Hon. William T. Lawrence, Judge, United States District Court.
This cause is before the Court on the Plaintiff's motion for partial summary judgment and the Defendant's motion for summary judgment. The motions were briefed in Cause No. 1:14-1734-WTL-DML, and supplemental briefs were filed in this case. All citations to the record in this Entry refer to the record in Cause No. 1:14-1734-WTL-DML unless otherwise noted. The Court, being duly advised,
Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." In ruling on a motion for summary judgment, the admissible evidence presented by the non-moving party must be believed, and all reasonable inferences must be drawn in the non-movant's favor. Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009) ("We view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor."). When the Court reviews cross-motions for summary judgment, as is the case here, "we construe all inferences in favor of the party against whom the motion under consideration is made." Speciale v. Blue Cross & Blue Shield Ass'n, 538 F.3d 615, 621 (7th Cir. 2008) (quotation omitted). "`[W]e look to the burden of proof that each party would bear on an issue of trial.'" Diaz v. Prudential Ins. Co. of Am., 499 F.3d 640, 643 (7th Cir. 2007) (quoting Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997)). A party who bears the burden of proof on a particular issue may not rest on its pleadings, but must show what evidence it has that there is a genuine issue of material fact that requires trial. Johnson v. Cambridge Indus., Inc., 325 F.3d 892, 901 (7th Cir. 2003). Finally, the non-moving party bears the burden of specifically identifying the relevant evidence of record, and "the court is not required to scour the record in search of evidence to defeat a motion for summary judgment." Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001).
Unless otherwise noted, the following background facts of record are undisputed. Additional facts are included in the Discussion section.
Defendant Hattenhauer Distributing Company ("Hattenhauer") owns and operates 21 gas stations and associated convenience stores. Relevant to this case are two of the stores, one located in Goldendale, Washington, and the other in Biggs Junction, Oregon. In April 2005, Hattenhauer signed a five-year agreement with the Plaintiff, Noble Roman's, Inc., ("Noble Roman's") to operate a pizza franchise at its Oregon Location. In August 2006, Hattenhauer signed ten-year agreements with Noble Roman's to operate both a pizza franchise and a Tuscano's sub sandwich franchise at its Washington Location. On March 21, 2011, the parties renewed the franchise agreement for the Oregon location. With one exception, discussed below, all of the franchise agreements are identical in all material respects. The Court will refer to them collectively as the "Franchise Agreements."
The Franchise Agreements were drafted by Paul Mobley, Noble Roman's Executive Chairman and CFO.
The Franchise Agreements require Hattenhauer to pay Noble Roman's "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]... for all of the franchised locations." See e.g., Dkt. No. 1-1 at 4.
Id. at 5. "Gross Sales" also includes "all proceeds from the sale of coupons, gift certificates or vouchers ... provided that the retail price thereof may be credited against Gross Sales during the week in which such coupon, gift certificate or voucher is redeemed for the purpose of determining the amount of Gross Sales upon which the Royalty Fee ... if any, is due." Id.
The Franchise Agreements require Hattenhauer to
Id. at 16. The Franchise Agreements also provide that "[Noble Roman's] or its designee shall have the right at all reasonable times to review, audit, examine and copy the books and records of [Hattenhauer] as [Noble Roman's] may require at the Noble Roman's Pizza [location]." Id. at 17.
Pursuant to the Franchise Agreements, "[i]f any required royalty payments to [Noble Roman's] are delinquent, or if an
Id. at 5.
Pursuant to its agreements with Noble Roman's, Hattenhauer was required to use ingredients approved by Noble Roman's in its franchises. This included Noble Roman's proprietary pizza cheese, which is a blend of mozzarella and Muenster cheese and dry oregano. Noble Roman's Food Preparation and Product Specifications states that "Noble Roman's Pizza Cheese is a custom blend and cut of real Mozzarella and real Muenster cheese with dry oregano added.
In 2010, Noble Roman's changed its approved distributer for Hattenhauer's locations to McDonald Wholesale Company ("McDonald"). Between August 2010 and approximately August 2014, Hattenhauer did not purchase Noble Roman's proprietary cheese for its Oregon location, although it continued to purchase Noble Roman's proprietary cheese from McDonald for its Washington location. For its Oregon location, Hattenhauer purchased other types of pizza cheese from McDonald during this time period, including Golden California brand pizza cheese.
