Sound of Music Co v. MN Mining ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-4109
SOUND OF MUSIC CO.,
Plaintiff-Appellant,
v.
MINNESOTA MINING AND
MANUFACTURING CO.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 639—John A. Nordberg, Judge.
____________
ARGUED SEPTEMBER 18, 2006—DECIDED FEBRUARY 13, 2007
____________
Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.
WILLIAMS, Circuit Judge. When Minnesota Mining and
Manufacturing Company, more commonly known as “3M”,
decided to end its involvement in the background music
business, 3M’s dealers, including the Sound of Music
company, were understandably concerned. In this suit, we
consider whether Sound of Music has legal recourse for
3M’s decision to terminate the parties’ background music
business relationship. We conclude that 3M did not breach
its contract with Sound of Music, as the contract allowed
3M to terminate the agreement by providing Sound of
2 No. 05-4109
Music twelve months’ advance written notice of its inten-
tion to leave the background music business, as it did here.
Because we also find that Sound of Music cannot obtain
relief under either the Illinois or Minnesota franchise
statutes, we affirm the district court’s grant of summary
judgment in favor of 3M. In addition, we affirm the district
court’s decision to deny Sound of Music leave to file a
second amended complaint to add a claim under the Illinois
Consumer Fraud Act because the claim would not survive
a motion for summary judgment.
I. BACKGROUND
3M, a diversified company based in Minnesota with
thousands of products, was once in the background music
business. In that business, 3M supplied pre-recorded and
satellite-transmitted background music, as well as the
equipment that played the music. The Sound of Music
company, founded in 1973 by former 3M employee Richard
Cushing, became one of many businesses that marketed
and sold 3M’s background music products to end users,
including businesses which played the background music in
their stores. Sound of Music had its offices in Illinois but
had contracts with businesses and stores throughout the
country, including in Minnesota.
Sound of Music and 3M had several agreements govern-
ing their relationship. On October 14, 1993, 3M terminated
an agreement the parties had signed in 1988. The parties’
next agreement, executed on May 5, 1995, plays a central
role in this case. Under the 1995 agreement, Sound of
Music was a non-exclusive distributor of 3M background
music and background music equipment. The 1995 agree-
ment provided that it would continue “until December 31,
1999, unless earlier terminated by either party as pro-
vided herein.”
No. 05-4109 3
As in many industries, the technology in the background
music business has changed over the years. When Sound of
Music and 3M first began their relationship, background
music was supplied to end users through magnetic tapes, a
3M product. By the late 1980s, the industry had moved
away from magnetic tapes, and suppliers instead used an
analog satellite signal to transmit music. 3M leased
satellite space from a North Carolina company to broadcast
the signal for end users, and 3M provided equipment that
allowed end users to convert the analog signal into music
that could be played in their stores.
During the 1990s, 3M became concerned that the industry
was shifting from analog to digital technology. As a result,
it believed that it would incur significant costs if it re-
mained in the background music business. In 1997, 3M
asked Donald Will, one of its employees, to evaluate the
company’s background music business. Will’s team con-
cluded that: (1) growth of the background music business
beyond the current satellite contract would not be wise
because 3M employed aging technology; (2) no serious
potential buyer for the background music business existed;
and (3) shutting down the background music project quickly
would give 3M’s dealers at least twelve months’ notice and
would enable the company to use gains from the sale of
another division to offset expected losses from a rapid
shutdown. On October 21, 1997, Will completed a report
and recommended a rapid shutdown of 3M’s background
music business. Shortly thereafter, 3M decided to follow his
recommendation. On November 18, 1997, 3M sent a letter
to Sound of Music stating that 3M would terminate its
involvement in the background music business as of
December 31, 1998. By its terms, the agreement would not
have expired until December 31, 1999.
Three days after receiving the letter, Sound of Music
contacted its attorney for advice. Sound of Music was
concerned about the substantial investment it had placed in
the background music business. During the time the 1988
4 No. 05-4109
agreement governed, 3M leased “downlink equipment” to
Sound of Music and other dealers. Sound of Music then
subleased the equipment to its customers, who used it to
receive and play the satellite music in their stores. By
October 1997, however, Sound of Music had purchased the
downlink equipment from 3M at a cost of approximately
$600,000 and owned it outright. In the weeks and months
following receipt of the termination letter, Sound of Music’s
counsel researched options including possible legal reme-
dies Sound of Music might have against 3M for the termina-
tion of the 1995 Agreement. Ultimately, in April 1998,
Sound of Music was sold to Muzak, another background
service provider.
