Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Terminated franchisee proceeds with discrimination claims against Culver’s, (Oct 2, 2015)

By Greg Hammond, J.D.

The African-American owner of a terminated Culver’s franchise could proceed with claims that Culver Franchising System, Inc. (Culver’s) engaged in a pattern and practice of racial discrimination in violation of 42 U.S.C. § 1981. In mostly denying Culver’s various motions to strike and for summary judgment, the federal district court in Chicago determined: (1) it would be inappropriate to strike the owner’s affidavit or the proposed testimony of the plaintiffs’ expert witness; (2) the discrimination claims were not time-barred; and (3) Culver’s is not entitled to summary judgment on the lost profits claims (Wilbern v. Culver Franchising System, Inc., September 29, 2015, Durkin, T.).

Wilbern Enterprises, LLC and the company’s owner filed suit against Culver’s, alleging that the franchisor engaged in a pattern and practice of racial discrimination with regard to its Franklin Park, Illinois franchise and concerning Culver’s failure to enter into other franchising agreements with Wilbern. Culver’s filed a number of motions to strike and for summary judgment.

Future franchising opportunities. The court first determined that Wilbern Enterprises does not have a viable claim for denial of franchising opportunities. Instead, the court noted that Wilbern has a damages claim to recover lost profits that the Franklin Park Franchise might have earned had it been located on Stony Island Avenue on the South Side of Chicago instead of Franklin Park. In its complaint, Wilbern Enterprises claimed that it wanted to open a franchise on Stony Island, but Culver’s steered it to the Franklin Park location, which eventually suffered financial difficulties and was terminated. The damages arising from lost profits from a hypothetical Stony Island franchise should be taken account under Wilbern Enterprises’ damages claims for the alleged § 1981 violations in Count III of its complaint, the court determined. Consequently, the motion to dismiss was granted with regard to Wilbern Enterprises and Count II for denial of franchising opportunities.

Motions to strike. The court next denied Culver’s motion to strike the affidavit filed by Wilbern in opposition to Culver’s summary judgment motions, finding that if there is a valid evidentiary basis for discounting any material statement in Wilbern’s affidavit, it would consider it when it addresses summary judgment rather than in the context of a motion to strike.

Culver’s motion to strike the proposed testimony of Wilbern Enterprises’ expert witness was also denied. In particular, Culver’s claimed that the expert’s opinions on whether Culver’s treated Wilber Enterprises and its owner the same or in a consistent manner as it treated white franchisees, and whether CFSI exercised best business practices in connection with how it treated plaintiffs, should be barred. The court, however, determined that Culver’s arguments hinged on credibility assessments and issues of fact that must be resolved by a jury. Further, a reasonable jury might conclude that the reasons proffered by Culver’s for the conduct Wilbern complains of were not the real motivating factors for that conduct.

More substantively, the court noted that the expert is prepared to testify that the franchise owner would have been able to open a South Side of Chicago franchise had Culver’s not denied him the opportunity to do so, but Culver’s challenges two factual assumptions on which the testimony is based, including: (1) the assumption that Wilbern would have received Tax Increment Financing (TIF) funds to use as equity towards the cost of building a South Side franchise and (2) the assumption that Wilbern would have been able to negotiate a lease at Marshfield Plaza. The court, however, found no failure of proof on the expert’s factual TIF assumption, and Culver’s argument that Gordon’s damages testimony is speculative because the evidence is controverted on whether Wilbern would have been able to negotiate a lease for a Marshfield Plaza location is an argument Culver’s must make to the jury.

Summary judgment. Culver’s next claimed that summary judgment would be appropriate with regard to Wilbern’s allegations concerning the discriminatory events, because they were time-barred. The court rejected this argument, finding that with regard to the denial of franchising opportunities claim, there was no evidence that Culver’s ever formally or informally denied Wilbern’s application for the Marshfield Plaza location, and that Culver’s did not put Wilbern on notice of a “permanent exclusion” until it terminated the Franklin Park Franchise. Wilbern’s complaint, which was filed four months after termination, was therefore timely under the applicable two-year statute of limitations.

In addition, the discriminatory treatment concerning the Franklin Park franchise also was timely under the applicable four-year statute of limitations due to ongoing acts that combined to cause injury to Wilbern. Specifically, the ongoing courses of conduct included Culver’s alleged wrongful failure to provide financial assistance; wrongful failure to protect Wilbern Enterprises from harmful competition; and pressuring to maintain lower prices than Wilbern wanted to set. The court concluded that none of the alleged wrongful acts that occurred prior to termination of the franchise agreement were sufficiently decisive so as to have enabled the plaintiffs to have realized they suffered a compensable injury.

With regard to the plaintiffs’ equitable estoppel claim, the court found that a reasonable fact finder could conclude that Culver’s placed Wilbern in an “impossible situation” when it failed to deny Wilbern a franchise opportunity on the South Side. Wilbern could have “infuriated” Culver’s by continuing to press for a South Side franchise immediately after the franchisor approved a location in the western suburbs, he could have sued prematurely for discrimination, or he could forgo any remedy under § 1981. The court concluded that by “impaling [the plaintiffs] on this three-pronged fork,” a reasonable fact finder could determine that Culver’s prevented Wilbern from suing within the two-year statute of limitations. The motion for summary judgment on this claim was therefore denied.

The motion for summary judgment on all claims brought by Wilbern Enterprises, LLC was also denied. Culver’s argued that the claims should be denied because there is a failure of proof on Plaintiffs’ § 1981(b) claims concerning the Franklin Park Franchise, and Wilbern is judicially estopped from asserting any claims against Culver’s based on its failure to disclose those claims in its bankruptcy proceeding. The court rejected both arguments, first finding that Wilbern stated sufficient evidence to support a prima facie case of intentional discrimination and to raise an inference that Culver’s applied its legitimate contractual expectations in a disparate manner. In addition, the estoppel argument failed because: (1) the § 1981 claim did not accrue until Culver’s terminated the franchise agreement, which occurred after the bankruptcy proceedings were dismissed, and (2) judicial estoppel only applies where the omission is intentional, and the requisite intent could not be inferred from the mere fact of nondisclosure.

The court also denied the motion for summary judgment with regard to the plaintiffs’ claims for lost profits, as well as Culver’s motion for summary judgment on its breach of contract and breach of personal guaranty counterclaims.

The case is No. 13 C 3269.

Attorneys: Carmen David Caruso (Carmen D. Caruso Law Firm) for Michael Anthony G. Wilbern and Wilbern Enterprises, LLC. Larry Alan Schechtman (SmithAmundsen LLC) for Culver Franchising System, Inc.

Companies: Wilbern Enterprises, LLC; Culver Franchising System, Inc.

Cases: FranchisingDistribution IllinoisNews