On August 23, 2012, Noble Roman's sent Greg McPeters, one of its franchise managers, to Hattenhauer's locations for training. Noble Roman's did not create an inspection report for these visits. McPeters did not tell Hattenhauer to stop using cheese other than Noble Roman's propriety cheese. No Noble Roman's representative has conducted training at or inspected Hattenhauer's franchise locations since 2012.
In 2014, Noble Roman's conducted an audit of Hattenhauer's locations. The audit revealed that the Oregon Location had not purchased Noble Roman's specified cheese since as early as 2010 and was instead purchasing non-conforming cheese during that time.
From time to time, Noble Roman's visited Hattenhauer's Locations and completed checklists titled "Unit Evaluations" or
In 2009, Noble Roman's conducted an audit of each of Hattenhauer's locations and created "Sales & Purchases Comparison" reports ("SPCs"). Noble Roman's determined that Hattenhauer had underreported its sales by 32.9% at the Oregon Location and by 34.7% at the Washington location. Noble Roman's did not tell Hattenhauer that it had conducted audits for its locations in 2009. The first time Hattenhauer learned about the 2009 audits and resulting SPCs was during discovery in this lawsuit.
In 2014, Noble Roman's decided to conduct audits of its non-traditional franchisees who paid a royalty fee based on reported sales. This included both of Hattenhauer's locations.
Noble Roman's audits relied on a review of the records of Hattenhauer's purchases from the approved distributor, McDonald. Noble Roman's describes the process as follows:
Dkt. No. 159-1 ¶ 15. Noble Roman's did not review the books and records maintained by Hattenhauer or attempt to verify the accuracy of the information contained in the distributor's reports on which it relied. Noble Roman's methodology calculates an amount of sales that Hattenhauer's locations would be expected to make; in other words, it is an estimate.
In Noble Roman's opinion,
Dkt. No. 159 at 4-5.
The methodology used by Noble Roman's does not take into account ingredients that were purchased by Hattenhauer but never used because they were damaged in shipping, handling, or preparation. For example, McDonald's reports reflected credits to Hattenhauer, at least one of which was not accounted for in the audit. Noble Roman's methodology also used a standard "sales mix," which is the percentage of various types of products sold (e.g. 60% of pizzas sold have one topping). The sales mix used by Noble Roman's in its audits was not the actual sales mix in Hattenhauer's locations; rather, Noble Roman's used the same sales mix for its audits of all of its non-traditional franchise locations. Similarly, Noble Roman's used waste allowances of 2%, 3%, or 5% for its audits; it did not attempt to determine what Hattenhauer's actual waste was, as Hattenhauer was not required to — and did not — include that information in the weekly sales reports it sent to Noble Roman's.
Noble Roman's methodology assumed a constant menu price for each item. Noble Roman's also considered only one menu item for each "core ingredient." For example, its methodology assumed that each "Par 7 Dough" purchased by Hattenhauer was used for a small pizza. However, Hattenhauer also used the pizza dough to make Cinnamon Rounds, which were sold for less than small pizzas. Similarly, tortillas were used for both breakfast burritos and chicken wraps, but Noble Roman's methodology assumed that each tortilla purchased was used for a chicken wrap, which had a higher menu price than a breakfast burrito.
Hattenhauer's cash registers automatically create daily records of sales of Noble Roman's products, called Z tapes and/or register tapes. Hattenhauer creates and maintains records of its sales, including its sales of Noble Roman's products. It also maintains boxes of years of daily station reports, including manual daily reports, manual shift reports, points of sale shift close reports, and other miscellaneous reports by day. Indeed, as set forth above, the Franchise Agreements require Hattenhauer to maintain extensive records, and there is no allegation that it failed to do so.
Based upon its audits, Noble Roman's concluded that Hattenhauer's Oregon location had underpaid royalties between January 2011 and February 2014. On April 1, 2014, without giving prior notice to Hattenhauer, Noble Roman's attempted to electronically withdraw $8,573.79 from Hattenhauer's bank account to cover the unpaid royalties it had calculated. This attempted transfer was rejected by Hattenhauer's bank.