Sound of Music filed a complaint against 3M on Febru-
ary 2, 1999, alleging claims for breach of contract, violation
of the Illinois Franchise Disclosure Act, violation of the
Minnesota Franchise Act, and equitable recoupment. The
district court granted summary judgment in favor of 3M on
all counts and denied Sound of Music’s request for leave to
file a second amended complaint. Sound of Music appeals.
II. ANALYSIS
A. Summary Judgment
1. Standard of Review
We review a district court’s grant of summary judgment
de novo. Vision Church v. Vill. of Long Grove, 468 F.3d 975,
988 (7th Cir. 2006). Summary judgment is proper “if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
As an initial matter, we note that contrary to Sound of
Music’s assertion, the district court did not need to explic-
No. 05-4109 5
itly reconcile all the differences between 3M’s Statement of
Undisputed Facts and Sound of Music’s response to 3M’s
Statement when it ruled on 3M’s motion for summary
judgment. Instead, the district court needed only to decide
whether, based on the evidence in the record, a material
dispute of fact existed that required trial. See Fed. R. Civ.
P. 56(c); Waldridge v. Am. Hoechst Corp., 24 F.3d 918,
920 (7th Cir. 1994). The district court did so in a thorough
opinion and concluded that there was no genuine issue of
material fact. Sound of Music maintains that this decision
was erroneous, as it contends summary judgment should
not have been granted on its claims for breach of contract,
violation of the Illinois Franchise Disclosure Act, and
violation of the Minnesota Franchise Act. We now address
these arguments.
2. Breach of Contract Claim
Sound of Music first argues that the district court improp-
erly granted summary judgment on its claim that 3M
breached a contract between the parties when 3M termi-
nated the 1995 agreement. Although the parties do not
discuss whether Minnesota or Illinois law applies to this
claim, the 1995 agreement contains a provision stating that
Minnesota law will apply to any “questions, claims, dis-
putes, or litigation arising from or related to this Agree-
ment.” In a suit where the federal court’s subject matter
jurisdiction is based on diversity, such as this one, the
forum state’s choice of law rules determine the applicable
substantive law. Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941); Thomas v. Guardsmark, Inc., 381 F.3d
701, 704-05 (7th Cir. 2004). Illinois courts generally adhere
to a contract’s choice of law provisions. Thomas, 381 F.3d at
705 (stating Illinois respects a contract’s choice of law
clause if the contract is valid and the law does not contra-
dict Illinois’s fundamental public policy); Kohler v. Leslie
6 No. 05-4109
Hindman, Inc., 80 F.3d 1181, 1184-85 (7th Cir. 1996).
Because we see no reason why we should not recognize the
parties’ choice of Minnesota law as we analyze whether a
breach of the contract took place, we will apply Minnesota
law to this claim.
To prevail on a breach of contract action under Minnesota
law, a plaintiff must prove: (1) the formation of a contract;
(2) performance by the plaintiff of any conditions precedent
to the right to demand performance by the defendant; (3)
breach of the contract by the defendant; and (4) damages
resulting from that breach. Indus. Rubber Applicators, Inc.
v. Eaton Metal Prods. Co., 171 N.W.2d 728, 731 (Minn.
1969); D.H. Blattner & Sons, Inc. v. Firemen’s Ins. Co., 535
N.W.2d 671, 675 (Minn. Ct. App. 1995). The parties agree
that the 1995 Agreement constituted a valid contract and
that Sound of Music had performed its obligations under
the contract. They dispute, however, whether 3M’s termina-
tion of the parties’ relationship constituted a breach of the
1995 agreement.
The 1995 agreement provided that it was to continue
until December 31, 1999. The agreement also provided,
however, that it could be terminated sooner if certain
conditions were met. In particular, the agreement’s termi-
nation provision stated:
15.0. TERMINATION. This Agreement may be
terminated by the parties as follows:
A. Either 3M or Dealer may terminate
this Agreement if the other materially
breaches the Agreement by giving
ninety (90) days’ written notice . . . .
B. By either party immediately upon writ-
ten notice by one party to the other, if
that other party files or has filed
against it a petition under any bank-
No. 05-4109 7
ruptcy act, has a receiver appointed for
any of its assets, . . . .
C. In the event of bankruptcy by Dealer or
if Dealer is unable to perform its mate-
rial obligations to end users or to 3M,
3M may substitute for Dealer and fulfill
its obligations under the music service
agreement. In such event end user will
make payments directly to 3M.
D. Upon 3M’s exit from the business by
sale, divestiture, assignment of assets,
or any other manner of exit, or any
other material transfer of ownership of
the Equipment or Music Service portion
of either Party’s business upon twelve
(12) months’ advance written notice.
