United States District Court, N.D. Illinois, Eastern Division
SEARS HOME APPLIANCES SHOWROOMS, LLC and SEARS AUTHORIZED HOMETOWN STORES, LLC, Plaintiffs/Counter-Defendants,
APPLIANCE ALLIANCE, LLC, BRENT TURLEY, and MINENA TURLEY, Defendants/Counter-Plaintiffs,
SAMANTHA WILKS, SEARS HOLDING CORPORATION d/b/a SEARS HOMETOWN & OUTLET and SEARS.COM, SEARS, ROEBUCK & CO., JEFFREY SCOTT TUCKER, and 2720 SH 121, LP, Third-Party Defendants.
MEMORANDUM OPINION AND ORDER
Z. Lee United States District Judge
Home Appliances Showrooms, LLC (“SHAS”) and Sears
Authorized Hometown Stores, LLC (“SAHS”)
(together, “Plaintiffs”) filed this lawsuit
against Brent and Minena Turley (“the Turleys”)
and Appliance Alliance, LLC for breaching the parties'
franchise agreements. In turn, the Turleys and Appliance
Alliance (“Counter-Plaintiffs”) brought
counterclaims against SHAS and SAHS, as well as third-party
defendants Sears Holding Corporation d/b/a Sears Hometown
& Outlet and Sears.com (“Sears Holding”),
Sears, Roebuck & Co. (“Sears Roebuck”),
Samantha Wilks (“Wilks”), Jeffrey Scott Tucker
(“Tucker”), and 2720 SH 121, LP.
their First Amended Counterclaim (“FAC”),
Counter-Plaintiffs allege breach of contract (Count I),
conversion and trespass (Count II), tortious interference
with contract and existing and prospective business relations
(Count III), defamation, business disparagement, and unfair
competition (Count IV), breach of fiduciary duty, economic
duress and business coercion, oppressive conduct, and
constructive trust (Count V), violations of the Texas
Business Opportunity Act and Texas Deceptive Trade Practices
Act (Count VI), and fraud (Count VII).
SAHS, Sears Holding, Sears Roebuck, Wilks, and Tucker
(“Sears Counter-Defendants”) have moved to
dismiss certain counts in the FAC. For the following reasons,
the Sears Counter-Defendants' motion to dismiss  is
granted in part and denied in part.
events giving rise to this dispute began prior to 2010, when
the Turleys-recently retired from careers at the National
Aeronautics and Space Administration-began exploring
investment opportunities. FAC ¶ 10, ECF No. 44. As part
of their research, the Turleys reviewed a Sears
“Franchise Disclosure Document” that SHAS was
circulating. Id. ¶ 11. Based on
“representations and assurances” included in the
Franchise Disclosure Document and made by Sears,
Turleys elected to purchase four Sears franchises in Texas.
Id. ¶¶ 12-13. The Turleys executed the
purchase in February 2010 through Appliance Alliance, LLC,
which they own and control. Id. ¶ 12.
Turleys' investment was initially successful. From 2010
through the beginning of 2012, their franchises were
profitable. Id. ¶ 16. Based on their success,
their course of dealing with Sears, and their understanding
of the franchise relationship based on Sears's
representations and franchise documents, the Turleys invested
in two additional franchises. Id. ¶¶
16-17. Shortly after acquiring the two additional franchises,
however, the Turleys' relationship with Sears began to
to the Turleys, SHAS “split away” from Sears
Holding, resulting in “inherent competition whereby
Sears Holding enjoyed an unfair competitive edge.”
Id. ¶ 18. A number of problems then arose
relating to their franchise relationship. See Id.
¶ 19 (listing changes). These problems included the
following. First, the Turleys allege that, in purchasing
their franchises, Sears represented that it would impose
territorial restrictions to prevent direct competition with
their franchises and thereby protect the Turleys'
investment. Id. ¶ 13. “[T]he franchise
offering documents” failed to disclose, however, that
the Turleys' franchises “would be subjected to
price, product, financing, and ancillary services
competition, directly from Sears, operating through one or
more of its controlled entities or outlets.”
Id. Additionally, Sears's “offering
circulars” represented that the Turleys would receive a
certain minimum average commission as a percentage of
merchandise sales, and in finalizing the franchise sales,
Sears “encouraged its incoming franchisees to
believe” they would receive even larger commissions.
Id. ¶ 14. But shortly after the Turleys
purchased their fifth and sixth franchises, Sears began
reducing commissions below what they were promised.