On April 3, 2014, Noble Roman's informed Hattenhauer by telephone that it had audited the Oregon location and determined that Hattenhauer had underreported its sales from January 2011 to February 2014. On April 4, 2014, Noble Roman's again attempted to electronically withdraw funds for the Oregon location; this time $8,623.79, which was the original amount plus $50. Noble Roman's added the $50 based on a provision in the Franchise Agreements that provided:
Dkt. No. 1-4 at 5. Hattenhauer and Hattenhauer's bank rejected this second attempted transfer.
On April 11, 2014, Noble Roman's sent Hattenhauer an email that stated that Noble Roman's had conducted an audit of Hattenhauer's Washington location for
On May 21, 2014, Hattenhauer sent Noble Roman's an email objecting to Noble Roman's audit. Hattenhauer noted its belief that the audit was based on potential sales, not actual sales; that it did not properly account for Hattenhauer's pricing discounts and waste (that is, product that was prepared but not sold quickly enough and therefore had to be discarded); and that the attempted withdrawals from its bank account were "unethical at best." Dkt. No. 162-22. On June 20, 2014, Noble Roman's sent Hattenhauer a letter stating: "Since you have refused to pay the royalty from the initial audit, we have extended the audit period to encompass your Noble Roman's activity from the time each Noble Roman's location opened through May 2014." The letter also stated that Hattenhauer owed Noble Roman's $62,551.29 in unpaid royalties ($41,022.85 for the Washington location and $21,528.44 for the Oregon location). Hattenhauer again objected, responding in an email that it had reported its sales each week as required and paid royalties accordingly, that the locations had considerable waste, and that Noble Roman's had not provided Hattenhauer with any documentation to support Noble Roman's calculations. Hattenhauer also denied the validity of Noble Roman's audit methodology and stated that it did not consent to any electronic funds transfers based on the audits. On July 17, 2014, Noble Roman's sent an email with the report pages of the SPCs created as a result of the new audit.
On September 23, 2014, Hattenhauer received notice that Noble Roman's had successfully withdrawn $100.09 from Hattenhauer's bank account by electronic funds transfer. Noble Roman's did not give Hattenhauer notice prior to this transfer. Hattenhauer again objected.
On September 24, 2014, Noble Roman's informed Hattenhauer that it had conducted another audit of the Hattenhauer locations for the time period from June 2014 through August 2014, and concluded that Hattenhauer owed an additional $639.26 in unpaid royalties.
On September 29, 2014, Noble Roman's attempted to obtain $539.17 via electronic funds transfer, without notifying Hattenhauer of such transfer, but this attempted transfer was rejected by Hattenhauer's bank.
In 2014, Noble Roman's decided to bill franchisees for royalties with a difference of more than 20% between its estimate, as determined by audit, of a franchisee's sales and a franchisee's reported sales. When a franchisee operated multiple units, Noble Roman's applied the 20% parameter to the average sales difference of the multiple units. The 20% number was an arbitrary number chosen by Noble Roman's. Noble Roman's did not give Hattenhauer a credit for 20% of the sales differences it calculated with its audits; rather, it attempted to collect the entire amount of the difference from Hattenhauer.
Noble Roman's inadvertently failed to bill one of the locations operated by franchisee
In 2014, Noble Roman's conducted an audit of franchisee Pic N Save and used a lower menu price for the 14` pizza dough because the franchisee demonstrated that it ran specials on 14` pizzas.
Noble Roman's did not extend the time frame of the audit for most of the franchisees that it audited in 2014.
In its Amended Complaint, Noble Roman's asserts a breach of contract claim against Hattenhauer. In response, Hattenhauer asserts counterclaims for breach of contract, violations of the Washington Franchise Investment Protection Act and the Washington Consumer Protection Act, and a claim under the Indiana Crime Victims Relief Act. Both parties move for summary judgment on each of the counterclaims; Hattenhauer seeks summary judgment on Noble Roman's breach of contract claim, and Noble Roman's seeks partial summary judgment as to that claim. Each claim is addressed; in turn, below.