By providing Sound of Music with over twelve months’
advance written notice that it was exiting the background
music business, 3M contends it properly terminated the
agreement pursuant to section D of paragraph 15.0. Sound
of Music, however, argues that 3M did not terminate the
relationship in a manner allowed by the agreement.
a. Unilateral termination
Sound of Music first argues that section 15.0(D) did not
allow 3M to unilaterally terminate the agreement. Instead,
Sound of Music contends that both parties must agree to
end the relationship for termination under section 15.0(D)
to be proper. To support its argument, Sound of Music
points first to the introductory language in paragraph 15.0,
which provides that the agreement may be terminated by
“the parties” (plural, Sound of Music emphasizes) for the
reasons that follow it. Sound of Music also points to sections
A and B of paragraph 15.0, which specifically provide that
8 No. 05-4109
“either” party may terminate the agreement. Because the
“either party” language does not appear in section D, and
the introductory language to the entire paragraph provides
that termination may occur by “the parties,” Sound of
Music concludes that termination under 15.0(D) can only
occur if both parties agree to terminate the agreement.
We do not read the agreement as Sound of Music does.
First, the introductory “by the parties” phrase does not
contain any limitation on which party may use the provi-
sions that follow it, and neither the paragraph’s introduc-
tory language nor section 15.0(D) states that consent of
both parties is necessary for proper termination. In addi-
tion, that termination pursuant to section 15.0(D) is
contingent upon sufficient advance notice suggests that
consent is not required, as advance notice would not seem
critical if a party could simply decline to agree to a proposed
termination.
At best, the language in section 15.0(D) is ambiguous,
meaning that it is susceptible to more than one meaning.
See Hous. and Redev. Auth. of Chisholm v. Norman, 696
N.W.2d 329, 337 (Minn. 2005). When a contract is ambigu-
ous, a court may examine extrinsic evidence to ascertain the
meaning of the contract. Hickman v. SAFECO Ins. Co. of
Am., 695 N.W.2d 365, 369 (Minn. 2005); Norman, 696
N.W.2d at 337. If the extrinsic evidence is conclusive, the
proper reading of the contract is not a question of fact. See
Hickman, 695 N.W.2d at 369.
Here, the extrinsic evidence conclusively establishes that
3M could unilaterally terminate the contract upon twelve
months’ written notice if it exited the background music
business. The 1995 agreement, and its termination provi-
sions in particular, resulted from significant negotiations
between the parties. Unlike the parties’ prior agreement
signed in 1988, 3M included in its draft of the 1995 agree-
ment a specific date by which the agreement would expire
No. 05-4109 9
on its own terms. 3M’s draft also included a provision
stating that it could terminate the agreement if it exited the
business upon ninety days’ advance notice. These proposals
worried Sound of Music, as it was concerned that 3M might
leave the background music business (precisely what
happened here). So Sound of Music asked that the provision
allowing 3M to terminate the agreement by exiting the
business be removed entirely, or at least that the agreement
provide that sixty months’ notice was required to terminate
the contract if 3M exited the business. 3M, however, would
not agree. The 1995 agreement reflects that the parties
ultimately agreed that 3M could terminate the agreement
if 3M provided twelve months’ advance notice.
b. Exiting “the business”
Next, Sound of Music contends that 3M did not exit “the
business”, as termination pursuant to section 15.0(D)
required. The agreement does not define the term, “the
business”, and Sound of Music maintains that “the busi-
ness” should be read to include more product areas than
those addressed in the 1995 agreement.1
1
Paragraph 1.0 of the 1995 agreement provided that Sound of
Music was a non-exclusive distributor of 3M Sound Products
Satellite Reception Equipment and/or 3M Brand Satellite Music
Service. The text of paragraph 1.0 provides:
DEALER RELATIONSHIP. This Agreement defines the
dealer relationship between 3M and Dealer. 3M appoints
Dealer as a non-exclusive distributor of 3M brand Sound
Products Satellite Reception Equipment (“Equipment”)
and/or 3M Brand Satellite Music Service (“Music Ser-
vices”). For the purposes of this Agreement “Music
Services” shall be defined as 3M providing a multi-
channel signal from a designated satellite containing
music and/or commercial messages to specified receiving
(continued...)
10 No. 05-4109
In particular, Sound of Music contends that the 1995
agreement should be read to allow for termination only if
3M terminated its entire “InTouch business.” This division
included not just background music but also wireless
communications, for example. Sound of Music draws its
conclusion from the termination letter it received from 3M,
which stated in part:
For the past several months, 3M has been carefully
evaluating its InTouch business. We have decided
that a change in strategic business direction is
necessary. As a result, we will terminate our DBS
broadcast business on Dec. 31, 1998 . . . . We will
continue to operate our other In-Touch Businesses.
