Opinion ID: 3000154
Heading Depth: 4
Heading Rank: 3

Heading: for which the franchisee pays, directly or

Text: 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 circumstances 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 payment 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 termination of the 1995 agreement violated the Minnesota Franchise 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 agreement 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 agreement. 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 constituted 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 constitute 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 wholesale 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 Satellite Network/Dealer Lease Agreement.” The 1988 agreement 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 summary 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 discovery 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 Consumer 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 Consumer 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 statements 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 essence, 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 purchases 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.