The opinion of the court was delivered by: SHADUR
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE
Emmett Bonfield ("Bonfield") has sued AAMCO Transmissions, Inc. ("AAMCO"), asserting AAMCO had wronged him in a number of ways in connection with his purchase of an AAMCO franchise:
1. by violating the Illinois Franchise Disclosure Act ("Franchise Act"), Ill. Rev. Stat. ch. 121-1/2, para. 721 (1985);
2. by violating the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), Section 270a;
3. by breaching its fiduciary duty and its implied duty of good faith and fair dealing, both those duties assertedly being created by Illinois case law, and the implied covenant of good faith imposed by the Uniform Commercial Code ("UCC");
4. by imposing coercion, duress and operational control on Bonfield;
5. by committing common law fraud; and
In response AAMCO has tendered a multi-pronged motion, seeking:
2. to obtain summary judgment under Rule 56 on the Franchise Act claim;
3. to dismiss all remaining claims under Rule 12(b)(6); and
4. to strike Bonfield's claim for punitive damages.
For the reasons stated in this memorandum opinion and order, AAMCO's several motions are resolved in these terms:
1. Its Rule 9(b) motion is granted, though some of the allegations might be recast in a way that would withstand such a motion. That potential, however, is mooted by the remaining analysis of Bonfield's fraud-based claim.
2. Its summary judgment motion on the Count I Franchise Act claim is granted to the extent that claim is predicated on any purported AAMCO misrepresentation, while ruling is reserved to the extent the claim arises out of AAMCO's alleged omission. In any event, however, Bonfield cannot obtain rescission based on his Franchise Act claim.
3. Its Rule 12(b)(6) motion to dismiss the Count II Consumer Fraud Act claim is granted.
4. Its motion to dismiss the Count III claim for breach of fiduciary duty is granted, while its motion to dismiss the same Count's claim for breach of the implied duty of good faith and fair dealing is denied.
5. Its motion to dismiss the Count IV economic duress claim is granted.
6. Its motion to dismiss Count V's common law fraud claim is also granted.
7. Its motion to dismiss the Count VI negligence claim is granted as well.
8. Its motion to strike the punitive damages claims is granted.
Those motions will be dealt with in turn after the factual framework of Bonfield's Complaint is set out.
Both the following factual statement and the case itself are potentially complicated by the dual nature of AAMCO's motions: for summary judgment and for dismissal of Bonfield's Complaint for failure to state claims. That situation calls for a somewhat extended prefatory background, which has occasioned this textual treatment in place of the explanatory procedural footnote this Court customarily includes at the beginning of the "Facts" section of each of its opinions.
As for the summary judgment phase of AAMCO's motion, familiar Rule 56 principles impose on the movant the burden of establishing the lack of a genuine issue of material fact ( Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)). For that purpose this Court must draw from the parties' evidentiary submissions all "reasonable inferences, not every conceivable inference" in the light most favorable to the nonmovant -- in this case Bonfield ( DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir. 1987)).
As for the other facet of AAMCO's motion, Rule 12(b)(6) principles require this Court to accept as true all of Bonfield's well-pleaded factual allegations, again drawing all reasonable inferences in his favor ( Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31, 34 (7th Cir. 1987)(per curiam)). For that purpose matters outside the Complaint may not be considered, though where such matters have been tendered by the plaintiff the last sentence of Rule 12(b) gives the court the option to convert the defendant's motion to one for summary judgment under Rule 56 (thus taking the evidentiary submissions into account).
Under the circumstances this section will set out the facts in the Rule 56 mode, rather than limiting itself to the Complaint's allegations. When this opinion turns to consideration of the Rule 12(b)(6) motion, however, only the pleading allegations will be considered (and any further explanation of the factual matrix for the ruling will be made at that time). With that understanding, it is time to address the facts.
On July 9, 1986 Marshall provided Bonfield with franchise information on AAMCO's Mid-West Operations Group (id. at 2). Marshall told Bonfield about an available AAMCO franchise in Wheaton, Illinois (id.; Bonfield Mem. Ex. A para. 5). At that time the Wheaton franchisee was in bankruptcy.
Bonfield claims that in discussing the Wheaton center, Marshall told him the financial information on that location was inaccurate (Bonfield Mem. Ex. A para. 6). Marshall said the Wheaton center was unsuccessful because one of the owners had been cheating his partner -- "the former owner was pocketing $ 1,000 per week" (id. paras. 9-10). Marshall said the AAMCO franchise would "do" $ 450,000 in business per year (id. para. 11). Finally, Marshall also represented that (1) AAMCO enjoyed a good reputation in the industry, (2) it was noted for excellence in the transmission field, (3) its name carried valuable good will throughout the nation and (4) Bonfield would have a good probability of financial success (id. para. 4).
Based on those representations Bonfield began the process of obtaining an AAMCO franchise for the Wheaton center. During that process Bonfield was told he would have to assume responsibility for honoring warranties issued by the former owner of the Wheaton Center as well as those of other AAMCO franchisees. AAMCO and its franchisees refer to the honoring of those warranties as "come-backs" (id. para. 14c).