“DBS” was shorthand for “direct broadcast satellite,” and
Sound of Music acknowledges that the letter informed
Sound of Music that 3M was ending its satellite background
music services business.
Significantly, the only subject of the agreement was the
background music services business. The agreement makes
no mention of the InTouch line of business (nor of any of
3M’s thousands of other products). We find nothing in the
agreement or anywhere else in the record to indicate that
the parties intended to make 3M’s ability to terminate by
exiting “the business” contingent on businesses which were
not the subject of the agreement. Because Sound of Music
acknowledges that 3M gave it at least twelve months’
1
(...continued)
equipment and satellite dishes at various designated
customer locations of Dealer. 3M agrees to provide Music
Services and Equipment to Dealer according to the terms
and conditions stated on 3M’s price pages for the purpose
of Dealer providing Equipment and Music Service to end-
user customers. Dealer agrees to distribute 3M Music
Services and Equipment.
No. 05-4109 11
written notice that it was terminating its background music
business, 3M properly terminated the agreement pursuant
to section 15.0(D). Summary judgment in favor of 3M on the
breach of contract claim was therefore proper.
3. Illinois Franchise Disclosure Act Claim
Sound of Music next argues that the entry of summary
judgment on its claim under the Illinois Franchise Disclo-
sure Act (“Illinois Franchise Act”) was erroneous.2 The
Illinois Franchise Act provides that a franchisor may not
terminate a franchise located in Illinois prior to the expira-
tion of its term unless “good cause” exists to do so. 815 Ill.
Comp. Stat. 705/19(a) (2000). But the Act also provides that
actions thereunder must be brought within one year “after
the franchisee becomes aware of facts or circumstances
reasonably indicating that he may have a claim for relief in
respect to conduct governed by” the Act. 815 Ill. Comp. Stat.
705/27. The district court granted summary judgment on
Sound of Music’s claim under the Illinois statute after
2
Although the 1995 agreement provided that it would be
governed by Minnesota law, Sound of Music’s offices were all in
Illinois. The Illinois franchise statute contains an anti-waiver
provision. See 815 Ill. Comp. Stat. 705/41 (“Any condition,
stipulation, or provision purporting to bind any person acquiring
any franchise to waive compliance with any provision of this
Act or any other law of this State is void.”). Through this provi-
sion, “Illinois, like many other states, has made it clear that
parties cannot opt out of the coverage of the act for Illinois
franchisees.” To-Am Equip. Co. v. Mitsubishi Caterpillar Forklift
Am., Inc., 152 F.3d 658, 662 (7th Cir. 1998) (considering Illinois
franchisee’s claim under the Illinois franchise statute even though
parties’ agreement stated Texas law governed). 3M does not
contend that the agreement’s choice of law clause means we
cannot consider Sound of Music’s claim under the Illinois Fran-
chise Act.
12 No. 05-4109
concluding that the statute of limitations had expired before
Sound of Music filed suit.
Although Sound of Music received notice in November
1997 that 3M would cease its background music services
business at the end of 1998, Sound of Music did not file its
complaint until February 2, 1999. Sound of Music acknowl-
edges that it did not bring its claim until more than a year
after it received the notice of termination, but it maintains
that an issue of fact exists as to whether facts or circum-
stances “reasonably indicated” to Sound of Music that it
might have a claim under the Illinois Franchise Act before
February of 1998 (i.e., one year before it filed suit).
We disagree. Our decision in Pyramid Controls Inc. v.
Siemens Industrial Automation, Inc., 172 F.3d 516 (7th Cir.
1999), governs here, and it demonstrates that the district
court’s grant of summary judgment was proper. In Pyramid
Controls, a manufacturer sent the plaintiff distributor a
one-year notice that it was terminating their relationship,
pursuant to a clause in the distribution agreement. 172
F.3d at 517. Shortly after learning of the impending
termination, the plaintiff’s president consulted his com-
pany’s attorney. Id. The attorney considered various causes
of action, although not one under the Illinois franchise
statute, and then told the plaintiff it had no legal remedy.
Id. More than a year later, when a different attorney
concluded a viable claim under the Illinois franchise statute
existed, the plaintiff filed suit. Id. at 518. Although the
plaintiff contended actual knowledge of an Illinois Fran-
chise Act claim was necessary before a business could
become “aware of facts or circumstances reasonably indicat-
ing that he may have a claim for relief” under the statute,
we disagreed. Id. at 518-19. An examination of the statu-
tory language and Illinois state court decisions, including
Brenkman v. Belmont Marketing, Inc., 410 N.E.2d 500 (Ill.