Noble Roman's alleges that Hattenhauer "knowingly breached the Franchise Agreements by: (1) underreporting Gross Sales; (2) refusing to pay the royalty fees that are directly related to the underreported Gross Sales; and (3) failing to use Noble Roman's brand pizza cheese for its Noble Roman's pizzas at the Oregon Location." Dkt. No. 10-1 at 10. Under Indiana law, which the parties agree applies in this case,
Whitaker v. Brunner, 814 N.E.2d 288, 293-94 (Ind. Ct. App. 2004). Thus, the first step in applying a contract provision is determining whether the provision in question is ambiguous. "A word or phrase is ambiguous if reasonable people could differ as to its meaning." Broadbent v. Fifth Third Bank, 59 N.E.3d 305, 311 (Ind. Ct. App. 2016). A term is not ambiguous solely because the parties disagree about its meaning. Id. "`We will not bend the language of a contract to create an ambiguity when none exists, but neither will we follow a literal interpretation when [to do so] would lead to an unreasonable or absurd result.'" In re Airadigm Commc'ns, Inc., 616 F.3d 642, 664 (7th Cir. 2010) (quoting Chicago Bd. of Options Exch. v. Conn. Gen. Life Ins. Co., 713 F.2d 254, 258 (7th Cir. 1983)).
Hattenhauer argues that it is entitled to summary judgment on Noble Roman's breach of contract claims related to underpayment of royalty payments because the method used by Noble Roman's to calculate the amount of underpayment was not permitted under the Franchise Agreements. The Court agrees.
Noble Roman's argues that its audit methodology was permitted under the Franchise Agreements because
Dkt. No. 159 at 20-21 (citations omitted). This argument ignores the plain language of the Franchise Agreements in several ways. First, as the language quoted above makes clear, the Franchise Agreement provided that Noble Roman's could review Hattenhauer's records to determine whether royalty payments had been properly made. But Noble Roman's did not base its calculations on Hattenhauer's records, but rather on the distributor's records. Further, Noble Roman's argument that if Noble Roman's could not rely on Hattenhauer's purchase orders to calculate
More fundamentally, however, Noble Roman's argument ignores the fact that the Franchise Agreements obligated Hattenhauer to pay royalties on its Gross Sales as that term is defined in the agreements — the total selling price of all Noble Roman's food items sold by Hattenhauer. Whatever records were reviewed and whatever methodology was used, the end goal should have been to determine the actual amount of Noble Roman's products sold by Hattenhauer. However, in Noble Roman's own words, its audit method was designed to determine "how many products [Hattenhauer] likely sold based on [Hattenhauer's] purchases [of ingredients]," Dkt. No. 159 at 23; "an amount of sales that Noble Roman's, based on its decades of experience in the pizza business, expected to see based on [its] analysis," id.; "the amount of sales that the stores should have been able to achieve had they been operating their franchises in accordance with Noble Roman's specified standards that were authorized by the Franchise Agreements," id. at 3. See also Dkt. No. 186 ("Hattenhauer's two franchise locations should have reported greater sales, per the Franchise Agreements, had they been in accordance with Noble Roman's specified standards."). In other words, Noble Roman's position is that Hattenhauer is obligated to pay royalties on Noble Roman's estimate of its Gross Sales. Noble Roman's explains at length why it believes that "[f]or non-traditional locations, such as Hattenhauer's franchise locations, the only feasible way to audit sales after the fact for accurate reporting is by using the record of ingredients purchased," and how its audit method is consistence with Internal Revenue Service guidelines. See id. at 22-24. Taking those facts as true for purposes of this ruling, presumably Noble Roman's was aware of that when it drafted the Franchise Agreements and could have defined "Gross Sales" to mean an estimate based on purchase records from the Noble Roman's approved distributor. But it did not. The purchase order unambiguously requires royalties to be paid on Hattenhauer's actual Gross Sales, not an estimate of those Gross Sales.
Hattenhauer also seeks summary judgment on Noble Roman's claim that Hattenhauer breached the Franchise Agreements by using non-conforming pizza cheese at its Oregon location. As both parties note, under Indiana law, "[t]o prevail on a claim for breach of contract, the plaintiff must prove the existence of a contract, the defendant's breach of that contract, and damages resulting from the breach." Haegert v. Univ. of Evansville, 977 N.E.2d 924, 937 (Ind. 2012). Hattenhauer argues that "Noble Roman's cannot establish damages for Hattenhauer's use of the substituted cheese because Hattenhauer paid royalties on all its gross sales, including its sales of Noble Roman's pizzas." Dkt. No. 161 at 34. Noble Roman's responds:
Dkt. No. 177 at 20. This argument is insufficient. Hattenhauer specifically argued that it is entitled to summary judgment because Noble Roman's did not suffer any damages as a result of Hattenhauer's use of non-conforming cheese. Because damages is an element of Noble Roman's breach of contract claim, Noble Roman's was then required to demonstrate that there is a genuine issue of fact regarding whether it did, in fact, suffer damages. It did not even attempt to do so.
