author: PRENTICE H. MARSHALL, District Judge.

text:
    NORTH BROADWAY MOTORS, INC., an Illinois corporation, Plaintiff, v. FIAT MOTORS OF NORTH AMERICA, INC., a foreign corporation, Defendant.
    No. 84 C 2007.
    United States District Court, N.D. Illinois, E.D.
    Sept. 4, 1984.

      Richard H. Balog, Shearer, Blood, Agrella, Boose & Balog, St. Charles, 111., for plaintiff.
    David N. McBride, Teresa E. Raizen, Ross & Hardies, Chicago, 111., for defendant.
   MEMORANDUM OPINION

PRENTICE H. MARSHALL, District Judge.

This is an action by North Broadway Motors, Inc. (“North Broadway”), an automobile dealer, against Fiat Motors of North America, Inc., (“Fiat North America”), which supplied North Broadway with Fiat automobiles. In January 1976, North Broadway entered into a Dealer Sales and Service Agreement with Fiat North America that established North Broadway as a Fiat dealer. According to plaintiff’s amended complaint, Fiat North America established a system of unfair and unequal quotas that had the effect of forcing plaintiff to accept a disproportionately high number of automobiles and parts as compared with neighboring Fiat dealers, thus placing plaintiff at a competitive disadvantage. Amended Complaint, Count 1 ¶¶ 7, 8. Further, Fiat North America sold new Fiat cars to automobile liquidators at “cut-rate” prices lower than the prices at which similar cars were offered to plaintiff. Id. ¶ 9. Finally, defendant allegedly forced plaintiff to purchase unpopular Fiat models as a condition precedent of the purchase of more popular models. Id. ¶ 10. As a result of these actions, North Broadway was forced to sell its Fiat dealership at a great loss. Id. Count 2 ¶ 13. After plaintiff gave up its Fiat dealership, the complaint asserts, Fiat North America offered an arbitrarily low price for the repurchase of plaintiffs inventory of parts and automobiles. Id., Count 6 ¶ 14.

The amended complaint is stated in eight counts. In count 1, plaintiff alleges that defendant had an implied obligation under its agreement with plaintiff to provide plaintiff a fair and equitable allocation of Fiat cars, an obligation breached by the previously-described actions. In count 2, plaintiff claims that these actions were done by defendant with malice and the intent to destroy plaintiffs business or to force plaintiff to sell his dealership at a loss. Count 3 is based on the Automobile Dealer’s Day in Court Act (“Dealer’s Act”), 15 U.S.C. §§ 1221-25 (1982); plaintiff asserts that defendant’s actions with respect to allocation of automobiles and purchase price violated the obligation of “good faith” applicable to auto manufacturers contained in id. § 1222. In count 4, plaintiff asserts that these actions violated the Illinois Motor Vehicle Franchise Act (“IMVFA”), Ill.Rev.Stat. ch. 121½, §§ 751-64 (1983), which makes unlawful certain practices concerning allocation of automobiles. Count 5 is based on defendant’s alleged refusal to reimburse plaintiff for two claims plaintiff made for performing repair work on Fiat cars covered by the manufacturer’s warranty. In count 6, plaintiff asserts that defendant’s pricing of plaintiff’s inventory was arbitrary, capricious, and willful. Count 7 claims that this conduct violated the IMVFA; count 8 asserts that it violated the Dealer’s Act.

Defendant has moved to dismiss all of the complaint except count 5.

COUNTS 1 AND 2

Count 1 is, as we have noted, essentially a breach of contract claim. The contract is attached to the amended complaint. The only obligations it imposes on Fiat North America with respect to allocation of automobiles are as follows:

[Fiat North America] shall give careful consideration to each order received from Dealer for Fiat passenger cars and other
[Fiat North America] Products____
[Fiat North America], however, will not ship any [Fiat North America] Products to Dealer, except pursuant to Dealer’s specific order.

Dealer Sales and Service Agreement ¶ 13(b), (c). The agreement also provides that “there is no other agreement or understanding, either oral or in writing, between the parties affecting this Agreement or relating to the subject matter hereof.” Id. ¶ 61(c). It also provides that defendant “shall not be under any liability to Dealer for failure to deliver ... pursuant to orders of Dealer accepted by [Fiat North America] ____” Id. ¶ 15. Defendant argues, based on these provisions, that there is neither an express nor an implicit agreement by defendant to provide plaintiff a fair and equitable allocation of Fiat cars. Plaintiff’s only response to this is that if we read the complaint carefully we will see that it states a claim.

We have read the complaint and the agreement carefully, and we agree with defendant that there is no basis for a claim of breach of contract. Plaintiff does not allege that defendant breached its obligation to give “careful consideration” to plaintiff’s orders or its undertaking not to ship products to plaintiff except pursuant to an order. In light of the integration clause contained in ¶ 61(c) of the agreement, we cannot hold defendant responsible for breaching undertakings that are not made expressly in the agreement. Count 1 is therefore dismissed for failure to state a claim upon which relief may be granted.

Count 2, with its allegation of malice and intent to destroy plaintiff’s business, appears to be a tort claim. Though once again plaintiff does not attempt to illuminate matters for us with respect to count 2, we must examine the complaint to determine whether its allegations provide for relief under any possible theory, even if that theory is not articulated in the complaint itself. See Knapp v. McCoy, 548 F.Supp. 1115, 1116 (N.D.Ill.1982) (Shadur, J.). The only tort conceivably implicated by the allegations in count 2 is interference with prospective economic advantage. There are four elements of this tort under Illinois law: 1) plaintiff reasonably expects to enter into a valid business relationship; 2) defendant knows of this expectancy; 3) defendant intentionally interferes in plaintiff’s expectancy, preventing it from ripening into a valid business relationship; and 4) plaintiff suffers damages as a result of defendant’s interference. See Knapp, 548 F.Supp. at 1117 (Illinois law); Bank Computer Network Corp. v. Continental Illinois National Bank and Trust Co., 110 Ill.App.3d 492, 500, 66 Ill.Dec. 160, 166, 442 N.E.2d 586, 592 (1982).

Opportunity to obtain customers is an expectancy protected by the tort action for interference with prospective advantage. Knapp, 548 F.Supp. at 1117. Giving the allegations of the complaint a fair reading, plaintiff asserts that defendant’s conduct concerning allocations impaired plaintiff’s ability to obtain customers, as plaintiff had a poor “mix” of Fiat automobiles. As we read the complaint, plaintiff had a reasonable expectancy of which defendant was aware. Further, the allegation of malice contained in paragraph 12 of the complaint suffices as an assertion of intentional interference in plaintiff’s expectancy, particularly when combined with an allegation of an intent to destroy plaintiff’s business or lower its value. Knapp, 548 F.Supp. at 1117. Finally, plaintiff adequately alleges that it was damaged by defendant’s conduct in that it had to sell its dealership at a great loss.

The caselaw also requires that a defendant’s conduct be wrongful and not in accord with legitimate business practices in order to be actionable. See Panter v. Marshall Field & Co., 646 F.2d 271, 298 (7th Cir.) (Illinois law), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981); Knapp, 548 F.Supp. at 1117; Bank Computer, 110 Ill.App.3d at 500-01, 66 Ill.Dec. at 166-67, 442 N.E.2d at 592-93. As the Illinois Appellate Court has stated,

[t]he theory of the tort of interference, it is said, is that the law draws a line beyond which no member of the community may go in intentionally intermeddling with the business affairs of others; that if acts of which the complaint is made do not rest on some legitimate interest, or if there is sharp dealing or overreaching or other conduct below the behavior of fair men [sic] similarly situated, the ensuing loss should be redressed; and that line of demarcation between permissible behavior and interference reflects the ethical standards of the community.

City of Rock Falls v. Chicago Title & Trust Co., 13 Ill.App.3d 359, 362-63, 300 N.E.2d 331, 333 (1973), quoted in Panter, 646 F.2d at 298. It is established in Illinois law that “one who has an interest may take action to protect his rights, and even if the interference is done with malice he cannot be held financially liable for the result of his actions.” Bank Computer, 110 Ill.App.3d at 500, 66 Ill.Dec. at 166, 442 N.E.2d at 592; Petit v. Cuneo, 290 Ill.App. 16, 22, 7 N.E.2d 774, 777 (1937).

It is possible that defendant will take the position that its allocations of automobiles among its dealers was devised in order to ensure that it was able to dispose of all of the automobiles it obtained from the manufacturer and/or in order to develop a market for automobiles other than the so-called “popular” models. These might be legitimate interests that defendant is legally entitled to protect. However, at present we are concerned only with the issue of the adequacy of plaintiff’s complaint, and the question is therefore whether “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). We cannot simply assume that defendant acted reasonably in furtherance of its own legitimate objectives and that it did not engage in overreaching. The complaint adequately spells out the elements of a claim for interference with prospective advantage, and defendant’s motion to dismiss is therefore denied as it relates to count 2.

COUNTS 4 AND 7

Counts 4 and 7 are, as we have noted, based on the IMVDA. The IMVDA became effective in June 1979. The Illinois courts have held that the statute is to be construed as operating prospectively so as not to violate the constitutional guarantee against impairment of the obligation of contracts. Marquette National Bank v. Loftus, 117 Ill.App.3d 771, 73 Ill.Dec. 267, 454 N.E.2d 11 (1983); McAleer Buick-Pontiac Co. v. General Motors Corp., 95 Ill.App.3d 111, 50 Ill.Dec. 500, 419 N.E.2d 608 (1981). Under McAleer and Marquette, the question whether application of the Act in a particular case would be impermissibly retroactive is determined by examining whether the Act “ ‘takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposed a new duty, or attaches a new disability in respects of transactions or considerations already past.’ ” McAleer, 95 Ill.App.3d at 113, 50 Ill.Dec. at 502, 419 N.E.2d at 610 (quoting United States Steel Credit Union v. Knight, 32 Ill.2d 138, 142, 204 N.E.2d 4, 6 (1965)).