Bonfield tried to quantify his potential liability for the "come-backs." AAMCO attorney Joel Rosen ("Rosen"), during the final stages of Bonfield's acquisition, represented that $ 5,000 would "be more than enough money" to cover those warranties (id. para. 16). AAMCO Manager of Franchise Administration Max Cades ("Cades") also said AAMCO "recommended" the $ 5,000 figure (Bonfield Mem. Ex. H, at 50-51).
On September 2 Bonfield began AAMCO's five-week Franchise Training School in Bala Cynwyd, Pennsylvania. On September 4 Bonfield executed a Franchise Agreement (the "Agreement") with AAMCO just before participating in an AAMCO "Board of Review" hearing. AAMCO always conducts those hearings to evaluate potential franchisees. As Cades explained to Bonfield, the awarding of a franchise is conditional upon Board approval (id. at 6).
As was its regular practice, AAMCO tape recorded Bonfield's review hearing. Here is what the transcript reflects as to the scope of AAMCO's representations (Tr. 4):
CADES: Now, our purpose as best we can is to determine whether any applicant meets the requirements for a franchisee as we see it. Our concern is also whether or not we feel that person has a chance of being successful as an AAMCO operator. In turn, we want to make certain the provisions of the Franchise Agreement are understood. It is a contract. It means exactly what it says and Emmett, more then [sic] anything else, we want to insure that nobody, Walter Marshall or anybody else you discussed AAMCO with, that nobody has made any promises, commitments, representations or even statements to you that are not a fact. So, let me tell you how we're going to make certain of this. If it's not in the Franchise Agreement that you've signed dated today September 4, 1986 or if we don't cover it for you at this meeting this afternoon, either way, that would have no validity. Understood?
CADES: Okay, you hear me and you understand?
That oral caveat specifically reiterated what Agreement para. 23.1 (the conventional integration provision) had set out:
23.1 Entire Agreement. This Agreement consisting of 11 pages and attachments contains the entire agreement between the parties concerning Franchisee's AAMCO franchise; no promises, inducements or representations not contained in this Agreement shall be of any force or effect, or binding on the parties. Modifications of this Agreement must be in writing and signed by AAMCO.
Bonfield seeks to expand on the scope of AAMCO's actionable representations by these statements in his affidavit tendered as Ex. A to his memorandum on the current motion (Aff. paras. 24-26):
24. The signing of the AAMCO Franchise Agreement and the discussions leading up to it were not recorded by AAMCO.
25. These conversations as well as other lengthy discussions took place before AAMCO representatives began recording the last portion of the meeting. I have reviewed a copy of what AAMCO alleges to be a transcript of the September 4 meeting. Such Board of Review Transcript is not a true and correct copy of the entire meeting. Numerous conversations were had before AAMCO began recording the remainder of the meeting.
26. During the unrecorded portion of the meeting, AAMCO's Walter Marshall again made specific representations that the Wheaton AAMCO center would make $ 450,000.00 per year. I executed the Franchise Agreement in reliance upon that representation. Only after I had executed the Franchise Agreement did AAMCO begin to record the remainder of the meeting.
Then Bonfield goes on (Aff. paras. 27-31) to characterize certain aspects of what occurred during the recorded portion of the meeting. Because the transcript itself has been tendered to this Court (AAMCO Ex. B), it need not (and does not) accept Bonfield's mischaracterizations of the proceedings.
This opinion will treat with the relevant facts in the course of its substantive discussion on the law.
Events moved quickly after the Board of Review hearing. Cades notified Bonfield September 8 that he had been approved by the Board of Review "subject to completion of the AAMCO Training School and compliance with the other stated requirements" (Bonfield Mem. Ex. B). On September 30 the Texas Attorney General first advised AAMCO of the possibility of filing of a "Deceptive Trade Practices action and/or settlement of this office's claims" based on prior consumer complaints against AAMCO franchisees (Bonfield Mem. Ex. D). Bonfield completed his training school October 2.
Meanwhile Bonfield had moved ahead on seeking Bankruptcy Court approval of his purchase of the Wheaton center. That approval was given November 3, and Bonfield closed the deal November 17 and began operating the AAMCO franchise in Wheaton.
AAMCO continued its discussions with the Attorneys General, meeting on November 18 in New York City, December 8-9 in Boston and December 29-30 in Madison, Wisconsin (Bonfield Mem. Ex. E, at ). AAMCO ultimately entered into "stipulated final judgments" with the Attorneys General of 14 states (Illinois was not among them) on February 18, 1987. Because no actions had previously been filed in any court against AAMCO, the settlement took the form of the simultaneous filing of complaints and entry of the stipulated final judgments. Thus the cases were filed and settled the same day (AAMCO Mem. Ex. A para. 5).
Cades formally notified Bonfield March 3, 1987 that he had completed all of AAMCO's requirements. Cades forwarded an executed copy of the Agreement (Bonfield Mem. Ex. C) to Bonfield.
