Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Express language required to overcome Illinois law presumption against third-party beneficiaries to contract, (Jan 30, 2025)

By Justin Marcus Smith, J.D.

The language of a pizzeria food supply contract did not establish that the contract was made for the direct benefit of the complaining franchisee.

Belvidere Pizza, Inc. (Belvidere), a Chicagoland pizzeria franchisee, could not proceed with a third-party beneficiary breach of contract claim against its franchisor’s food supplier, McCain Foods USA, Inc. (McCain), where the contract did not expressly state it would benefit Belvidere as a third-party, held the federal district court in Chicago. The court did not find anything in the purported contract to overcome the presumption under Illinois law that contracts do not benefit third parties without an express identification of them as third-party beneficiaries, either individually, or as a member of an ascertainable group. The court also dismissed Belvidere’s unjust enrichment claim for the pleading error of having incorporated the prior breach of contract claim into its unjust enrichment claim. The breach of contract claim and implied contract unjust enrichment claim could not co-exist unless they were alternate pleadings, but the incorporation error meant Belvidere did not plead them in the alternate (Belvidere Pizza, Inc. v. McCain Foods USA, Inc., No. 1:24-cv-00667 (N.D. Ill. Jan. 27, 2025)).

Background. Hampshire Pizza, Inc. (Hampshire, also known as Rosati’s Pizza-Hampshire Group) and Belvidere Pizza, Inc. (Belvidere), a Hampshire franchisee, brought a putative class action against McCain Foods USA, Inc. (McCain), one of their food suppliers. Hampshire and Belvidere alleged that McCain breached a food service contract for the direct benefit of Hampshire, as well as third parties, including franchisees like Belvidere, when McCain raised prices without requisite 90-day notice. In the alternative, Belvidere alleged quasi-contract and unjust enrichment against McCain. The court granted McCain’s Fed. R. Civ. P. 12(b)(6) motion to dismiss all of Belvidere’s claims.

No identifiable beneficiary. The court explained that Illinois law has a strong presumption against conferring contractual benefits on non-contracting third parties. Therefore, the implication that a contract applies to third parties must have the strength of an express declaration to overcome the presumption. It was not enough to show that the parties knew, expected, or intended that third parties would benefit. Express contract language must identify the third-party beneficiary by name or by a description of a class to which the third party belongs to show the contract was made for the direct, rather than incidental, benefit of a third party.

Here, Belvidere was not a facial party to the contract. The contract only identified Hampshire and six “authorized distributors” authorized by the customer, Hampshire, to receive pricing information and to place orders for the pizzeria food products. Belvidere was not an authorized distributor. The contract did not even identify Belvidere, nor any individual Hampshire franchisee, nor did it refer to franchisee stores as a group.

The court continued that it would not have been enough even if McCain and Hampshire “knew, expected, or intended” that Belvidere would benefit from the contract without express language about it. The court granted McCain’s motion to dismiss Belvidere’s third-party beneficiary claim.

Unjust enrichment. Turning to Belvidere’s unjust enrichment claim, Belvidere pleaded in the alternative that it had an implied contract and McCain unjustly benefited from the alleged price increases to Belvidere’s detriment. The court acknowledged the general validity of alternate pleading; however, the court faulted Belvidere for incorporating, by reference, the allegations of a contract in the unjust enrichment count. The court found Belvidere incorporated its contractual third-party beneficiary claim by reference when it reflexively employed the well-worn words, in setting forth a new count, “Plaintiffs repeat the allegations set forth above, as if fully set forth herein.” The court characterized that as a pleading error which meant the unjust enrichment claim could not go forward. Accordingly, the court dismissed Belvidere’s unjust enrichment count. However, the court explicitly granted Belvidere leave to file an amended unjust enrichment claim.

The Case is No. 1:24-cv-00667.

Judge: Rowland, M.

Attorneys: Charles Foose Barrett (Neal & Harwell, PLC) for Belvidere Pizza, Inc. Scott T. Schutte (Morgan Lewis & Bockius LLP) for McCain Foods USA, Inc.

Companies: Belvidere Pizza, Inc.; McCain Foods USA, Inc.

Cases: FranchisingDistribution IllinoisNews