United States District Court, N.D. Illinois
January 15, 2004.
AUTO SEARCH, INC., an Illinois corporation, and AUTO SHIELD, INC., an Illinois corporation, Plaintiffs,
AUTOMOBILE PROTECTIONS CORPORATION, a Georgia corporation, Defendant
The opinion of the court was delivered by: WILLIAM HART, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Auto Search, Inc. and Auto Shield, Inc. bring this breach of
contract action against defendant Automobile Protections Corporation
("APCO"). There is complete diversity of citizenship and the amount in
controversy exceeds $75,000. Defendant moves to dismiss this action.
Alternatively, defendant moves to transfer venue to the Northern District
On a Rule 12(b)(6) motion to dismiss, plaintiffs' well-pleaded
allegations of fact are taken as true and all reasonable inferences are
drawn in plaintiff's favor. Leatherman v. Tarrant County Narcotics.
Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993);
Dixon v. Page, 291 F.3d 485, 486 (7th Cir. 2002); Stachon
v. United Consumers Club, Inc., 229 F.3d 673, 675 (7th Cir. 2000). A
need not set forth all relevant facts or recite the law; all that
is required is a short and plain statement showing that the party is
entitled to relief. Fed.R.Civ.P. 8(a)(2);Boim v. Quranic Literacy
Institute, 291 F.3d 1000, 1008 (7th Cir. 2002); Anderson v.
Simon, 217 F.3d 472, 474 (7th Cir. 2000), cert. denied,
531 U.S. 1073 (2001); Scott v. City of Chicago, 195 F.3d 950,
951 (7th Cir. 1999), Plaintiffs in a suit in federal court need not plead
facts; conclusions may be pleaded as long as the defendant has at least
minimal notice of the claim. Fed.R.Civ.P. 8(a)(2); Swierkiewicz
v. Sorema N.A., 534 U.S. 506, 512 (2002); Higgs v. Carver,
286 F.3d 437, 439 (7th Cir. 2002); Scott, 195 F.3d at 951;
Albiero v, City of Kankakee, 122 F.3d 417, 419 (7th Cir. 1997);
Jackson v. Marion County, 66 F.3d 151, 153-54 (7th Cir. 1995).
In the complaint itself, it is unnecessary to specifically identify the
legal basis for a claim as long as the facts alleged would support
relief. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th
Cir. 2000); Scott, 195 F.3d at 951; Albiero, 122 F.3d at 419;
Bartholet v. Reishauer A. G. (Zurich), 953 F.2d 1073, 1078 (7th
Cir. 1992). However, in response to a motion to dismiss that raises the
issue, the plaintiff must identify the legal basis for a claim and make
adequate legal arguments in support of it. Kirksey v. R. J. Reynolds
Tobacco Co., 168 F.3d 1039, 1041-42 (7th Cir. 1999); Stransky
v. Cummins Engine CO., 51 F.3d 1329, 1335 (7th Cir. 1995);
Levin v. Childers, 101 F.3d 44, 46 (6th Cir. 1996);
Carpenter v. City of Northlake, 948 F. Supp. 759, 765 (N.D.
1996). As long as they are consistent with the allegations of the
complaint, a plaintiff may assert additional facts in his or her response
to a motion to dismiss. Brokaw v. Mercer County, 235 F.3d 1000,
1006 (7th Cir. 2000); Forseth, 199 F.3d at 368;
Albiero, 122 F.3d at 419; Gutierrez v. Peters, Ill
F.3d 1364, 1367 n.2 (7th Cir. 1997).
The following facts are taken to be true for purposes of ruling on
defendant's motion to dismiss. Defendant is engaged in the business of
selling automobile warranties and service contracts. Under the terms of
the parties' contract, Aegis Group, Inc. is the obligor on the service
contracts. Aegis apparently is a related corporation to APCO. Plaintiffs'
principal, Michael Case, formerly sold APCO warranties through the
automobile dealership at which he was employed. In ZQ02, Case formed Auto
Search, which entered into an agreement with defendant to sell
defendant's warranties and service contracts. The parties contract, which
is provided as an exhibit to the complaint (hereinafter "the Contract"),
is an unmodified version of defendant's form contract for automobile
dealers. The only additions to the form are filling in blanks for the
date of the contract and filling in identifying information for Auto
Search. The Contract is dated June 12, 2002, At the time the Contract was
signed, defendant was aware that Auto Search was not an automobile
dealership, but a web-based company that intended to market defendant's
warranty exclusively through the Internet. Auto Search's and Auto
Shield's office is located in Illinois and
Auto Search's pre-contract contacts with defendant were with
defendant's regional representative located in Illinois.