In support of its own motion for partial summary judgment, Noble Roman's argues that "the Court can clearly rule on the first two elements of the breach of contract claim but allow a jury to determine the damages element at trial." Dkt. No. 159 at 13. This is, of course, true with regard to Noble Roman's own motion, but not helpful in the face of Hattenhauer's motion for summary judgment. Indeed, this is recognized in one of the cases cited by Noble Roman's, Norwood Promotional Products, LLC v. KustomKoozies, LLC, 835 F.Supp.2d 685, 697 (S.D. Ind. 2011), in which the Court specifically noted that the defendant in that case "did not seek summary judgment on the absence of damages element." In this case, Hattenhauer did, which obligated Noble Roman's to point to evidence from which a reasonable jury could find that it suffered damages as a result of Hattenhauer's breach. See, e.g., Goodman v. National Sec. Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010) ("We often call summary judgment the `put up or shut up' moment in litigation, by which we mean that the non-moving party is required to marshal and present the court with the evidence she contends will prove her case. And by evidence, we mean evidence on which a reasonable jury could rely.") (citations omitted). Because Noble Roman's failed to do so, Hattenhauer is entitled to summary judgment on that claim as well. Accordingly, summary judgment is
Hattenhauer alleges that Noble Roman's breached the Franchise Agreements by using an audit method not permitted under the Franchise Agreements to calculate Hattenhauer's Gross Sales and underpaid royalties. Noble Roman's argues that it is entitled to summary judgment on that issue because its methodology was authorized by the Franchise Agreement. As discussed above, the Court finds, as a matter of law, that the Franchise Agreements did not permit Noble Roman's to calculate Gross Sales in the manner in which it did. As Noble Roman's only argument with regard to Hattenhauer's motion for summary judgment on this issue is that the audits it performed were authorized by the Franchise Agreements, the Court finds that Hattenhauer is entitled to summary judgment on this issue.
Hattenhauer also alleges that Noble Roman's successful and unsuccessful attempts to collect what it determined to be unpaid royalties by means of electronic withdrawals from Hattenhauer's bank account constituted a breach of the Franchise Agreements. Noble Roman's again argues that it is entitled to summary judgment on this claim because its actions were authorized by the Franchise Agreement. The Court disagrees, both for the reasons set forth above — that is, the royalties Noble Roman's sought to collect were not properly calculated and therefore were not owed to Noble Roman's — and for a separate reason. Hattenhauer argues, and the Court agrees, that nothing in the Franchise Agreement gave Noble Roman's the right to collect unpaid royalties calculated as a result of an audit by means of electronic withdrawals made without Hattenhauer's consent.
As Noble Roman's correctly notes:
Dkt. No. 159 at 27 (quoting, inter alia, Dkt. No. 1-1 at 17). Noble Roman's acknowledges, as it must, that the Franchise Agreement required Hattenhauer to pay Noble Roman's any understated royalties "on demand." It then argues that it "demanded the payment through initiating an ACH withdraw from Hattenhauer's bank account." Id. The Court finds that it is simply not reasonable to interpret the relevant provisions of the Franchise Agreements to permit this unilateral action by Noble Roman's. Section XI of the Franchise Agreements is written in the active voice; it provides that Hattenhauer "shall immediately pay to [Noble Roman's] the amount overdue or understated upon demand with interest...." Dkt. No. 1-1 at 16. By contract, Section IV(B), the provision of the Franchise Agreements that relates to automatic withdrawals is, appropriately, written in the passive voice: it provides that royalty fees "shall be due and payable each week based on the Gross Sales for the preceding week ... and shall be paid electronically (draft on Franchisee's
Hattenhauer also asserts in its Amended Counterclaim that Noble Roman's breached the Franchise Agreements by "fail[ing] to provide assistance or support to Hattenhauer in its operation of the Washington and Oregon Locations in violation of Section V(7) of the Franchise Agreements." Dkt. No. 142 at 11-12. In two of the Franchise Agreements, Section V(7) reads as follows:
Dkt. No. 1-1 at 6 (applying to pizza franchise at Washington location); Dkt. No. 1-4 at 6 (applying to Oregon location beginning March 21, 2011). In a third Franchise Agreement, Section V(7) is as quoted above except that it omits the word "sole." Dkt. No. 1-2 at 6 (applying to Tuscano's franchise at Washington location). In a fourth Franchise Agreement, which applied to the Oregon location from April 2005 to April 2010, Section V(7) reads:
Dkt. No. 1-3 at 6.