App. Ct. 1980), led us to conclude that “Illinois courts have
decided that knowledge of facts reasonably indicating a
No. 05-4109 13
claim plus consultation with an attorney is enough” to
trigger the statute of limitations clock. Pyramid Controls,
172 F.3d at 519.
No Illinois decision after Pyramid Controls suggests our
conclusion was incorrect, and Sound of Music does not press
us to overturn that decision. Instead, it argues first that it
was reasonable for its attorneys to take slightly over two
months to review many years of documents to find support
for a claim under the Illinois franchise statute. (Sound of
Music would like the statute of limitations clock to begin
ticking in February 1998, a little over two months after it
received 3M’s notice of termination and exactly one year
before it filed suit.) Unfortunately for Sound of Music,
Pyramid Controls instructs that the “reasonableness” of the
attorneys’ review is irrelevant here. Instead, the statute of
limitations began to run when Sound of Music had knowl-
edge of facts reasonably indicating a claim and it had
consulted its attorney. There is no requirement that the
attorney know a viable claim exists. See id. at 519 (reject-
ing argument that actual knowledge of claim under Illinois
franchise statute necessary to trigger statute of limita-
tions).
In this case, Sound of Music acquired the requisite
awareness in November 1997 when it received the termina-
tion notice from 3M. That letter stated 3M’s intent to
terminate the 1995 agreement because 3M intended to
leave the background music business. Sound of Music knew
sufficient facts reasonably indicating that a claim under the
Illinois Franchise Act existed in November 1997, more than
a year before it asserted this claim against 3M.
Also in November 1997, only three days after Sound of
Music received 3M’s termination letter, Sound of Music
consulted its attorney seeking advice. After reviewing the
letter, the attorney discussed with Sound of Music the
possibility of continuing the business through obtaining
14 No. 05-4109
satellite services so that customers of Sound of Music could
be serviced and the business could continue. This attorney,
the same attorney who had represented Sound of Music
when it signed the 1988 agreement with 3M, also directed
the research of possible legal remedies against 3M. Thus,
Sound of Music had facts reasonably indicating a claim
under the Illinois Franchise Act and presented these facts
to its attorney in November 1997, and it did not file suit
until more than a year later.
In a separate argument, Sound of Music contends that the
statute of limitations should have been triggered not when
it had facts reasonably indicating a claim and presented
them to its attorney, but only when its damages were
ascertainable. Sound of Music contends its damages from
the termination were not ascertainable until the spring of
1998, when it sold its business. No case to which Sound of
Music points supports its argument. First, in Profit Man-
agement Development, Inc. v. Jacobson, Brandvik, and
Anderson, Ltd., 721 N.E.2d 826 (Ill. App. Ct. 1999), the
Illinois Appellate Court stated that although actual dam-
ages were an essential element of the legal malpractice
claim at issue, damages were speculative, and thus pre-
vented a trigger of the statute of limitations, “only if their
existence itself is uncertain and not if the amount is
uncertain or yet to be fully determined.” 721 N.E.2d at 842.
Similarly, in Midwest Commerce Banking Co. v. Elkhart
City Centre, 4 F.3d 521 (7th Cir. 1993), we stated that
damages “are for people who have been harmed,” and that
the statute of limitations on the tort action at issue would
not begin to run until harm occurred. 4 F.3d at 526.
In this case, Sound of Music knew in November 1997 of
the consequences of the agreement’s termination. Indeed, it
consulted its attorney almost immediately to investigate
possible legal remedies for 3M’s decision to terminate the
parties’ relationship. Even if Sound of Music did not know
the exact amount of its damages in November 1997, it knew
No. 05-4109 15
at that time that it had been “harmed.” The one-year
statute of limitations began to run in November 1997 when
Sound of Music acquired facts reasonably indicating a claim
under the Illinois franchise statute and consulted with its
attorney, and the district court correctly granted summary
judgment on this claim because Sound of Music did not file
its claim until more than a year later. In light of our
determination that Sound of Music’s Illinois Franchise Act
claim was untimely, we need not address 3M’s additional
arguments in support of the district court’s decision to grant
summary judgment on this claim.
4. Minnesota Franchise Act Claim
Sound of Music also disagrees with the district court’s
decision to grant summary judgment in favor of 3M on
Sound of Music’s claim under the Minnesota Franchise Act.
Like the Illinois Franchise Disclosure Act, the Minnesota
Franchise Act provides that a franchise may not be termi-
nated “except for good cause.” Minn. Stat. § 80C.14, Subd.
3(b) (2006). Sound of Music maintains 3M violated this
provision by terminating the 1995 agreement without good
cause.
3M raises multiple arguments in support of the district
court’s decision, including its contention that Sound of
Music waived any right it may have had to claim it was a
“franchisee” within the meaning of the Minnesota Franchise
Act. Specifically, 3M points to paragraph 4.0 of the 1995
Agreement, which states: “The relationship between 3M
and [Sound of Music] is that of a supplier to its distributor.