The agreement between plaintiff and defendant was entered into over three years before the effective date of the IMVDA. Because the agreement does not impose any obligation upon defendant as to allocation of cars other than the limited duty to give plaintiff's orders fair consideration, application to defendant of the IMVDA’s proscription of arbitrary and capricious allocation plans, see Ill.Rev.Stat. ch. 121½, § 754(d)(1), unquestionably would “impose[ ] a new duty” upon defendant. It does not matter that the conduct of which plaintiff complains may have come after the effective date of the IMVDA; the same was true in McAleer, in which the plaintiff complained of defendant’s failure to renew its agreement with plaintiff in 1980. Plaintiff’s only counterargument is that no specific contractual right of defendant is impaired by application of the IMVDA, as the agreement is silent with respect to allocations of cars among dealers. This argument evinces a basic misunderstanding of the nature of a contract. A contract is often as important for what it does not say as for what it requires. The agreement’s silence on the subject of allocations indicates that the parties did not intend to impose upon defendant any duties concerning that subject. Thus, application of the IMVDA’s proscription would add a new duty to those that Fiat North America agreed to undertake. The same was true in McAleer, where the contract did not limit the defendant’s ability to refuse to renew its terms but the Act imposed a requirement of good cause for failure to renew. For these reasons, count 4 is dismissed for failure to state a claim.

The same analysis applied to count 7, which is based on the alleged underpricing of plaintiff’s inventory at the time of its repurchase by defendant. The agreement sets a formula for calculating repurchase prices, see Dealer Sales and Service Agreement ¶ 56, but the provision of the statute upon which plaintiff relies in count 7, § 754(b), proscribes all “arbitrary” or “unconscionable” conduct. The effect of § 754(b) is to impose upon defendant a duty to act fairly in addition to its duty to pay the contractually mandated price to the dealer. McAleer requires that count 7 be dismissed.

COUNTS 3 AND 8

The Dealer’s Act, upon which counts 3 and 8 are based, provides that an automobile dealer may bring suit against any automobile manufacturer and recover damages sustained by reason of the manufacturer’s failure to act in good faith in performing or complying with the terms or provisions of a written dealership agreement or in terminating or not renewing such an agreement. 15 U.S.C. § 1222 (1982). “Good faith” is defined in id. § 1221 as

the duty of each party to any [agreement] to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party

The courts have read the Act’s definition of good faith literally, and thus a manufacturer may be found to have violated the obligation of good faith only if it acted in a coercive or intimidating manner toward the dealer. See, e.g., Ed Houser Enterprises, Inc. v. General Motors Corp., 595 F.2d 366, 369 (7th Cir.1978) (per curiam); Lawrence Chrysler Plymouth, Inc. v. Chrysler Corp., 461 F.2d 608, 610 (7th Cir.), cert. denied, 409 U.S. 981, 93 S.Ct. 317, 34 L.Ed.2d 245 (1972).

Coercion under the Act consists of an either-or demand, or, otherwise stated, a demand that will result in sanctions if not complied with. See, e.g., H.C. Blackwell Co. v. Kenworth Truck Co., 620 F.2d 104, 107 (5th Cir.1980); Marquis v. Chrysler Corp., 577 F.2d 624, 633 (9th Cir.1978); Fray Chevrolet Sales, Inc. v. General Motors Corp., 536 F.2d 683, 685 (6th Cir.1976); McDaniel v. General Motors Corp., 480 F.Supp. 666, 677 (E.D.N.Y.1979); Cecil Corley Motor Co. v. General Motors Corp., 380 F.Supp. 819, 844 (M.D.Tenn.1974); General Motors Corp. v. Mac Co., 247 F.Supp. 723, 726 (D.Colo.1965) (conduct which results in dealer acting or refraining from acting against its will). In addition, most courts have held that the coercive demand must be wrongful, unfair, or inequitable in order to be actionable. See, e.g., Howard v. Chrysler Corp., 705 F.2d 1285, 1286-87 (10th Cir.1983); H.C. Blackwell Co., 620 F.2d at 107; Marquis, 577 F.2d at 633; Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901, 911 (9th Cir.), cert. denied, 436 U.S. 946, 98 S.Ct. 2848, 56 L.Ed.2d 787 (1978); Fray, 536 F.2d at 685; Randy’s Studebaker Sales, Inc. v. Nissan Motor Corp., 533 F.2d 510, 514 (10th Cir.1976); Milos v. Ford Motor Co., 317 F.2d 712, 716 (3d Cir.1963); Woodard v. General Motors Corp., 298 F.2d 121, 127 (5th Cir.1962). See also ShorLine Rambler, Inc. v. American Motor Sales Corp., 543 F.2d 601, 604 (7th Cir.1976) (“unreasonable and unrealistic” demand). But see Conroy Datsun, Inc. v. Nissan Motor Corp., 506 F.Supp. 1051, 1058 (N.D.Ill.1980) (dictum). Other courts have suggested, on the other hand, that the manufacturer must take into account the dealer’s economic interests in making decisions that affect the dealer. See Colonial Ford, Inc. v. Ford Motor Co., 577 F.2d 106, 110-11 (10th Cir.1978), modified in part on reh’g, 592 F.2d 1126 (10th Cir.1979); Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 561-62 (2d Cir.1970); Volkswagen Interamericana, S.A. v. Rohlsen, 360 F.2d 437, 442 (1st Cir.), cert. denied, 385 U.S. 919, 87 S.Ct. 230, 17 L.Ed.2d 143 (1966); Clifford Jacobs Motors, Inc. v. Chrysler Corp., 357 F.Supp. 564, 574 (S.D.Ohio 1973). See also H.C. Blackwell, 620 F.2d at 105-07 (demands involving proper subjects but unreasonable time for compliance).

In any event, several courts have held that a manufacturer’s insistence that a dealer accept an unfair allocation of automobiles may form the basis for a suit under the Dealer’s Act. See Sherman v. British Leyland Motors, Ltd., 601 F.2d 429, 445-46 (9th Cir.1979); Autohaus Brugger, 567 F.2d at 914; American Motors Sales Corp. v. Semke, 384 F.2d 192, 195 (10th Cir.1967); David R. McGeorge Car Co. v. Leyland Motor Sales, Inc., 504 F.2d 52, 55-56 (4th Cir.1974), cert. denied, 420 U.S. 992, 95 S.Ct. 1430, 43 L.Ed.2d 674 (1975). Indeed, the legislative history of the Act plainly demonstrates that Congress intended for such conduct to be actionable:

[t]he existence of coercion or intimidation depends upon the circumstances arising in each particular case and may be inferred from a course of conduct. For example, manufacturer pressure, direct or indirect, upon a dealer to accept automobiles, parts, accessories, or supplies which the dealer does not need, want, or feel the market is able to absorb, may in appropriate circumstances constitute coercion or intimidation.

H.R.Rep. No. 2850, 84th Con., 2d Sess. 9 (1956), reprinted in 1956 U.S.Code Cong. & Ad.News 4596, 4603; Here, as in Semke, plaintiff alleges that defendant required it to accept cars and parts that it did not want and that it was forced by the downturn caused by that conduct to give up its franchise. If, in addition to this, it is necessary that an implied threat of sanctions exists, though plaintiff does not make the argument we think that such a threat lies in the fact that under the agreement, ¶ 11, plaintiff was required to keep a stock of cars, parts, and accessories adequate to meet defendant’s requirements, and if he did not, cause for termination might exist under id. ¶ 52(b). Had plaintiff refused to accept the cars he did not want, a breach of the “adequate stock” requirement might have resulted. Count 3 therefore describes conduct that may give rise to a claim under the Dealer’s Act.

Defendant argues, however, that since it is not a manufacturer of automobiles it is not a proper defendant under the Dealer’s Act. Section 1222, quoted earlier, provides for lawsuits against automobile manufacturers, a term defined in § 1221(a) as anyone engaged in the manufacture or assembly of automobiles, “including any person, partnership, or corporation which acts for and is under the control of such manufacturer or assembler in connection with the distribution of said automotive vehicles.” Paragraph 3 of the complaint states simply that Fiat North America is in the business of operating and issuing Fiat franchises and that it is the distributor for Fiat products manufactured by Fiat Motors, which is not a defendant here.

As presently alleged, the complaint fails to satisfy the requirements of the DDICA, for there is no allegation that defendant “acts for and is under the control” of the entity that manufactures Fiat automobiles. Plaintiff notes that the Dealer Sales and Service Agreement frequently mentions the Italian company that manufactures the cars, Fiat S.P.A, but we see nothing in the agreement to suggest that defendant is under the Italian company’s control. Plaintiff has, however, asked that it be granted leave to amend the complaint to satisfy the requirements of the statute. We will permit plaintiff to do so, but in so doing we note that as we perceive the law, “control” under § 1221(a) does not require corporate affiliation or a principal-agent relationship. See Grappone, Inc. v. Subaru of North America, Inc., 403 F.Supp. 123, 135 (D.N.H.1975); DeCantis v. Mid-Atlantic Toyota Distributors, Inc., 371 F.Supp. 1238, 1244 (E.D.Va.1974). As the court stated in De-Cantis, “it is sufficient that the manufacturer has the power, by contract or otherwise, to direct the course of dealing between the wholesale distributors and its retail dealers.” 371 F.Supp. at 1244. See generally Volkswagen Interamericana, S.A. v. Rohlsen, 360 F.2d at 441-42; Barney Motor Sales v. Cal Sales, Inc., 178 F.Supp. 172, 175 (S.D.Cal.1959).

