NOBLE ROMAN'S, INC. v. HATTENHAUER DISTRIBUTING COMPANY

Filing 52

ORDER denying Defendant's 20 Motion to Dismiss and denying Defendant's 35 Motion Requesting Oral Argument. SEE ORDER. Signed by Judge William T. Lawrence on 4/3/2015. (BGT)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
NOBLE ROMAN’S, INC.,
Plaintiff,
vs.
HATTENHAUER DISTRIBUTING
COMPANY,
Defendant.

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) CAUSE NO. 1:14-cv-1734-WTL-DML
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ENTRY ON PARTIAL MOTION TO DISMISS
This cause is before the Court on the Defendant’s partial Motion to Dismiss (Dkt. No.
20). The motion is fully briefed and the Court, being duly advised, DENIES the motion for the
following reasons. 1
I.

APPLICABLE STANDARD

The Defendant moves to dismiss Count II of the Plaintiff’s Complaint pursuant to Federal
Rule of Civil Procedure 12(b)(6), arguing that it fails to state a claim for which relief can be
granted. In reviewing a Rule 12(b)(6) motion, the Court “must accept all well pled facts as true
and draw all permissible inferences in favor of the plaintiff.” Agnew v. National Collegiate
Athletic Ass’n, 683 F.3d 328, 334 (7th Cir. 2012). For a claim to survive a motion to dismiss for
failure to state a claim, it must provide the defendant with “fair notice of what the . . . claim is
and the grounds upon which it rests.” Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009) (quoting
Erickson v. Pardus, 551 U.S. 89, 93 (2007)) (omission in original). A complaint must “contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.”

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Because the Court does not believe oral argument would be helpful in this cause, the
Defendant’s Motion Requesting Oral Argument (Dkt. No. 35) is also DENIED.

Agnew, 683 F.3d at 334 (citations omitted). A complaint’s factual allegations are plausible if
they “raise the right to relief above the speculative level.” Bell Atlantic Corp v. Twombly, 550
U.S. 544, 556 (2007).
II.

BACKGROUND

The facts set forth in the Plaintiff’s Complaint (Dkt. No. 1) are as follow.
The Plaintiff, Noble Roman’s, Inc. (“Noble Roman’s”) is in the business of franchising
pizza outlets and Tuscano’s Italian-style submarine sandwiches to franchisees across the United
States. Defendant Hattenhauer Distributing Company (“Hattenhauer”) owns and operates
convenience stores and gas stations in Goldendale, Washington and Wasco, Oregon.
In August 2006, Noble Roman’s and Hattenhauer entered into two franchise agreements
for the sale of Noble Roman’s pizza and Tuscano’s sandwiches at Hattenhauer’s convenience
store in Goldendale, Washington. In April 2005, Noble Roman’s and Hattenhauer entered into a
franchise agreement for the sale of Noble Roman’s pizza at Hattenhauer’s convenience store in
Wasco, Oregon; this agreement was renewed in March 2011. Under the franchise agreements,
Hattenhauer agreed to pay a seven percent weekly royalty fee to Noble Roman’s and agreed to
only use ingredients that conform to Noble Roman’s standards and specifications, among other
things.
At some point in 2014, Noble Roman’s performed an audit of Hattenhauer’s franchises
and found that it under-reported sales at both the Washington and Oregon locations from January
2011 through February 2014. Noble Roman’s notified Hattenhauer of this in April 2014;
Hattenhauer disputed the audits and refused to pay the royalty fees. Expanded audits conducted
by Noble Roman’s—from the time the locations opened through August 2014—revealed the
same.

2

In addition to the unpaid royalty fees, Noble Roman’s also alleges that since January
2011, Hattenhauer has been using an inferior-quality cheese on its pizzas, not the Noble Roman’s
proprietary pizza cheese.
In October 2014, Noble Roman’s filed suit in this Court alleging unfair competition
(Count I) and breach of contract (Count II).
III.

