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KNAUZ v. TOYOTA MOTOR SALES

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


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

MEMORANDUM OPINION AND ORDER

JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE.

 Before the Court is a question of first impression: *fn1" Whether the Illinois Motor Vehicle Franchise Act ("IMVFA") may be invoked by a dealer whose hopes for a new franchise were thwarted when the franchisor revoked a letter of intent setting forth conditions, which if met, may have resulted in the award of a franchise. The Court holds that on the facts pleaded in the complaint the dealer may not.

 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 Although the plans fully met TMS's stated criteria, TMS falsely claimed that the plans were insufficient, and rescinded the letter of intent as stated in a letter dated August 15, 1988.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 a motor vehicle dealer and, as offeree of a franchise, a franchisee. Either status gives him a right to sue for violations of the Act.

 The Court begins its analysis with § 13, which creates private rights of action under the IMVFA. In his memorandum to the Court, Knauz quotes the first sentence of this statute as follows: "Any franchisee or motor vehicle dealer who suffers any loss of money or property . . . may bring an action for damages. (Emphasis added)[.]" Memorandum in Response, at 2. However, the first sentence of § 13 reads in full:

 

Any franchisee or motor vehicle dealer who suffers any loss of money or property, real or personal, as a result of the use or employment by a manufacturer, wholesaler, distributor, distributor branch or division, factory branch or division, wholesale branch or division, or any agent, servant or employee thereof, of an unfair method of competition or an unfair or deceptive act or practice declared unlawful by this Act may bring an action for damages and equitable relief, including injunctive relief.

 As the language highlighted by the Court indicates, § 13 ties a private cause of action to a specific "unfair or deceptive act or practice" that the IMVFA prohibits and further limits enforcement of the Act to "any franchisee or motor vehicle dealer." In this case, the plaintiff has alleged a violation of § 4(b), which the Court previously set out in full. In relevant part, § 4(b) forbids a "manufacturer" or "distributor" from taking an arbitrary, bad faith or unconscionable action "with respect to a franchise" that causes damage "to any of the parties or to the public."

 Whether Knauz has a claim under § 4(b) therefore turns on the meaning of "motor vehicle dealer," "franchise" and "franchisee." Section 2 gives these definitions:

 

(h) "Motor vehicle dealer", any person who, in the ordinary course of business, is engaged in the business of selling new or used motor vehicles to consumers or other end users.

 

(i) "Franchise", an oral or written arrangement for a definite or indefinite period in which a manufacturer, distributor or wholesaler grants to a motor vehicle dealer a license to use a trade name, service mark, or related characteristic, and in which there is a community of interest in the marketing of motor vehicles or services related thereto at wholesale, retail, leasing or otherwise . . . .

 

(k) "Franchisee", a motor vehicle dealer to whom a franchise is offered or granted.

 The § 4(b) claim stated by Knauz requires as one of its elements that a wrongful action be taken with respect to a "franchise." The statutory definition of franchise contemplates an existing "oral or written arrangement for a definite or indefinite period" with "a motor vehicle dealer." A "motor vehicle dealer" is in turn defined as a person presently engaged in the sale of motor vehicles. Section 4(b) thus protects an existing dealership from wrongful actions taken against an existing franchise. The plain language of the statute -- and it is the plain language which this Court must apply, see In re Marriage of Logston, 103 Ill. 2d 266, 277, 469 N.E.2d 167, 171, 82 Ill. Dec. 633 (1984) *fn4" -- forecloses the claim of a dealer who has applied for, but not been granted, a new franchise.

 Knauz lodges two main challenges to this construction of the statute. The first is that it improperly interjects the qualification "existing" into the definition of franchise. This qualification, however, is a natural reading of the definition, which refers in the present tense to an "oral or written arrangement" that "grants" the use of a "trade name, service mark, or related characteristic." The definition notably does not refer to an offer to grant a franchise in the future. If anything, accepting Knauz's construction would improperly interject the phrase "or offer of a franchise" into § 4(b)'s condemnation of unjustified acts "with respect to a franchise."

 This distinction between existing franchises and offers of franchises is reinforced by IMVFA § 8, which in detailing the agreements to which the Act applies, includes "the franchise offering" and "the franchise agreement." The statute itself thus distinguishes an existing franchise agreement from a franchise offering. This distinction, combined with the definition of "franchise," reinforces the Court's conclusion that § 4(b) refers to an existing franchise relationship.

 Knauz's second challenge to the Court's construction is that it renders the statutory term "franchisee" a nullity. But Knauz's reliance on the definition of "franchisee" is misplaced. Like the term "franchise," the term "franchisee" is defined with reference to an existing "motor vehicle dealer," but here the definition is extended to include a dealer who has been offered a franchise. The statutory language is clear that a franchisee must at a minimum be a motor vehicle dealer. The reference to an offeree, then, would include motor vehicle dealers who have been offered their first franchise, or maybe an additional franchise, but it would not include persons who are not already motor vehicle dealers. *fn5"

 Knauz is a motor vehicle dealer, and (according to his complaint) at least an offeree as well. *fn6" This does not mean, however, that § 13 entitles him to invoke all of the protections of § 4. As noted above, § 13 ties private causes of action by franchisees and motor vehicle dealers to specific wrongs proscribed by other portions of the IMVFA. Some sections of the statute specifically prohibit actions taken with respect to motor vehicle dealers, others prohibit actions taken against franchisees, and others prohibit actions taken against both.

 An example of the last category is § 7, Ill. Rev. Stat. ch. 121 1/2, para. 757, prohibiting unreasonable restrictions upon both dealers and franchisees. Similarly, at least one subpart of § 4 protects franchisees specifically as opposed to motor vehicle dealers generally. That subpart, § 4(d)(5), makes it unlawful for manufacturers and others "to require a franchisee to participate in an advertising campaign or contest or any promotional campaign, or to purchase or lease any promotional material, training materials, showroom or other display decorations or materials at the expense of the franchisee." Section 4(d)(5) thus protects a motor vehicle dealer who has been offered a new or additional franchise from coerced participation (perhaps as a precondition to receipt of the franchise) in advertising activities. See also IMVFA § 12, Ill. Rev. Stat. ch. 121 1/2, para. 762(a) (discussing the arbitrability of disputes regarding the offer of an additional franchise to a dealer).

 Other references in § 4, on the other hand, specifically protect "motor vehicle dealers" from outlawed actions without reference to "franchisee" status. See, e.g., § 4(c). The old maxim is that the expression of one thing is the exclusion of another, and there is no reason not to give this maxim effect here, especially considering that the statute defines both "motor vehicle dealer" and "franchisee," and goes on to specifically prohibit actions taken with respect to each. To treat the terms as interchangeable would render one of them redundant.

 Section 13's creation of private rights of action by "franchisees or motor vehicle dealers," then, does not allow both franchisees and motor vehicles to protest all of the wrongs proscribed by § 4, but merely makes clear that both categories of dealers have standing to seek legal and equitable remedies for wrongs which they are protected against by the IMVFA according to their status. Section 4(b) does not proscribe actions against franchise offerees, but rather actions against dealers with existing franchises. Knauz therefore has no cause of action under this section. *fn7"

 III. CONCLUSION

 The Court therefore dismisses Count II of the complaint. Because plaintiff cannot amend his complaint to state a cause of action under IMVFA § 4(b), the dismissal is with prejudice.

 Dated: August 29, 1989


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