Though this same defect in count 8, which also arises under the Dealer’s Act, can be cured by amendment, unlike count 3, count 8 does not describe conduct proscribed by the Act. No element of “coercion” is present in defendant’s alleged arbitrarily low repurchase price, as there is no suggestion that an either-or demand was made such that sanctions would result upon noncompliance. That defect cannot be cured by amendment.

SUMMARY

Defendant’s motion to dismiss for failure to state a claim is granted in part and denied in part. Counts 1, 4, 7, and 8 are dismissed. Count 3 is dismissed with leave to amend within 10 days. The motion is otherwise denied. Defendant is to answer the remainder of the complaint within 20 days after plaintiff amends count 3. Previous discovery/trial schedule to stand.

      . The amended complaint states at Count 1, paragraph 4, that the agreement was renewed annually by the parties. Were this true, it might well mean that application of the IMVDA would not be retroactive in the circumstances of this case. However, plaintiff does not rely on such an argument in responding to the motion to dismiss, and in any event the complaint’s allegation is contradicted by the plain language of the agreement, which states that it remains in effect until terminated. Dealer Sales and Service Agreement ¶ Eighth.

      . We do not intend by this to limit plaintiff to this particular “sanction" in proving his Dealer’s Act claim. The above suffices, however, for purposes of a motion to dismiss.

      . Plaintiff cannot, however, maintain a claim under the Dealer’s Act based on the alleged price discrimination between his dealership and certain automobile liquidators. No element of "coercion” as defined by the caselaw is present in such conduct.


source: Caselaw Access Project

author: GETZENDANNER, District Judge:

license: Public Domain

text:
    George BALLIS, Plaintiff, v. MOBIL OIL CORPORATION, and Daniel J. Walker, Defendants.
    No. 85 C 07525.
    United States District Court, N.D. Illinois, E.D.
    Sept. 6, 1985.
    On Motion to Dismiss Oct. 31, 1985.

      Joseph A. Malek, Berwyn, 111., for plaintiff.
    Jeffrey M. Cross, Deborah S. Pardini, Ross & Hardies, Chicago, 111., for defendant Mobil Oil Corp.
    Dennis Hoornstra, Oak Brook, 111., for defendant Dan Walker.
   MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This action under the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801-2806, is before the court on the motion of plaintiff George Ballis for a temporary injunction to prevent defendant Mobil Oil Corporation from evicting him from its premises and terminating its franchise relationship with plaintiff. Jurisdiction is properly founded upon 15 U.S.C. §§ 2805(a) and 2805(b). For the reasons set forth herein, the motion is denied.

Plaintiff, a sole proprietor, has been an authorized Mobil franchisee for almost ten years at his location in Des Plaines, Illinois. His last lease and franchise agreement were due to expire by their written terms on August 31, 1985. On February 4, 1985, he received a registered letter advising him that Mobil had decided not to renew his lease in order to sell the premises. On May 1,1985, plaintiff received from Mobil a letter informing him of an offer by co-defendant Daniel J. Walker to purchase Mobil’s fee interest in the land for $290,000, and offering plaintiff a 45-day right of first refusal with reference to that offer. The envelope also contained an additional offer from Mobil to sell plaintiff the personal property which had been leased to him for another $14,852, for a total of $304,852. Plaintiff did not offer to pay the price because it was vastly in excess of what the land was worth for purposes of operating a service station. On August 27, 1985, four days before his lease and franchise expired, plaintiff filed the present suit.

Plaintiff alleges that defendant Mobil violated § 2802(b)(3)(D) (iii) of the Petroleum Marketing Practices Act by not making him a bona fide offer to sell its interest in the premises and by not offering a bona fide right of first refusal. Plaintiff accordingly seeks an injunction under § 2805(b)(2), which allows preliminary equitable relief where a terminated franchisee demonstrates “sufficiently serious questions going to the merits to make such questions a fair ground for litigation” with respect to make such questions a fair ground for litigation;; with respect to alleged violations of section 2802 or 2803. The court concludes that plaintiff has failed to demonstrate questions “sufficiently serious” to establish a fair ground for litigation and therefore denies the motion for preliminary equitable relief.

In his complaint, and in his memorandum requesting a temporary injunction, plaintiff does not challenge the fact that Walker genuinely offered to purchase Mobil’s fee interest in the land for $290,000, nor does he challenge the genuineness of Mobil’s desire to sell the premises. Plaintiff also concedes that a decision to sell the premises is a statutorily permissible reason for terminating a petroleum marketing franchise under the Act. 15 U.S.C. § 2802(b)(3)(D)(i). Plaintiff instead argues that: 1) the Act requires Mobil to sell him the franchise at a fair and reasonable price notwithstanding a higher offer from the third party; and 2) Mobil’s failure to make a single offer under which it offered to sell him all its interest in the premises (both real and personal) at a single price also violated the Act. Plaintiff argues that the fair market value of the real property does not exceed $180,000 and that Mobil therefore should have sold to him at that price regardless of Walker’s willingness to pay $110,000 more.

The court finds both of these arguments unpersuasive. The statute permits franchisors such as Mobil who wish to sell their leased premises either to make a bona fide offer to sell to the franchisee its interest in the premises; or, if applicable, to offer a right of first refusal of at least 45 days duration of an offer made by another to purchase the franchisor’s interest in the premises. Applicable case law makes clear that a bona fide offer to sell the franchisor’s “interest” must encompass more than a mere sale of the realty. Roberts v. Amoco Oil Co., 740 F.2d 602, 606 (8th Cir.1984); Greco v. Mobil Oil Corp., 597 F.Supp. 468, 470 (N.D.Ill.1984). The theory of these cases is that the purpose of the Act — to protect franchisees against arbitrary termination — would be undermined if sale offers did not render as a reasonable possibility the franchisee’s continued operation of a service station. Mobil’s offer to sell its personal property instead of merely offering plaintiff the right to match Walker’s offer concerning the real estate appears to meet this requirement. The court finds no logic in plaintiff’s argument that the simultaneous device of using both subsections is not in compliance with the statutory intent. Cf. Tobias v. Shell Oil Co., 606 F.Supp. 458 (E.D.Va.1985) (failure to offer environmentally dangerous storage tanks for sale coupled with an offer to sell alternative tanks did not negate bona fides of sale).

Plaintiff’s other argument — that the Act requires Mobil to take a $110,000 loss because he wishes to continue running a service station on the premises — also fails. The statute clearly requires Mobil to give plaintiff the right to match a third-party purchaser’s offer, but does not oblige Mobil to give plaintiff any special price discounts. As noted by the Seventh Circuit in Brach v. Amoco Oil Co., 677 F.2d 1213, 1220 (7th Cir.1982), Congress expressly intended to allow franchisors adequate flexibility to “respond to changing market conditions and consumer preferences.” (quoting 123 Cong.Rec. at 10383). While the Act must be liberally construed in favor of franchisees, 677 F.2d at 1220, requiring franchisors to eschew a higher third-party offer in order to fulfill an offer from a franchisee is both unrealistic and contrary to Congressional intent.

Based on the above analysis, the court finds insufficient merit in plaintiffs complaint to justify preliminary relief. According to the complaint, Mobil offered plaintiff the right to match Walker’s bid within 90 days of the nonrenewal notice. The right of first refusal further gave plaintiff the statutory requisite of 45 days within which to respond. Nothing in the complaint or the materials submitted by the parties suggests that Mobil was obliged under § 2802(b)(3)(D) to do more. Nor does the complaint, read as a whole, suggest that plaintiff has been irreparably harmed. Plaintiff waited until after his 45 days had expired to bring suit, during which time Mobil and Walker presumably could have closed their deal.

Finally, although plaintiff alleges that Mobil refused his attempts to negotiate a price and overvalued the personal property by around $9,000, the complaint also indicates beyond doubt that plaintiff was and is unwilling to pay the $290,000 price offered by Walker. Plaintiff repeatedly argues that the $290,000 is not a “bona fides” price because it exceeds what he alleges to be the true appraisal value; Brownstein v. Arco Petroleum Products Co., 604 F.Supp. 312 (E.D.Pa.1985). Plaintiff also tries to impugn Walker’s motives by suggesting in his response brief that Walker is squeezing other franchisees out of competition. (These insinuations are altogether absent from plaintiff's complaint.) Were plaintiff to allege that Walker’s offer was a sham, or that Walker and Mobil were colluding to terminate him arbitrarily, the situation would be different. However, the term “bona fides” is absent from the statutory provision regarding rights of first refusal, thus suggesting that a franchisor under the Act is not obliged to sell at less than an optimal price. This is particularly relevant here where plaintiff requests as relief that Mobil be ordered to sell all the property to him for $185,000 and that he should then “be given the opportunity of selling to Daniel J. Walker should he desire to do so.” (¶ 36.) There is no reason plaintiff should obtain a windfall profit from market conditions which neither he nor defendant Mobil controlled.

Accordingly, the motion for a preliminary injunction is denied without an evidentiary hearing.

It is so ordered.

SUPPLEMENTAL MEMORANDUM OPINION AND ORDER

This action under the Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801-2806 (PMPA), arose out of defendant Mobil Oil Corporation’s termination of a gasoline franchise in Des Plaines which plaintiff George Ballis has operated for the past ten years. On September 6, 1985, the court denied plaintiff’s motion for a preliminary injunction without a hearing on the ground that plaintiff had not demonstrated “sufficiently serious questions ... to make ... a fair ground for litigation” within the meaning of the statute. Plaintiff appealed that order, and the Seventh Circuit denied him an injunction pending that appeal. Upon defendant’s motion to stay discovery pending appeal, this court ordered the parties to brief the adequacy of plaintiff’s complaint. Those issues are now fully briefed, and the court orders the plaintiff’s complaint dismissed for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6).

