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Crossroads Ford Truck Sales, Inc v. Sterling Truck Corporation et al

December 1, 2011

CROSSROADS FORD TRUCK SALES, INC., APPELLANT,
v.
STERLING TRUCK CORPORATION ET AL., APPELLEES.



The opinion of the court was delivered by: Justice Garman

JUSTICE GARMAN delivered the judgment of the court, with opinion.

Chief Justice Kilbride and Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff, Crossroads Ford Truck Sales, Inc., filed a 14-count second amended complaint against defendants Sterling Truck Corporation, Daimler Trucks North America, LLC, and Chris Patterson. The claims alleged various violations of the Motor Vehicle Franchise Act (Act) (815 ILCS 710/1 et seq. (West 2010)) and claims of breach of contract, tortious interference with contract, and fraud. The circuit court of Sangamon County dismissed with prejudice all but two of the counts in plaintiff's second amended complaint pursuant to defendants' motion to dismiss.

¶ 2 On appeal, the appellate court affirmed the decision of the circuit court. 406 Ill. App. 3d 325. The appellate court also held that the circuit court lacked subject matter jurisdiction to hear several counts and portions of counts brought under section 4(d)(6) of the Act, because those counts should have been brought before the Motor Vehicle Review Board (MVRB). 406 Ill. App. 3d at 335. Plaintiff filed a petition for leave to appeal pursuant to Supreme Court Rule 315 (Ill. S. Ct. R. 315 (eff. Feb. 26, 2010)), which we allowed. We also allowed the Illinois Automobile Dealers Association to file a brief as amicus curiae pursuant to Supreme Court Rule 345. Ill. S. Ct. R. 345 (eff. Sept. 20, 2010).

¶ 3 For the reasons that follow, we affirm the judgment of the appellate court.

¶ 4 BACKGROUND

¶ 5 Factual History

¶ 6 Defendant Daimler Trucks is a wholly owned subsidiary of Daimler AG. Daimler Trucks is the largest heavy duty truck manufacturer in North America. Defendant Sterling Truck Corporation is a subsidiary of Daimler Trucks and manufactures the Sterling line of trucks. Defendant Chris Patterson is the chief executive officer of Daimler Trucks and president of Sterling. Plaintiff is a motor vehicle dealer and has held a Sterling truck franchise since 1998. Defendant Sterling and Plaintiff are parties to a Sales and Service Agreement (SSA) which grants plaintiff the right to purchase from Sterling products such as Sterling trucks and parts. Plaintiff can also service Sterling vehicles.

¶ 7 On October 14, 2008, Patterson notified all Sterling dealers, including plaintiff, that Daimler Trucks was discontinuing the Sterling line of trucks to focus on a "two brand strategy," with March 26, 2009, as the last day of production, and January 15, 2009, as the last day for accepting dealer orders. The letter offered plaintiff the opportunity to continue on as a Sterling service dealership under a new service dealer agreement, which would replace the SSA. Plaintiff was to receive official notice of termination of its SSA in the coming weeks. Plaintiff was warned that, following the termination of the SSA, if it did not sign the general release and agree to terminate its Sterling franchise, Daimler Trucks would not renew plaintiff's Detroit Diesel Direct Dealer Agreement after December 31, 2008.*fn1

¶ 8 Also on October 14, 2008, Daimler Trucks filed an announcement with the Securities and Exchange Commission announcing the discontinuation of the Sterling truck brand effective March 2009 and that additions would be made to the Freightliner and Western Star product lines to address market segments that had been served exclusively by the Sterling line. On November 24, 2008, Daimler Trucks sent plaintiff a letter giving notice that Sterling Trucks was exercising its rights pursuant to the SSA to discontinue the manufacture of Sterling vehicles. The letter again offered plaintiff the opportunity to transition to a new service agreement, but if it elected not to, the old SSA would remain in effect. The letter stated that it "did not constitute notice of termination or modification" of the SSA, because plaintiff could elect to continue operating under the current SSA. The letter stated Daimler Trucks did not believe formal notice was required under Illinois's dealer laws, but if plaintiff felt otherwise, plaintiff was to "consider this that [formal] notice." On April 10, 2009, Daimler Trucks terminated plaintiff's Detroit Diesel Direct Dealer Agreement by written notice, which plaintiff alleges prevented it from obtaining Detroit Diesel parts at wholesale and performing warranty work on trucks with Detroit Diesel engines.

