United States District Court, S.D. Indiana, Indianapolis Division
ORDER ON MOTION FOR PARTIAL DISMISSAL
TANYA WALTON PRATT, District Judge.
This matter is before the Court on Defendants Puzzles Fun Dome, Inc. ("Puzzles") and Timothy Stevenson ("Mr. Stevenson") (collectively "Defendants") Motion to Dismiss Count VI of Plaintiff's Complaint, filed pursuant to Federal Rule of Civil Procedure 12(b)(6) by (Filing No. 7). Following a dispute regarding the payment of royalties under a franchise agreement, Plaintiff Noble Roman's, Inc. ("Noble Roman's") sued Defendants for breach of contract, fraud and conversion. Defendants moved to dismiss the fraud and conversion claims for failure to state a claim upon which relief can be granted. For the following reasons, the Court GRANTS the Motion for Dismissal of Count VI.
I. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) allows a defendant to move to dismiss a complaint, or a count alleged in a complaint, that has failed to "state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). When deciding a 12(b)(6) motion, the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of the plaintiff. Bielanski v. County of Kane, 550 F.3d 632, 633 (7th Cir. 2008). The complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). In Bell Atlantic Corp. v. Twombly, the Supreme Court explained that a complaint must allege facts that are "enough to raise a right to relief above the speculative level." 550 U.S. 544, 555 (2007). Although "detailed factual allegations" are not required, mere "labels, " "conclusions, " or "formulaic recitation[s] of the elements of a cause of action" are insufficient. Id. The allegations must "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Id. Stated differently, the complaint must include "enough facts to state a claim to relief that is plausible on its face." Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (internal citation and quotation marks omitted). To be facially plausible, the complaint must allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
Noble Roman's is a publicly traded pizza company based in Indianapolis, Indiana. Noble Roman's franchises its products-pizza, breadsticks, and other food items-and services and offers these franchise opportunities through franchise agreements. Puzzles is a family and children's entertainment center located in Kentucky and Mr. Stevenson is vice president of Puzzles. Noble Roman's entered into a franchise agreement with Puzzles on September 30, 2010. Mr. Stevenson executed the renewal franchise agreement on behalf of Puzzles. The franchise agreement was for a period of five years, and it allowed Puzzles to use the trade systems of Noble Roman's, including Noble Roman's Pizza. The agreement required Puzzles to continuously operate during the term of the franchise agreement for at least ten hours every day. Puzzles agreed to use its best effort to maximize the sale of Noble Roman's licensed products. The franchise agreement also contained confidentiality and non-compete provisions. Under the franchise agreement, Puzzles paid Noble Roman's a seven percent royalty on its total gross sales. Under the agreement the total gross sales were to be reported weekly to Noble Roman's and Noble Romans maintained a right to audit.
Noble Roman's performed an audit of Puzzles's sales from December 2004 to March 2014 based on purchases and a review of the weekly gross sales reports. In its complaint, Noble Roman's alleges that its audit revealed that Puzzles had underreported its total gross sales. Noble Roman's notified Puzzles that it had discovered underreporting of its gross sales and demanded payment of additional royalties. Puzzles refused to pay any additional royalties.
Thereafter, Puzzles ceased operations of its Noble Roman's service offerings despite the provision in the franchise agreement that required continuous operations during the term of the franchise agreement for at least ten hours every day. Under the agreement, upon termination of operations, Puzzles was required to return all Noble Roman's property, to keep certain information confidential, and to refrain from competing against Noble Roman's for a period of two years.
After Puzzles ceased its continuous operations and refused to pay the additional royalties, Noble Roman's filed this action in Marion Superior Court (Indiana) on May 20, 2014 (Filing No. 1-1 at 15). The Complaint alleges six counts: (1) breach of contract for underreported royalties, (2) breach of contract for ceasing continuous operations, (3) replevin, (4) declaratory judgment regarding confidential information, (5) declaratory judgment regarding the non-compete, and (6) conversion and fraud. In its Complaint, Noble Roman's seeks the payment of the underreported and unpaid royalties, to recover the Noble Roman's property in Puzzles's possession, an injunction prohibiting the disclosure or use of confidential information and prohibiting the operation of any competing business for two years, and actual and treble damages for fraud and conversion of the underreported and unpaid royalties, as well as attorney fees and costs.
The Summons and Complaint were served on the Defendants on May 23, 2014. Thereafter, the Defendants removed the action to this Court on June 20, 2014, based on diversity jurisdiction
Defendants argue in their Motion for Partial Dismissal that Noble Roman's failed to plead the allegation of fraud with sufficient particularity to meet the heightened standard of Rule 9(b) of the Federal Rules of Civil Procedure. They further assert that under Indiana law a claim for fraud cannot be sustained because Noble Roman's has not alleged reliance or damages beyond a simple breach of contract. Defendants also argue that the conversion claim cannot survive dismissal because, under Indiana law, such a claim does not arise from a failure to pay money owed under a contract. That remedy is available as damages for breach of contract.
Noble Roman's responds to the Motion for Partial Dismissal by explaining that it incorporated by reference all the preceding allegations in the Complaint to support the Count VI, conversion and fraud. These allegations include Puzzles's obligation to continuously operate and to report its sales, the audit conducted by Noble Roman's that disclosed underreporting of sales, a demand for payment of the unpaid royalties, and a refusal to pay additional royalties. Noble Roman's also asserts that it incorporated into its Complaint the franchise agreement between Noble Roman's and Puzzles in support of the conversion and fraud claims. Noble Roman's explains that the franchise agreement established a requirement to report sales and to pay royalties and that the weekly report was to be submitted by telephone or facsimile by noon every Monday.
Quoting Gilman v. Walters, 2013 U.S. Dist. LEXIS 59861, at *6-7 (S.D. Ind. Apr. 26, 2013), Noble Roman's asserts that "the enhanced pleading requirements of Rule 9 is applied less stringently when specific factual information about the fraud is peculiarly within the Defendants' knowledge or control.'" (Filing No. 8 at 4.) Noble Roman's reliance on Gilman is misplaced. Unlike in that case, here, Noble Roman's had access to Puzzles's records and reports, and the specific factual information about any alleged fraud was not peculiarly within Puzzles's knowledge or control. Noble Roman's audited Puzzles's reports and records and ...