For purposes of the present motion, the court accepts the well-pleaded allegations of plaintiff’s complaint as true. Plaintiff, a sole proprietor, has been an authorized Mobil franchisee for almost ten years. His last lease and franchise agreement were due to expire on August 31, 1985. On February 4, 1985, Mobil sent him a registered letter advising that Mobil had decided to sell the premises and would not be renewing his lease. On May 1, 1985, Mobil informed him that co-defendant Daniel J. Walker (former Illinois Governor Dan Walker) had offered to purchase Mobil’s fee interest in the land for $290,000. Mobil offered plaintiff a 45-day right of first refusal with reference to that offer, as required under § 2802(b)(3)(D)(iii) of the Act. Mobil also offered at that time to sell plaintiff the personal property which had been leased to him for another $14,852. The latter offer by its terms is extended “in addition” to the right of first refusal: there is no language suggesting that plaintiff had to buy both the realty and personalty, and plaintiff does not allege that this was Mobil’s intent.

Plaintiff did not pay the right of first refusal price because he considered it vastly in excess of a fair appraisal price for the land. He attempted to negotiate a purchase price with defendant but was turned away. On August 27, 1985, four days before his lease expired, plaintiff filed the present suit. In his complaint, he alleges that Mobil violated the Petroleum Marketing Practices Act by not selling him the franchise at a fair and reasonable price notwithstanding his refusal to match Walker’s higher price and by failing to make him a single offer encompassing all of Mobil’s real and personal interest in the property. Plaintiff also alleges that defendant Walker offered to purchase the property in excess of its fair market value “intending thereby to dispossess plaintiff from the property temporarily and/or permanently and to interfere with his business.” Mobil has counterclaimed for eviction. Both defendants have moved to dismiss.

Plaintiff has chosen to rely on his previous memorandum filed in support of a preliminary injunction. Reviewing those arguments under the standards of Fed.R.Civ.P. 12(b)(6), the court reaffirms its earlier conclusion that Mobil’s conduct as alleged does not violate the PMPA. The statute makes clear that a decision to sell the premises is a statutorily permissible reason for terminating a petroleum marketing franchise, 15 U.S.C. § 2802(b)(3)(D)(i), so long as the franchisor follows certain procedures by either making a bona fide offer to sell the franchisee its interest (both real and personal) in the premises or, if applicable, offering a right of first refusal of at least 45 days duration of an offer made by another. § 2802(b)(3)(D)(iii). In this case, Mobil fulfilled the second of the two conditions, which was clearly “applicable,” and thereby discharged its statutory duties. The court rejects plaintiff’s argument that Mobil is required to sell him property at a personally negotiated price despite a higher offer from a third party which is untainted by fraud. The reasons for this conclusion are set forth in the court’s September 6, opinion denying an injunction and will not be repeated here.

The court also concludes that plaintiff’s complaint fails to allege a claim against defendant Walker for tortious interference with contract. As explained in Belden Corp. v. Internorth, Inc., 90 Ill.App.3d 547, 45 Ill.Dec. 765, 413 N.E.2d 98, 102 (1st Dist.1982), an individual with a prospective business relationship has no cause of action against a bona fide competitor who takes away an expectancy of future economic gain “unless the circumstances indicate unfair competition, that is, an unprivileged interference with prospective advantage.” At the time that Walker negotiated with Mobil to purchase the real estate on which plaintiff’s franchise was located, plaintiff had no enforceable right to remain on the premises after the expiration of its lease so long as Mobil complied with the provisions of the PMPA. The complaint is void of any allegations which would show that Walker acted in an unjustifiable manner, or violated plaintiff’s expectancy without justification. Plaintiff admits in his complaint that Walker builds fast service lubrication shops. Plaintiff alleges that Walker’s bid for the property was in excess of the fair market value for operating a retail gasoline station, but nowhere claims that the offer was a sham. The complaint therefore fails to allege that Walker acted without justification. The facts as alleged suggest only that Walker offered to purchase the property in pursuit of his own business objectives. Lawful competition is not actionable, even though the plaintiff is not capable of matching Walker’s offer. Id.

For the above reasons, the court dismisses plaintiff’s complaint for failure to state a claim. The court declines to exercise pendent jurisdiction over Mobil’s counterclaim, as Mobil has alleged no independent jurisdictional basis for that claim. The action is therefore dismissed.

It is so ordered.


author: RAYMOND J. BRODERICK, District Judge.

text:
    GILBRETH INTERNATIONAL CORPORATION v. LIONEL LEISURE, INC., F.W. Woolworth Co., Gaudio Bros., Inc., and S.G. Kresge Co.
    Civ. A. Nos. 76-3494, 76-3555 and 76-3438.
    United States District Court, E.D. Pennsylvania.
    Sept. 9, 1985.

      Stanley H. Cohen, Philadelphia, Pa., for plaintiff.
    Michael Cornman, New York City, Wallace D. Newcomb, James A. Drobile, Philadelphia, Pa., for defendants.
   MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

The long history of these consolidated patent infringement cases culminated on the merits when this Court permitted the plaintiff to voluntarily dismiss its complaint on the condition that it pay to the defendants their reasonable attorneys’ fees and costs. See Gilbreth International Corp. v. Lionel Leisure, Inc., et al., 587 F.Supp. 605 (E.D.Pa.1983). The plaintiff filed these three actions in 1976 claiming that the defendants had infringed a patent issued to the plaintiff in 1974 with respect to a band of heat-shrinkable plastic used in decorating objects such as Christmas ornaments and Easter eggs. For reasons stated at length in this Court’s prior opinion cited above, the Court determined that the plaintiff’s conduct in the procurement of the patent constituted “fraud upon the Patent Office and was so reckless and tainted by bad faith that the defendants are entitled to a reasonable attorney’s fee in connection with their defense of the plaintiff’s suit against them” pursuant to 35 U.S.C. § 285, which provides that the court “in exceptional cases may award reasonable attorney fees to the prevailing party.” Gilbreth, 587 F.Supp. at 608.

The defendants were directed to file their petition for attorneys’ fees and costs pursuant to the requirements of Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973) and its progeny. The plaintiff attempted to appeal this Court’s Order conditioning the voluntary dismissal of plaintiff’s suits upon plaintiff’s payment of the defendants’ attorneys’ fees, but the Court of Appeals for the Federal Circuit dismissed the appeal as interlocutory pending the imposition of an attorneys' fee award. Following extensive briefing and a hearing, the attorney fee issue is now before the Court for resolution.

Six petitions for attorneys’ fees and costs were submitted by counsel for the various defendants (and/or their indemnitors). The bulk of the work was performed by lead counsel Mandeville and Schweitzer, of New York City. In their twice-amended fee petition Mandeville and Schweitzer request a “lodestar” of $188,163.50, based upon a total of 1,605.55 hours expended (by a number of attorneys over the years of the litigation — primarily Michael Cornman, Esq.) at hourly rates which average $124.97. The remaining petitioners — Paul and Paul; Schnader, Harrison, Segal, & Lewis; Davis, Hardy, Ives & Lawther; Nolte and Nolte; and Jacqueline Delafuente, Esq. — request lodestars in varying amounts ranging from $390 for Ms. Delafuente to $104,696.75 for Paul and Paul. The defendants’ total requested lodestar amounts to $320,559.25. The defendants also seek a total of $28,082.58 in disbursements and costs. Finally, the defendants seek a quality “multiplier” of 2.0, based on the quality of the services performed (and, with respect to Mandeville and Schweitzer, the peculiar “contingent” arrangement for the payment of fees that existed between Mandeville and its client). Thus the defendants request a total fee award of $641,-118.50 (two times the lodestar of $320,-559.25), plus costs in the amount of $28,-082.38, for a total award of $669,200.88. After careful consideration of the fee petitions submitted and the legal issues raised in connection therewith, the Court has determined, for the reasons that follow, that it will decline to apply a “multiplier” to the lodestar amounts requested, and that a total of $231,886.75 and $27,810.54 respectively, will be awarded as fair and reasonable attorneys’ fees and costs in this action.

I. Legal Issues

Before proceeding to the merits of the fee petitions, the Court will resolve a number of legal issues raised by the plaintiff which are applicable generally to the defendants’ fee requests.

A. Disbursements and Costs

The plaintiff contends that, as a general matter, 35 U.S.C. § 285 authorizes only an award of an attorney’s fee, and does not authorize the recovery of costs and disbursements. See Chromalloy American Corp. v. Alloy Surfaces Co., Inc., 353 F.Supp. 429, 433 (D.Del.1973). Subsequent to Chromalloy, however, the Court of Appeals for the Federal Circuit determined that a prevailing party’s attorney’s fee award under § 285 does include a recovery for costs and disbursements “necessary for the case.” Lam, Inc., v. Johns-Manville Corp., 718 F.2d 1056, 1069 (Fed.Cir.1983); see also Central Soya Co., Inc. v. George A. Hormel & Co., 723 F.2d 1573, 1578 (Fed.Cir.1983). Accordingly, this Court is not precluded from reviewing the defendants’ requests for costs and disbursements expended in this litigation.

B. Fees Expended on Appeals-Past and Future

Petitioners Mandeville and Schweitzer and Paul and Paul have requested in their fee petitions compensation for the defense of the appeal filed by the plaintiff subsequent to this Court’s Order of conditional dismissal. As noted above, this appeal was dismissed, without prejudice, as interlocutory by the Federal Circuit. The same petitioners also request a total of $38,000 in fees which counsel estimates will be incurred in defending the plaintiff’s (anticipated) appeal of this Order. The plaintiff challenges the propriety of these requests.

