In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 06-1720 & 06-1767

RAHEEMUNISA RAWOOF, Representative 

of the Estate of Mohammed Rawoof,

Plaintiff-Appellant/Cross-Appellee,

v.

TEXOR PETROLEUM COMPANY, INCORPORATED,

Defendant-Appellee/Cross-Appellant.

____________

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02 C 5892—George M. Marovich, Judge.

____________

ARGUED JANUARY 19, 2007—DECIDED APRIL 7, 2008

____________

Before RIPPLE, KANNE, and SYKES, Circuit Judges.

SYKES, Circuit Judge. Mohammed Rawoof filed this

lawsuit against Texor Petroleum Company (“Texor”)

alleging that Texor violated the Petroleum Marketing

Practices Act (“PMPA”) by terminating his gas station’s

“Marathon” brand motor-fuel franchise without the

statutorily required notice and cause. Almost two years

into the litigation, on the day discovery was to close,

Rawoof brought a motion to substitute plaintiffs, asserting
2 Nos. 06-1720 & 06-1767

that his corporation, SHL 95, Inc. (“SHL 95”), was the

real party in interest. Rawoof maintained that the PMPA

claim belonged to the corporation, not to him personally,

because the corporation conducted the gas station’s

business activities, owned its real estate and fixtures,

and sustained the losses associated with the termination

of the franchise. The district court denied the motion

because Rawoof knew all along that SHL 95 was the real

party in interest and substituting parties at that late stage

of the litigation would prejudice Texor. Texor then

moved for summary judgment on standing grounds. The

district court granted the motion, reasoning that Rawoof

had admitted that the PMPA claim belonged to the corporation and that he could not bring suit in his own name

because his only injury was the indirect, derivative

injury of a shareholder. Rawoof appeals, and we affirm.

I. Background

The parties have a rather loose and informal contractual

history that has been the subject of litigation in both state

and federal court. In the present suit, Rawoof alleged that

in February 1998 he entered into an oral agreement with

Texor whereby Texor would supply gasoline to Rawoof’s

Chicago gas station. This agreement was to last for seven

years. In addition to other provisions, Rawoof alleged

that Texor agreed to provide and install a Marathon sign

at the station, and in return Rawoof was required to sell

under the Marathon brand and purchase his petroleum

products exclusively from Texor. In 2000 a dispute arose

between the parties over prices Texor charged for gasoline

it delivered to Rawoof’s station. Rawoof thought he

was being overcharged and protested Texor’s invoices.

On April 20, 2001, Texor suspended gasoline deliveries
Nos. 06-1720 & 06-1767 3

due to nonpayment; on July 11, 2001, Texor filed suit

against Rawoof in Cook County Circuit Court for money

due for gasoline previously sold and delivered. Rawoof

appeared in that suit on August 16, 2001. On August 29,

2001, the parties signed a settlement agreement establishing a payment schedule for the balance due, and Rawoof

was informed that his station’s relationship with Texor

was being terminated and the Marathon signs would be

removed immediately.

On August 19, 2002, Rawoof filed suit in federal district

court alleging that Texor violated the PMPA by terminating

his franchise without the required statutory notice and

cause. See 15 U.S.C. §§ 2802, 2804. Texor moved to dismiss on statute-of-limitations grounds, arguing that the

PMPA’s one-year limitations period began to run on

July 11, 2001, when it filed suit in Cook County Circuit

Court, or at the latest on August 16, 2001, when Rawoof

appeared in that suit. By then, Texor argued, Rawoof

knew or had reason to know that his gas station’s relationship with Texor was terminated. Rawoof filed a

response to this motion and also filed a breach-of-contract

action against Texor in Cook County Circuit Court, evidently hedging his bets against a statute-of-limitations

dismissal of his federal PMPA claim. The district court

denied Texor’s motion, holding that the PMPA’s one-year

limitations period began to run when Rawoof and Texor

entered into the settlement of Texor’s state-court litigation

and Texor advised Rawoof his station was being

debranded immediately. According to the district

court, Rawoof had gotten his PMPA action in just

under the wire.

Discovery proceeded, but not without some difficulty,

eventually necessitating a motion to compel by Texor. The
4 Nos. 06-1720 & 06-1767

1 Following Rawoof’s death, this action has been prosecuted

by his widow, Raheemunisa Rawoof, as representative of his

estate. For simplicity, we will continue to refer to Rawoof as the

plaintiff.

motion was heard by a magistrate judge on July 27,

2004, the day discovery was set to close; the judge granted

the motion in part and denied it in part, and extended

discovery for an additional 30 days to accommodate

compliance with his order. In the meantime, on that same

day, Rawoof filed his motion to substitute plaintiffs.

Rawoof argued that his Illinois S-corporation, SHL 95,

was the real party in interest, not Rawoof individually.

