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Noble Roman's Inc. v. B & MP LLC

United States District Court, N.D. Illinois, Eastern Division

March 29, 2017

NOBLE ROMAN'S INC., Plaintiff,


          Robert M. Dow, Jr. United States District Judge.

         Plaintiff Noble Roman's Inc. (“Plaintiff”) brings suit against Defendant B & MP, LLC (“B & MP”) for breach of contract, violation of the Lanham Act, 15 U.S.C. § 1125(a), and deception, Indiana Code § 35-43-5-3. Plaintiff also brings suit against B & MP and Leslie Perdriau (“Leslie”) (together, “Defendants”) and Leslie's son Bradley Perdriau (“Bradley”) for injunctive relief. Plaintiff and Bradley settled their dispute and stipulated to the dismissal of Bradley with prejudice. See [211]. Currently before the Court are Plaintiff's motion for partial summary judgment [184] and Defendants' motion for summary judgment [193] and motion to reopen discovery for the limited purpose of discovering a settlement agreement and negotiations between Plaintiff and Bradley [213]. For the reasons explained below, the Court denies Plaintiff's motion for partial summary judgment [184], denies Defendants' motion for summary judgment [193], and grants Defendants' motion to reopen discovery for the limited purpose outlined in the analysis below [213]. Plaintiff shall have until May 5, 2017 to either (1) file a motion for leave to file an amended complaint substituting or adding Army Trail Shell Deli, Inc. (“Army Trail”) as the corporate defendant; or (2) file a brief, with proper citation to supporting authority, explaining why Army Trail is not a necessary party to this lawsuit. The Court will then set a status hearing, order supplemental briefing, and/or supplement or reconsider its summary judgment rulings if necessary. In addition, the parties should proceed with the supplemental discovery outlined below and are directed to file a joint status report on May 5, 2017 advising the Court of their progress and suggesting a cutoff date for completing the supplemental discovery.

         I. Background

         The following facts are drawn primarily from the parties' statements of undisputed material facts and responses thereto, along with supporting exhibits, and are undisputed unless otherwise noted. See [101] at 2-8; [193-1]; [197-1]; [198] at 2-3, [203-1].[1]

         Plaintiff was established in 1972 and has been in the pizza business continuously since that time. Plaintiff is a party to franchise agreements for the operation of Noble Roman's pizza and Tuscano's Italian-style sub sandwich franchises with various franchisees throughout the United States. Plaintiff owns the “Noble Roman's” and “Tuscano's” registered trademarks.

         B & MP was an Illinois limited liability company that owned and operated a convenience store and gas station on Army Trail Road in Bloomingdale, Illinois (the “Station”). B & MP was incorporated with the Illinois Secretary of State on October 5, 2001. [197-5] at 244. Leslie Perdriau was the sole owner and manager of B & MP. According to his declaration, Leslie retired in 2002 and his son, Bradley, became “responsible [for] all aspects of station operation.” [200] at 2, ¶ 8. Leslie also states in another declaration that Bradley was “authorized to hire employees, fire employees, arrange for bank deposits, maintain books, records and otherwise perform all that was needed to be performed in order to operate the station.” [197-5] at 155.

         In 2009, Plaintiff and Bradley began discussions about B & MP operating a Noble Roman's franchise at the Station. On December 2, 2009, Bradley signed a receipt acknowledging that he had received a “Franchise Disclosure Document dated July 6, 2009, ” which included franchise agreements for Noble Roman's Pizza and Tuscano's Italian Style Subs, and various other documents. [198-1] at 1.

         On March 16, 2010, Plaintiff and B & MP executed standard Noble Roman's franchise agreements for the operation of a Noble Roman's pizza franchise and a Tuscano's sub sandwich franchise at the Station (the “Franchise Agreements”). See [68-1], [68-2]. Bradley signed the Franchise Agreements on behalf of B & MP. [68-1] at 31, 33; [68-2] at 31, 33. Both Franchise Agreements state that, “[w]ith respect to all claims, controversies, disputes or actions, this agreement shall be interpreted and construed under Indiana law.” [68-1] at 28, § XIX(F); [68-2] at 28, § XIX(F).

         In the Franchise Agreements, B & MP acknowledged that it “understands and agrees to the importance of maintaining uniformity among all of the units of Noble Roman's Pizza and the importance of complying with all of [Noble Roman's] standards and specifications relation to the operation of the Noble Roman's Pizza.” [68-1] at 9; [68-2] at 9. The Franchise Agreements required B & MP to “operate Noble Roman's Pizza in strict conformity with such methods, standards and specifications of [Noble Roman's], ” including “us[ing] and sell[ing] at all times only such … ingredients … that conform to [Noble Roman's] standards and specifications.” [68-1] at 9-10; [68-2] at 9-10. They also required B & MP “to comply with all of [Noble Roman's] standards and specifications relating to the purchase of … ingredients … used or offered for sale at Noble Roman's Pizza, ” and provided that failure to comply with this provision “shall be deemed a material event of default” under the agreements. [68-1] at 9; [68-2] at 9. Further, the Franchise Agreements provided that B & MP “shall use only [Noble Roman's] designated products.” [68-1] at 11; [68-2] at 11.