With respect to the request for fees incurred in “defending” the interlocutory appeal, it seems clear that it would be inappropriate for this Court to award fees in connection with an interlocutory appeal which was dismissed “without prejudice.” It has been held that the predecessor statute to § 285 did not authorize an award of attorney’s fees and costs in connection with the defense of an interlocutory “petition” for an injunction filed in the Court of Appeals. Sales Affiliates v. National Mineral Co., 172 F.2d 608, 613 (7th Cir.), cert. denied 337 U.S. 940, 69 S.Ct. 1516, 93 L.Ed. 1745 (1949). In any event, given the fact that no decision on the merits has been rendered in connection with any appeal which has been or might be filed by the plaintiff, this Court believes that it would be inappropriate for it to award attorney’s fees at this point either for the appeal which was dismissed without prejudice or for the estimated costs of defending an anticipated appeal in the future. Aside from the fact that an award of an estimated fee for a potential future appeal would be speculative, to say the least, any modification on appeal of this Court’s Order of dismissal might render an award of appeal fees improper. Since the Court of Appeals is authorized under § 285 to award attorney’s fees and costs for services rendered in connection with the appeal, see Rohm & Haas Co. v. Crystal Chemical Co., 736 F.2d 688 (Fed.Cir.1984), the defendants’ application for fees and costs for their defense of any appeals filed in this matter should be addressed, in the first instance, to the Court of Appeals. Accordingly the Court will not entertain the defendants’ request for fees and costs incurred either in the defense of the prior interlocutory appeal or (as estimated) to defend an anticipated appeal in the future.

C. Time Expended in Preparing Fee Petition

The plaintiff contends that § 285 does not authorize fees incurred in the preparation of the fee petition itself. As the plaintiff points out, in assessing attorney’s fees under § 285 with respect to actions involving both patent and non-patent claims, fees may be awarded only for services rendered in connection with the patent issues. See Stickle v. Heublein, Inc., 716 F.2d 1550, 1564 (Fed.Cir.1983). Although some courts interpreted this rule to preclude any award for fees incurred in the preparation of the fee petition itself, e.g., Chromalloy American Corp. v. Alloy Surfaces Co., Inc., 353 F.Supp. 429, 432 (D.Del.1973), more recent authorities have determined that such fees are properly included in an award under § 285. U.S. Industries, Inc. v. Norton Co., 578 F.Supp. 1561, 1566 (N.D.N.Y.1984) (cases cited therein). Moreover, the Third Circuit has indicated that, in general, “in litigated statutory fee cases fee petition time is, of course, properly included in the lodestar.” In Re Fine Paper Antitrust Litigation, 751 F.2d 562, 595 n. 26 (3d Cir.1984), citing Danny Kresky Enterprise Corp. v. Magid, 716 F.2d 215, 219 (3d Cir.1983). Accordingly, the Court will not eliminate those portions of the defendants’ fee requests attributable to the preparation of the fee petitions.

II. Lodestar Determinations

A. Mandeville and Schweitzer

As noted at the outset, Mandeville and Schweitzer served as lead counsel in the defense of this litigation. Mandeville and Schweitzer seek a total of $188,163.50 based upon a total of 1,605.55 hours expended by attorneys Michael A. Cornman, Fritz L. Schweitzer, Jr., Felix L. D’Arienzo, Jr., Andrew S. Langsen, Gerald J. McGowan, Jr., and Abigail F. Cousins. The current hourly rates of these attorneys range from $185 (Mr. Schweitzer) to $70 (Mr. McGowan). The plaintiff complains, with some justification, that it is difficult from the records submitted to determine precise hourly rates for the different attorneys involved at different times in the litigation. However, the plaintiff does not contend that the average rate billed through the course of the litigation — $124.97—by Mandeville and Schweitzer is an unreasonable hourly rate. Generally, of course, “the reasonable value of an attorney’s time is the price that time normally commands in the marketplace for legal services in which those services are offered.” In Re Fine Paper Antitrust Litigation, 751 F.2d at 590. The Court finds that the hourly rates charged by the attorneys for Mandeville and Schweitzer in this complex patent litigation are fair and reasonable rates.

The plaintiff does take issue with numerous hourly entries submitted by Mandeville and Schweitzer on a variety of grounds. Many of the plaintiff’s objections were cured by subsequent amendments to the fee petition. However, the Court has reviewed the twice-amended fee petition, and the plaintiff’s objections thereto, and finds that at least some of the plaintiff’s complaints are justified. The primary deficiency is the presence of numerous entries labelled simply “attention to file”, with no supporting explanation of the work which was performed, which appear in the time records of Mr. Cornman. It is, of course, the petitioner’s responsibility to provide adequate documentation for services performed and time expended; vague and insufficiently documented entries may be disallowed. See In Re Fine Paper Antitrust Litigation, 751 F.2d at 595-96. Although in general the petition submitted by Mandeville and Schweitzer adequately provides “some evidence to support the reasonableness of ... the number of hours expended,” Lam, Inc. v. Johns-Manville Corp., supra, 718 F.2d at 1068, the repeated “attention to file” entries set forth in Mr. Cornman’s amended fee petition are vague, excessive, and will be reduced as follows: 12/22/76 (3.5 hrs.); 3/1/77 (3 hrs.); 3/28/77 (1 hr.); 4/26/77 (4 hrs.); 6/7/77 (2 hrs.); 9/27/77 (1 hr.); 9/28/77 (1.5 hrs.); 2/1/78 (3 hrs.); 2/2/78 (3.5 hrs.); 3/6/79(2 hrs.); 7/8/80 (1.25 hrs.); 8/13/80 (1 hr.); 9/2/80 (1 hr.); 7/9/81 (1.5 hrs.); 8/14/81 (1 hr.); 9/8/81 (2 hrs.); 10/1/81 (2.75 hrs.); 10/23/81 (3 hrs.); 11/18/81 (1.25 hrs.); 12/29/81 (1.5 hrs.); 12/16/82 (2 hrs.). The total numbers of hours eliminated from Mr. Cornman’s fee petition amounts to 42.75. Since it is not possible to ascertain with precision Mr. Cornman’s billing rate at the specific times of the above-cited entries, (nor, indeed, even to compute an accurate “average” rate for Mr. Cornman), the Court must use the only available rate for Mr. Cornman — his current $180 hourly rate — to calculate the reduction in the lodestar, which amounts to $7,695.

The Court has reviewed the balance of the hours submitted by the Mandeville and Schweitzer attorneys and finds that such hours were reasonably and necessarily expended on the litigation at issue.

The total lodestar requested by Mandeville and Schweitzer amounts to $188,163.50. From this amount the Court will subtract $7,695 attributable to the inadequate entries in Mr. Cornman’s records. Furthermore, in accordance with the discussion set forth earlier in this Memorandum, Mandeville and Schweitzer is not entitled to fees incurred in connection with the defense of the interlocutory appeal filed by the plaintiff. From the records attached as Exhibit A to defendants’ amended petition for reasonable costs and attorney’s fees, and the records attached as Exhibit B to defendants’ second amended petition for reasonable costs and attorney’s fees, the Court has calculated that the portion of Mandeville and Schweitzer’s lodestar attributable to fees incurred in connection with the appeal amounts to $15,436. Finally, for the reasons previously discussed, Mandeville and Schweitzer will not be awarded the $18,000 fee which it estimates it will incur in defending a future appeal. Accordingly, the Court will subtract a total of $41,131 from the requested lodestar of $188,163.50, to produce a lodestar of $147,-032.50, which the Court will approve as fair and reasonable. The Court also has reviewed the costs and disbursements submitted by Mandeville and Schweitzer. With the exception of $271.84 incurred in the defense of the interlocutory appeal, the Court finds that the requested costs and disbursements were reasonably and necessarily expended on the litigation, and the Court will approve a total of $19,916.12 in costs and disbursements submitted by Mandeville and Schweitzer.

B. Paul and Paul

Paul and Paul request a total lodestar amount of $104,696.75 for fees incurred in the defense of Coby Glass Products Co., an indemnitor in the litigation at issue. The following attorneys of the firm of Paul and Paul have submitted records for time expended in this litigation: Henry N. Paul, Jr., Wallace D. Newcomb, James C. McConnon, Louis J. Virelli, Jr., William H. Eilberg, and Kenneth Solomon. The bulk of the work was performed by Wallace Newcomb and Louis Virelli. The current hourly rates charged range from $220 (Mr. McConnon) to $65 (Mr. Solomon). Unlike the Mandeville and Schweitzer petition, the records submitted by Paul and Paul do allow the Court to ascertain, with a fair degree of certainty, the rates charged by the various attorneys at different times in the litigation. The average hourly rate charged amounts to $96.90. The Court finds that the hourly rates requested are fair and reasonable rates, in that they reflect the rates which those attorneys “normally command in the market place” for the services performed. In Re Fine Paper Antitrust Litigation, 751 F.2d at 590.

As with the Mandeville and Schweitzer petition, the plaintiff has taken issue with a number of the time entries submitted by the Paul and Paul attorneys. First, the plaintiff points out that one half hour of the 3.75 hours submitted by Henry Paul, Jr., does not indicate the nature of the services performed. Accordingly, $40 (one half hour at Mr. Paul’s $80 hourly rate) will be deducted from Paul and Paul’s lodestar.

The plaintiff next contends that the time records submitted by Mr. New-comb include an excessive amount of “read and review time.” Although Mr. New-comb’s records do contain entries reviewing certain documents, the times expended in such review generally are minimal (e.g., 0.25 hrs.), and, given Mr. Newcomb’s heightened level of responsibility in this action, cannot be considered excessive. However, the Court does find some merit in the plaintiff’s contention that some of Mr. Newcomb’s time entries, especially those entries labelled “conference” with Mr. Virelli, are duplicative of the work performed by Mr. Virelli and are too vague to establish the nature of the services rendered. Accordingly, the Court will reduce Mr. Newcomb’s requested hours by 13 hours which (at Mr. Newcomb’s average hourly rate of $150 per hour) will reduce the lodestar by $1,950.

With respect to the hours submitted by Mr. Virelli, the Court agrees with the plaintiff’s observation that the entries for 1/12/77, 6/24/80, 2/2/82, and 7/7/82 either conflict with the records submitted by Mr. Newcomb or are not apparently relevant to the litigation of this action. Accordingly, a total of five hours will be deducted from Mr. Virelli’s submission, which will result (at Mr. Virelli’s average rate of $85 per hour) in a reduction of $425 in Paul and Paul’s requested lodestar.

