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Lokhandwala v. KFC Corp.

United States District Court, N.D. Illinois, Eastern Division

January 23, 2018

AFZAL LOKHANDWALA, et al., Plaintiffs,


          John Robert Blakey Judge

         This diversity case arises out of a dispute over a franchise agreement between Defendant KFC Corporation and Plaintiff Afzal Lokhandwala, a KFC franchisee. Plaintiff[1] alleges that Defendant breached their agreement by unreasonably attempting to block him from telling customers that his KFC franchises offer Halal chicken.

         Plaintiff amended his complaint in August 2017. [23]. Defendant moved to dismiss that complaint for failure to state a claim, [26], and then filed a counterclaim seeking declaratory and injunctive relief and attorney's fees, pursuant to the franchise agreement, [30]. Plaintiff moved to dismiss the counterclaim for failure to state a claim. [38]. For the reasons explained below, this Court grants both motions to dismiss.

         I. The Complaint's Allegations

         Plaintiff owns and operates eight KFC franchises in Illinois. [23] ¶ 1. He opened his first franchise in 2002, at which point he entered into a franchise agreement with Defendant. Id. ¶ 21. Plaintiff opened his second franchise in 2006 and his third in 2010 before expanding to eight total franchises in 2012. Id. ¶ 25. Each franchise operates under an identical franchise agreement. Id. ¶ 9.

         Plaintiff says he identified selling Halal chicken as a lucrative business opportunity as early as 2002, when he opened his first franchise. Id. ¶ 19. “Halal” refers to food prepared in accordance with Islamic laws and customs. Id. When Plaintiff discussed selling Halal chicken in 2002, Defendant's Franchise Director, Ken Taft, promised Plaintiff that Defendant would approve him selling Halal chicken. Id. ¶¶ 17, 20. Taft confirmed in a 2016 email to Plaintiff that “KFCC did indeed approve the use of Halal chicken.” Id. ¶ 22.

         Thus, with Defendant's “full knowledge and approval, ” Plaintiff started marketing and selling Halal chicken in his original franchise after Taft helped him find a Halal-certified (and KFC-approved) poultry processor. Id. ¶ 23. Plaintiff says that several of Defendant's executives “regularly” visited his first franchise and knew that he sold Halal chicken. Id. ¶ 24. Selling Halal chicken proved quite lucrative-so lucrative that Plaintiff selected the locations for the five franchises he opened in 2012 because of their proximity to Muslim communities. Id. ¶¶ 25, 27.

         From 2003 through early 2017, all of the chicken-on-the-bone (as distinct from other chicken products, like chicken tenders) that Plaintiff's stores sold came from Halal-certified poultry processors that KFC approved. Id. ¶ 29. At present, 75 percent of Plaintiff's chicken-on-the bone comes from Halal-certified processors. Id. Consistent with both Illinois law on Halal foods and Islamic rules, Plaintiff's franchises separate Halal and non-Halal products from each other and inform customers that they sell both Halal and non-Halal products. Id. ¶ 115.

         Plaintiff always bought his chicken-on-the-bone from processors that the Islamic Society of Washington Area (ISWA) certified as Halal-compliant. Id. ¶¶ 34, 35. From 2003 through October 2016, multiple processors gave Plaintiff copies of their annual ISWA certificates confirming their Halal certifications. Id. ¶ 36. Plaintiff says that, from 2003 until late 2016 or early 2017, Defendant approved the sale of Halal chicken in Plaintiff's stores, helped him find Halal-certified processors and distributors, and allowed him to obtain the annual ISWA certificates. Id. ¶ 41.

         In late 2016 or early 2017, however, Defendant changed course and demanded that Plaintiff stop marketing his products as Halal. Id. ¶ 49. Defendant made this demand based upon a 2009 KFC policy that prohibits franchisees from making religious dietary claims about KFC products. Id. The policy explains that KFC restaurants cannot offer Halal or Kosher foods for two reasons: (1) people have different interpretations of what satisfies the corresponding processing requirements; and (2) Defendant cannot certify that restaurant preparation and cooking processes would not lead to cross-contamination between the Halal and non-Halal (or Kosher and non-Kosher) foods. [27-2].

         Plaintiff says that this policy contradicts the representations that Defendant made to him when he opened stores in 2010 and 2012, and runs contrary to Defendant allowing him to continue advertising Halal products in his stores after the 2009 policy took effect. [23] ¶ 51. In fact, Plaintiff says that Defendant failed to disclose the policy during negotiations for Plaintiff to open new franchises in 2012, and then approved Plaintiff's request to offer Halal gravy in his stores. Id. ¶¶ 58, 63. Also, the franchise agreement does not mention the policy. Id. ¶ 50.

         When Defendant ordered Plaintiff to stop marketing his products as Halal, Defendant also told Plaintiff to remove signs from his stores that disclosed the Halal status, names, and addresses of Plaintiff's chicken processors and distributors. Id. ¶¶ 73, 76. Plaintiff believes that Illinois regulations require him to post such signs because he certified his franchises as Halal Registered Brokers with the Illinois Department of Agriculture in 2017. Id. ¶¶ 72, 73.

         II. Legal Standard

         To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must provide a “short and plain statement of the claim” showing that the pleader merits relief, Fed.R.Civ.P. 8(a)(2), so the defendant has “fair notice” of the claim “and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must also contain “sufficient factual matter” to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

         A facially plausible claim “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). This plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013). Thus, “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).

         In evaluating a complaint, this Court accepts all well-pleaded allegations as true and draws all reasonable inferences in the plaintiff's favor. Iqbal, 556 U.S. at 678. This Court does not, however, accept a complaint's legal conclusions as true. Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009). On a motion to dismiss, this Court may consider the complaint itself, documents attached to the complaint, documents central to the ...

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