Subsequent to June 12, 2002, Case and Kawai Tsang formed Auto Shield.
With defendant's express consent and approval, on August 15, 2002, all of
Auto Search's rights and obligations under the Contract were assigned to
Auto Shield. With the knowledge and approval of defendant,
plaintiffs*fn1 invested substantial monies and time in developing the
web site, including renting office space and leasing business equipment.
Until October 2002, defendant provided assistance with marketing and
business strategies and by furnishing licensed and copyrighted materials.
On September 21, 2002, plaintiffs began selling the warranties on their
web site. By October 23, 2002, 38 warranties had been sold.
On October 23, 2002, defendant notified plaintiffs that they should
immediately discontinue operations while defendant decided if it wanted
to continue its relationship with plaintiffs. Plaintiffs informed
defendant that such a shutdown would cause serious injury to their
business. After threats of revoking plaintiffs' license to market
defendant's product, plaintiffs complied. On November 14, 2002, defendant
terminated plaintiffs' license to distribute, use, and sell products and
services under the Contract. The Complaint does not state
whether the effective date of the termination was to be immediate
or within 30 days, However, there is no express allegation in the
Complaint nor any argument in plaintiffs' answer brief that the 30-day
notice requirement under the Contract was breached. Also, in plaintiffs'
brief, November 14, 2002 is referred to as the date on which defendant
"served Plaintiffs with notice of their intention to terminate the
contract." The only reasonable inference is that 30 days' notice was
provided. The notice did not state any reason for the termination.
The Contract includes the following provisions:
TERMINATION: This agreement may be
terminated for any reason, by either party giving
thirty (30) days written notice to the other
party. In the event of termination, the duties and
obligations of the parties with respect to service
contracts and limited warranties validly issued,
shall remain the same until expiration of such
service contracts and limited warranties.
JURISDICTION & INTERPRETATION:
Jurisdiction and venue for any controversy arising
under, or interpretation of, this agreement shall
be in the appropriate state court in DeKalb
County, Georgia, and, if federal court, The
Northern District of Georgia, Atlanta Division.
The parties generally rely on Illinois contract law. Defendant
acknowledges the possibility that Georgia law may be the appropriate law
to apply under the contract, but contends it is nevertheless the same as
Illinois law. Since the parties rely on Illinois law, do not provide
argument that the law of another state applies, and do not contend that
other possibly applicable law is different, the law of Illinois will be
resolving the pending motion to dismiss. See Gould v.
Artisoft. Inc., 1 F.3d 544
, 549 n.7 (7th Cir. 1993); Burt v.
Makita USA, Inc., 212 F. Supp.2d 393, 896 (N.D. Ind. 2002).
Plaintiffs contend that defendant breached the Contract because it
breached its implied duty of good faith and fair dealing. There is no
dispute that, under Illinois law, every contract contains an implied
promise of good faith and fair dealing unless it expressly provides
otherwise. Cromeens, Holloman, Sibert, Inc. v. AB Volvo,
349 F.3d 376, 395 (7th Cir. 2003). The implied duty, however, does not
override or modify express and unambiguous terms of the contract.
Id. at 395-96. The implied duty is not an independent source for
a breach, but a guide in construing terms susceptible to more than one
construction. Id. at 395; Pierce Packaging Co. v. Atlas
copco Wagner, lnc., 2003 WL 22287390 *1 (M.D. Ill, Oct. 2, 2003).
Where only one party to the contract has the discretion and power to take
a particular action, that party must exercise the power in good faith and
with fair dealing, that is reasonably, not arbitrarily, and in a manner
consistent with the parties' reasonable expectations. Cromeens,
349 F.3d at 395; Pierce, Packaging, 2003 WL 22287390 at *1.
Where the parties' contract expressly and unambiguously provides that it
may be terminated by either party for any reason (without cause), this
right to terminate at will is not limited by the implied duty.