The Court has reviewed the balance of the entries submitted by the attorneys for Paul and Paul, and has determined that the hours expended were reasonably and necessarily expended on the litigation and related proceedings at issue. The Court will, however, deduct a total of $4,175.50 which it has calculated to be attributable to the time expended by Messrs. Newcomb, Virelli, and Solomon in defense of the appeal filed by the plaintiff. Additionally, as heretofore discussed, the Court will deduct the $20,000 fee estimated to be incurred in defense of an anticipated appeal in the future.

In sum, the Court has determined that the lodestar figure submitted by Paul and Paul must be reduced by a total of $26,-590.50. The Court will approve a lodestar in the amount of $78,106.25 as a fair and reasonable figure for the fees attributable to Paul and Paul in this litigation. Additionally, the Court finds that the requested costs submitted by Paul and Paul are fair and reasonable, and costs will be awarded in the amount of $7,073.58.

C. Jacqueline Delafuente, Esq., and Davies, Hardy, Ives & Lawther

Jacqueline Delafuente, Esq., Assistant Vice President and Assistant Secretary of defendant F.W. Woolworth Co., has submitted a petition for attorney’s fees and costs incurred in defense of this litigation by herself as “house counsel” and by Davies, Hardy, Ives, & Lawther, the defendant’s general counsel. Ms. Delafuente seeks a total of $390 for fees attributable to her work on this litigation. As the plaintiff points out (without response from the petitioner), this sum must be disallowed because the affidavit submitted indicates that the time expended by Ms. Delafuente was spent in her capacity as (salaried) house counsel for, and as such an employee of, F.W. Woolworth.

Davies, Hardy, Ives & Lawther have submitted a request for a total of $2,008 in attorneys’ fees incurred on behalf of their client in this litigation. The bulk of this amount is derived from 15.5 hours expended by senior partner Kenneth W. Greenwalt, at his hourly rate of $110 per hour. The plaintiff objects to a total of two hours submitted by Mr. Greenwalt as “read and review time” which should be eliminated. Since Mr. Greenwalt was not principally involved in the defense of this litigation, the Court has determined that a total of one hour which he spent reading copies of letters which came across his desk from other participants in the litigation (i.e., entries dated 1/5/77, 3/17/77, and 3/21/77) should be eliminated. See In Re Fine Paper Antitrust Litigation, 751 F.2d at 579. The Court finds that the remainder of the time submitted by Davies, Hardy, Ives & Lawther was reasonably and necessarily expended on this litigation, and that the hourly rate charged by Mr. Greenwalt is fair and reasonable. The Court will approve a lodestar for Davies, Hardy, Ives, & Lawther in the amount of $1,898 as a fair and reasonable attorney’s fee, and the Court also will approve the firm’s request for costs in the amount of $25.

D. Nolte and Nolte

Edward Hunter, Esq., has submitted a petition for attorney’s fees and costs on behalf of Nolte and Nolte, of New York, which represented defendant Lionel Leisure Co. at an early stage of the litigation. Mr. Hunter requests a fee in the amount of $1,160, based on 11.6 hours expended at his customary hourly rate of $100. In addition, Mr. Hunter requests $460 which was disbursed to associate counsel in Philadelphia and billed by Nolte and Nolte to their client. The plaintiff does not object to the hours expended by Mr. Hunter, and the Court finds that his requested rate of $100 is fair and reasonable. Although the plaintiff contends that the $460 disbursement should be disallowed because it may have been included in the fee request submitted by Paul and Paul, a subsequent amendment to the defendants’ petition established that the $460 was not included in any of the other firms’ fee requests. This Court will approve a lodestar of $1,620 as a fair and reasonable attorney’s fee requested by Nolte and Nolte, and will also approve the $460 requested disbursement.

E. Schnader, Harrison, Segal, & Lewis

Finally, James A. Drobile, Esq., has submitted a fee petition on behalf of Schnader, Harrison, Segal & Lewis (Schnader) for fees and costs incurred in defense of their client Gaudio Bros., Inc., in this litigation in 1977. Schnader seeks a total of $6,166 in attorney’s fees and $335.84 in costs. Mr. Drobile’s affidavit (and supplement thereto) presents difficulties for the following reasons: (1) although the records attached to the affidavit show that Schnader billed its client a total of $6,166 for its services, and that Mr. Drobile expended 42.4 hours on this litigation, there is no indication of the hourly rate charged for Mr. Drobile’s work at any time in this litigation; (2) of the 42.4 hours expended by Mr. Drobile, records detailing the nature of the services performed have been submitted for only 32.3 of those hours; and (3) the total bill appears to include charges for work done by an associate of the firm at an undetermined hourly rate and for an undetermined number of hours.

Based upon Mr. Drobile’s partner status in the firm and his experience in the field of patent litigation, and considering the prevailing hourly rates obtained in the marketplace for experienced patent litigators in 1977, (but keeping in mind that it is the petitioner-attorney who must bear the burden of a deficient fee application), the Court finds it equitable to assign $100 as a fair and reasonable hourly rate for Mr. Drobile’s services. The Court will award a total of $3,230 as a fair and reasonable attorney’s fee for the 32.3 documented hours expended by Mr. Drobile in this litigation. The undocumented remaining 10.1 hours claimed by Mr. Drobile must be eliminated, along with the balance of the amount billed to Schnader’s client, as it is not possible to accurately determine the number of hours expended, the hourly rates charged, or the nature of the work performed with respect to that balance. The Court will approve Schnader’s requested costs in the amount of $335.84.

III. Multiplier

As noted above, the defendants request that a “multiplier” of 2.0 be applied to the lodestar amounts to effectively double the fee award. The defendants generally submit that a multiplier or upward adjustment of the lodestar is appropriate because of the “high quality” of the services rendered by counsel. Furthermore, lead counsel Mandeville and Schweitzer request a multiplier for the additional reason that receipt of their fees was “contingent” upon their obtaining an attorney’s fee award (or a damages recovery from the plaintiff in one form or another) due to a peculiar fee arrangement existing between Mandeville and Schweitzer and their client, General Foam Plastics Corp. (one of the defendants’ indemnitors).

As set forth above, the “exceptional case” provision in 35 U.S.C. § 285 provides that the court “in exceptional cases may award reasonable attorney fees to the prevailing parties.” The purpose of this section is “to compensate the prevailing party for its monetary outlays in the prosecution or defense of the suit.” Central Soya Co., Inc. v. George A. Hormel & Co., 723 F.2d 1573, 1578 (Fed.Cir.1983). The rationale behind the award of an attorney’s fee under § 285 is “compensatory, not punitive,” and as such is designed “to compensate a prevailing party for monies which he had to spend which he would not have had to spend but for the losing party’s misconduct.” Mueller Brass Co. v. Beading Industries, Inc., 352 F.Supp. 1357, 1381 (E.D.Pa.1972), aff'd, 487 F.2d 1395 (3d Cir.1973). Furthermore, unlike some statutory schemes which award attorney’s fees to the prevailing party as a matter of course, (e.g., 42 U.S.C. § 1988), § 285 provides for attorney’s fees only in cases deemed to be “exceptional”, i.e., where it has been determined that the opposing party has been guilty of “extraordinary misconduct” in connection with the litigation. Arbrook, Inc. v. American Hospital Supply Co., 645 F.2d 273, 279 (5th Cir.1981). Thus, in contrast to some statutory schemes where counsel for the prevailing party recoups its attorney’s fee as a matter of course, and then may pursue a “multiplier” of that fee on the basis of exceptional factors in the ease, under the patent statutory scheme the award of an attorney’s fee alone is by definition an exceptional occurrence.

Counsel has not cited, nor has this Court discovered, any cases applying an upward “multiplier” to the lodestar calculation of an attorney’s fee awarded under § 285. However, some courts have indicated that upward adjustments of the lodestar may be available in an attorney’s fee petition brought under § 285. See Codex Corp. v. Milgo Electronic Corp., 717 F.2d 622, 631 (1st Cir.1983); Stickle v. Heublein, Inc., 590 F.Supp. 630 (W.D.Wis.1984).

Assuming that a requested upward adjustment of the lodestar is not precluded as a matter of law in a § 285 attorney’s fee petition, this Court nevertheless will, in its discretion, decline to apply a multiplier to the lodestar calculations computed in this case. With respect to defendants’ contention that the “high quality” of the legal services rendered by counsel merit such an adjustment, the Court observes that although the defendants were well-represented in this litigation, they “merely received the sophisticated, specialized representation they had a right to expect” given the high rates charged and hours expended by their counsel. Stickle v. Heublein, 590 F.Supp. at 639. For this reason, and especially in light of the essentially compensatory (as opposed to punitive or remunerative) purposes underlying § 285, the Court will decline to apply a multiplier to the lodestar amounts based on the “quality” of the legal services rendered.

Mandeville and Schweitzer request a multiplier for the additional reason that the receipt of most of their fees in this litigation was contingent on their obtaining a statutory fee award (or a damages recovery) against the plaintiff, pursuant to the terms of an unusual fee agreement entered into between Mandeville and Schweitzer and their client. As this Court interprets the agreement, Mandeville and Schweitzer agreed in September of 1978 to continue the defense of the Gilbreth litigation on a contingency basis, i.e., any attorney’s fees subsequent to that date which were accrued by Mandeville and Schweitzer would have to be directly awarded by the Court under § 285 or derived in some way from a monetary recovery against the plaintiff for damages. (Contrary to the plaintiff's urging, this Court does not interpret a somewhat ambiguous provision in an informal memorandum of the fee arrangement to limit Mandeville and Schweitzer’s maximum recovery to $25,000).