Rawoof told the court that the gas station’s revenue and

tax liabilities were reported through SHL 95, which also

held legal title to the service station’s real property and

fixtures. The corporation operated the station and suffered the losses resulting from the termination of the

Marathon franchise. Rawoof was SHL 95’s sole stockholder, officer, and director, but in his motion he acknowledged “the well-settled rule that a plaintiff-stockholder may not seek relief on his own behalf when the

plaintiff has not been injured” other than in his capacity

as a stockholder. Accordingly, Rawoof asserted, the

PMPA claim belonged to the corporation and not to him

personally, and he asked leave to substitute SHL 95 as the

plaintiff. Rawoof died in September 2004 while the substitution motion was pending.1

The district court denied Rawoof’s motion for substitution. The court explained that Rawoof had known SHL 95

was the real party in interest since the commencement of

the litigation and there was no reason why the suit could

not have been prosecuted by the corporation from the
Nos. 06-1720 & 06-1767 5

beginning. The court noted that the motion was filed

nearly two years after the action was commenced and

on the day discovery was scheduled to close, and held

that Texor would be prejudiced if substitution were

allowed so late in the litigation. The court noted in particular that with Rawoof’s death, Texor could no longer

conduct a corporate-officer deposition according to

Rule 30(b)(6) of the Federal Rules of Civil Procedure.

Texor then moved for summary judgment, arguing that

Rawoof’s admissions in his motion to substitute and the

court’s order denying that motion suggested Rawoof

lacked standing to bring the suit because he had not

suffered any direct, personal injury from the termination

of the franchise. In response, Rawoof changed course and

argued that he was indeed entitled to pursue the PMPA

claim in his own name.

The district court granted Texor’s summary-judgment

motion, holding that constitutional standing was established but prudential standing was not. Noting the

shareholder-standing rule, see Franchise Tax Bd. of Cal. v.

Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990), which

prohibits shareholders from suing to enforce the rights

of the corporation, the district court held Rawoof

lacked prudential standing because he suffered only an

indirect, derivative injury as SHL 95’s sole shareholder.

The court found no evidence of a direct, personal injury

distinct from that of a shareholder that would allow

Rawoof to sue in his own name. The court also gave little

weight to shareholder resolutions adopted in February

2005 (months after Rawoof died and the motion to substitute was denied) purporting to ratify Rawoof’s prosecution of the corporation’s claims. According to the court,

it was too late for SHL 95 to proffer a Rule 17(a)
6 Nos. 06-1720 & 06-1767

2 Rule 17(a) of the Federal Rules of Civil Procedure provides, in

part, that:

Every action shall be prosecuted in the name of the real

party in interest. . . . No action shall be dismissed on the

ground that it is not prosecuted in the name of the real party

in interest until a reasonable time has been allowed after

objection for ratification of commencement of the action

by . . . the real party in interest; and such ratification,

joinder, or substitution shall have the same effect as if the

action had been commenced in the name of the real party

in interest.

ratification.2 Although it granted Texor’s motion for

summary judgment, the court declined to award Texor

attorney’s fees as a prevailing franchisor under the PMPA.

Rawoof appealed from the order granting summary

judgment, and Texor cross-appealed the denial of its

motion to dismiss on statute-of-limitations grounds and

the denial of its motion for attorney’s fees.

II. Discussion

A. Rawoof’s Appeal

Rawoof does not directly challenge the district court’s

denial of his motion to substitute plaintiffs. Instead, his

appeal focuses on the court’s summary-judgment ruling

dismissing his case on standing grounds. We review

de novo the district court’s grant of summary judgment

and will construe all facts and inferences drawn from

them in the light most favorable to the nonmoving party.

Squibb v. Mem’l Med. Ctr., 497 F.3d 775, 780 (7th Cir. 2007).

Summary judgment is appropriate if “the pleadings,

depositions, answers to interrogatories, and admissions
Nos. 06-1720 & 06-1767 7

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 judgment as a matter of law.”

FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S.

317, 322-23 (1986). Standing questions are reviewed

de novo. Winkler v. Gates, 481 F.3d 977, 982 (7th Cir. 2007);

Wis. Right to Life, Inc. v. Schober, 366 F.3d 485, 489 (7th

Cir. 2004).

Rawoof argues that he is entitled to bring SHL 95’s

PMPA claim in his own name, either because he is a party

in interest or because he stands in the shoes of SHL 95. The

PMPA requires notice and cause before a motor-fuel

franchise may be terminated; “franchise,” “franchisor,”

“franchisee,” and “franchise relationship” are defined

terms under the PMPA, and the statute’s notice and cause

requirements differ according to the circumstances. See

15 U.S.C. §§ 2801 et seq. The merits of the PMPA claim are

not before us on this appeal, so we may omit any further

discussion of the statute’s requirements. It is enough to

note that the statute grants motor-fuel franchisees the

right to bring a civil action for equitable relief, actual

and exemplary damages, and reasonable attorney’s and

expert witness fees for a violation of the PMPA. 15 U.S.C.

§ 2805.

Rawoof’s arguments begin with Rule 17(a) of the Federal

Rules of Civil Procedure, which requires federal lawsuits

to be brought by the real party in interest, but identifies

certain persons who are authorized to prosecute an

action for the benefit of another. See supra n.2. Executors,

guardians, and trustees are the most common examples.

See FED. R. CIV. P. 17(a). Rawoof fashions three arguments

as to why he is entitled to pursue the PMPA claim belonging to his corporation: First, he claims that he is an agent
8 Nos. 06-1720 & 06-1767

of SHL 95; second, he says he entered into the contract

with Texor for the corporation as a third-party beneficiary;

and, third, he alleges SHL 95 assigned its claims to him.

A brief preliminary discussion of standing and the

requirements of FED. R. CIV. P. 17 is in order. Rawoof

maintained in his motion to substitute that the PMPA

claim belonged to the corporation, SHL 95, and not to

himself personally, and as such, the corporation, not he,

was the real party in interest. This can only be construed

as an admission by Rawoof; an “admission” for purposes

of summary judgment “includes ‘anything which is in

practical fact an admission,’ including statements made

in a brief presented to the district court.” Woods v. City of

Chicago, 234 F.3d 979, 989 (7th Cir. 2000) (citations omitted).

