Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Ind.: Pizza franchisor’s contract, fraud claims specific enough to survive dismissal, (Apr 7, 2015)

By Edward L. Puzzo, J.D.

A franchisor’s claims of breach of contract, false representations, and deception by a franchisee were pleaded with sufficient specificity to state plausible claims, the federal district court in Indianapolis has ruled (Noble Roman’s, Inc. v. B & MP, LLC, April 3, 2015, Lawrence, W.).

Noble Roman’s is engaged in the franchising of restaurants that feature its pizza and Tuscano’s submarine sandwiches, among other food items. In March 2010, Noble Roman’s entered into franchise agreements with B & MP, LLC for two franchises in Bloomingdale, Illinois.

Subsequently, Noble Roman’s alleged that B & MP failed to pay certain royalty fees required by the franchise agreement, violated the non-compete provisions, underreported sales in its weekly reports, and sold non-approved food items. Consequently, the franchisor brought claims against the franchisee, alleging breach of contract, false or misleading representations, and deception and seeking injunctive relief. The franchisee moved to dismiss all counts, but the court denied the motion.

Breach of contract. The elements of a breach of contract claim are (1) the existence of a contract, (2) the defendant’s breach of that contract, and (3) damages resulting from the breach.

Here, the franchisor produced copies of the franchise agreements, satisfying the first element. The franchisor satisfied the second element by alleging the franchisee’s breach of the agreements by its failure to pay royalty fees, its submission of weekly sales reports with under-reporting of actual sales, its unauthorized use of Noble Roman’s ingredients, and its violations of non-compete covenants. The franchisor satisfied the third element by alleging damages.

While the franchisee contended that the claims lacked detail and should be dismissed pursuant to Rule 12(b)(6), it cited no case law or legal authority in support of its argument. Thus, it failed to meet its burden of establishing that the franchisor had failed to state a breach of contract claim.

False or misleading representations. The franchisee similarly alleged that the franchisor’s claim of false or misleading representations should be dismissed for lack of specificity. However, the franchisor alleged that the franchisee sold non-Noble Roman’s pizza, sub sandwiches, and other food products at its location and attempted to pass off the unaffiliated products with Noble Roman’s marks, falsely implying that the unaffiliated products were Noble Roman’s products or approved by Noble Roman’s. These allegations not only satisfied the elements for false or misleading representation of fact under 15 U.S.C. § 1125(a), but went further by specifying the actions that deceived customers as to the origin of the sold products.

Deception. The franchisee also alleged that the claim of criminal deception under the Indiana code lacked necessary details. But the court found that the franchisor’s claims—that B & MP knowingly or intentionally included false sales figures on its weekly sales reports—were certainly sufficient to state a plausible claim.

Injunctive relief. Finally, the court found that the franchisors claims of irreparable injury without an adequate remedy at law—caused by the franchisee’s sale of non-Noble Roman’s products as Noble Roman’s products—were sufficient to state a plausible claim for injunctive relief.

The case is Civil Action No. 1:14-cv-206-WTL-MJD.

Attorneys: Curtis T. Jones (Bose McKinney & Evans, LLP) for Noble Roman's, Inc. Michael Gnesin (Kelleher & Buckley, LLC) for B & MP, LLC.

Companies: Noble Roman's, Inc.; B & MP, LLC

Cases: FranchisingDistribution IndianaNews