Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Window installation franchisee’s fraud, Franchise Disclosure Act claims tossed, (May 8, 2015)

By Greg Hammond, J.D.

Window World, Inc.—a company that sells and installs windows, siding, and garage doors—successfully evaded claims for violation of the Illinois Franchise Disclosure Act (IFDA), fraud, and breach of contract. The federal district court in Chicago dismissed two franchisees’ claims, finding that they were barred by the doctrine of res judicata, time-barred under the applicable three-year statute of limitations or repose, or inadequately pleaded (Window World of Chicagoland, LLC v. Window World, Inc., May 7, 2015, Blakey, J.).

Background. Two sets of plaintiffs—Window World of Chicagoland, LLC and David Hampton (the “Hamptons”) and Suntec, Inc., Kenneth Dillingham, and Debbie Dillingham (the “Dillinghams”)—filed suit against Window World, Inc. and various employees, claiming violation of the IFDA, fraud, and breach of contract.

The Hamptons entered into multiple license agreements with Window World, but were informed in October 2011 that their relationship was a franchise. Window World allegedly gave the Hamptons the option of agreeing to become a franchisee or rescinding the license agreements and cease operation under the Window World name.

The Dillinghams entered into two license agreements with Window World, but encountered several instances where other Window World licensees encroached their territory and disparaged their reputation and name. To recover sales, the Dillinghams focused on efforts in the Southern Illinois Territory, leaving the Prairie Land Territory to “coast.” They allegedly informed Window World of the sales strategy, and Window World supposedly agreed. However, the Dillinghams later received a call from Window World, stating that they breached their sales obligations under the Prairie Land Territory and that Window World was taking back both territories.

Window World moved to dismiss both the Dillinghams’ and Hamptons’ claims.

Hampton parties. In support of its motion to dismiss, Window World argued that the Hampton Parties’ claims were barred under the doctrine of res judicata due to a default judgment entered on December 4, 2012, in an earlier action. Conversely, the Hamptons claimed that the earlier case was consolidated with the instant action before the default judgment was reinstated. Consequently, the Hamptons assert that the default judgment is not a judgment in an earlier action but an earlier judgment in the instant action that can be revisited.

To prevail on its res judicata claim, Window World was required to establish: (1) a final judgment on the merits that has been rendered by a court of competent jurisdiction; (2) an identity of the causes of action; and (3) an identity of parties or their privies.

The court rejected the Hamptons’ argument, finding that the record clearly demonstrated that the judge handling the default judgment exercised discretion to only coordinate discovery between the two cases, but to never fully consolidate them. Consequently, there was a final judgment in an earlier action rather than the instant action. The Hamptons additionally failed to dispute an identity of the causes of action and parties. The motion to dismiss the Hamptons’ claim was therefore granted.

The Dillinghams. The Dillinghams’ IFDA claims were dismissed as time-barred under the applicable three-year statute of repose. Despite the Dillinghams’ argument that the statute of repose period began to run at the time default judgment was entered, the court determined that the period started running when the license agreements were signed in 2003 and 2007. The Illinois discovery rule was inapplicable in this case, because the statute of repose is not subject to the discovery rule. In addition, the Dillinghams’ argument that the statue of repose was tolled by Window World’s fraudulent concealment was rejected. The Dillinghams argued that Window World intentionally concealed that it was a franchisor, but they failed to identify any affirmative acts committed by Window World that could form the basis for fraudulent concealment.

The court additionally dismissed the Dillinghams’ fraudulent inducement claim, as the defendants conceded their fraud claim lacked sufficient particularity. The breach of contract claim was also dismissed, however, under the applicable three-year statute of limitations. The Dillinghams were granted leave to amend their fraudulent inducement and breach of contract claims, but the IFDA claim was dismissed with prejudice.

The case number is 13 C 4624.

Attorneys: Jonathan E. Fortman (Law Office of Jonathan E. Fortman, LLC) for Window World of Chicagoland, LLC. Fredric Adam Cohen (Cheng Cohen LLC) for Window World, Inc.

Companies: Window World of Chicagoland, LLC; Window World, Inc.

Cases: FranchisingDistribution IllinoisNews