[Sound of Music] is not an agent, partner, involved in a joint
venture with, or franchisee of 3M.” (Emphasis added). But
the Minnesota Court of Appeals has stated that the require-
ments in the Minnesota Franchise Act, not the labels used
by the parties, determine whether a franchise-franchisee
16 No. 05-4109
relationship exists. Upper Midwest Sales Co. v. Ecolab, Inc.,
577 N.W.2d 236, 241 (Minn. Ct. App. 1998).3
In any event, resolution of the effect of paragraph 4.0 is
not necessary. We conclude that even if the Agreement did
not preclude Sound of Music from bringing a claim under
the Minnesota Franchise Act, summary judgment was
proper because the agreement between 3M and Sound of
3
Sound of Music also contends that the Minnesota Franchise
Act’s anti-waiver provision means paragraph 4.0 should not be
given effect. The statute provides:
Any condition, stipulation or provision, including any
choice of law provision, purporting to bind any person
who, at the time of acquiring a franchise is a resident of
this state . . . or purporting to bind a person acquiring
any franchise to be operated in this state to waive
compliance or which has the effect of waiving compliance
with any provision of section 80C.01 to 80C.22 or any
rule or order thereunder is void.
Minn. Stat. § 80C.21 (2006). 3M argues that this provision does
not help Sound of Music, as by its terms, the Minnesota Franchise
Act’s anti-waiver provision only applies to franchise owners who
were residents of Minnesota at the time of acquisition or to
persons acquiring franchises to be operated in Minnesota. See also
Martin Investors, Inc. v. Vander Bie, 269 N.W.2d 868, 872
(Minn. 1978) (“Chapter 80C was adopted in 1973 as remedial
legislation designed to protect potential franchisees within
Minnesota from unfair contracts and other prevalent and previ-
ously unregulated abuses in a growing national franchise indus-
try.”). Sound of Music, an Illinois corporation, was never a
Minnesota resident. However, Minnesota courts have not dis-
cussed whether a business such as Sound of Music that sold to
customers in Minnesota constitutes a “franchise to be operated in
this state” if the other requirements to establish a franchise-
franchisee relationship are met. Because we conclude that Sound
of Music has not satisfied the statutory requirements necessary
to establish a franchise agreement, we need not address this
argument.
No. 05-4109 17
Music was not a “franchise” under the Act. Under the
Minnesota Franchise Act, a “franchise” is “a contract or
agreement, either express or implied, whether oral or
written, for a definite or indefinite period, between two or
more persons”:
(i) by which a franchisee is granted the right to
engage in the business of offering or distributing
goods or services using the franchisor’s trade name,
trademark, service mark, logotype, advertising, or
other commercial symbol or related characteristics;
(ii) in which the franchisor and franchisee have a
community of interest in the marketing of goods or
services at wholesale, retail, by lease, agreement, or
otherwise; and
(iii) for which the franchisee pays, directly or
indirectly, a franchise fee.
Minn. Stat. § 80C.01, Subd. 4(a)(1).4 All three elements
must be present for a franchise to fall within the Minnesota
Franchise Act’s purview. OT Indus., Inc. v. OT-tehdas Oy
Santasalo-Sohlberg Ab, 346 N.W.2d 162, 166 (Minn. Ct.
App. 1984).
In this case, Sound of Music has not demonstrated that a
genuine issue of material fact exists as to whether it paid a
franchise fee for the agreement between Sound of Music
and 3M. Under the Minnesota Franchise Act, a “franchise
fee” is any fee a franchisee must pay or agrees to pay “for
the right to enter into a business or to continue a business
under a franchise agreement.” Minn. Stat. § 80C.01,
Subd. 9. Such a fee includes “the payment either in lump
sum or by installments of an initial capital investment fee,
4
The Minnesota Franchise Act sets forth additional circum-
stances under which a franchise can occur that are not relevant
here. See Minn. Stat. § 80C.01, Subd. 4(a)(2)-(4).
18 No. 05-4109
any fee or charges based upon a percentage of gross or net
sales whether or not referred to as royalty fees, any pay-
ment for goods or services, or any training fees or training
school fees or charges.” Id.5
Sound of Music maintains in this suit that 3M’s termina-
tion of the 1995 agreement violated the Minnesota Fran-
chise Act, yet it does not contend that it paid a franchise fee
for the agreement the parties entered into in 1995. Nor
could it succeed on such an argument. The 1995 agreement
in the record makes no mention of a franchise fee or any fee
that Sound of Music had to pay for the right to enter into or
continue business with 3M. And, notably, Sound of Music
does not contend that any evidence in the record indicates
it paid a franchise fee for the 1995 agreement.