DISCUSSION

Hattenhauer moves to dismiss Count II, the breach of contract claim. Its arguments are
addressed below.
Count II of Noble Roman’s Complaint alleges that “Hattenhauer has knowingly breached
and continues to breach the Franchise Agreements by (1) under-reporting Gross Sales; [and] (2)
refusing to pay the royalty fees that are directly related to the under-reported Gross Sales[.]”
Amend. Compl. ¶ 35. 2 As explained above, Noble Roman’s bases these allegations on the audits
it conducted in 2014. The audits were entitled “Sales & Purchase Comparison,” and compared
Hattenhauer’s “reported sales to [its] potential sales based on its purchases.” Dkt. No. 25. The
audits multiplied the number of items Hattenhauer purchased—breadsticks, dough, wings,
submarine rolls, etc.—by the menu price in order to obtain an “Estimated Sales” figure. Id. This
“Estimated Sales” figure was then reduced by a certain percentage, depending on the food item,
to account for “Waste.” Id. In order to determine if Hattenhauer was over- or under-reporting its
sales, Noble Roman’s subtracted Hattenhauer’s “Reported Sales” figure from the “Total
Estimated Sales” figure; this resulted in the amount of “Under-Reported Sales.” Id. Noble
Roman’s alleges it is entitled to seven percent—the royalty fee—of this “Under-Reported Sales”

2

Count II also contains allegations related to Hattenhauer’s alleged use of inferior-quality
pizza cheese. See Amend. Compl. ¶ 35(3) and (4). Hattenhauer does not move to dismiss these
allegations.
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amount. See Amend. Compl. ¶ 24 (“Hattenhauer has under-paid royalties of $41,561.98 at the
Washington Location and $21,628.53 at the Oregon Location, resulting in total underpaid royalty
fees upon which an additional amount of interest is owed.”).
Hattenhauer argues that “[t]he plain language of the Franchise Agreements as pleaded by
Plaintiff, however, establishes that those audits did not conform to the terms of the Franchise
Agreements and therefore cannot form the basis of a breach of contract action.” Def.’s Br. at 5.
It bases this on two provisions contained in the franchise agreements. First, Hattenhauer was
required, on a weekly basis, to pay Noble Roman’s a seven percent royalty fee on the franchises’
“Gross Sales.” Amend. Compl. ¶ 15. Second, the franchise agreements define “Gross Sales” as
“the total selling price of all products and services and all income of every other kind and nature
related to [the Noble Roman’s or Tuscano’s franchises] [.]” Id. ¶ 16. Based on these two
provisions, Hattenhauer argues as follows:
by the very terms of the Franchise Agreements, Hattenhauer was only required to
report and pay royalties on “the total selling price of all products”—i.e. the actual
amount of products that it sold. Plaintiff’s Complaint is devoid of any allegations
that Hattenhauer has failed to pay royalties based on “the total selling price of all
products.” Therefore, its claims for breach of contract based on underreported sales
and unpaid royalties must be dismissed because the allegations do not establish that
there was any breach.
Def.’s Br. at 6. This ignores the thrust of the Noble Roman’s breach of contract claim. As noted
above, Noble Roman’s alleges that Hattenhauer under-reported its gross sales. Taking Noble
Roman’s allegations as true, Hattenhauer would owe additional royalty fees because its gross
sales were, in fact, higher than what it originally reported. Of course, discovery may show
otherwise or Hattenhauer may have legitimate reasons as to why its figures were lower than
Noble Roman’s estimates; however, at this phase in the litigation, Noble Roman’s has stated a
plausible breach of contract claim.