Noble Roman's moves for summary judgment on this issue, pointing to the language in three of the Franchise Agreements that give Noble Roman's the discretion to determine what assistance is "reasonably necessary." Hattenhauer argues that granting Noble Roman's such discretion creates an illusory promise, and also notes that the discretion language is not present in one of the Franchise Agreements.
The Court need not resolve these issues. Under the plain language of all of the Franchise Agreements, to the extent that the Franchise Agreements required Noble Roman's to provide any "assistance," that assistance was to relate to Hattenhauer's ability to comply with Noble Roman's quality control standards.
In summary, Hattenhauer's motion for summary judgment is
Hattenhauer asserts a counterclaim pursuant to the Indiana Crime Victim's Relief Act ("ICVRA"), which creates a civil cause of action pursuant to which a person who suffers a pecuniary loss as a result of a violation of certain Indiana criminal statutes may recover treble damages, attorney fees, and costs. Hattenhauer alleges that Noble Roman's violated three of the criminal statutes referenced in the ICVRA. First, it alleges that Noble Roman's committed the crime of deception, which is defined, in relevant part, as "knowingly or intentionally mak[ing] a false or misleading written statement with intent to obtain property." Ind. Code § 35-43-5-3(a)(2). The written statements pointed to by Hattenhauer are as follow:
Hattenhauer also alleges that Noble Roman's committed conversion and criminal trespass when it successfully withdrew funds from Hattenhauer's bank account. Indiana Code § 35-43-2-2(b)(4) provides that a person who "knowingly or intentionally interferes with the possession or use of the property of another person without the person's consent" commits criminal trespass. Criminal conversion is defined as "knowingly or intentionally exert[ing] unauthorized control over property of another person." Ind. Code § 35-43-4-3(a). Both of those crimes are referenced in the ICVRA.
Noble Roman's does not address conversion in its motion for summary judgment or in its response to Hattenhauer's motion for summary judgment, even though Hattenhauer addresses it. See, e.g., Dkt. No. 161 at 46-47 ("Noble Roman's committed the crimes of deception, criminal trespass, and criminal conversion against Hattenhauer, causing Hattenhauer's pecuniary loss."). Noble Roman's also does not address Indiana Code § 35-43-2-2(b)(4), but instead inexplicably discusses Indiana Code § 35-43-2-2(b)(2), which expressly applies only to trespass on real property. Noble Roman's argues that Hattenhauer "cannot prove the mens rea required to support their allegation of an Indiana CVRA violation" because "[r]elying upon the Franchise Agreements, Noble Roman's believed that the amount of unpaid royalty fees discovered in the audits was immediately due and owing." Dkt. No. 159 at 33-34. However, as Noble Roman's acknowledges in its brief, the belief that one is authorized to possess the property at issue must have a "fair and reasonable foundation" in order to "defeat the mens rea requirement of the criminal trespass statute." Id. at 34 (quoting Larsen v. Fort Wayne Police Dep't, 825 F.Supp.2d 965, 978 (N.D. Ind. 2010) (citing Taylor v. State of Indiana, 836 N.E.2d 1024, 1028 (Ind. Ct. App. 2006)) and citing Olsen v. State, 663 N.E.2d 1194, 1196 (Ind. Ct. App. 1996)). As discussed at length above, there is simply no provision in the Franchise Agreements that reasonably can be said to authorize Noble Roman's to make the electronic withdrawal that it made — that is, that it had the right to exercise control over Hattenhauer's money, rather than to pursue legal action to recover what it believed it was owed by Hattenhauer. In other words, the Court has determined as a matter of law that the contract cannot reasonably be interpreted to provide authorization for Noble Roman's electronic withdrawal of funds from Hattenhauer's account based on the result of its audits. This is especially true in light of the fact that by the time Noble Roman's made its successful withdrawal, Hattenhauer had made it abundantly clear that it did not consent to the withdrawals and disputed Noble Roman's audit process.
The Court finds that Hattenhauer has established as a matter of law that Noble Roman's withdrawal of $100.09 from Hattenhauer's bank account constituted conversion as defined by Ind. Code § 35-43-4-3(a).