¶ 9 Procedural History

¶ 10 Plaintiff's Complaint to the Motor Vehicle Review Board

¶ 11 On November 12, 2008, plaintiff filed a "Notice of Protest" with the MVRB, alleging that Patterson's letter of October 14, 2008, "effectively terminated the SSA between Sterling Trucks and Crossroads." Plaintiff alleges, among other claims, that this was done without good cause in violation of section 4(d)(6) of the Act, which requires a manufacturer to have good cause when terminating a franchise agreement. Plaintiff sought the award of fair market value damages for its franchise prior to the time defendants made the decision to terminate. In the alternative, plaintiff requested that the MVRB prohibit defendants from terminating the franchise, require defendants to purchase plaintiff's existing stock inventory and parts inventory at cost, compensate plaintiff for the loss of investment in Sterling products and inventory, and require defendants to reimburse plaintiff for attorney fees and costs. Plaintiff voluntarily dismissed its protest without prejudice on February 3, 2009.

¶ 12 Circuit Court Proceedings

¶ 13 Plaintiff initiated legal action with the filing of its complaint in the circuit court of Sangamon County on February 26, 2009. A 14-count second amended complaint, which is the complaint at issue in this opinion, was filed in the circuit court on October 20, 2009. Plaintiff alleged that defendants committed various torts and violations of the Act. Count I was directed against Sterling Truck and alleged that the notice of termination or non-renewal of plaintiff's franchise violated: section 4(b) of the Act, in that it was done in bad faith; section 4(d)(6), in that Sterling caused the termination or non-renewal without good cause as defined by the Act; section 4(d)(1), in that Sterling arbitrarily and capriciously modified the previously existing plan of allocation of new Sterling trucks to plaintiff; section 4(d)(6)(A), in that Sterling without good cause failed to provide plaintiff with statutory notice of termination or non-renewal; and section 9, in that, without good cause, Sterling terminated the franchise without paying fair and reasonable compensation to plaintiff for the value of plaintiff's business and franchise. Plaintiff sought damages in excess of $50,000 for the violations contained in count I.

¶ 14 Count II repeated the same allegations for violations of the Act against Daimler Trucks and also asked for $50,000 in damages. Count III essentially repeated those charges against Patterson. Count IV was directed against Daimler Trucks under section 4(b) of the Act, in that Daimler, arbitrarily and in bad faith, intentionally required plaintiff to invest in Sterling products at a time when Daimler knew it planned to discontinue manufacture of new Sterling-type trucks under the Sterling brand. Plaintiff sought in excess of $50,000 in damages. Count V alleged that Daimler tortiously interfered with plaintiff's business relationship with Sterling causing Sterling to breach the franchise contract by terminating the franchise without good cause in violation of section 4(d)(6). Plaintiff sought in excess of $50,000 in damages.

¶ 15 Count VI alleged that Daimler violated sections 4(d)(6), 4(b), and 4(d)(4) of the Act as a result of its termination or non-renewal of plaintiff's Detroit Diesel Direct Dealer Agreement. Plaintiff sought damages in an unspecified amount for the loss of the Detroit Diesel Direct Dealer Agreement. Count VII alleged that Sterling's discontinuation of new Sterling vehicles available to plaintiff under the SSA disqualified the SSA as a franchise under section 2(i) of the Act and amounted to a termination of the franchise without good cause. Plaintiff sought in excess of $50,000 in damages. Counts VIII and IX against Sterling and Daimler, respectively, alleged that the proposal by defendants to extend the termination date of the SSA to December 31, 2012, represented an offer to substantially change or modify the obligations of the SSA in violation of sections 4(d)(6), 4(d)(6)(B), and 9 of the Act. Damages in excess of $50,000 were sought in both counts.