Under Rule 17(a), as we have noted, “[e]very action shall

be prosecuted in the name of the real party in interest.”

This is a procedural rule requiring that the complaint be

brought in the name of the party to whom that claim

“belongs” or the party who “according to the governing

substantive law, is entitled to enforce the right.” Oscar

Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir.

2003) (quoting 6A CHARLES ALAN WRIGHT, ET AL., FEDERAL

PRACTICE & PROCEDURE § 1543, at 334 (2d ed. 1990)); Frank

v. Hadesman & Frank, Inc., 83 F.3d 158, 159 (7th Cir. 1996).

Under Rule 17 we are concerned only with whether an

action can be maintained in the plaintiff’s name, Betar v.

De Havilland Aircraft of Can., Ltd., 603 F.2d 30, 32 (7th Cir.

1979), and that question is resolved in this case by federal law, Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379,

382 (7th Cir. 1990). This case states a federal claim, and

federal rules of procedure and standing obviously

govern. Both parties, however, cite Illinois state-law

cases and Illinois contract principles, which we will
Nos. 06-1720 & 06-1767 9

address only to the extent not inconsistent with federal

law and relevant to the question of Rawoof’s standing to

pursue the corporation’s PMPA claim in his own name.

The requirements of Rule 17 should not be confused

with the jurisdictional doctrine of standing. As part of

Article III’s case-or-controversy requirement, a party

must demonstrate standing to sue in federal court by

establishing (1) an injury in fact; (2) “a causal connection

between the injury and the conduct complained of”; and

(3) a likelihood that the injury will be redressed by a

favorable decision. Lujan v. Defenders of Wildlife, 504 U.S.

555, 560-61 (1992); see also Allen v. Wright, 468 U.S. 737, 750-

51 (1984). We agree with the district court that Rawoof

satisfies the minimum requirements of constitutional

standing by virtue of an asserted indirect injury as

SHL 95’s sole shareholder.

In addition to constitutional-standing requirements,

however, there are prudential limitations on a federal

court’s power to hear cases. See Valley Forge Christian

Coll. v. Ams. United for Separation of Church & State, Inc., 454

U.S. 464, 474-75 (1982); Warth v. Seldin, 422 U.S. 490, 498

(1975); Mainstreet Org. of Realtors v. Calumet City, Ill.,

505 F.3d 742, 745 (7th Cir. 2007); Massey v. Helman, 196 F.3d

727, 739 (7th Cir. 1999). Prudential-standing doctrine “is

not jurisdictional in the sense that Article III standing is.”

Mainstreet Realtors, 505 F.3d at 747. That is, “if there is no

Article III standing, the court is obliged to dismiss the

suit even if the standing issue has not been raised,” but

“nonconstitutional lack of standing belongs to an intermediate class of cases in which a court can notice an error

and reverse on the basis of it even though no party has

noticed it and the error is not jurisdictional, at least in the

conventional sense.” Id. In other words, the court may
10 Nos. 06-1720 & 06-1767

raise an unpreserved prudential-standing question on its

own, but unlike questions of constitutional standing, it is

not obliged to do so. In this case, questions of standing—both constitutional and prudential—were raised in

the district court and argued on appeal.

One well-established prudential-standing limitation

is the principle that a litigant cannot sue in federal court

to enforce the rights of third parties. Elk Grove Unified Sch.

Dist. v. Newdow, 542 U.S. 1, 17-18 (2004); Warth, 422 U.S.

at 499; Mainstreet Realtors, 505 F.3d at 746; Massey, 196 F.3d

at 739; Retired Chi. Police Ass’n v. City of Chicago, 76 F.3d

856, 862 (7th Cir. 1996). Some courts have described

Rule 17’s real-party-in-interest requirement as essentially

a codification of this nonconstitutional, prudential limitation on standing. See, e.g., Warnick v. Yassian (In re Rodeo

Canon Dev. Corp.), 362 F.3d 603, 607-08 (9th Cir. 2004)

(withdrawn on other grounds); Ensley v. Cody Res., Inc.,

171 F.3d 315, 320 (5th Cir. 1999).

Here, the district court granted Texor’s motion for

summary judgment because Rawoof ran afoul of a particular subset of third-party standing doctrine known as

the shareholder-standing rule. This rule holds that a

shareholder generally cannot sue for indirect harm he

suffers as a result of an injury to the corporation. See

Franchise Tax Bd. of Cal., 493 U.S. at 336; Warth, 422 U.S. at

499; Flynn v. Merrick, 881 F.2d 446, 449 (7th Cir. 1989);

Twohy v. First Nat’l Bank of Chi., 758 F.2d 1185, 1194 (7th

Cir. 1985). The rule does not apply if the corporation’s

management has refused to pursue the action for reasons

unrelated to good-faith business judgment. See Franchise

Tax Bd. of Cal., 493 U.S. at 336. Another exception to the

prohibition on shareholder suits allows a shareholder

to pursue an action originating from an injury to the
Nos. 06-1720 & 06-1767 11

corporation if he has suffered a direct, personal injury

independent of the derivative injury common to all shareholders. See id. at 337; Twohy, 758 F.2d at 1194; see also

Goldberg v. Michael, 766 N.E.2d 246, 251 (Ill. App. Ct. 2002);

Sterling Radio Stations, Inc. v. Weinstine, 765 N.E.2d 56,

60 (Ill. App. Ct. 2002); Small v. Sussman, 713 N.E.2d 1216,

1219 (Ill. App. Ct. 1999). Finally, a shareholder may sue

to vindicate an injury even where the corporation may

bring the action if “a special contractual duty exists between the wrongdoer and the shareholder.” Twohy, 758

F.2d at 1194; Eden v. Miller, 37 F.2d 8, 9-10 (2d Cir. 1930).