Instead, Sound of Music apparently contends that a $2400
“dealer reception fee” it paid pursuant to the 1988 agree-
ment constituted a franchise fee sufficient to establish that
Sound of Music was a 3M franchisee at the time 3M
terminated the 1995 agreement. It is undisputed, however,
that in 1993, 3M terminated the 1988 agreement. (The
propriety of that termination is not at issue in this suit.)
The record is also clear that the parties negotiated the 1995
agreement as a stand-alone contract. Moreover, there is no
evidence in the record that either party considered the 1995
agreement a renewal or extension of an earlier agreement.
5
The statute also excludes from the definition of “franchise”
any agreement “whereby the franchisee is required to pay less
than $100 an annual basis.” Minn. Stat. § 80C.01, Subd. 4(c). The
Supreme Court of Minnesota has interpreted this exclusion to
apply only when a manufacturer sells directly to the ultimate user
or consumer. Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530
N.W.2d 539, 544 (Minn. 1995) (finding one-time $125,000 payment
constituted franchise fee under Minnesota Franchise Act). Sound
of Music sold to end users under the agreement at issue, and 3M
does not argue in its brief that this exclusion applies in this case.
No. 05-4109 19
In other words, we have no reason to believe that the terms
of the 1988 agreement had any bearing on the 1995 agree-
ment. Sound of Music also does not point us to any evidence
indicating that a new dealer who sought to distribute 3M’s
background music in 1995 would need to pay a “dealer
reception fee” for the right to enter into this business.
Moreover, we have doubts that the “dealer reception fee”
paid pursuant to the terminated 1988 agreement consti-
tuted a “franchise fee” in 1988. Not all payments made by
a purported franchisee over the course of a business
relationship constitute franchise fees. Instead, only fees
paid for the “right” to enter into a business or the “right” to
continue a business qualify. See Minn. Stat. § 80C.01, Subd.
9. Ordinary business expenses, for example, do not consti-
tute franchise fees under the Minnesota Franchise Act. OT
Indus., 346 N.W.2d at 167; RJM Sales & Mktg., Inc. v.
Banfi Prods. Corp., 546 F. Supp. 1368, 1373 (D. Minn.
1982). Agreements to purchase goods at a bona fide whole-
sale price, Minn. Stat. § 80C.01, Subd. 9(a), and reasonable
minimum purchase commitments are also not franchise
fees. Upper Midwest Sales Co. v. Ecolab, Inc., 577 N.W.2d
236, 241-43 (Minn. Ct. App.1998); Banbury v. Omnitrition
Int’l Inc., 533 N.W.2d 876, 882 (Minn. Ct. App.1995); Am.
Parts Sys., Inc. v. T & T Auto., Inc., 358 N.W.2d 674, 676-77
(Minn. Ct. App. 1984).
Sound of Music signed its first agreement to distribute
3M’s background music in 1973, and there is no suggestion
that Sound of Music paid a franchise fee at that time. When
3M began using a satellite signal instead of magnetic tapes
to supply the music, the parties signed a new agreement.
This agreement, signed in 1988, is entitled the “3M Satel-
lite Network/Dealer Lease Agreement.” The 1988 agree-
ment states that 3M agreed to lease satellite reception
equipment to Sound of Music “for the purpose of subleasing
to end customers” according to prices on an attached price
schedule. Although this schedule listed an “Entry Fee (One
20 No. 05-4109
Time)” of $2400, the text of the agreement suggests that
this was a fee charged to dealers for the space 3M leased on
the satellite that transmitted music signals, not a fee for
the “right to enter” or continue in the background music
business with 3M. There is no indication, for instance, that
3M retained a portion of this fee beyond that which it paid
to the satellite company or that it charged an above-market
rate. Cf. Upper Midwest Sales Co., 577 N.W.2d at 242(finding no franchise fee where there was “no evidence that
the [minimum purchase commitments] were not at the
ordinary, wholesale price or that the distributors were
required to purchase unreasonable amounts of inventory”).
We conclude that the record does not support Sound of
Music’s argument that it paid a franchise fee for the 1995
agreement. As a result, the agreement between Sound of
Music and 3M was not a franchise agreement, and sum-
mary judgment on Sound of Music’s claim under the
Minnesota Franchise Act was proper.
B. Denial of Leave to File Second Amended Com-
plaint
Finally, Sound of Music contends that the district court
should have granted its motion for leave to file a second
amended complaint to add a new claim under the Illinois
Consumer Fraud and Deceptive Business Practices Act (the
“Illinois Consumer Fraud Act”), 815 Ill. Comp. Stat. 505/2.
