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ROSS v. CULVER FRANCHISING SYSTEM

August 13, 2004.

NORM and DENISE ROSS, Plaintiffs,
v.
CULVER FRANCHISING SYSTEM, Inc., Defendant.



The opinion of the court was delivered by: CHARLES NORGLE, District Judge

OPINION AND ORDER

Plaintiffs, Norm*fn1 and Denise Ross ("Rosses"), have filed suit, raising both contract and tort claims, against Defendant, Culver Franchising System, Inc. ("Culver"), based on Culver's decision not to award the Rosses a franchise. Before the court is Defendant's motion for summary judgment, brought pursuant to Federal Rule of Civil Procedure 56. For the following reasons, Defendant's motion is granted.

I. BACKGROUND*fn2

  A. Facts

  Culver is a Wisconsin corporation with its principal place of business in Prairie du Sac, Wisconsin. Culver operates and franchises restaurants known as Culver's Frozen Custard and Butter Burgers throughout the Midwest, including Illinois. In November 1999, Norm and Denise Ross contacted Culver and inquired about franchise opportunities in Illinois. In response to the Rosses' inquiry, Culver sent them a Uniform Franchise Offering Circular, which included pertinent information for prospective franchisees, as well as a Franchise Questionnaire and a Request for Personal Financial Statement. The Rosses completed the Franchise Questionnaire and a Request for Personal Financial Statement, and returned them to Culver.

  In January 2000, the Rosses met with one of Culver's sales representatives, Tom Wakefield, to discuss the Uniform Franchise Offering Circular. The Uniform Franchise Offering Circular provided specific information about Culver's business, the specific obligations of its franchisees, the estimates of costs for a franchisee to enter the business, including the initial franchise fee and investment costs, and ongoing fees to be paid to the franchisor. The Uniform Franchise Offering Circular also contained a complete copy of the formal Franchise Agreement that was required to be executed in order to establish a Culver franchise. Norm Ross understood that Culver's act of providing the Uniform Franchise Offering Circular did not constitute an offer to sell a franchise, and that any agreement was not effective until the Franchise Agreement was signed by the Rosses and the President of Culver, Craig Culver. As follow up to their meeting, Wakefield sent the Rosses financial sales projections, indicating potential returns on the operation of a Culver franchise. Thereafter, the Rosses expressed an interest in pursuing a Culver franchise.

  In a letter dated February 28, 2000, Wakefield requested that the Rosses sign a Preliminary Agreement, as well as provide a financial statement, confidentiality agreement and a $5,000 application fee, which they provided. The Rosses understood that the Preliminary Agreement was the first of many steps in a business arrangement between themselves and Culver. Under the terms of the Preliminary Agreement, the $5,000 application fee would be applied to the franchise fee if the Rosses were approved as a franchisee, or returned if they were not approved as a franchisee. The amount of the franchise fee was $42,000. Also under the terms of the Preliminary Agreement, the Rosses were required to undergo a 60-hour work week at one of Culver's restaurants. The purpose of the work arrangement was to allow the Rosses to understand the business and to allow Culver to evaluate the Rosses' abilities.

  Denise Ross performed the 60-hour work week at a Culver restaurant in Spring Green, Wisconsin. The reviews of Denise Ross' performance were mixed, indicating that she worked hard but might not have the commitment required to operate a Culver franchise. On March 15, 2000, after the completion of the work arrangement, Culver sent a letter declining the Rosses' request to become Culver franchisees. The letter stated that "[t]he reasons for this decision are that the total commitment that is necessary to meet our standards and the demands of the business are in conflict with your personal life goals." Def.'s LR 56.1, Ex. 9.

  Upon receipt of the March 15, 2000 letter, Norm Ross called the Chief Executive Officer of Culver, Phil Keiser, to request a meeting and try to convince Culver to reconsider its decision. On March 22, 2000, the Rosses met with Keiser and the President of Culver, Craig Culver, at Culver's corporate headquarters in Prairie du Sac, Wisconsin. During the meeting, Keiser reiterated his impression that the Rosses did not have the commitment required to run a Culver franchise, and indicated that it would take a major commitment to operate a Culver franchise. The Rosses assured Keiser that they were prepared to make that commitment.