Cromeens, 349 F.3d at 396; Pierce Packaging, 2003 WL 22287390
Citing Kham & Nate's Shoes No. 2, Inc. v. First Bank of
Whiting, 908 F.2d 1351 (7th Cir. 1990), plaintiffs contend the
general rule should not apply because the parties did not contemplate
defendant exercising its right to terminate within less than five months
after the Contract was signed and less than two months after plaintiffs
began selling on the Internet. Kham, however, still follows the
general rule. In that case, the defendant bank did not breach any duty of
good faith and fair dealing when it freely exercised its contractual
right to stop making further advances under a line of credit, "for any
reason satisfactory to itself." Id. at 1357.
. . . Firms that have negotiated contracts are
entitled to enforce them to the letter, even to
the great discomfort of their trading partners,
without being mulcted for lack of "good faith".
Although courts often refer to the obligation of
good faith that exists in every contractual
relation, e.g., UCC § 1-201;
Jordan, v. Duff & Phelps. Inc.,
815 F.2d 429, 438 (7th Cir. 1997), this is not an
invitation to the court to decide whether one
party ought to have exercised privileges expressly
reserved in the document. "Good faith" is a
compact reference to an implied undertaking not to
take opportunistic advantage in a way that could
not have been contemplated at the time of
drafting, and which therefore was not resolved
explicitly by the parties. When the contract is
silent, principles of good faith such as
the UCC's standard of honesty in fact, UCC §
1-201(19), and the reasonable expectations of the
trade, UCC § 2-103(b) (a principle
applicable, however, only to "merchants", which
Bank is not) fill the gap. They do not
block use of terms that actually appear in the
Id. In the present case, like in Kham and
Cromeens, the parties' agreement is not silent; the parties
expressly agreed the
Contract could be terminated for "any reason" by either side.
Plaintiffs want a provision to be read into the Contract that would make
the termination provision ineffective for an indefinite period of time
until they could reasonably recoup their investment. The express language
of the Contract is to the contrary; the termination provision is written
to be effective from the beginning as long as 30 days' notice is
provided. Defendant did not breach the termination provision.
Plaintiffs' only other contention is that the general rule only applies
to contracts that are terminable at will and that the Contract was not
terminable at will because it contained a provision requiring 30 days'
notice prior to termination. That contention is without merit. The focus
of the general rule is not on whether a contract is completely terminable
at will, but whether a contract has an express provision (about
termination or something else) that need not be further clarified or
amplified by applying the guide of good faith and fair dealing. Moreover,
this rule has been applied to termination without cause clauses which
also require a specified period of notice prior to termination, See,
e.g., Cromeens, 349 F.3d at 392, 395-96, Plaintiffs have not pointed
to any legal basis upon which they could be granted relief. The motion to
dismiss will be granted.
In its brief, defendant conclusorily requests costs and attorney fees
Any bill of costs or motion for attorney fees must be filed within the
time period allowed by Local Rule and
properly supported. See, N.D. Ill. L.R. 54.1, 54.3.
Defendant does not identify its basis for requesting attorney fees, but,
if it is relying on the indemnity provision of the Contract, that
provision appears to be inapplicable to the present action since the
present action does not arise from plaintiffs' breach of the Contract or
their action, inaction, or negligence. (The indemnity provision provides:
"The Dealer agrees to indemnify, defend and hold APCO and Aegis harmless
from any actions, claims, liabilities, judgments, or awards arising from
the Dealer's breach of this agreement or out of the action, inaction, or
negligence of Dealer or Dealer's representatives, agents (other than
APCO's or Aegis'), or employees. This indemnification and hold harmless
covers any court costs or attorney fees.") However, no ruling as to the
appropriateness of awarding attorney fees is presently being made.
IT IS THEREFORE ORDERED that defendant's motion to dismiss [3-1] is
granted. Defendant's alternative motion for change of venue [3-2] is
denied without prejudice. The Clerk of the Court is directed to enter
judgment in favor of defendant and against plaintiffs dismissing
plaintiffs' cause of action with prejudice.
JUDGMENT IN A CIVIL CASE
 Jury Verdict. This action came before the Court for a trial by
jury. The issues have been tried and the jury rendered its verdict.
 Decision by Court. This action came to hearing before the Court,
The issues have been heard and a decision has been rendered.
IT IS HEREBY ORDERED AND ADJUDGED that defendant's motion to dismiss is
granted. Defendant's alternative motion for change of venue is denied
without prejudice. Judgment is entered in favor of defendant Automobile
Protections Corporation and against plaintiffs Auto Search, Inc. and Auto
Shield, Inc. dismissing plaintiffs' cause of action with prejudice.