“Contingency” multipliers typically have been applied in class actions to compensate plaintiffs’ counsel for undertaking a case on a contingency basis, thereby incurring (1) the risk of not succeeding at all in the litigation and (2) the cost of a long delay in obtaining payment for services. See, e.g., In Re Fine Paper Antitrust Litigation, 751 F.2d at 587; Lindy Bros. Builders, Inc. v. American Radiator & Standard Corp., 540 F.2d 102 (3d Cir.1976) (Lindy II). However, in such cases the named plaintiffs invariably are unable to bear the costs of a class action lawsuit, and furthermore the risks inherent in a contingency fee arrangement generally must be considered in conjunction with the possibility of obtaining an extremely large recovery— for both the class and the attorney — from an equitable fund charged against the defendants.

In this case, of course, it is a defendant’s counsel who entered into a peculiar contingent fee relationship with its client, on its own initiative, in litigation which, at its posture at the time, was not at all likely to produce any “damages” recovery for the defendant. This is not a class action, and no equitable settlement fund has been established. Counsel for Mandeville and Schweitzer acknowledges that at the time the contingent arrangement was established its client had the ability to pay all of its fees. Although defendant’s counsel was free to enter into such an agreement, the Court has determined that in this case the fact that counsel chose to undertake an essentially “risky” fee arrangement with its defendant-client cannot serve as a basis to multiply, against the plaintiff, the counsel fees generated in the litigation. This is particularly true in light of the essentially compensatory (rather than punitive or remunerative) rationale underlying § 285, as discussed above. Although defendants and their counsel may well believe they are entitled to damages from the plaintiff as a result of plaintiff’s conduct in this litigation, a fee petition under § 285 is not the procedure for obtaining damages, and this Court will not sanction a damages award against the plaintiff in the guise of a fee “multiplier” in the form requested by the defendants. Finally, at the hearing on the petition for attorneys’ fees counsel for Mandeville and Schweitzer candidly conceded that he was not aware of any authority justifying the application of a multiplier to a fee award under § 285 on the basis of a contingent fee arrangement between a defendant and its counsel. This Court has determined, in its discretion, that under the circumstances of this case it would be inappropriate to apply a “multiplier” to the lodestar amounts to which counsel are entitled.

Conclusion

For all of the reasons set forth above, the Court has determined that the plaintiff must pay to the defendants’ counsel a total of $231,886.75 and $27,810.54 as fair and reasonable attorneys’ fees and costs, respectively, incurred in this action. The fee awards and costs will be paid to the various defendants’ counsel as specified in the accompanying Order.

ORDER

AND NOW, this 9 day of Sept., 1985, upon consideration of the petition for attorneys’ fees and costs submitted by counsel for the defendants in this action, for the reasons stated in this Court’s Memorandum of September 9, 1985, IT IS HEREBY ORDERED that the plaintiff shall pay attorneys’ fees and costs to counsel as follows:

Counsel Fees Costs

Mandeville and Schweitzer $147,032.50 $19,916.12

Paul and Paul 78,106.25 7,073.58

Davies, Hardy, Ives and Lawther 1,898.00 25.00

Nolte and Nolte 1,620.00 460.00

Schnader, Harrison, Segal, and Lewis ■ 3,230.00 335.84

The total amount of attorneys’ fees and costs to be paid by the plaintiff is $231,-886.75 and $27,810.54, respectively.


author: ROYNER, District Judge.

text:
    CHICAGO HMO, Plaintiff, v. TRANS PACIFIC LIFE INSURANCE CO., Defendant.
    No. 84 C 2791.
    United States District Court, N.D. Illinois, E.D.
    Sept. 9, 1985.
   MEMORANDUM OPINION AND ORDER

ROYNER, District Judge.

Plaintiff Chicago HMO, Ltd. (“Chicago HMO”) filed its six count complaint alleging that defendant Trans Pacific Life Insurance Co. (“Trans Pacific”) breached a contract of specific excess insurance between Chicago HMO and Trans Pacific by refusing to pay benefits during the first 12 months after the expiration of the applicable policy (Count I), and by failing to give timely notice of Trans Pacific’s decision not to renew the policy (Count II). Count III of the complaint seeks a declaration that the insurance contract was at all relevant times valid and enforceable and that Trans Pacific must pay Chicago HMO for both past and anticipated claims which are allegedly covered under the policy.

In Count IV of the complaint, which is directed against defendant Harry M. Brewer individually (“Brewer”), Chicago HMO alleges that Brewer was the employee or agent of defendant Brewer Insurance Agency, Inc. (“Brewer Insurance”), a California corporation, and was at all relevant times acting within the scope of his agency or employment. Chicago HMO seeks to hold Brewer individually liable for breach of an agency agreement or of a contract to procure insurance or in tort for negligent procurement of insurance.

In Count V, Chicago HMO attempts to state a cause of action against Trans Pacific for breach of the common law duty of good faith and fair dealing, thereby allegedly entitling Chicago HMO to compensatory damages, attorneys’ fees and costs, and punitive damages in the amount of $346,-361.83.

In Count VI, Chicago HMO seeks to invoke the civil remedy contained in the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq. Chicago HMO alleges that defendants Brewer and Trans Pacific formed an “enterprise” under the RICO statute and committed two acts of mail fraud by sending separate signed copies of the insurance policy through the mails with the intent to defraud Chicago HMO. These acts of mail fraud allegedly constituted a “pattern of racketeering activity,” thereby entitling Chicago HMO to treble damages from all three defendants pursuant to RICO.

Each of the three defendants has filed a joint motion to dismiss Counts IV, V, and VI of the complaint for failure to state a claim upon which relief can be granted. The jurisdiction of this Court is grounded upon both diversity of citizenship and federal question jurisdiction. For the reasons stated below, the motion to dismiss is denied as to Count IV, but granted as to Counts V and VI of the complaint.

Facts

In October, 1982, Chicago HMO, a health maintenance organization, sought to obtain insurance for losses it would incur in paying for covered claims of its health plan members. Defendant Brewer agreed to serve as Chicago HMO’s insurance agent to obtain such insurance for a period of approximately one year. Chicago HMO instructed Brewer that it required insurance which covered losses incurred during the period of the contract regardless of when the bills for such claims were actually paid.

Brewer obtained a policy of insurance for Chicago HMO issued by Trans Pacific for a period commencing November 10, 1982 and ending September 30, 1983. The insurance contract, insures Chicago HMO for specific losses incurred during the policy period and defines specific losses as “the total amount of money you (Chicago HMO) have actually paid during the policy period, and during the first twelve months thereafter, to or on behalf of any one health plan members.”

On September 27, 1983, three days prior to the renewal date of the contract, Trans Pacific advised Chicago HMO, for the first time, that it would not renew the policy. This late notice was contrary to the terms of the contract which required Trans Pacific to give written notice of its refusal to renew at least 31 days prior to the renewal date. Chicago HMO was then forced to procure other insurance for the period commencing October 1, 1983.

Consistent with its normal billing practices, Chicago HMO continued after September 30, 1983 to review and pay bills for health care services which were incurred by various health plan members during the policy period. Trans Pacific maintained it was not obligated to indemnify Chicago HMO for claims paid after September 30, 1983. Trans Pacific thus refused to pay claims totalling $346,361.83, contending that its policy only covered claims incurred and paid during the policy period and that the insertion of the provision covering claims paid for twelve months after the policy expired was an inadvertent clerical error. Chicago HMO then commenced this action with the filing of its six count complaint.

Discussion

Count IV — Brewer’s Failure to Adequately Procure Insurance

In Count IV of the complaint, Chicago HMO alleges that defendant Brewer is personally liable for his failure to procure adequately a policy of insurance having certain provisions according to the directions given to him by Chicago HMO. Although acknowledging the liberal notice pleading standard set forth in Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), defendants argue that Count IV must be dismissed for several reasons. First, defendants contend that Count IV is deficient because it does not specify whether Brewer’s alleged failure to procure insurance adequately constitutes a cause of action for negligence or breach of contract. Second, defendants claim that, under either theory, Count IV is deficient because it insufficiently pleads the requisite elements of any state law cause of action. Finally, defendants assert that because the complaint alleges that Brewer at all times was acting as the agent and employee of Brewer Insurance, and because the general rule is that an agent is not personally liable for a breach of contract executed by himself and a third party where the agent’s principal has been disclosed to the third party, Count IV is deficient because it fails to specify “why this case should not be governed by the general rule of nonliability.” (Defendants’ Brief at 5.)

This Court has examined the allegations of Count IV of the complaint and finds that they are adequate to meet the notice pleading standard of Conley, supra. The complaint clearly states that Brewer acted as Chicago HMO’s insurance agent but failed to procure a policy that met its requirements, particularly that the policy cover claims incurred in the policy period regardless of when paid. Count IV is in the alternative to Counts I and III, the counts based on breach of contract. Brewer can be held liable personally only if Trans Pacific prevails on those counts: i.e., if the court finds that the contract does not cover losses both incurred and paid during the policy period, then Brewer may be held liable personally for breach of his duty to procure the coverage sought by Chicago HMO. Whether Brewer can be held individually liable because he was acting solely within the scope of his employment is a question of fact that must be resolved after trial. Accordingly, the motion to dismiss Count IV of the complaint is denied.

Count V — Bad Faith Refusal to Pay Losses

In Count V, Chicago HMO seeks attorneys’ fees, punitive damages, and “such other and further relief as justice may require” for Trans Pacific’s alleged bad faith refusal to pay claims covered by the express terms of the contract. Defendants argue that Count V is preempted by Section 155 of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, ¶ 767, which provides in pertinent part:

Section 155. Attorney fees.
In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorneys fees, other costs, plus an amount not to exceed any one of the following amounts:
(a) 25% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;
(b) $5,000;
(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.

