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KNAUZ v. TOYOTA MOTOR SALES

August 29, 1989

HENRY WILLIAM KNAUZ, Plaintiff,
v.
TOYOTA MOTOR SALES, USA, INC., Defendant


John A. Nordberg, United States District Judge.


The opinion of the court was delivered by: NORDBERG

JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE.

 I. FACTS

 Because this issue is put to the Court by way of Fed. R. Civ. P. 12(b)(6), the well-pleaded factual allegations of the complaint are deemed true and will be stated as though they were. See generally Strauss v. City of Chicago, 760 F.2d 765, 767 (7th Cir. 1985). Henry W. Knauz is a motor vehicle dealer *fn2" who applied to Toyota Motor Sales, USA, Inc. ("TMS") to become a dealer of the Lexus line of automobiles, a new TMS brand to be distributed beginning in late 1989. Knauz did not previously deal in TMS products.

 By a letter dated April 29, 1988, and accepted by Knauz seven days later, TMS stated its intent to award Knauz (through a close corporation) a Lexus dealership provided that he fulfilled a number of conditions. One condition was for the submission of a detailed set of building plans. The parties twice agreed to extend the deadline for submission of the plans, which Knauz eventually turned in by the extended deadline of August 8, 1988. Although the plans fully met TMS's stated criteria, TMS falsely claimed that the plans were insufficient, and rescinded the letter of intent as stated in a letter dated August 15, 1988. TMS thus breached the terms of the letter of intent, Knauz claims.

 Similarly, Knauz accuses TMS of acting arbitrarily and in bad faith by establishing new building plan guidelines that were not in existence at the time the letter of intent was signed; insisting upon retroactive compliance with the guidelines by some prospective franchisees, such as Knauz, while exempting others from full compliance with the revised guidelines; and otherwise inconsistently requiring full compliance with the dealer requirements by some dealers but not others.

 Plaintiff subsequently brought this diversity action pursuant to 28 U.S.C. § 1332, *fn3" alleging a breach of contract (Count I) and a violation of IMVFA § 4, Ill. Rev. Stat. ch. 121 1/2, para. 754 (Count II). TMS then moved to dismiss Count II.

 II. LAW

 Section 4(a) of the IMVFA declares unlawful a variety of "unfair methods of competition and unfair and deceptive practices" set forth in the remainder of § 4. Knauz asserts that TMS's actions violate § 4(b), which states:

 
It shall be deemed a violation for any manufacturer, factory branch, factory representative, distributor or wholesaler, distributor branch, distributor representative or motor vehicle dealer to engage in any action with respect to a franchise which is arbitrary, in bad faith or unconscionable and which causes damage to any of the parties or to the public.

 Ill. Rev. Stat. ch. 121 1/2, para. 754(b).

 Although TMS does not contest that it is a manufacturer or distributor as defined by IMVFA § 2(g), Ill. Rev. Stat. ch. 121 1/2, para. 752(g), it contends that because Knauz has never been a dealer for TMS, he cannot invoke the IMVFA. The argument is that § 4(b), by prohibiting acts "with respect to a franchise," requires an action taken with respect to an existing franchise, as defined by IMVFA § 2(i), Ill. Rev. Stat. ch. 121 1/2, para. 752(i). Because the letter of intent did not create a franchise, Knauz's IMVFA claim should fall. TMS purports to find additional support for its argument in IMVFA § 8, Ill. Rev. Stat. ch. 121 1/2, para. 758, defining the agreements covered by the Act. TMS concludes that Knauz is nothing more than a "dealer applicant" with respect to TMS, and thus falls outside the IMVFA's protection.

 Knauz counters that TMS has ignored three sections of the IMVFA: (1) § 13, Ill. Rev. Stat. ch. 121 1/2, para. 763, which allows "franchisees and motor vehicle dealers" to bring private actions for violations of the Act; (2) § 2(h), Ill. Rev. Stat. ch. 121 1/2, para. 752(h), defining "motor vehicle dealer" as a person who sells new or used motor vehicles in the ordinary course of business; and (3) § 2(k), defining "franchisee" to include "motor vehicle dealer[s] to whom a franchise is offered or granted." Knauz argues that he is both ...


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