In its Amended Counterclaim, Hattenhauer asserts separate claims pursuant to the Washington Franchise Investment Protection Act ("WFIPA"), Wash. Rev. Code Ann. 19.100.190(3), and the Washington Consumer Protection Act ("WCPA"), Wash. Rev. Code Ann. 19.86.090. In its summary judgment briefing, however, Hattenhauer argues that Noble Roman's breached its duty of good faith and fair dealing, which is imposed on all franchise agreements pursuant to Wash. Rev. Code Ann. § 19.100.180, by (1) calculating royalties in the way that it did; (2) withdrawing funds from Hattenhauer's bank account; (3) failing to give Hattenhauer a "credit" for a 20% variance between the Gross Sales calculated by Noble Roman's and the Gross Sales reported by Hattenhauer; (4) extending the timeframe covered by the audits when Hattenhauer refused to pay; and (5) failing to provide training and updated manuals in a timely manner. Hattenhauer then argues that "[w]hen a franchisor commits any of the acts prohibited by Section 19.100.180, including discrimination between franchisees and bad faith conduct, the franchisor commits an unfair or deceptive act or practice under the Consumer Protection Act. Wash. Rev. Code Ann. § 19.100.180; Wash. Rev. Code Ann. 19.100.190(1)." Dkt. No. 161 at 49. It therefore seeks to recover damages under the WCPA.
As it relates to Hattenhauer's allegations of bad faith, this argument is without merit. Section 19.100.190(1) provides that "[t]he commission of any unfair or deceptive acts or practices or unfair methods of competition prohibited by RCW 19.100.180 as now or hereafter amended shall constitute an unfair or deceptive act or practice under the provisions of [the WCPA]." As Noble Roman's points out, Section 19.100.180 provides a list of things that are "an unfair or deceptive act or practice or an unfair method of competition." Acting in bad faith — or, more precisely, violating the duty of good faith — is not one of them. Even assuming that the actions pointed to by Hattenhauer constitute bad faith, they do not violate the WCPA by operation of Wash. Rev. Code Ann. 19.100.190(1). While perhaps Hattenhauer could demonstrate that the actions taken by Noble Roman's constitute an "unfair or deceptive act" under the WCPA, it has not done so in its briefs, and "[i]t is not this court's responsibility to research and construct the parties' arguments." Draper v. Martin, 664 F.3d 1110, 1114 (7th Cir. 2011).
Hattenhauer also alleges the Noble Roman's treated it differently than its other non-traditional franchisees by: (1) arbitrarily "determin[ing] that if there was a difference of more than 20% between its inaccurate estimates for potential sales and a franchisee's reported sales, then the franchisee must be underreporting"; (2) inconsistently applying the 20% parameter; (3) extending the time frame of its audit of Hattenhauer but not most of its other franchisees; and (4) failing to take Hattenhauer's discounts and specials into account, while doing so for Pic N Save. Dkt. No. 161 at 50-51. Discrimination between franchisees is a listed unfair or deceptive act under the WFIPA and therefore under the WCPA. See Wash. Rev. Code Ann. 19.100.180(2)(c). That fact alone is not sufficient to establish a violation of
In a case under the WCPA, "a plaintiff can establish that the lawsuit would serve the public interest by showing a likelihood that other plaintiffs have been or will be injured in the same fashion." Id. Hattenhauer alleges that this element is satisfied in this case because Noble Roman's has applied its unauthorized audit method to its many franchisees and taken many of the other actions that form the basis of Hattenhauer's bad faith claim against other franchisees. Hattenhauer does not explain how the acts of discrimination it alleges satisfy this element, however. Hattenhauer has not provided any evidence that Noble Roman's has or is likely to discriminate against other franchisees in the manner in which it allegedly discriminated against Hattenhauer. Indeed, Hattenhauer's discrimination claim is based on Hattenhauer's allegation that Noble Roman's treated it differently than it treated its other franchisees. Accordingly, Noble Roman's is entitled to summary judgment on Hattenhauer's claims under the WCPA and the WFIPA.
For the reasons set forth above, Noble Roman's motion for partial summary judgment
The parties shall confer and file a notice setting forth how they wish to proceed in this case — specifically, whether a trial is necessary on the issue of Hattenhauer's damages —
SO ORDERED: 3/30/18
