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12/29/89 Melvin R. Salkeld, Jr., v. Iness Brokers Et Al.

December 29, 1989

MELVIN R. SALKELD, JR., PLAINTIFF-APPELLANT

v.

V.

R. BUSINESS BROKERS ET AL., DEFENDANTS-APPELLEES (JAMES T. HALEY ET AL., DEFENDANTS)



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

548 N.E.2d 1151, 192 Ill. App. 3d 663, 139 Ill. Dec. 595 1989.IL.2078

Appeal from the Circuit Court of Kane County; the Hon. James F. Quetsch, Judge, presiding.

APPELLATE Judges:

JUSTICE INGLIS delivered the opinion of the court. UNVERZAGT, P.J., and REINHARD, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE INGLIS

Plaintiff, Melvin R. Salkeld, Jr., appeals from an order of the circuit court of Kane County granting the motion of defendants, V.R. Business Brokers, Inc., The Buffer Zone, Inc., American Triad Corp., Innovative Concepts, Bantam Investment Group (Bantam), Joseph P.S. Licari, and Frank and Robert Contaldo. The motion sought a directed verdict on the jury counts and a finding for defendants on the nonjury counts. (A chart diagramming the corporate structure of the parties in this case can be found in Appendix A.) Defendants James T. Haley, Sharon S. Weyland, and William Skala were dismissed from the case before trial and are not parties on appeal. Plaintiff contends that the trial court erred when it determined that (1) the Franchise Disclosure Act (Franchise Act) (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 701 et seq.) did not apply to the sublicensing agreement at issue; (2) no jury verdict could possibly stand as to plaintiff's allegations of common-law fraud; and (3) there was no violation of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 261 et seq.). We affirm in part, reverse in part and remand.

On November 16, 1987, plaintiff filed a seven-count complaint in the circuit court of Kane County. Count I alleged a violation of the Franchise Act, counts II through V alleged common-law fraud, and counts VI and VII alleged a violation of the Consumer Fraud Act. The events

leading to plaintiff's complaint are summarized as follows.

In May 1986, plaintiff responded to an advertisement in the Chicago Tribune which sought persons to sell and distribute a new product, Cocktails Naturally, in a specific sales territory in Illinois. Plaintiff met with a Bantam account executive and Joseph Licari, at which details of the product and licensing agreements were discussed. Plaintiff stated that he was also given a document titled "SALES MANUAL" (manual) at one of the meetings. The manual described the product in detail and promoted the product's "competitive edge," namely price, quality and convenience. The manual further stated that "[t]here is actually no competition for Cocktails Naturally and it's unique system." In addition, the manual described how the company would provide "table tents, posters, drink menus, drink recipe cards and the original pumps without charge," would train the bartenders on how to use the product, and would provide a rack to organize the flavors behind the bar.

Plaintiff was told at the meetings that the product was "selling well" and that Innovative Concepts would assist him in hiring and training persons to sell the product for him. Plaintiff also received samples of the product to take home and try out. Plaintiff stated that he was impressed with the product.

Plaintiff was also given a copy of a document titled "INNOVATIVE CONCEPTS SUB-LICENSEE PROGRAM." This document highlighted the operating procedures of the company, including the support that each sublicensee would receive from Innovative Concepts. The document described the support as follows:

"The company assists in all area of marketing. We provide sublicensee training, training (and hiring) of the sales staff, advertising and promotional material, sponsorship of sales contests (March '86 contest winner receives 8 days in Hawaii), National advertising, trade shows, corporate sales and much more.

In short, we are with you every step of the way."

The document also mentioned the absence of competition and gave projections of income based in part on the success rate of salespersons across the country.

Plaintiff also stated that he received a copy of a financial statement for Innovative Concepts, dated May 31, 1986. The statement showed sales of $110,390 for the first five months of 1986, with a net profit of $33,010.

On June 5, 1986, plaintiff and defendant Innovative Concepts, a division of defendant The Buffer Zone, Inc., entered into a sublicensing agreement (agreement). The agreement stated that Innovative Concepts had the authority to grant plaintiff the right to use certain "trademarks, including COCKTAILS NATURALLY which have been registered with the Patent Office of the United States." The agreement provided plaintiff with a specific sales territory, and also committed Innovative Concepts to providing plaintiff with the advice and guidance necessary to run his business. Plaintiff agreed to pay $22,500 to Innovative Concepts, of which $7,500 was paid to defendant Bantam (acting as the salesbroker). The term of the agreement was 20 years.