  The parties' accounts of this meeting differ. According to the Rosses, if Culver awarded them a franchise, they offered to show their commitment by having Denise Ross work at another Culver's location until she could begin her formal franchisee training in August 2000. The Rosses also indicate that they informed Culver that other commitments had to be resolved prior to beginning work at another Culver's location. According to Culver, the Rosses would be allowed to continue the franchise application process, but only if Denise Ross proved her commitment by satisfactorily working full-time at a Culver restaurant in North Aurora, Illinois until she could enroll in an August 2000 franchisee training class. Culver also indicates that the Rosses gave assurance that they would do whatever it took to be approved as a franchisee.

  Keiser memorialized the meeting in a letter dated March 23, 2000. The March 23, 2000 letter stated:
It is my pleasure to formally communicate your operational approval to become a Culver's franchisee to begin training in our August class. As we discussed, it will be necessary for you to work in the North Aurora restaurant as a prerequisite to your attending the sixteen-week training program. I have reviewed with Greg Kubitz what our needs are and he has agreed to assist you in any way he can to make this happen. We will discuss together at a future time what type of work schedule and duties will meet this requirement.
Now the real work begins. Finalizing the real estate, building plans, training and hiring a management team are just a few of the immediate tasks at hand In the future, your next step will be to arrange with Tom Wakefield to schedule the signing of the franchise agreement. In addition we will have an orientation in late July or early August for those entering our August 2000 class, with our team, to establish a plan for your restaurant and to clarify roles to ensure that your Culver's restaurant is a success.
Everyone here at Culver Franchising is looking forward to working with you and your team as we work together to grow our business. Please fell free to contact me, or anyone else on our team, to make this process as smooth as possible.
Def.'s LR 56.1, Ex. 10.

  Culver could set whatever criteria it chose for approval of franchisees. However, with respect to working at the Culver restaurant in North Aurora, the parties dispute whose obligation it was to ensure that it took place and what specifically was required. According to the Rosses, Culver never contacted them and told them exactly when Denise Ross was to work, and further, never indicated that Denise Ross was required to work full-time. According to Culver, the Rosses never contacted them after meeting with the North Aurora franchisee, Greg Kubitz, with regard to how Denise Ross would fulfill the requirement that she work full-time in that location until she could enroll in an August 2000 training class.

  It is undisputed that the Rosses understood that there were many steps that they needed to take before they could open and operate a Culver franchise, including, inter alia: working at the Culver restaurant in North Aurora, signing the Franchise Agreement and paying the franchise fee. After receiving the March 23, 2000 letter, the Rosses never attempted to contact Tom Wakefield to arrange signing a Franchise Agreement, nor did the Rosses pay the franchise fee. With respect to working at the Culver restaurant in North Aurora, on April 2, 2000, Norm Ross sent a facsimile to Keiser. The April 2, 2000 facsimile stated:
We have not yet contacted Greg Kubitz, as you have still not made it clear just exactly what your needs are for Denise. We need to know more specifically what your expectations are for her during this period. As we explained previously, we have carefully considered planning and timing of this venture, and are presently involved in commitments. For many reasons, Denise could not commit to a full time position commencing in the near future, lasting until the start of training in August. She, (and I) could however consider select nights and weekends.
We feel a better proposal would be for a shorter amount of time at the North Aurora store, and then to participate in new store openings in the area: Huntley, Oswego, Sycamore. This would give us a better look at a level of business closer to what we anticipate.
We need to agree and finalize these details prior to signing the franchise agreement.
Def.'s LR 56.1, Ex. 11.

  According to Culver, the proposal contained in Norm Ross' April 2, 2000 facsimile was different than what was discussed at the March 22, 2000 meeting, which required Denise Ross to work full-time at the Culver restaurant in North Aurora until she could enroll in an August 2000 franchisee training class. It is undisputed that as of April 2, 2000, there was no agreement on all the terms and conditions between the parties, and the Rosses wanted clarification prior to signing the Franchise Agreement and paying the franchise fee.

  According to Culver, since Denise Ross had not begun work at the Culver restaurant in North Aurora, on May 9, 2000, Keiser sent a letter to the Rosses informing them that Culver was returning to its original decision to not award the Rosses a franchise, and also returning the Rosses' $5,000 application fee. Prior to receiving the May 9, 2000 letter, Norm Ross sent a letter to Keiser on May 15, 2000, which, inter alia, requested that Denise Ross postpone the franchisee training. In response to the May 15, 2000 letter, Keiser wrote a letter dated May 18, 2000 informing the Rosses that the franchise that they would have received had been awarded to another franchisee. On May 26, 2000, the Rosses received the letter dated May 9, 2000, which ...


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