Rawoof acknowledges the rule against shareholder

standing but argues he is nonetheless entitled to bring

this suit in his own name. He makes no effort, however,

to bring himself within any of the recognized exceptions

we have just listed. Instead, he invokes the agency doctrine

applicable to liability issues when an agent acts for an

undisclosed principal. See RESTATEMENT (THIRD) OF

AGENCY § 6.03 (2006). Rawoof asserts that if one accepts

the premise that he entered into the purported oral franchise agreement with Texor but that SHL 95 alone suffered the injury from its termination, Rawoof’s status as

an agent for SHL 95 as undisclosed principal follows “as

a matter of law.”

Texor counters that Rawoof’s position on this point lacks

factual and legal support. We agree. “Agency is a consensual, fiduciary relationship between two legal entities

created by law, where the principal has the right to control the activities of the agent, and the agent has the

power to conduct legal transactions in the name of the

principal.” Knauerhaze v. Nelson, 836 N.E.2d 640, 660 (Ill.

App. Ct. 2005) (quoting Caligiuri v. First Colony Life Ins. Co.,

742 N.E.2d 750, 756 (Ill. App. Ct. 2000)). Rawoof appears
12 Nos. 06-1720 & 06-1767

to argue that the district court’s denial of his motion to

substitute somehow requires the conclusion that he acted

as an agent for SHL 95, an undisclosed principal, in

connection with the franchise agreement with Texor. This

is certainly not true as a legal matter; Rawoof’s status as

sole shareholder, officer, and director of SHL 95 does

not automatically make him an agent of the corporation

for purposes of the transaction in question here. See, e.g.,

Knauerhaze, 836 N.E.2d at 669.

Moreover, Rawoof cites no evidentiary support for

his agency claim, and our independent review of the

proposed findings of fact on summary judgment and

Rawoof’s responses to them yields none. See RuffinThompkins v. Experian Info. Solutions, Inc., 422 F.3d 603,

610 (7th Cir. 2005) (explaining that district court need

not scour the record to find evidence supporting a

party’s burden of production on an issue); see also Hammel

v. Eau Galle Cheese Factory, 407 F.3d 852, 859 (7th Cir.

2005) (quoting Schacht v. Wis. Dep’t of Corr., 175 F.3d 497,

504 (7th Cir. 2005) (explaining that summary judgment

is the “put up or shut up” moment in an action where a

party must identify the evidence it has that would convince a trier of fact)). In any event, this particular agency

doctrine generally defines the rights and obligations of

the undisclosed principal vis-à-vis third parties with

whom an agent with actual authority contracts on behalf

of the undisclosed principal. See RESTATEMENT (THIRD) OF

AGENCY § 6.03 cmt. a. It is less commonly used as a basis

for the alleged agent to assert, in his own name, the

rights of the principal against a third party. More importantly, as we have noted, Rawoof has made no effort to

develop a factual basis for this claim, which requires,

among other things, that an agent have actual authority,
Nos. 06-1720 & 06-1767 13

see id. §§ 2.01, 2.02; act on behalf of an undisclosed principal, see id. §§ 1.04(2)(b), 6.03; and that the third party have

notice that the agent is acting on behalf of an undisclosed principal, see id. § 4.

Rawoof next argues that SHL 95 was a third-party

beneficiary to the alleged franchise agreement entered

into with Texor. Under Illinois law, which Rawoof

invokes for this argument, a third party may be an intentional or incidental beneficiary of a contract entered into

between others. See Cont’l Cas. Co. v. Am. Nat’l Ins. Co.,

417 F.3d 727, 734 (7th Cir. 2005); Estate of Willis II v.

Kiferbaum Constr. Corp., 830 N.E.2d 636, 643 (Ill. App. Ct.

2005). “An intended beneficiary is intended by the

parties to the contract to receive a benefit for the performance of the agreement and has rights and may sue

under the contract; an incidental beneficiary has no rights

and may not sue to enforce them.” Estate of Willis II,

830 N.E.2d at 643; MBD Enters., Inc. v. Am. Nat’l Bank of

Chi., 655 N.E.2d 1061, 1064 (Ill. App. Ct. 1995). There is a

strong presumption in Illinois law against the creation of

contractual rights in third parties, see Bates & Rogers Constr.

Corp. v. Greeley & Hansen, 486 N.E.2d 902, 906 (Ill. 1985);

any intent to benefit a third party must be discernible in

the language and circumstances of the contract, see Estate

of Willis II, 830 N.E.2d at 642-43.

