Yates v. Doctor's Associates, Inc.

549 N.E.2d 1010, 193 Ill. App. 3d 431, 140 Ill. Dec. 359, 1990 Ill. App. LEXIS 96
CourtAppellate Court of Illinois
DecidedJanuary 25, 1990
Docket5-89-0139
StatusPublished
Cited by54 cases

This text of 549 N.E.2d 1010 (Yates v. Doctor's Associates, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Yates v. Doctor's Associates, Inc., 549 N.E.2d 1010, 193 Ill. App. 3d 431, 140 Ill. Dec. 359, 1990 Ill. App. LEXIS 96 (Ill. Ct. App. 1990).

Opinion

JUSTICE HARRISON

delivered the opinion of the court:

This is an interlocutory appeal pursuant to Supreme Court Rule 307(a)(1) (107 Ill. 2d R. 307(a)(1)) from an order of the circuit court of Madison County which denied defendants’ motions to compel arbitration and to stay all judicial proceedings pending the conclusion of that arbitration. For the reasons which follow, we affirm.

The record before us shows that defendant Doctor’s Associates, Inc., is a Connecticut corporation which sells franchises for the operation of “Subway” sandwich stores. In 1987, plaintiffs Richard T. Yates and Dick Dewayne Cox, Jr., purchased eight of these franchises. Each franchise entitled plaintiffs to operate one Subway sandwich store. Plaintiffs Yates and Cox initially used five of their franchises to open and operate five Subway sandwich stores in Madison and St. Clair Counties in Illinois. The remaining three franchises were held by Yates and Cox for future development.

Each of the eight franchises which Yates and Cox had purchased was governed by a separate franchise agreement, but the substantive terms of those agreements were the same. The agreements provided that plaintiffs were responsible for selecting the locations for their sandwich stores. Those locations were then subject to approval by defendant Doctor’s Associates. If Doctor’s Associates approved the proposed locations, either it or one of its designees would lease the premises and then sublet them to plaintiffs.

The franchise locations and leases for plaintiffs’ five Illinois stores were approved by Doctor’s Associates. Defendant Ted Parent was an employee of Doctor’s Associates involved in its leasing operations, and the development agent appointed by Doctor’s Associates for the franchise territory in which plaintiffs’ stores were located was defendant Hossein Naemi. Naemi was also the president and sole director of defendant Subway Development Corporation of Eastern Missouri, and he would perform some of his responsibilities as Doctor’s Associates’ agent through that corporation. Defendant Frederick A. Deluca was the general manager of Doctor’s Associates and was allegedly the individual who approved or disapproved “the franchises and their developments [sic] of ‘Subway’ Sandwich Shops.”

The entity designated by Doctor’s Associates to lease the premises for plaintiffs’ stores was defendant Subway Sandwich Shops, Inc. (Subway, Inc.), and Subway, Inc., subleased the premises to plaintiffs pursuant to the terms of the franchise agreements. The subleases were approved by Doctor’s Associates. Defendant Christopher J. MacDonald, who had been associated with the leasing operations of Doctor’s Associates since 1984, held the position of vice-president for defendant Subway, Inc., and he executed the sublease agreements on Subway, Inc.’s behalf.

Subway, Inc., was a Connecticut corporation like Doctor’s Associates, and its operations were completely intertwined with those of Doctor’s Associates. Defendants have not identified any employee of Subway, Inc., who was not also an employee of Doctor’s Associates, and Subway, Inc., appears to have had no function other than acting for Doctor’s Associates in subleasing facilities to Doctor’s Associates’ franchisees.

Correspondingly, Subway, Inc.’s sublease agreements appeared to have had no purpose other than providing a mechanism by which defendant Doctor’s Associates could enforce the terms of its franchise agreements. They generated no profit for defendants. Under the subleases, plaintiffs Yates and Cox rented the premises at Subway, Inc.’s cost. Subway, Inc., did not even collect the rent. All rental payments were required to be made directly to the landlord, not Subway, Inc. The only provision in the subleases of any real consequence was that any “default in the performance of any of the terms, covenants or conditions” of the franchise agreements also constituted a breach of the subleases and entitled Subway, Inc., to terminate the leases and force the plaintiffs to surrender the premises.

After the franchise agreements and subleases were executed, plaintiffs Cox and Yates assigned their rights and liabilities under the franchises to plaintiff Substantial Enterprises, Inc., an Illinois corporation. Such assignments were expressly permitted under the terms of the franchise agreements, although the agreements provided that the assignments would not relieve the franchisees, Yates and Cox, of their personal liability.

Following the assignment of the franchises, plaintiff Cox began negotiations with the May Company on behalf of Substantial Enterprises to open additional Subway sandwich stores in shopping malls which May Company owned and operated. These negotiations culminated in what became known as the “three mall deal.” Under the terms of that deal, Substantial Enterprises was to first open a Subway sandwich store in the Mid-Rivers Shopping Mall in St. Charles, Missouri, followed by an additional store in the Alton Square Shopping Mall in Alton, Illinois, and finally one in the St. Clair Shopping Plaza in Fairview Heights, Illinois. Plaintiff Substantial Enterprises II, a Missouri corporation, was incorporated by plaintiffs for the spetifie purpose of operating the Mid-Rivers Shopping Mall store in Missouri. Plaintiffs intended to use their three inactive franchises for these three locations.

Plaintiffs claim that the opening of the Missouri store at Mid-Rivers Shopping Mall was a condition precedent to the “three mall deal” with the May Company, and they anticipated that it would lead to future deals with the May Company to open up additional Subway sandwich stores in other May Company malls throughout the State of Missouri. After the “three mall deal” was negotiated, however, a dispute arose between plaintiffs and defendants regarding plaintiffs’ expansion plans. This dispute centered specifically on plaintiffs’ plans to open the unit in Missouri at the Mid-Rivers location. Plaintiffs charge that defendants ultimately refused to approve the Mid-Rivers location and would not even approve alternative locations in Illinois which plaintiffs hoped to use for their three inactive franchises.

Plaintiffs responded to these actions by filing a five-count complaint against defendants in the circuit court of Madison County. Counts I through IV were each brought by plaintiffs Yates, Cox and Substantial Enterprises. Count I alleged that defendants had violated section 4.3 of the Illinois Franchise Disclosure Act (Ill. Rev. Stat. 1985, ch. 1211/2, par. 704.3), which governs the termination of franchises. Count II alleged that defendants had committed fraudulent practices in violation of section 6 of the Illinois Franchise Disclosure Act (Ill. Rev. Stat. 1985, ch. 121V2, par. 706). Count III was premised on common law fraudulent misrepresentation, while count IV alleged willful and wanton breach of contract. Count V was brought on behalf of Substantial Enterprises II alone and alleged intentional interference with prospective economic advantage.

Plaintiffs’ complaint was filed on June 17, 1988. The following month, defendants filed a petition to remove the case to the United States District Court for the Southern District of Illinois pursuant to 28 U.S.C. §1441 (1982).

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Bluebook (online)
549 N.E.2d 1010, 193 Ill. App. 3d 431, 140 Ill. Dec. 359, 1990 Ill. App. LEXIS 96, Counsel Stack Legal Research, https://law.counselstack.com/opinion/yates-v-doctors-associates-inc-illappct-1990.