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Hattenhauer’s second argument is that “any claims based on alleged underreported sales
prior to October 23, 2010 are barred by the statute of limitations.” Def.’s Br. at 7. Hattenhauer
correctly argues that
[t]he statute of limitations for a breach of contract action in Indiana depends on the
nature of the contract. An action based on a contract for the sale of goods has a
four-year limitations period under the UCC, Ind. Code Ann. § 26-1-2-725,
compared to six years for an action based on promissory notes or other written
contracts for the payment of money, Ind. Code Ann. § 34-11-2, and ten years for
all other written contracts, Ind. Code Ann. § 34-11-2-9.
Def.’s Br. at 8. 3 Hattenhauer argues that the franchise agreements—the contracts at issue in this
cause—“are predominantly for the sale of goods and thus governed by the UCC four-year statute
of limitations.” Id. at 9. Noble Roman’s disagrees, arguing that the franchise agreements are
“contracts in writing other than those for the payment of money, and the contract claim is subject
to a 10-year statute of limitations.” Pl.’s Resp. at 4.
Indiana applies what is known as the “predominate thrust” test to determine if a contract
is for the sale of goods. “Under the predominate thrust test, courts look to the agreement
between the parties to determine their understanding about the predominant purpose of the
contract. In focusing on the goals of the contracting parties, the predominant thrust approach
preserves parties’ expectations regarding their agreement.” InsulMark Midwest, Inc. v. Modern
Materials, Inc., 612 N.E.2d 550, 554 (Ind. 1993). Hattenhauer argues that “the performance of
the parties and the relationship of the parties as contemplated by the Agreements is to sell
Hattenhauer pizza and sandwich ingredients, and then sell the resulting pizzas and sandwiches to
consumers.” Dkt. No. 21 at 9. It further argues that “the primary reason Noble Roman’s entered

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Hattenhauer notes that “[t]he statute of limitations for Plaintiff’s breach of contract
claims is governed by Indiana law as specified in the Franchise Agreements and because this
case resides in an Indiana forum.” Def.’s Br. at 7. Noble Roman’s does not argue otherwise.
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into the Franchise Agreements was to accomplish the sales of its goods—the pizzas and
sandwiches—at Hattenhauer’s convenience stores in Washington and Oregon.” Id. Finally, it
notes that the “Royalty Fee is derived directly from gross sales of goods.” Id. at 10.
Notwithstanding Hattenhauer’s arguments to the contrary, it appears clear to the Court
that the predominate thrust of the franchise agreements was the granting of the Noble Roman’s
and Tuscano’s franchises. Specifically, the purpose was to allow and enable Hattenhauer to set
up and operate a Noble Roman’s and/or Tuscano’s franchise and to use its marks and products.
Of course, the franchise agreements contemplated that Hattenhauer would sell Noble Roman’s
pizza and Tuscano’s Italian-style submarine sandwiches, but the agreements primarily involve
the granting, development, and operation of the two franchises. The Court agrees with Noble
Roman’s that “[t]he Franchise Agreements . . . address the sale of goods only indirectly and
focus heavily on the ‘service aspect’ of the parties’ relationship.” Pl.’s Resp. at 5. Accordingly,
the UCC’s four-year statute of limitations is inapplicable to the contracts at issue. 4
IV.

CONCLUSION

For the foregoing reasons, Hattenhauer’s Motion to Dismiss (Dkt. No. 20) is DENIED.
SO ORDERED: 4/3/15
_______________________________
Hon. William T. Lawrence, Judge
United States District Court
Southern District of Indiana

4

In a footnote, Hattenhauer also argues that the franchise agreements only require it to
keep records of sales for the past five years. Hattenhauer seems to suggest, therefore, that it may
not have records more than five years old of its actual “Gross Sales” for which to determine if it,
indeed, did under-report its sales to Noble Roman’s. It thus argues that “in the absence of such
records [Noble Roman’s cannot] resort to mere estimations of the amount of sales Plaintiff
believes Hattenhauer should have had in attempting to enforce the Agreements.” Def.’s Br. at 11,
n. 4. Whether or not Hattenhauer does, in fact, possess these records will be an issue for
discovery. Moreover, this argument can be better developed in later motions. At this point,
however, the Court finds that Noble Roman’s has stated a plausible breach of contract claim, and
declines to limit that claim to a five-year timeframe.
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Copies to all counsel of record via electronic notification

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