Here again, there is no factual or legal support for

Rawoof’s third-party beneficiary argument. The purported agreement between Texor and Rawoof made no

mention of SHL 95, see id., and there is no other evidence

to establish that Rawoof and Texor intentionally entered

into the franchise agreement for the benefit of SHL 95. To

the contrary, the evidence suggests Texor did not know

that Rawoof’s gas station was owned and operated by
14 Nos. 06-1720 & 06-1767

SHL 95 until late in this litigation. More fundamentally,

as a legal matter, Rawoof’s argument has things backward. If a contract is entered into intentionally for the

benefit of a third party, the third-party beneficiary

would have standing to sue on the contract. Rawoof is

attempting to use this doctrine to support his own standing—not that of the alleged third-party beneficiary—in an

effort to get around his admission that the third party,

SHL 95, is in fact the real party in interest.

Rawoof’s third argument occupies much of his briefing;

he claims he is the assignee of SHL 95’s PMPA claim. This

is the point at which Rawoof’s attempt to fit this case

into a legal theory reaches the breaking point. Although

his briefing is lengthy on this point, Rawoof does not

come close to developing a meaningful assignment argument, perhaps because there is no evidence whatsoever

of any actual assignment. Rather, he asserts that SHL 95

acquiesced in or ratified his pursuit of the PMPA claim

(either implicitly or explicitly), and then he proceeds to

use the terms “assignment” and “ratification” interchangeably. As best we can tell, the “ratification” argument

appears to consist of two separate contentions. First,

Rawoof argues that because he was SHL 95’s sole shareholder, his filing of the PMPA claim was tantamount to

ratification of that action by the corporation. Second,

he claims that SHL 95 actually ratified, by after-the-fact

resolutions, his bringing of the action in his own name.

Neither of these claims has merit.

Rawoof has not cited any case announcing a rule that

a suit brought by a sole shareholder for harm done to the

corporation is itself evidence of either an assignment or

ratification by the corporation. He cites several cases

regarding the ability of creditors to reach corporate assets
Nos. 06-1720 & 06-1767 15

3 We have no disagreement with our dissenting colleague

regarding the state of Illinois law on shareholder ratification and

corporate assignment of corporate assets. None of the cases

cited, however, supports the proposition that the act of filing

suit is itself evidence of an assignment of the action or an

implicit or explicit ratification by the corporation of the shareholder’s appropriation of the action, and Rawoof has developed

no other factual basis for this argument. Indeed, as we discuss further infra, the attempt to substitute the corporation for

Rawoof as plaintiff undermines Rawoof’s assignment/ratification theory.

diverted to shareholders in closely held corporations,

see, e.g., Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir.

1995); Dannen v. Scafidi, 393 N.E.2d 1246, 1250-51 (Ill. App.

Ct. 1979), but we fail to see the relevance of this line of

cases to the question presented here.3

 Rawoof’s claim

that the corporation explicitly (as opposed to implicitly)

ratified his filing of this suit is based on the following

events: (1) in September 2002 (and one month after the

filing of the complaint in this action), Rawoof and his

wife created a trust, of which they were both cotrustees;

(2) in February 2003, Rawoof issued all of SHL 95’s authorized stock to the trust; (3) in February 2005, well after

Rawoof’s death, the trust, acting through his wife (now

the sole trustee), issued a resolution ratifying Rawoof’s

having brought suit in his own name and his substitution of the estate in that suit; and (4) as SHL’s sole director,

Rawoof’s wife later issued another “ratification” resolution

identical to the resolution issued by the trust.

Texor raises the potentially alarming prospect that

Rawoof either manufactured documents to support the

foregoing factual scenario in order to stave off summary

judgment, or withheld them in disregard of previous
16 Nos. 06-1720 & 06-1767

discovery requests. There may be something to at least

the latter of these admittedly serious allegations. When

arguing his substitution motion before the district court in

July and August 2004, Rawoof represented he “is, and

has been, the sole officer, director and stockholder of the

S-corporation since its inception.” However, Rawoof’s

wife submitted an affidavit in response to Texor’s motion

for summary judgment attaching documents that purported to show that all of SHL’s stock was transferred to

a trust in 2003—a trust of which she and her husband

were cotrustees.

We need not attempt to reconcile these conflicting

representations or determine whether they amount to

discovery violations. While it is true that ratification is a

legitimate way to cure an initial failure to prosecute

an action in the name of the real party in interest under

FED. R. CIV. P. 17(a), here, Rawoof attempted to use it as a

means of escaping the consequences of the denial of his

motion to substitute plaintiffs. The district court held

that the purported “ratification” in this case came too

late—in response to Texor’s motion for summary judgment and long after the court had denied the substitution motion. The court understandably considered the

belated ratification effort as an end run around its prior

order denying substitution of plaintiffs. Rawoof claims

that the ratification resolutions by the trust simply “reinforced” the initial, implicit ratification. As with Rawoof’s

other arguments, there is no support for this proposition.

Rawoof is barred by the shareholder-standing rule from

pursuing this PMPA claim. He lacks a direct, personal

injury independent of the derivative injury of a shareholder generally, and has otherwise failed to bring himself within one of the recognized exceptions to the
Nos. 06-1720 & 06-1767 17

shareholder-standing rule. Accordingly, the district court

properly dismissed this case for lack of prudential standing.

