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Rawoof v. Texor Petroleum Company

April 7, 2008

RAHEEMUNISA RAWOOF, REPRESENTATIVE OF THE ESTATE OF MOHAMMED RAWOOF, PLAINTIFF-APPELLANT/CROSS-APPELLEE,
v.
TEXOR PETROLEUM COMPANY, INCORPORATED, DEFENDANT-APPELLEE/CROSS-APPELLANT.



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02 C 5892-George M. Marovich, Judge.

The opinion of the court was delivered by: Sykes, Circuit Judge.

ARGUED JANUARY 19, 2007

Before RIPPLE, KANNE, and SYKES, Circuit Judges.

Mohammed Rawoof filed this lawsuit against Texor Petroleum Company ("Texor") alleging that Texor violated the Petroleum Marketing Practices Act ("PMPA") by terminating his gas station's "Marathon" brand motor-fuel franchise without the statutorily required notice and cause. Almost two years into the litigation, on the day discovery was to close, Rawoof brought a motion to substitute plaintiffs, asserting that his corporation, SHL 95, Inc. ("SHL 95"), was the real party in interest. Rawoof maintained that the PMPA claim belonged to the corporation, not to him personally, because the corporation conducted the gas station's business activities, owned its real estate and fixtures, and sustained the losses associated with the termination of the franchise. The district court denied the motion because Rawoof knew all along that SHL 95 was the real party in interest and substituting parties at that late stage of the litigation would prejudice Texor. Texor then moved for summary judgment on standing grounds. The district court granted the motion, reasoning that Rawoof had admitted that the PMPA claim belonged to the corporation and that he could not bring suit in his own name because his only injury was the indirect, derivative injury of a shareholder. Rawoof appeals, and we affirm.

I. Background

The parties have a rather loose and informal contractual history that has been the subject of litigation in both state and federal court. In the present suit, Rawoof alleged that in February 1998 he entered into an oral agreement with Texor whereby Texor would supply gasoline to Rawoof's Chicago gas station. This agreement was to last for seven years. In addition to other provisions, Rawoof alleged that Texor agreed to provide and install a Marathon sign at the station, and in return Rawoof was required to sell under the Marathon brand and purchase his petroleum products exclusively from Texor. In 2000 a dispute arose between the parties over prices Texor charged for gasoline it delivered to Rawoof's station. Rawoof thought he was being overcharged and protested Texor's invoices. On April 20, 2001, Texor suspended gasoline deliveries due to nonpayment; on July 11, 2001, Texor filed suit against Rawoof in Cook County Circuit Court for money due for gasoline previously sold and delivered. Rawoof appeared in that suit on August 16, 2001. On August 29, 2001, the parties signed a settlement agreement establishing a payment schedule for the balance due, and Rawoof was informed that his station's relationship with Texor was being terminated and the Marathon signs would be removed immediately.

On August 19, 2002, Rawoof filed suit in federal district court alleging that Texor violated the PMPA by terminating his franchise without the required statutory notice and cause. See 15 U.S.C. §§ 2802, 2804. Texor moved to dismiss on statute-of-limitations grounds, arguing that the PMPA's one-year limitations period began to run on July 11, 2001, when it filed suit in Cook County Circuit Court, or at the latest on August 16, 2001, when Rawoof appeared in that suit. By then, Texor argued, Rawoof knew or had reason to know that his gas station's relationship with Texor was terminated. Rawoof filed a response to this motion and also filed a breach-of-contract action against Texor in Cook County Circuit Court, evidently hedging his bets against a statute-of-limitations dismissal of his federal PMPA claim. The district court denied Texor's motion, holding that the PMPA's one-year limitations period began to run when Rawoof and Texor entered into the settlement of Texor's state-court litigation and Texor advised Rawoof his station was being debranded immediately. According to the district court, Rawoof had gotten his PMPA action in just under the wire.