Id. ¶ 19. Similarly, despite promising to pay
the Turleys a 2% “marketing fee, ” Sears refused
to do so. Id. Finally, the Turleys were under the
impression that they would have considerable freedom in
dictating the operation of their franchises, but Sears
instead exercised “total domination and control,
” fixing prices, hours, and inventory, among other
things. Id. ¶ 73. In addition to these
problems, Sears took a number of other actions that
“operated together to make the continued profitable
operations of [the Turleys'] business impossible to
maintain.” Id. ¶ 19.
taking these actions, Sears allegedly “began
manufacturing purported breaches and noncompliance with its
required operations procedures.” Id. ¶
20. Sears then used these breaches and acts of noncompliance
as grounds for threatening to hold the Turleys in default of
their franchise agreements. Id. As part of this
course of conduct, Sears assigned one of its employees,
Wilks, to oversee the Turleys' stores. Id.
¶ 22. According to the Turleys, Wilks “was focused
upon circumventing [the Turleys'] relationship with their
employees and taking over the operations of the stores by
usurping [the Turleys'] authority over their own
in April 2015, Sears declared the Turleys in default of their
franchise agreements and ordered them to turn over the keys
to their stores. Id. ¶ 25. Tucker, a district
sales manager for Sears, took the keys to one of their stores
and instructed the landlord to change the locks. Id.
¶ 26. Wilks called employees at the Turleys' other
stores and told them to open the stores only “under her
direction.” Id. ¶ 28. According to the
Turleys, Sears took control of all inventory at their stores
and locked them out. Id. ¶ 29. Plaintiffs'
action before this Court, and Counter-Plaintiffs'
counterclaims in response, soon followed.
survive a motion to dismiss pursuant to Rule 12(b)(6), a
complaint or counterclaim must “state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007); accord Cozzi Iron
& Metal, Inc. v. U.S. Office Equipment, Inc., 250
F.3d 570, 574 (7th Cir. 2001) (applying the same standard in
reviewing a motion to dismiss a counterclaim as with a motion
to dismiss a complaint). “A claim has facial
plausibility when the [counter-plaintiff] pleads factual
content that allows the court to draw the reasonable
inference that the [counter-defendant] is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). Additionally, when considering motions
to dismiss, the Court accepts “all well-pleaded factual
allegations as true and view[s] them in the light most
favorable to the [counter-claimant].” Lavalais v.
Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013)
(citing Luevano v. Wal-Mart Stores, Inc., 722 F.3d
1014, 1027 (7th Cir. 2013)). At the same time,
“allegations in the form of legal conclusions are
insufficient to survive a Rule 12(b)(6) motion.”
McReynolds v. Merrill Lynch & Co., Inc., 694
F.3d 873, 885 (7th Cir. 2012) (citing Iqbal, 556
U.S. at 678). As such, “[t]hreadbare recitals of the
elements of the cause of action, supported by mere conclusory
statements, do not suffice.” Iqbal, 556 U.S.
number of parties and claims involved in the case invites
confusion. In the interests of clarity, the Court will
proceed as follows. First, the Court will address the Sears
Counter-Defendants' motion to dismiss Counts I, II, III,
and IV of the FAC as against Sears Holding and Sears Roebuck.
Second, the Court will address the Sears
Counter-Defendants' motion to dismiss Counts I, VI, and
VII as against Wilks. And finally, the Court will address the
remaining grounds on which the Sears Counter-Defendants seek
to dismiss Counts I, III, IV, V, VI, and VII.
preliminary piece of housekeeping: The Sears
Counter-Defendants have also moved to dismiss all claims
against Tucker. In their response, Counter-Plaintiffs state
that “Jeffrey Tucker is not a Counter-Defendant
identified as a party in the Counterclaim, so any motion to
dismiss him should be denied as moot.”
Counter-Pls.' Resp. 8 n.3, ECF No. 64. The Sears
Counter-Defendants interpreted this as an acknowledgement
that Counter-Plaintiffs do not wish to pursue any claims
against Tucker and requested that all claims against him be
dismissed with prejudice. Counter-Defs.' Reply 5 n.3, ECF
No. 69. The Court agrees and dismisses all claims against
Tucker with prejudice.
Counts I, II, III, and IV as Against Sears Holding and Sears
Sears Counter-Defendants move to dismiss Counts I, II, III,
and IV as against Sears Holding and Sears Roebuck. In regard
to Count I, they argue that Sears Holding and Sears Roebuck
were not parties to the franchise agreements underlying
Counter-Plaintiffs' breach of contract claim and thus
cannot be liable for breach of contract. Counter-Defs.'