¶ 16 Count X that alleged Sterling violated the new version of section 4(d)(6)(D)*fn2 (effective May 22, 2009) when Sterling discontinued the Sterling line. Because Sterling has discontinued the line, plaintiff will not be able to sell any new Sterling trucks, as it had sold all the remaining Sterling trucks it had in stock. Plaintiff claims this essentially terminates the franchise without good cause. Plaintiff alleged further violations of sections 4(d)(6), 4(b), 4(d)(1), 4(d)(6)(A), and 9 of the Act and sought in excess of $50,000 in damages. Count XI alleged similar claims against Daimler.

¶ 17 Count XII alleged in the alternative that, even if the franchise was terminated with good cause, it was in violation of amended section 9.5 of the Act, in that Sterling will actually terminate or fail to renew plaintiff's franchise on terms equally available to other dealers without paying fair and reasonable compensation to plaintiff for the value of plaintiff's franchise and business. Count XIII alleged similar claims against Daimler. Both counts sought in excess of $50,000 in damages. Count XIV alleged that Daimler violated section 6 of the Act by terminating the Detroit Diesel Direct Dealer Agreement that prohibited plaintiff from purchasing Detroit Diesel parts necessary to fulfill Sterling warranty requirements. The non-renewal was without any valid business reason and was designed to economically punish plaintiff in retaliation for plaintiff's refusal to sign the transition bonus program and general release.

¶ 18 On December 1, 2009, defendants filed a motion to dismiss plaintiff's second amended complaint for, inter alia, failure to state a claim pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). On February 19, 2010, the trial court entered its order dismissing counts I through V and VII through XIII with prejudice and entering judgment in favor of defendants on those counts. The court found that, with regard to counts I, II, VIII, and IX, even if plaintiff adequately alleged an actual or constructive termination of contract by defendants, such termination would be with good cause under section 4(d)(6)(D). The court found the term "line make" in section 4(d)(6)(D) referred to brand name and not vehicle type; thus discontinuance of manufacture and rebranding would be good cause for terminating the contract. Count IV was dismissed because plaintiff alleged no facts showing an affirmative misrepresentation on the part of defendants, nor did plaintiff plead the existence of a fiduciary relationship with defendant. Count V was dismissed because both the contract and Act permit Sterling to cease manufacturing trucks, even if the trucks were to be rebranded under another company owned by Daimler. Counts X, XI, XII, and XIII were dismissed because plaintiff failed to state a claim upon which relief could be granted. The court had previously dismissed counts III and VII with prejudice, and those dismissals were allowed to stand. The court denied the motion to dismiss with respect to counts VI and XIV, since plaintiff had shown Daimler had a direct interest in the Detroit Diesel contract, and thus it was covered by section 8 of the Act. The trial court allowed plaintiff to file an interlocutory appeal pursuant to Supreme Court Rule 304(a) (Ill. S. Ct. R. 304(a) (eff. Feb. 26, 2010)).

¶ 19 Appellate Court Ruling

¶ 20 On appeal, defendants argued that the trial court did not have subject matter jurisdiction over the claims brought under section 4(d)(6) of the Act. 406 Ill. App. 3d at 333. The appellate court agreed, adopting the dissent in Clark Investments, Inc. v. Airstream, Inc., 399 Ill. App. 3d 209, 215 (2010) (Holdridge, P.J., dissenting), that circuit courts do not have subject matter jurisdiction over claims brought under section 4(d)(6) of the Act. 406 Ill. App. 3d at 335. Rather, "[i]ssues as to whether good cause existed to cancel or terminate a franchise or the refusal to extend the franchise are matters best left to the arbitrator or the Review Board under section 12(d) of the Franchise Act [citation] and not the judiciary." 406 Ill. App. 3d at 335. ...


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