Courts in this district are divided on the preemptive effect of Section 155. Some hold that Section 155 preempts common law actions seeking both compensatory and punitive damages for breach of the duty of good faith and fair dealing. Zakarian v. Prudential Ins. Co. of America, 626 F.Supp. 420, 422 (N.D.Ill.1984) (Grady, J.); Abbott Laboratories v. Granite State Ins. Co., 573 F.Supp. 193 (N.D.Ill.1983) (Shadur, J.); Strader v. Union Hall, Inc., 486 F.Supp. 159 (N.D.Ill.1980) (Aspen, J.). Others hold that Section 155 does not preclude a common law claim against an insurer for bad faith. Roberts v. Western-Southern Life Insurance Co., 568 F.Supp. 536 (N.D.Ill.1983) (Marshall, J.). Judge Moran of this District has forged a path between these two positions by finding that Section 155 preempts punitive damages but not compensatory damages. Barr Co. v. Safeco Ins. Co. of America, 583 F.Supp. 248 (N.D.Ill.1984) . In reaching this result, Judge Moran reasoned that Section 155 allows for the recovery of attorneys’ fees, costs, and a specified amount not to exceed $5,000:

This amount is derived from the recovery allowed under the contract, see Ill.Rev. Stat. ch. 73, § 767(a), and a settlement offered by the insurer, see id. at § 767(c). It is in no way linked to any injuries incurred as a result of the insurer’s refusal to make a payment and cannot be said to be a compensatory remedy. Preemption of compensatory damages is not warranted by the section. See Hoffman v. Allstate Insurance Co., 85 Ill.App.3d at 635, 40 Ill.Dec. at 928, 407 N.E.2d at 159.

583 F.Supp. at 255.

This Court is persuaded by the approach taken by Judge Moran and thus holds that Section 155 preempts the recovery of punitive but not compensatory damages. Defendants correctly point out that Chicago HMO has neither mentioned Section 155 of the Illinois Insurance Code in the complaint nor has it asked for compensatory damages in Count V of the complaint. Defendants mistakenly argue, however, that compensatory damages may not be awarded under Count V because the measure of any award of compensatory damages is confined to the amount which is found due and owing under the breach of contract counts, Counts I and II. Compensatory damages for bad faith breach of the duty of fair dealing may include other items as well which are not derived solely from the contract, such as compensation for the cost of procuring other insurance or for the necessity of being self-insured. Because Chicago HMO will be required to re-plead Count V in any event to specify that its claim derives from Section 155 and to limit the recovery to compensatory damages and those damages specified in Section 155, Count V of the complaint is dismissed. Chicago HMO is granted leave to file an amended Count V consistent with this opinion within 30 days.

RICO — Count VI

Defendants contend that Count YI of the complaint fails to state a cause of action under RICO for several reasons: (1) Chicago HMO has failed to plead fraud with sufficient particularity; (2) Chicago HMO has failed to plead the existence of a separate “person” and an “enterprise” as required to establish liability under RICO; (3) Chicago HMO has failed to allege that any of the defendants acquired or maintained an “interest or control of” the RICO enterprise through a pattern of racketeering activity; and (4) Chicago HMO has not alleged any facts which would suggest injury by reason of the violation rather than by reason of the predicate offenses and therefore has failed to plead injury cognizable under RICO.

The parties fully briefed these arguments before the decision of the Seventh Circuit in Haroco v. American National Bank & Trust Co. of Chicago, 747 F.2d 384 (7th Cir.1984), was handed down. Haroco, which was affirmed by the Supreme Court, — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985), disposes of several of the arguments raised by defendants.

Defendants contend that fraud is not pled with sufficient particularity in two respects: first, they argue that plaintiff has not specified the factual basis for the alleged conclusory allegation that the defendants acted with the requisite intent to defraud; second, they argue that plaintiffs have failed to state the two alleged predicate offenses of federal mail fraud with the specificity that would be found in a criminal bill of particulars, rendering the RICO claim insufficient as a matter of law under Bache Halsey Stuart Shields, Inc. v. Tracy Collins Bank & Trust Co., 558 F.Supp. 1042 (D.Utah 1983). This latter contention was specifically considered and rejected by the Seventh Circuit in Haroco. After an exhaustive analysis of the Bache court’s rationale, the Seventh Circuit held that allegations in a civil complaint under RICO need not be as specific as a criminal bill of particulars. Id. at 403-04. As to the former contention, the Seventh Circuit in Haroco also addressed the defendants’ argument that fraudulent intent had not been pled with particularity and rejected that argument as well. After an examination of the complaint in this case, it is apparent that the Seventh Circuit’s analysis in Haroco is pertinent here:

In this case, the complaint adequately specified the transactions, the content of the allegedly false representations, and the identities of those involved. In addition, the identification of the transactions and the description of the alleged scheme to defraud put defendants on fair notice of the time and place of the alleged false representations.

Haroco, supra, 747 F.2d at 405. Thus, this Court also finds that fraud is pled adequately and satisfies the requirements of Fed.R.Civ.P. 9(b).

Similarly, Haroco disposes of the defendants’ contention that plaintiff must plead a “racketeering injury” separate and apart from the injury incurred by reason of the predicate offenses. The court in Haroco specifically held that a “civil RICO plaintiff need not allege or prove injury beyond an injury to business or property resulting from the underlying acts of racketeering.” Haroco, supra, 747 F.2d at 398.

Haroco lends some support to defendants’ argument, however, that the RICO allegations must be dismissed because plaintiff has not alleged the existence of both a “person” and an “enterprise.” As plaintiff concedes, defendants correctly argue that Section 1962(b) requires the pleading of the existence of an enterprise as well as of a person who acquires an interest in or control of the enterprise. Only the “person” is liable under RICO.

Plaintiff here has identified the “enterprise” as consisting of the union of Brewer and Trans Pacific to defraud the plaintiff. Both Brewer and Trans Pacific are defendants in this case. Defendants argue that a defendant cannot also constitute the enterprise and have cited numerous eases for the proposition that a defendant cannot be both the “person” and the “enterprise” required to state a civil RICO claim. Indeed, the Seventh Circuit so held in Haroco, supra, in which the court ruled that a corporation may not be held liable under Section 1962(c) for conducting its own affairs through a pattern of racketeering activity, although it might be held liable under Section 1962(a) if it received the proceeds from that activity and if it could be held liable as a principal for those acts.

Nonetheless, the analysis does not end here, for the issue as framed by the defendants is somewhat simplistic. The question in this case is not whether a defendant can also constitute an “enterprise” but whether the alleged “enterprise” has a separate and sufficiently lasting identity apart from the “person” or “persons” who allegedly receive any income from it (§ 1962(a)), who have any interest in it (§ 1962(b)), or who are employed or associated with it (§ 1962(c)). The Seventh Circuit’s decision in McCullough v. Suter, 757 F.2d 142 (7th Cir.1985), exemplifies this point because in that case the court held that a sole proprietorship could be an “enterprise” with which its proprietor could be “associated” because the proprietor “had several people working for him; this made his company an enterprise, and not just a one-man band, and all section 1962(c) requires, as we said in Haroco, is ‘some separate and distinct existence for the person ... and the enterprise....”’ 757 F.2d at 144.

Thus, in this case, if Brewer and Trans Pacific were involved in a fairly long term, continuing relationship that had some identity distinct from Brewer as an individual broker and Trans Pacific as an insurance company, it is conceivable that such an entity could constitute an “enterprise” under Section 1962. But such an entity is not alleged in the complaint. Nor could such an entity be inferred under the facts set forth in the complaint because, as pled, the “enterprise” consisting of Brewer and Trans Pacific does not have a separate economic existence apart from the alleged pattern of racketeering activity.

In United, States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246, the Supreme Court noted:

The “enterprise” is not the “pattern of racketeering activity”; it is an entity separate and apart from the activity in which it engages.

In Kimmel v. Peterson, 565 F.Supp. 476 (E.D.Pa.1983), the court noted that the RICO “enterprise” must be an ongoing structure having an economic existence separate from the pattern of racketeering activity. 565 F.Supp. at 497.

In this case, the “enterprise” characterized as a “union” of Brewer and Trans Pacific allegedly existed solely to defraud Chicago HMO. Thus, the “enterprise” alleged here is indistinguishable either from the “persons” or from the “pattern of racketeering activity.” All three elements of a civil RICO action must be pled separately in order to state a claim upon which relief can be granted.

To illustrate these principles, in this case if plaintiff had identified Trans Pacific as the “enterprise” and Brewer as the “person” liable, or vice versa, or if sufficient allegations existed that demonstrated that the Brewer-Trans Pacific alliance constituted a separate economic identity apart from the pattern of racketeering activity alleged in this case, a civil RICO claim under Section 1962(c) would have been stated. Such allegations are not made. Accordingly, Count VI of the complaint is dismissed for failure to state a claim, but Chicago HMO is granted leave to amend Count VI to state a claim in accordance with this opinion within 30 days if it can do so consistent with its good faith obligations under Fed.R.Civ.P. 11.

Conclusion

For the reasons stated above, the motion to dismiss Count IV is denied, and the motion to dismiss Counts V and VI is granted. Chicago HMO is granted 30 days from the date of this opinion to file an amended complaint amending Counts V and VI if it can do so consistent with the guidelines set forth in this opinion and consistent with its good faith obligations under Rule 11. It is so ordered.

      . Because, on a motion to dismiss for failure to state a claim, all facts alleged in the complaint and inferences therefrom must be taken to be true, Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), the facts stated in this section are those set forth by Chicago HMO.

      . The First District of the Illinois Appellate Court also has held that Section 155 preempts both compensatory and punitive damages. Kinney v. St. Paul Mercury Insurance Co., 120 Ill.App.3d 294, 75 Ill.Dec. 911, 458 N.E.2d 79 (1st Dist.1983).

      . “Enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4).