citation was forwarded from its registered agent.

Discovery depositions were taken, affidavits were submitted and the parties briefed the issues.

The affidavit of Donald Goodwin, President of CRL, an Illinois corporation, stated that on February 23, 1978, IHOP-Champaign was owned and operated by CRL pursuant to a franchise agreement. Goodwin further stated that on that date, Kurtz was an employee of CRL and not IHOP-Cal. CRL had never been an agent, partner, or joint venturer of IHOP-Cal.

William Richards, Regional Operations Director of IHOP-Cal, also stated that Kurtz was not an employee or agent of IHOP-Cal and was not authorized to accept service of process on behalf of defendant. He stated that defendant did not employ, direct the activities of, or pay the salary of Kurtz. Defendant was in the business of selling franchises for the operation of restaurants. Defendant has never owned or operated the restaurant in question, and IHOP-Cal's only relationship to IHOP-Champaign has been as a licensed owner of the name, International House of Pancakes, and certain trademarks and trade secrets, sublessor of the premises where the restaurant is located, and lessor of certain equipment used in the restaurant.

In his deposition, Richards stated that franchisees were given operator manuals as guides to the IHOP system but legally IHOP-Cal had no grounds to enforce them. He stated that franchisees take a six-week course which includes such things as cost control, food inventory and ordering, learning how to prepare food, backup procedures, etc.

Richards also stated that a coordinator would inspect the premises, the exterior, the lighting, the condition of the property, observe how the food came out of the kitchen area, watch the waitresses carry dishes, etc. The franchisor very seldom tried to legally enforce the franchise agreement because "every time we go to court against a franchisee we predominantly lose." The only recent litigation has been in the area of nonpayment of rent. Richards had heard of litigation in Los Angeles attempting to have vending machines removed from IHOP's, but IHOP-Cal lost the case.

Richards stated that on his visits to the franchises, he would only talk to a manager if he had specific permission to do so from the franchisee. Richards stated that if he ran across a problem which he felt was serious and repeatedly occurred, he would ask an operations director or the regional director to view the problem. Richards stated that each franchise was supposed to have its own insurance and that normally the franchisor's legal department did not defend the franchise or give any instructions concerning pending law suits. Richards stated that the franchisees were never instructed to inform the defendant corporation in case of an accident or claim and that the defendant was not aware that plaintiff had been injured prior to the time of trial.

On cross-examination, Richards stated that in February of 1978 it was a policy of IHOP-Cal to place stickers in prominent places in the franchise store indicating the store was operated by a franchisee and that he was not an agent of the defendant corporation. Richards further stated that IHOP-Cal did not have the right to hire or fire employees of CRL. To the best of the witness' knowledge, defendant did not have any interest in CRL nor could it dictate the prices charged by the local franchisee.

David Holmes, associate general counsel for IHOP-Cal, stated in his affidavit that he was responsible for supervision of all litigation involving IHOP-Cal. He stated that he was not aware of the existence of the instant suit until March 20, 1979, when he received information from the registered agent that the company had been served a citation.

Randy Kurtz stated that he was not served on February 23, 1978, with the complaint and summons in the instant case nor has he ever been served with such complaint and summons. The complaint and summons were not left with any employee under him. He stated that his first knowledge of the instant suit was in early 1979 when he was informed of the default judgment. If he had received the complaint and summons, it would have been his normal operating procedure to refuse to accept service on behalf of defendant corporation and to have immediately contacted his employer, Donald Goodwin. He stated that on February 23, 1978, he was supervised, directed and controlled by Donald Goodwin of CRL and was not supervised, directed or controlled by the defendant corporation. He stated he was not an employee or agent of IHOP-Cal.

Jay Streid, a deputy sheriff for Champaign County, stated in his affidavit that on February 23, 1978, he took a summons with the attached complaint to International House of Pancakes in Urbana, Illinois. He stated that a white male identified himself as Randy Kurtz, the manager, and Streid informed him that the summons and complaint were to be served upon International House of Pancakes. Streid stated that Kurtz then took the summons and complaint, indicating that he would ...

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