We review a district court’s decision to deny leave to file
an amended complaint for abuse of discretion. Butts v.
Aurora Health Care, Inc., 387 F.3d 921, 925 (7th Cir. 2004).
Although Federal Rule of Civil Procedure 15(a) instructs
that leave to amend shall be freely given “when justice so
requires,” a district court may deny a plaintiff leave to
amend if “there is undue delay, bad faith[,] or dilatory
motive . . . [, or] undue prejudice to the opposing party by
No. 05-4109 21
virtue of allowance of the amendment, [or] futility of
amendment.” Park v. City of Chi., 297 F.3d 606, 612 (7th
Cir. 2002) (citing Ferguson v. Roberts, 11 F.3d 696, 706
(7th Cir. 1993)). If the amended claim would not survive a
motion for summary judgment, the amendment is futile.
Bethany Pharmacal Co. v. QVC, Inc., 241 F.3d 854, 861 (7th
Cir. 2001). In this case, the district court found the request
untimely and determined that the amendment would be
futile.
Sound of Music did not file its request until after discov-
ery had closed. Nonetheless, Sound of Music contends that
any untimeliness should not bar its request because it did
not seek additional discovery to support its Illinois Con-
sumer Fraud Act claim. As a result, it argues, 3M was not
harmed by any delay in bringing this claim.
On this record, however, we agree with the district court
that the amendment would have been futile in light of the
lack of evidence to support Sound of Music’s proposed claim
under the Illinois Consumer Fraud Act. The Illinois Con-
sumer Fraud Act prohibits:
Unfair . . . or deceptive acts or practices, including
but not limited to the use or employment of any
deception, fraud, false pretense, false promise,
misrepresentation or the concealment, suppression
or omission of any material fact, with intent that
others rely upon the concealment, suppression, or
omission of such material fact . . . in the conduct of
any trade or commerce.
815 Ill. Comp. Stat. 505/2. Accordingly, Sound of Music
needed to establish the following elements to succeed on
its proposed claim: (1) a deceptive act or practice by the
defendant; (2) the defendant’s intent that the plaintiff rely
on the deception; (3) that the deception occur in a course of
conduct involving trade and commerce; and (4) actual
damage to the plaintiff; (5) proximately caused by the
22 No. 05-4109
deception. See Oliveira v. Amoco Oil Co., 776 N.E.2d 151,
160 (Ill. 2002); Connick v. Suzuki Motor Co., 675 N.E.2d
584, 593 (Ill. 1996). Sound of Music is correct that unlike
a common law fraud claim, a successful claim under the
Illinois Consumer Fraud Act does not require that the
plaintiff have relied on the deception. See Connick, 675
N.E.2d at 593; Siegel v. Levy Org. Dev. Co., Inc., 607 N.E.2d
194, 198 (Ill. 1992).
The evidence to which Sound of Music points does not
suggest that 3M committed a deceptive act or practice, let
alone that 3M intended that Sound of Music rely on any
deception instead of on the agreement’s text providing that
it would expire on its own terms on December 31, 1999.
Sound of Music’s proposed claim is grounded in 3M state-
ments that 3M had a contract with a projected orbital life
to the year 2005 (a true statement) and that it had a plan
to “provide service into the twenty-first century.” In es-
sence, Sound of Music contends that 3M made statements
such as these to induce Sound of Music into signing the
1995 agreement and to create a perception that Sound of
Music could comfortably make substantial capital pur-
chases of equipment, when 3M actually knew it would leave
the background music business before Sound of Music
signed the agreement in 1995. See Proposed Second Am.
Compl. ¶ 65 (“Although [Sound of Music] was first notified
of the decision to terminate the contract in 1997, the
decision to terminate the contracts of the dealers was made
well prior to November 1997.”).
No evidence in the record supports this assertion. Rather,
all the evidence in the record indicates that 3M did not
initiate its review of the viability of its background music
business until 1997, two years after Sound of Music had
signed the agreement, and that 3M made its decision to
leave the background music business in November 1997.
Similarly, at the time 3M made statements that it had a
plan to provide service into the next century, it had such a
plan, and it did not decide to leave the background music
No. 05-4109 23
business until several years later. Cf. Connick, 675 N.E.2d
at 594 (complaint pled deceptive act where it alleged that
manufacturer represented that car had certain safety
features, but this information was false). Because the
Illinois Consumer Fraud Act claim would not survive a
motion for summary judgment, the district court did not
abuse its discretion when it denied Sound of Music leave to
amend to add such a claim.
III. CONCLUSION
For the foregoing reasons, the district court’s grant of
summary judgment in favor of 3M is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-13-07