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Inc. v. Shakti Chicago, Inc.

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

July 26, 2019

7-ELEVEN, INC., Plaintiff/Counter-defendant,
v.
SHAKTI CHICAGO, INC., et al., Defendants/Counter-plaintiffs.

          MEMORANDUM OPINION AND ORDER

          Sharon Johnson Coleman United States District Judge.

         This matter originates from 7-Eleven, Inc.'s claim against Defendants/counter-plaintiffs Ketan Patel, Shakti Chicago, Inc., Shakti BCP 1, Inc., Smita 7, Inc., Shakti7, Inc., Shakti 2 Enterprises, Inc., Smita II, Inc., Shakti 1 Enterprises, Inc., and Smita 1 Enterprises, Inc. (collectively “counter-plaintiffs”) for trademark infringement, breach of contract, and injunctive relief. Counter-plaintiffs bring this counterclaim against 7-Eleven alleging breach of the Illinois Franchise Disclosure Act, 815 ILCS 705/1, et seq., (“IFDA”), breach of contract, and breach of implied covenant of good faith and fair dealing. Currently before the Court is 7-Eleven's motion to dismiss [34] counter-plaintiffs' complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons explained below, the motion to dismiss is granted.

         Background

The following facts are taken from the counterclaims and are accepted as true for the purpose of deciding this motion. 7-Eleven is a franchise corporation with its principal place of business in Texas. Ketan Patel is the controlling shareholder of counter-plaintiffs Shakti Chicago, Inc., Shakti BCP 1, Inc., Smita 7, Inc., Shakti7, Inc., Shakti 2 Enterprises, Inc., Smita II, Inc., Shakti 1 Enterprises, Inc., and Smita 1 Enterprises, Inc., all of which are incorporated in Illinois.

         Between 2004 and 2016, 7-Eleven entered into franchise agreements with the counter-plaintiffs to operate eight 7-Eleven stores, all located in Illinois. The franchise agreements governing the parties were substantively identical. On July 27, 2018, 7-Eleven sent each of the counter-plaintiffs four notices asserting violations of the franchise agreements. These violations included failures to comply with wage and hour laws and failures to submit accurate payroll information. On August 1, 2018, 7-Eleven served the eight stores with a fifth notice alleging additional violations of the franchise agreement. The fifth noticed asserted that the franchise agreements would be terminated immediately because the parties had already received four previous notices. That same day, 7-Eleven filed a lawsuit for possession of the stores, with the exception of the store located in Niles, Illinois, which 7-Eleven demanded that Patel remove all 7-Eleven signage.

         On October 18, 2018, counter-plaintiffs filed its answer and counterclaims. Counter-plaintiffs allege that 7-Eleven improperly terminated the franchise agreements because of Ketan Patel's leadership within the Franchise Owners Association of Chicagoland (“FOAC”) as well as Patel's criticism of 7-Eleven's business practices. In Count I, counter-plaintiffs allege that 7-Eleven's immediate termination of the franchise agreement violated the IFDA. In Count II, counter-plaintiffs allege that 7-Eleven's immediate termination violated the franchise agreement. In Count III, counter-plaintiffs allege that 7-Eleven's actions breached the covenant of good faith and fair dealing.

         Legal Standard

         A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the complaint, not the merits of the allegations. To overcome a motion to dismiss, a complaint must contain sufficient factual allegations to state a claim for relief that is plausible on its face, Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and raises the right to relief above a speculative level, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). When ruling on a motion to dismiss, the Court must accept all well-pleaded factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Park v. Ind. Univ. Sch. of Dentistry, 692 F.3d 828, 830 (7th Cir. 2012).

         Discussion

         Breach of the Illinois Franchise Disclosure Act

         As mentioned previously, the counter-plaintiffs allege that 7-Eleven terminated the franchise agreements because of Patel's participation in FOAC, in violation of the IFDA. Section 17 of the IFDA states that “it shall be an unfair practice and a violation of this Act for a franchisor to in any way restrict any franchisee from joining or participating in any trade association.” 815 ILCS 705/17.

         7-Eleven argues that the counter-plaintiffs fail to state a claim because 7-Eleven had “good cause” to terminate the franchise agreements under the IFDA. The IFDA prohibits terminating a franchise agreement prior to the term's expiration “except for ‘good cause.'” 815 ILCS 705/19. Under the IFDA, “good cause” occurs when a franchisee fails to comply with a provision of the franchise agreement; but is given a reasonable opportunity to cure the default. 815 ILCS 705/19(b). A franchise agreement may be terminated “without the requirement of notice and an opportunity to cure, ” however, when the franchisee “repeatedly fails to comply with the lawful provisions of the franchise or other agreement.” 815 ILCS 705/19(c)(4).

         7-Eleven contends that the four violation notices sent on July 27, 2018 followed by the fifth notice sent on August 1, 2018, constituted repeated failures to comply with the franchise agreement, thus justifying termination without notice or an opportunity to cure. Although it denies terminating the agreement because of Patel's participation in FOAC, 7-Eleven argues that motive is irrelevant because it had good cause to terminate the franchise agreement.

         The counter-plaintiffs do not dispute the accuracy of the four violations sent to each store on July 27, nor the fifth notice sent on August 1. Without any contention that the violation notices are inaccurate, the counter-plaintiffs' claims establish that 7-Eleven had good cause to terminate the franchise agreements. The counter-plaintiffs do not provide, and the Court has not found, any legal support for the argument that a termination for good cause can be “overcome by the presence of an improper motive.” See Tuf Racing Products, Inc. v. American Suzuki Motor Corp., 223 F.3d 585, 589 (7th Cir. 2000) (finding motive “irrelevant” when franchisor had legal right to ...


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