B. Texor’s Cross-appeal

Texor cross-appealed the district court’s denial of its

motion to dismiss on statute-of-limitations grounds and

the court’s denial of its request for attorney’s fees. Because

we are affirming the district court’s order dismissing

the case for lack of standing, we need not address the

question of the PMPA’s statute of limitations. That leaves

Texor’s request for attorney’s fees. A grant or denial of

attorney’s fees under the PMPA is reviewed for abuse of

discretion. See Four Corners Serv. Station, Inc. v. Mobil Oil

Corp., 51 F.3d 306, 315 (1st Cir. 1995). The PMPA permits

an award of attorney’s fees to a prevailing franchisor if

the action is deemed frivolous. See 15 U.S.C. § 2805(d)(3).

The district court did not abuse its discretion in declining

to find this action frivolous. We agree with the district

court that Rawoof’s prolonged neglect of SHL 95’s status

as the real party in interest is inexplicable under the

circumstances. But the price of that neglect was the denial

of his motion to substitute plaintiffs. Rawoof’s arguments regarding his personal standing to pursue this

action, while belated and ultimately meritless, were not

so unreasonable as to be frivolous.

AFFIRMED.
18 Nos. 06-1720 & 06-1767

RIPPLE, Circuit Judge, dissenting. I agree with my colleagues that Mr. Rawoof has established constitutional

standing to pursue this action against Texor. However,

I do not believe that principles of prudential standing

counsel against exercising federal jurisdiction under

these circumstances. I therefore respectfully dissent.

A party seeking to invoke the power of the federal

judiciary must establish that he has standing to bring

the action. Standing consists of both constitutional requirements, flowing from the Article III limitation on

judicial power to “cases” and “controversies,” and prudential limitations on the exercise of federal jurisdiction. See

Franchise Tax Bd. of California v. Alcan Aluminum Ltd.,

493 U.S. 331, 335 (1990). Among the prudential limitations on standing is the prohibition against third-party

standing. Id. at 336. This prohibition bars a person from

asserting the claims of a third party not before the court,

even when the constitutional requirements for standing—injury in fact, causation and redressability—have

been met. See id.; see also Erwin Chemerinsky, Federal

Jurisdiction § 2.3.4 at 83 (4th ed. 2003). The rule against

third party standing serves a number of goals, including

avoiding officious intermeddling by ensuring that the

court does not adjudicate rights an individual does not

wish to assert and ensuring that a party has a concrete

interest in the rights he is asserting. See Chemerinsky,

Federal Jurisdiction § 2.3.4 at 83.

The shareholder standing rule is a corollary to the rule

against third-party standing and generally prohibits

shareholders from asserting claims that belong to the

corporation. Franchise Tax Bd., 493 U.S. at 336. This general rule applies even when the shareholder in question

is the sole shareholder and officer of the corporation.
Nos. 06-1720 & 06-1767 19

Carney v. Gen. Motors Corp., 23 F.3d 1154, 1157 (7th Cir.

1994).

Under the shareholder standing rule, injuries to the

shareholder which are derived solely from injuries to the

corporation, for instance, diminution of share price, belong to the corporation. A shareholder only may bring

an action for such injuries in the form of a derivative

action on behalf of the corporation. See 12B William

Meade Fletcher, Fletcher Cyclopedia of the Law of Private

Corporations § 5911 (Perm. ed. 2000) [hereinafter Fletcher

Cyclopedia of Corporations]. Limiting these actions to derivative actions serves a number of interests. First, the rule

avoids multiplicitous litigation by various shareholders

which, in addition to straining the resources of the

courts and potential defendants, may bar an action by

the corporation itself or subject the defendant to double

liability if the corporation were to sue on its own behalf.

See Massey v. Merrill Lynch & Co., Inc., 464 F.3d 642, 647

(7th Cir. 2006); 12B Fletcher Cyclopedia of Corporations § 5910.

Additionally, restricting such actions to derivative actions

directs any recovery to the corporation and thus protects

the interests of the corporation’s creditors and other

shareholders. See Massey, 464 F.3d at 647; 12B Fletcher

Cyclopedia of Corporations § 5910. Further, procedural

requirements that govern derivative actions, particularly

the requirement that the shareholder first must demand

that the corporation’s directors take action, prevent shareholders from interfering with the business judgment of

the directors in whom the corporation’s management

is entrusted. See Massey, 464 F.3d at 647; 13 Fletcher

Cyclopedia of Corporations § 5963.

There is an exception to the shareholder standing rule

for shareholders who are injured as individuals rather
20 Nos. 06-1720 & 06-1767

than as shareholders. 12B Fletcher Cyclopedia of Corporations

§ 5911. In such cases, the shareholder may be said to

hold a “direct, personal interest,” and may pursue a direct action even if the wrongful act also implicates the

corporation’s rights. Id.; see also Franchise Tax Bd., 493 U.S.

at 336; Ronald D. Rotunda & John E. Nowak, Treatise on

Constitutional Law § 2.13 at 259 (3d ed. 1999). The most

common example of such an injury is when the shareholder is a party to the contract upon which the action is

based. See 12B Fletcher Cyclopedia of Corporations § 5911.

Although federal law generally controls the question of

standing, whether the shareholder’s claims are derivative

or direct for purposes of the shareholder standing rule

is controlled by the law of the state of incorporation, in

this case, Illinois. See Massey, 464 F.3d at 645. Illinois

follows the general approach to the shareholder standing

rule stated above, including the exception to the rule

that permits a shareholder to assert a direct action

when the shareholder suffers an individual injury apart

from his status as a shareholder. See Zokoych v. Spalding,

344 N.E.2d 805, 813 (Ill. App. Ct. 1976); Mann v. Kemper Fin.

Cos., Inc., 618 N.E.2d 317, 323 (Ill. App. Ct. 1992). The

question thus becomes whether, under Illinois law,

Mr. Rawoof’s claims are direct rather than derivative.