Discovery proceeded, but not without some difficulty, eventually necessitating a motion to compel by Texor. The motion was heard by a magistrate judge on July 27, 2004, the day discovery was set to close; the judge granted the motion in part and denied it in part, and extended discovery for an additional 30 days to accommodate compliance with his order. In the meantime, on that same day, Rawoof filed his motion to substitute plaintiffs. Rawoof argued that his Illinois S-corporation, SHL 95, was the real party in interest, not Rawoof individually. Rawoof told the court that the gas station's revenue and tax liabilities were reported through SHL 95, which also held legal title to the service station's real property and fixtures. The corporation operated the station and suffered the losses resulting from the termination of the Marathon franchise. Rawoof was SHL 95's sole stockholder, officer, and director, but in his motion he acknowledged "the well-settled rule that a plaintiff-stockholder may not seek relief on his own behalf when the plaintiff has not been injured" other than in his capacity as a stockholder. Accordingly, Rawoof asserted, the PMPA claim belonged to the corporation and not to him personally, and he asked leave to substitute SHL 95 as the plaintiff. Rawoof died in September 2004 while the substitution motion was pending.*fn1

The district court denied Rawoof's motion for substitution. The court explained that Rawoof had known SHL 95 was the real party in interest since the commencement of the litigation and there was no reason why the suit could not have been prosecuted by the corporation from the beginning. The court noted that the motion was filed nearly two years after the action was commenced and on the day discovery was scheduled to close, and held that Texor would be prejudiced if substitution were allowed so late in the litigation. The court noted in particular that with Rawoof's death, Texor could no longer conduct a corporate-officer deposition according to Rule 30(b)(6) of the Federal Rules of Civil Procedure.

Texor then moved for summary judgment, arguing that Rawoof's admissions in his motion to substitute and the court's order denying that motion suggested Rawoof lacked standing to bring the suit because he had not suffered any direct, personal injury from the termination of the franchise. In response, Rawoof changed course and argued that he wasindeed entitled to pursue the PMPA claim in his own name.

The district court granted Texor's summary-judgment motion, holding that constitutional standing was established but prudential standing was not. Noting the shareholder-standing rule, see Franchise Tax Bd. of Cal. v. Alcan Aluminum Ltd.,493 U.S. 331, 336 (1990), which prohibits shareholders from suing to enforce the rights of the corporation, the district court held Rawoof lacked prudential standing because he suffered only an indirect, derivative injury as SHL 95's sole shareholder. The court found no evidence of a direct, personal injury distinct from that of a shareholder that would allow Rawoof to sue in his own name. The court also gave little weight to shareholder resolutions adopted in February 2005 (months after Rawoof died and the motion to substitute was denied) purporting to ratify Rawoof's prosecution of the corporation's claims. According to the court, it was too late for SHL 95 to proffer a Rule 17(a) ratification.*fn2 Although it granted Texor's motion for summary judgment, the court declined to award Texor attorney's fees as a prevailing franchisor under the PMPA. Rawoof appealed from the order granting summary judgment, and Texor cross-appealed the denial of its motion to dismiss on statute-of-limitations grounds and the denial of its motion for attorney's fees.

II. Discussion

A. Rawoof's Appeal

Rawoof does not directly challenge the district court's denial of his motion to substitute plaintiffs. Instead, his appeal focuses on the court's summary-judgment ruling dismissing his case on standing grounds. We review de novo the district court's grant of summary judgment and will construe all facts and inferences drawn from them in the light most favorable to the nonmoving party. Squibb v. Mem'l Med. Ctr., 497 F.3d 775, 780 (7th Cir. 2007). Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Standing questions are reviewed de novo. Winkler v. Gates,481 F.3d 977, 982 (7th Cir. 2007); Wis. Right to Life, Inc. v. Schober, 366 F.3d 485, 489 (7th Cir. 2004).

Rawoof argues that he is entitled to bring SHL 95's PMPA claim in his own name, either because he is a party in interest or because he stands in the shoes of SHL 95. The PMPA requires notice and cause before a motor-fuel franchise may be terminated; "franchise," "franchisor," "franchisee," and "franchise relationship" are defined terms under the PMPA, and the statute's notice and cause requirements differ according to the circumstances. See 15 U.S.C. §§ 2801 et seq. The merits of the PMPA claim are not before us on this appeal, so we may omit any further discussion of the statute's requirements. It is enough to note that the statute grants motor-fuel franchisees the right to bring a civil action for equitable relief, actual and exemplary damages, and reasonable attorney's and expert witness fees for a violation of the PMPA. 15 U.S.C. § 2805.

Rawoof's arguments begin with Rule 17(a) of the Federal Rules of Civil Procedure, which requires federal lawsuits to be brought by the real party in interest, but identifies certain persons who are authorized to prosecute an action for the benefit of another. See supra n.2. Executors, guardians, and trustees are the most common examples. See FED. R. CIV. P. 17(a). Rawoof fashions three arguments as to why he is entitled to pursue the PMPA claim belonging to his corporation: First, he claims that he is an agent of SHL 95; second, he says he ...


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