On June 6, 1986, plaintiff gave his employer notice of his intention to resign and start his own business. In early July 1986, plaintiff began working with his new business. However, plaintiff suffered a heart attack one week after starting the business. He returned to full-time work approximately two weeks later. Plaintiff testified that he made approximately 150 to 170 sales calls during July, August and September, but managed to sell only $900 worth of Cocktails Naturally.

Plaintiff stated that he made several complaints to Licari regarding the lack of sales and support. Plaintiff stated that Licari arranged for a 1 1/2-hour meeting between plaintiff and a California salesman of the product. However, this was the only "support" that Licari provided to plaintiff.

Plaintiff further stated that several of the representations made to him before he signed the agreement proved to be untrue. Plaintiff testified that there was direct competition to Cocktails Naturally, namely a product from the Lani-Kai Company. Plaintiff stated that Lani-Kai sold a similar product for $50-per-case retail, while plaintiff paid $49-per-case wholesale for Cocktails Naturally. Plaintiff stated that the retail price for Cocktails Naturally was $72 per case. In addition, Licari also began to market a competing line of products himself. Plaintiff further stated that there were no sales or marketing systems to assist him in his business, and that he never received any trained personnel from Innovative Concepts. There were no national advertising campaigns, and very little promotional support. Plaintiff also requested documentation of any trademarks, trade names, or patents that were described in the agreement. However, Licari stated that "these documents don't exist."

On cross-examination, plaintiff testified that he also began to market a line of Fosdick turkeys in September 1986. Plaintiff stated that he devoted "part of [his] efforts" to selling the turkeys, but also continued to try to sell the Cocktails Naturally products.

Defendant Joseph Licari testified that plaintiff did not buy a Cocktails Naturally distribution company, but instead bought the right to have Licari supply him with frozen cocktail mix in the future. Licari stated:

"Mr. Salkeld [plaintiff] bought a business from me that had 17 existing accounts. What he bought from me was the right to have [the] product supplied to him in the future. He did not buy a Cocktails Naturally distribution system or a company, whatever you'd like to call it. He bought existing accounts, an existing business."

Licari stated that he did not provide copies of the sublicensee program document, the sales manual, or the financial statement to plaintiff before plaintiff signed the agreement because the documents were not yet in existence. Licari stated that plaintiff signed the agreement in June 1986, but that Licari did not create the documents until July or August 1986. Licari further stated that he would not have given plaintiff a copy of the financial statement because it was only a projection.

Licari also testified that he was providing his customers with a "better product at a better price" than that of Cocktails Naturally at the time plaintiff signed the agreement. Licari stated that plaintiff was aware of this before he signed the agreement. In addition, Licari stated that plaintiff was also aware that Licari was going to set up a corporation (American Triad Corporation) to market frozen cocktail products of better quality and at a lower price than Cocktails Naturally. Licari stated that plaintiff could sell these other products in addition to selling the Cocktails Naturally products.

Defendant Frank Contaldo testified that he was a business broker for defendant V.R. Business Brokers . Contaldo explained that V.R. was in the "business of bringing buyers and sellers together." Contaldo stated that Licari contacted him regarding the Cocktails Naturally business and available sales territories in Illinois. Contaldo secured two buyers, plaintiff and Joseph Felice, for Licari, and also participated in the closing of the deals.

Contaldo further stated that his knowledge of Cocktails Naturally came from meetings he had with Licari. Contaldo had no knowledge of whether any patents or trademarks existed for Cocktails Naturally, even though he thought Licari told him of the existence of a trademark in California. Contaldo was also aware of a hiring and training program that Licari was allegedly using for the Cocktails Naturally salespersons.

Following the close of evidence, defendants made a motion for a directed verdict as to the jury counts (counts II through V). The trial court heard arguments on the motion and granted the motion as to all defendants. The court also found in favor of all defendants on the nonjury counts (counts I, VI and VII). Plaintiff's post-trial motion was denied. In addition, the court denied both parties' motions for attorney fees pursuant to section 2-611 of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-611). Plaintiff filed a timely notice of appeal.

At the outset, we note that neither plaintiff nor defendants have pursued an appeal as to the trial court's rulings on the parties' motions for attorney fees. We also note that plaintiff, in his appellate brief, has admitted that the arguments concerning the Franchise Act and common-law fraud should not include defendant American Triad Corporation, apparently because the corporation did not participate in the agreement or engage in any fraudulent misrepresentations. Thus, we will not include defendant American Triad Corporation in our Discussion of these issues.

Plaintiff's first contention on appeal is that the trial court erred in holding that the Franchise Act did not apply to the sublicensing agreement at issue in this case. Plaintiff argues that the business he purchased falls within the purview of the ...


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