Mot. Dismiss 3, ECF No. 57. In regard to Counts II, III, and
IV, they argue that Sears Holding and Sears Roebuck likewise
cannot be liable, on the ground that they are separate
corporate entities from SHAS and SHOS, and Counter-Plaintiffs
do not allege Sears Holding and Sears Roebuck were involved
in the actions alleged under those counts. Id. at 4.
starting point, Counter-Plaintiffs acknowledge that SHAS,
SHOS, Sears Holding, and Sears Roebuck are separate corporate
entities. In the FAC, Counter-Plaintiffs identify SHAS, Sears
Holding, and Sears Roebuck as distinct entities, FAC
¶¶ 4, 6-7. Additionally, Counter-Plaintiffs do not
allege at any point in the FAC that they dealt or
communicated with any corporate entity other than
SHAS.Rather, Counter-Plaintiffs allege merely
that SHAS, “[o]n information and belief . . . is owned
and/or controlled ultimately by” Sears Roebuck, and
“[t]herefore, any judgment solely against this
Counter-Defendant would be useless without joint and several
liability of” Sears Roebuck. FAC ¶ 4. They further
claim that Sears Roebuck
has created a network of affiliated corporate entities which
it ultimately owns and controls, and operates the same as a
single enterprise for its own benefit and profit. Although
assets and business relationships may have been transferred
or assigned from one Sears entity to another, ultimately
[Sears Roebuck], on information and belief, directs and
controls all of them and causes them to act for its own
overall good and benefit.
Id. ¶ 7. The FAC therefore uses
“Sears” to refer to what it alleges is a
collective entity. Id.
Counter-Plaintiffs do not expressly invoke the doctrine, the
Court construes the FAC as seeking to pierce the corporate
veil separating the various Sears entities it identifies.
Under basic principles of corporate law,  corporations are
entities of limited liability, and one corporation is legally
distinct from another corporation, even if the two are
affiliated. Van Dorn Co. v. Future Chem. & Oil
Corp., 753 F.2d 565, 569 (7th Cir. 1985) (citing
Main Bank of Chi. v. Baker, 427 N.E.2d 94, 101 (Ill.
1981)). Thus, a cause of action against one corporation will
not give rise to liability against another corporation unless
a court pierces the veil of the first to reach the second, or
treats the first as an “alter ego” of the second.
Id. at 569-70.
impose liability under the alter ego doctrine, a party must
first demonstrate that one corporation “‘is so
controlled and its affairs so conducted that it is a mere
instrumentality of another.'” Id. at 570
(quoting Main Bank of Chi., 427 N.E.2d at 101). A
party must further demonstrate that “‘observance
of the fiction of separate existence would, under the
circumstances, sanction a fraud or promote
injustice.'” Id. (quoting Main Bank of
Chi., 427 N.E.2d at 101). These requirements apply to
causes of action in both contract and tort, although more
stringently to claims of breach of contract. Northbound
Grp., Inc. v. Norvax, Inc., 795 F.3d 647, 652-53 (7th
Cir. 2015) (citing Tower Investors, LLC v. 111 East
Chestnut Consultants, Inc., 371864 N.E.2d 927, 941
on these principles, insofar as Counter-Plaintiffs seek to
hold Sears Roebuck (and for that matter, Sears Holding)
liable for SHAS's actions, they must allege facts giving
rise to a reasonable inference both that SHAS is a mere
instrumentality controlled by Sears Roebuck and that
recognizing SHAS's separate existence from Sears Roebuck
would sanction a fraud or promote injustice.
Counter-Plaintiffs' allegations are sufficient to satisfy
the first element, even though they rest “on
information and belief.” Such pleading is permissible,
particularly in light of the reality that any details about
Sears Roebuck's oversight of the various Sears entities
are unavailable to Counter-Plaintiffs at this stage. See
Huon v. Denton, 841 F.3d 733, 743 (7th Cir. 2016)
(quoting Brown v. Budz, 398 F.3d 904, 914 (7th Cir.
Counter-Plaintiffs' allegations fail to allege any fraud
or injustice that would be occasioned by respecting the Sears
corporations' separate existences. Rather,
Counter-Plaintiffs' stated intention in pursing claims
against Sears Roebuck is to recover damages from funds or
assets owned by Sears Roebuck, claiming that any judgment
solely against SHAS would be “useless” simply
because Sears Roebuck “own[s] and/or control[s]”
SHAS. FAC ¶ 7. Mere allegations of a desire to recover
from another corporation's assets, without more, are
insufficient to demonstrate fraud or injustice. Sea-Land
Servs., Inc. v. Pepper Source, 941 F.2d 519, 524 (7th
Cir. 1991) (concluding that allegations of injustice must
consist of “some ‘wrong' beyond a
[party's] inability to collect” on a judgment);
Julin v. Advanced Equities, Inc., No. 13 C 9075,
2014 WL 5617001, at *4 (N.D. Ill. Nov. 4, 2014) ...