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BONFIELD v. AAMCO TRANSMISSIONS

July 5, 1989

EMMETT BONFIELD, Plaintiff,
v.
AAMCO TRANSMISSIONS, INC., Defendant



The opinion of the court was delivered by: SHADUR

 MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 This is a sequel to the "Opinion" (708 F. Supp. 867 (N.D.Il. 1989) *fn1" ) issued in this case just four months ago, disposing of all but two of Bonfield's claims. After issuance of the Opinion, Bonfield filed a two-count First Amended Complaint (the "Complaint") asserting:

 
1. in Count I that omissions by AAMCO violated the Franchise Act, and
 
2. in Count II that AAMCO breached its duty of good faith and fair dealing:
 
(a) by omitting to provide material information to Bonfield before he became a franchisee and
 
(b) by unilaterally changing its procedures after he became a franchisee.

 Once again AAMCO has responded with a multi-pronged motion, seeking:

 
1. to obtain summary judgment on Count I under Rule 56;
 
2. to dismiss the portion of Count II relating to alleged omissions under Rule 12(b)(6); and
 
3. to strike Bonfield's jury demand.

 For the reasons stated in this memorandum opinion and order, all three of AAMCO's motions are granted.

 Disposition of AAMCO's Motions2

 1. Count I

 While Opinion at 875-78 dismissed Bonfield's Franchise Act claim to the extent it was based on AAMCO's alleged misrepresentations, id. at 878-80 reserved ruling on the aspect of that claim that was based on AAMCO's omissions. That had to be done because neither party had adequately addressed the timing issue: What event or date ends the franchisor's disclosure obligation under the Franchise Act?

 In response to the implied invitation to speak to that issue, AAMCO Mem. 4-6 now says that occurred when the parties entered into a binding franchise agreement -- either September 4 or September 8, 1986. AAMCO then says it is entitled to summary judgment because it did not receive information indicating investigations by the various state Attorneys General until after both those dates.

 Bonfield does not dispute the notion that the relevant event for disclosure purposes is when the parties had a binding agreement. But his position is that the Agreement here was contingent on Bankruptcy Court approval. Though n.6 reflects that position is factually inaccurate, what is clear is that such approval was not obtained until November 17, 1986 (or November 3, 1986 at the earliest). Bonfield would be happy if either date marked the end of AAMCO's disclosure obligation, because by then AAMCO certainly knew something was afoot with at least some Attorneys General.

 Bonfield also claims that new evidence (not presented during the first motion) shows AAMCO really knew of the various investigations well before September 4. If so, AAMCO cannot obtain summary judgment even on its own view of the date on which Bonfield became bound.

 A. When Did AAMCO's Disclosure Obligation End ?

 Section 702(2)(a) says the Franchise Act is intended to "provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered for sale" (accord, Vitkauskas v. State Farm Mutual Automobile Insurance Co., 157 Ill. App. 3d 317, 325, 509 N.E.2d 1385, 1390, 109 Ill. Dec. 373 (3d Dist. 1987)). That goal -- assuring a franchisee's intelligent investment decision -- led Opinion at 880 to this unexceptionable conclusion:

 
Once that decision has been made, no statutory purpose is served by requiring a continuing disclosure obligation.

 But that really marked the beginning rather than the end of the analysis. Opinion at 880 identified the possibility that, unlike the context of a securities sale, the franchise situation -- with its several conditions to be met before the franchisee can begin operations -- might implicate an ongoing investment decision (and hence an ongoing disclosure obligation). That of course was intended to convey the idea that any conditions requiring satisfaction before Bonfield's commitment became ironclad might give Bonfield a potential "out" if any material nondisclosure took place before the last of those conditions was met.

 In AAMCO's view the issue is a simple one: All that need be looked at is the date of Bonfield's execution of the Agreement. First, the Franchise Act itself suggests that such execution ends the franchisor's disclosure obligation (see Section 704(2) and the discussion in Opinion at 879). Second, each of the only two cases that have been identified as analyzing similar franchise statutes has viewed that event as the critical one for disclosure purposes (see, e.g., Avery v. Solargizer International, Inc., 427 N.W.2d 675, 682 (Minn.Ct.App. 1988) (disclosure violations would have occurred (if at all) when franchise agreements signed); Fantastic Enterprises, Inc. v. S.M.R. Enterprises, Inc., 143 Misc. 2d 124, 1988 N.Y. Misc. LEXIS 838, at 10, 540 N.Y.S.2d 131 (Sup. Ct. 1988) (right to relief accrued when plaintiffs entered into franchise agreement)). *fn3"

 On September 4, 1986 Bonfield executed the Agreement, but it was then conditioned on approval by AAMCO following the Board of Review hearing -- in conventional offer-and-acceptance terms, Bonfield might perhaps have gotten out of the deal had he withdrawn his offer before it was accepted in that fashion. But that was certainly no longer true once AAMCO approved Bonfield by its September 8 letter. At that point a binding executed agreement existed, and from AAMCO's perspective that is the outside date on which its disclosure obligation ended. *fn4"

 Bonfield Mem. [5] *fn5" responds that because his purchase was contingent on Bankruptcy Court approval, *fn6" the Agreement was not final and AAMCO's disclosure obligation therefore did not end until that happened. But that position is countered not only by its misstatement of the legal situation as to the need for such approval (see n.6) and by the already-identified franchise cases holding the critical disclosure date to be the execution date of the agreement, but also by numerous cases in the related securities law field *fn7" -- each holding that the relevant event for determining materiality is when the plaintiff committed himself to the transaction, even if there then remained conditions subsequent to the contract (see, e.g., Michaels v. Michaels, 767 F.2d 1185, 1195 (7th Cir. 1985) (materiality determined on the basis of the date plaintiff committed himself to selling); *fn8" Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 890-91 (2d Cir. 1972) (materiality determined on date insider committed himself to purchase, not on later formal closing date when delivery and payment were completed)). And of course the securities law materiality analysis is particularly analogous here (Opinion at 880 n.12).

 In sum, both parties were obligated to their deal by September 8. At that point a binding agreement existed -- an agreement fixing the parties' obligations. AAMCO was not unilaterally free to reject Bonfield after that date, in the same way that an offeror remains free to withdraw its offer before it has been accepted. *fn9" On September 8 Bonfield was assured of an AAMCO franchise so long as he performed whatever subsequent conditions remained. On that date his investment decision, made a few days earlier, became irrevocable by him. And that is therefore the date on which AAMCO's disclosure obligation ended.

 B. Did AAMCO Know of Attorney General's Investigations Before September 8 ?

 As at the earlier stage of this case, AAMCO urges the claimed omissions in disclosure are not actionable because AAMCO had no knowledge of any Attorney General's investigation before the critical disclosure date. Bonfield now responds that AAMCO had knowledge of the contemplated actions by the Attorneys General as early as April 1986. He cites to interrogatory answers by AAMCO in a related lawsuit, which reveal (Bonfield Mem.Ex.A, at 7-8):

 
1. AAMCO met with Texas Assistant Attorney General Stephen Gardner ("Gardner") on April 15, 1986. Gardner made an informal request for ...

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