Mr. Rawoof advances three theories in support of his

contention that his claim against Texor is direct rather

than derivative. His first argument is that his claim is not

barred because he and Texor were the parties to the fuel

contract, with SHL 95 merely as a third-party beneficiary.

This argument is not meritorious. Mr. Rawoof did not

present any evidence in support of this theory before the

district court and therefore raised no genuine issue of

material fact in support of this theory that would preclude summary judgment.
Nos. 06-1720 & 06-1767 21

In addition to his third-party beneficiary argument,

Mr. Rawoof offers two other arguments that warrant

more extended discussion. First, he maintains that he is

an implied assignee of SHL 95’s cause of action against

Texor. Second, he claims that he negotiated the contract

with Texor on behalf of a partially disclosed principal—SHL 95; consequently, he may pursue the action in

his individual capacity. These arguments are explored

more fully below.

I

Mr. Rawoof argues that SHL 95 assigned to him its cause

of action against Texor at the time he brought this suit by

implicitly ratifying his appropriation of SHL 95’s rights

against Texor under the franchise agreement. Under

Illinois law, a chose in action is assignable personal property, Saltzberg v. Fishman, 462 N.E.2d 901, 905 (Ill. App. Ct.

1984). An assignment transfers “to the assignee all the

right, title or interest of the assignor in the thing assigned.”

A.J. Maggio Co. v. Willis, 738 N.E.2d 592, 596 (Ill. App. Ct.

2000). Following a valid assignment, the assignee may

bring an action in his own name. See 735 ILCS 5/2-403(a);

Kennedy v. Deere & Co., 492 N.E.2d 199, 202 (Ill. App. Ct.

1986); Saltzberg, 462 N.E.2d at 905. Further, an assignment

divests the assignor of all rights in the property assigned

and places the assignee in the shoes of the assignor with

respect to the property. See People v. Wurster, 422 N.E.2d

650, 652 (Ill. App. Ct. 1981). Thus, following a valid assignment of a chose in action, a corporation may not bring an

action to enforce the rights assigned. Because the corporation itself may not bring the action, it cannot be brought as

a derivative action either. See Mann, 618 N.E.2d at 326.
22 Nos. 06-1720 & 06-1767

1 As noted above, a valid assignment of a corporation’s chose in

action divests the corporation of its interest in that action. For

that reason, an action by a corporation’s sole shareholder in

his individual capacity asserting rights assigned to him by the

corporation does not implicate the shareholder standing rule.

It is clear, also, that an assignment of a chose in action under

such circumstances does not threaten the interests advanced

by the shareholder standing rule. First, the ratification must

be unanimous, thus it does not provide the shareholder to whom

the chose in action is assigned with an unfair advantage over

other shareholders. Second, because the ratification is only

(continued...)

Under Illinois law, shareholders may ratify the appropriation of corporate assets by a corporate officer or

director for non-corporate purposes if such ratification is

unanimous and the appropriation does not prejudice the

rights of creditors, see Scholes v. Lehmann, 56 F.3d 750,

754 (7th Cir. 1995); Steinberg v. Buczynski, 40 F.3d 890, 892

(7th Cir. 1994); Dannen v. Scafidi, 393 N.E.2d 1246, 1250 (Ill.

App. Ct. 1979); the same rule applies even if there is only

one shareholder, see Scholes, 56 F.3d at 754. Shareholder

ratification may be found by implication, see Roth v.

Ahrensfeld, 27 N.E.2d 445, 447 (Ill. 1940); Forkin v. Cole,

548 N.E.2d 795, 807 (Ill. App. Ct. 1989), and Illinois courts

will find unanimous shareholder approval “obvious” when

the corporate officer appropriating the asset for noncorporate purposes is the sole shareholder of the corporation, Dannen, 393 N.E.2d at 1251. Thus, under Illinois

law, a valid assignment of a corporate asset to a corporation’s sole shareholder for his own purposes may be

found without an express assignment when he takes

the action for his own purposes and the ratification

works no prejudice to the corporation’s creditors.1
Nos. 06-1720 & 06-1767 23

1 (...continued)

effective if it does not prejudice the rights of creditors, such an

assignment does not threaten to bypass normal rules of priority

with respect to corporate obligations. Third, because the

assignment divests the corporation of its interests in the chose

in action and the ratification is unanimous, the assignment

does not unfairly deprive the corporation of its own cause of

action or expose the alleged wrongdoer to multiple lawsuits.

Lastly, the assignment does not threaten the autonomy of the

corporation’s officers in business judgments because the sole

officer appropriates the asset in the first instance and that

ratification is unanimously approved by the shareholders,

thereby removing any taint of self-dealing.

2 Because I believe that there was an effective assignment of the

chose in action at the outset of this litigation, I do not have to

reach the question whether SHL 95 later ratified Mr. Rawoof’s

actions. Although the majority concludes that the documents

submitted by Mr. Rawoof in support of his ratification argument cannot be used “as a means of escaping the consequences

of the denial of his motion to substitute plaintiffs,” slip op. at

(continued...)