Bonfield's first complaint against AAMCO was filed in this District Court January 14, 1988. On January 19 this Court dismissed the action sua sponte for lack of subject matter jurisdiction, but it gave Bonfield until January 29 to replead. Bonfield chose not to file an amended complaint. Instead he later filed this new action August 15, 1988.
AAMCO Mem. 12-13 asserts Bonfield did not plead fraud with the particularity required by Rule 9(b). Bonfield has alleged fraudulent misrepresentation (or more accurately, both misrepresentations and omissions of material fact) in three of his claims -- both those under the Franchise Act and the Consumer Fraud Act and the separate charge of common law fraud (Counts I, II and V):
1. Complaint para. 10 says AAMCO expressly represented Bonfield's expenses in honoring the "come-backs" would not exceed $ 5,000. Later Complaint para. 24 says Bonfield has actually incurred expenses of $ 25,000-$ 35,000.
2. Complaint para. 25 says AAMCO failed to reveal the claims by the various Attorneys General.
3. Complaint para. 7 says AAMCO made representations as to:
AAMCO's good reputation in the industry, its excellence in the transmission field, its valuable good will and Bonfield's probabilities for financial success as an owner of AAMCO's franchises.
Oddly enough, though Bonfield labels each of those matters as "material facts" (Complaint para. 26), he does not say anywhere that the alleged "come-backs" representation was false when it was made, and he does not charge in his first two fraud-based claims (Counts I and II) that the representations listed in Complaint para. 7 were false -- that allegation comes only in Count V para. 29, as part of the common law fraud claim. Those omissions are obviously the result of careless errors, readily curable by repleading. In the interest of expedition, then, this opinion will treat each of the fraud claims as though they had alleged the falsity of the matters involved.
This Court has often addressed the requirements imposed by Rule 9(b)(see, e.g., Flournoy v. Peyson, 701 F. Supp. 1370, 1374, 1988 U.S. Dist. LEXIS 13882, at 6-8 (N.D. Ill. 1988) for an extended discussion of the "particularity" requirement). In Gutfreund v. Christoph, 658 F. Supp. 1378, 1384 (N.D. Ill. 1987)
this Court pointed out that the Rule calls not for particularity as to legal theories but rather as to the "circumstances constituting fraud," a concept fleshed out in the following terms in 5 Wright & Miller, Federal Practice and Procedure: Civil § 1297, at 403 (1969):
matters such as the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.
In the same securities fraud context, this Court has also said ( Caliber Partners, Ltd. v. Affeld, 583 F. Supp. 1308, 1311 (N.D. Ill. 1984)(citations omitted)):
To plead a cause of action for fraud, plaintiffs need not allege evidentiary details that will be used to support the claim at a later date . . . . They need only set forth the basic outline of the scheme, who made what misrepresentations and the general time and place of such misrepresentations.
Certainly the application of those standards to the Complaint para. 7 allegation as to "probabilities for financial success" yields only one possible conclusion: It fails the test. Even if Bonfield were given the benefit of the post-Complaint evidentiary submissions (something to which he is not entitled, see Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984)) in judging the adequacy of his Complaint, he has not done the job. If the evidentiary submission is looked at to any extent, it must be viewed in its totality. There is no way in which the discussion at the Board of Review meeting (which it will be recalled Bonfield was expressly told was all he could rely on) could be characterized as a representation regarding his probable financial success as a franchisee: Quite to the contrary, the entire thrust of the discussion was to cast doubt on Bonfield's independently-arrived-at projections (both the $ 450,000 gross volume and any projection of net income) and to probe as to his basis for having made them. Hence the Complaint para. 7 allegation in that respect must be stricken under Rule 9(b) (cf. Mutuelle Generale Francaise Vie v. Life Insurance Co. of Pennsylvania, 688 F. Supp. 386, 393 (N.D. Ill. 1988)).
As to those matters, however, the possibility seems to exist that a particularization of the Complaint via the matters Bonfield has tendered by evidentiary submissions on the current motion might provide the information necessary to satisfy the Rule. For instance, Bonfield says while he was "finalizing [sic] the acquisition of the Wheaton AAMCO center," Rosen told him and his lawyer that "$ 5,000 would 'be more than enough money' to cover the outstanding warranties" -- the "come-backs" (Bonfield Mem. Ex. A para. 16).
Finally, Bonfield's Complaint para. 25 allegation is really not subject to Rule 9(b) analysis. Like Sherlock Holmes' dog that did not bark in the night, an actionable omission obviously cannot be particularized as to "the time, place, and contents of the false representations" or "the identity of the person making the misrepresentation." It really does not matter, then, that Bonfield's evidentiary submissions (though not his Complaint) set out the circumstances surrounding the alleged omission regarding the investigations by the Attorneys General -- both the dates and the locations of key events in AAMCO's negotiations with the various Attorneys General.
In sum, part of Bonfield's fraud-based allegations could not survive Rule 9(b) scrutiny even on the assumption they might be beefed up by his current evidentiary submissions, while the remaining allegations are flawed in Rule 9(b) terms but might be salvaged if the particularity provided by those submissions were inserted into the Complaint. As the following sections of this opinion reflect, however, the potential viability of Bonfield's ...