         Plaintiff provides a Food Preparation and Production Specifications Manual to its franchisees (“the Manual”). The Manual specifies the type of cheese that franchisees are required to use, including Noble Roman's Pizza Cheese, “a custom blend and cut of real Mozzarella and real Muenster cheese with dry oregano added.” [197-1] at 6. The Manual also provides that “[a]ll items used [by franchisees] must be Noble Roman's Inc. approved” and “[a]ll other toppings are proprietary ingredients and may not be substituted.” Id. at 6-7.

         The Franchise Agreements required B & MP to pay Plaintiff a franchise fee. Specifically, Section IV provided that B & MP would pay “a continuing weekly royalty fee (‘Royalty Fee') in the amount of seven percent (7%) of the Gross Sales of the [Noble Roman's or Tuscano's products].” [68-1] at 4; [68-2] at 4. “Gross Sales” was defined as “the total selling price of all products and services and all income from every other kind and nature related to [the Noble Roman's or Tuscano's franchises], whether for cash or credit and regardless of collection in the case of credit, but expressly excluding sums representing sales taxes collected directly from customer, ” plus “all proceeds from the sale of coupons, gift certificates, or vouchers.” [68-1] at 5; [68-2] at 5.

         Under the Franchise Agreements, B & MP was required to maintain and preserve for at least five years “full, complete, accurate books, records and accounts, including, but not limited to, daily sales records, sales slips, coupons, purchase orders, payroll records, check stubs, bank statements, monthly sales tax records and returns, cash receipts and disbursements, journals and ledger in accordance with generally accepted accounting principles[.]” [68-1] at 17; [68-2] at 17. Plaintiff had “the right at all reasonable times to review, audit, examine and copy” B & MP's books and records. Id.

         If B & MP was delinquent on its franchise payments or if an audit revealed that its payments were understated in any reports to Plaintiff, then B & MP was required to “immediately pay to [Noble Roman's] the amount overdue or understated upon demand with interest determined in accordance with the provisions of Section IV.B. (3).” [68-1] at 17; [68-2] at 17. Unpaid obligations under the Franchise Agreements “b[ore] interest from the date due until paid at the lesser of the highest rate allowed by law or a rate that is five … percentage points per annum higher than the ‘prime rate' then currently established by the largest bank (determined by total bank assets) headquartered in the state in which the [franchise] is situated.” [68-1] at 5; [68-2] at 5. The Franchise Agreements also required B & MP to pay “all damages, costs, and expenses, including reasonable attorneys' fees, incurred by [Noble Roman's] in connection with obtaining any remedy available to [Noble Roman's] for any violation of” the Franchise Agreements. [68-1] at 26; [68-2] at 26.

         On August 23, 2010, Army Trail Shell Deli Inc. (“Army Trail”) was incorporated with the Illinois Secretary of State. See [197-5] at 266; [200] at 2-3. Bradley was registered as President and Leslie as Secretary of Army Trail. See [197-5] at 266. Defendants maintain that Army Trail assumed B & MP's obligations as of January 1, 2011, and became B & MP's successor in interest, and took over all of its assets and liabilities. See [197-5] at 206; [200] at 3. Plaintiff characterizes Army Trail's role differently, and maintains that “[f]rom the beginning of the contractual relationship between the parties, Bradley and Leslie Perdriau have operated their business as B & MP doing business as Army Trail Shell Deli, Inc.” [198] at 5-6.

         On September 14, 2010, the Station opened and began operating its Noble Roman's and Tuscano's franchises.

         On April 12, 2012, B & MP was involuntarily dissolved by the Illinois Secretary of State. See [197-5] at 267. Army Trail continued to operate the Station and the Noble Roman's and Tuscano's franchises.

         In 2014, Plaintiff conducted an audit of the Station. Plaintiff discovered that the Station had not purchased Noble Roman's specified cheese since July 2012 or pepperoni since February 2013, yet was still making and selling pizzas that it held out to be Noble Roman's. According to Plaintiff, the non-conforming cheese and pepperoni sold by the Station would have had a different flavor profile. In its audit, Plaintiff also looked at B & MP's reported Gross Sales and compared them against B & MP's purchases of crusts and other key ingredients, made an allowance for reasonable waste products, and calculated an amount of sales that Plaintiff, based on its decades of experience in the pizza business, expected to see. Plaintiff determined that B & MP ...

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