Given the state of Illinois law, I believe Mr. Rawoof may

pursue the present action against Texor. It is undisputed

that, at the time he brought this action, Mr. Rawoof was

the sole officer, director and shareholder of SHL 95. Thus,

under Illinois law, unanimous approval of the assignment is assumed. Because there is no suggestion that

the assignment would prejudice SHL 95’s creditors, the

assignment is ratified. Further, we may assume such

implicit ratification happened, at the latest, when

Mr. Rawoof filed this action, ensuring that the shareholder standing rule posed no bar from the very outset

of this litigation.2

 For these reasons, Mr. Rawoof had
24 Nos. 06-1720 & 06-1767

2 (...continued)

16, the majority does not address definitively the authenticity

of the underlying documents, nor the effectiveness of these

documents in transferring ownership of SHL 95 stock to a living

trust. Similarly, the district court did not address these issues

directly when it granted Texor’s motion for summary judgment.

Were this matter remanded to the district court, I believe that

the authenticity of the documents, and their bearing on the

ownership of SHL 95 stock, would be appropriate issues for the

district court to address. 

3 Although this result may appear at first inconsistent with

our holding in Carney v. General Motors Corp., 23 F.3d 1154, 1157

(7th Cir. 1994) (holding that the shareholder standing rule

applies even when there is only one shareholder), such is not

the case. Carney did not involve Illinois law. Moreover, the

plaintiff in Carney did not argue that the action was brought

following an implicit assignment of a chose in action, and we

had no occasion to address the issue. Thus, although there may

appear to be some superficial tension between our holding

in Carney and the present case, such tension is simply

that—superficial. We are not bound by prior jurisdictional

rulings where the present issue was not raised or was passed

sub silentio. Cf. Hibbs v. Winn, 542 U.S. 88, 126-27 (2004);

Fed. Election Comm’n v. NRA Political Victory Fund, 513 U.S. 88,

97 (1994).

standing to bring this action in his own name from the

outset of the litigation.3

II

The other ground Mr. Rawoof asserts to establish his

standing to bring this action is that, even if SHL 95 did not

assign him its chose in action, as the agent of a partially
Nos. 06-1720 & 06-1767 25

disclosed or undisclosed principal, he was a party to the

franchise agreement, and thus he may assert this action

in his own name. As noted above, Illinois recognizes the

exception to the shareholder standing rule that permits a

shareholder to assert a direct action when the alleged

wrongful acts both injure the corporation and violate

“a duty owed directly to the shareholder.” Mann, 618

N.E.2d at 323. Such is the case when the duty owed to the

shareholder arises from a contract to which the shareholder is a party. Zokoych, 344 N.E.2d at 813.

Under general principles of agency law, an agent acting

on behalf of a partially disclosed or undisclosed principal

is a party to the contract. See Restatement (Second) of

Agency §§ 321-22 (1958). In either case, the agent becomes a promisee on the contract and may bring an

action on the contract in his own name unless, in the case

of an agent acting on behalf of a partially disclosed principal, the contract excludes the agent as a party. Id. § 364 &

cmt. b. Illinois follows these general principals of agency

law. See Rosen v. DePorter-Butterworth Tours, Inc., 379

N.E.2d 407, 410 (Ill. App. Ct. 1978) (“[I]f an agent does not

disclose the existence of an agency relationship and the

identity of his principal, he binds himself to the third

party . . . .”); Lake Shore Mgmt. Co. v. Blum, 235 N.E.2d

366, 368 (Ill. App. Ct. 1968) (“The agent of a partially

disclosed principal is a party to the agreement and capable of bringing suit in his own right.”). We have noted

that, applying these principles, an agent may bring such

an action as a real party in interest. See American Nat’l

Bank & Trust Co. of Chicago v. Weyerhaeuser Co., 692 F.2d

455, 464 n.19 (7th Cir. 1982).

In the present action, it is undisputed that Texor contracted to supply gasoline, see R.6, Ex. 2 at 1, but that it

was not aware of SHL 95’s identity until after this litiga-
26 Nos. 06-1720 & 06-1767

tion commenced, see R.57 at 1. Although it is disputed

now whether Texor knew that Mr. Rawoof was acting on

behalf of an undisclosed, as opposed to a partially disclosed, principal, this fact is not material to whether

Mr. Rawoof may assert an action in his own name to

enforce the franchise agreement. Because the undisputed

facts establish that Mr. Rawoof acted as the agent of either

a partially disclosed or undisclosed principal, under

Illinois law and general principles of agency law he is a

party to the contract. Indeed, Texor itself benefitted

from Mr. Rawoof’s status as a party to the franchise

agreement by bringing an action directly against him in

state court for failing to pay for the March 2001 fuel

deliveries. See R.6, Ex. 2.

Thus, Mr. Rawoof’s status as a party to the franchise

agreement exposes Mr. Rawoof “to a unique harm, different than general diminution of share price,” Massey,

464 F.3d at 646, and entitles him to bring a direct action

against Texor as a party to the contract. As such, Mr.

Rawoof has standing under the shareholder standing

rule to bring this action.

Conclusion

Mr. Rawoof, both as an implicit assignee of the rights

of SHL 95 and also as an agent of a partially disclosed

principal, has suffered a direct injury as a result of Texor’s

alleged violation of the PMPA. He, therefore, does not

fall within the general rule prohibiting shareholder standing. Therefore, I respectfully dissent and would remand

the case to the district court for further proceedings on

the merits of Mr. Rawoof’s claims.

USCA-02-C-0072—4-7-08