Papa John's Intern., Inc. v. Rezko

• Decision Date: 29 June 2006
• Docket Number: No. 04 C 3131.,04 C 3131.
• Citation: 446 F.Supp.2d 801
• Parties: PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation, and Papa John's Food Service, Inc., a Kentucky corporation, Plaintiffs, v. Antoin S. REZKO, an individual resident of Illinois, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

446 F.Supp.2d 801

PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation, and Papa John's Food Service, Inc., a Kentucky corporation, Plaintiffs, v. Antoin S. REZKO, an individual resident of Illinois, et al., Defendants.

No. 04 C 3131.

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

June 29, 2006.

COPYRIGHT MATERIAL OMITTED

Thomas Hill Peckham, Christopher Eric Paetsch, Seyfarth Shaw, Chicago, IL, Barry T. Meek, Cassandra C. Collins, Edward T. White, Michael J. Lockerby, Reginald M. Skinner, Hunton & Williams LLP, Richmond, VA, for Plaintiffs.

David C. Gustman, Freeborn & Peters, Eugene Edward Murphy, Jr., Murphy & Hourihane L.L.C., Ami Deepak Gandhi, Federal Defender Program, John N. Hourihane, Jr., Murphy & Hourihane L.L.C., Kellye L. Fabian, Leland W. Hutchinson, Jr., Michael J. Kelly, Freeborn & Peters, LLP, Mary Clare G. Bonaccorsi, Bryan Cave, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

MORAN, Senior District Judge.

Plaintiffs Papa John's International, Inc. and P.J. Food Service, Inc. brought an action against PJ Chicago, LLC, Chicago P.J., LLC, East Coast PJ, LLC, and Atonin Rezko, alleging trademark infringement in violation of the Trademark Act of 1946, copyright infringement in violation of the Copyright Act of 1976, trade secret misappropriation in violation of the Kentucky Uniform Trade Secrets Act, and breach of contract stemming from defendants' alleged non-performance and default on a series of franchise agreements and promissory notes. After plaintiffs filed a second amended complaint on July 14, 2004, defendants brought a motion to dismiss, basing their claims on the Settlement Agreement the parties entered into on August 4, 2004.¹ Subsequently, defendants filed a supplemental motion to dismiss, arguing that plaintiffs' claims were insufficient to state a claim upon which relief can be granted under FED. R. Civ. P. 12(b)(6). For the reasons stated below, we deny defendants' motion to dismiss and grant in part and deny in part defendants' supplemental motion to dismiss.

BACKGROUND

In reviewing a motion to dismiss under Rule 12(b)(6), we accept the complaint's well-pleaded factual allegations as true, including the inferences reasonably drawn from them. McDonald v. Household Intern., 425 F.3d 424, 425 (7th Cir.2005). The complaint will be dismissed only if the plaintiff "failed to allege any set of facts upon which relief may be granted." Pickrel v. City of Springfield, Ill., 45 F.3d 1115, 1118 (7th Cir.1995). See also Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Therefore, we take the following facts from the plaintiffs' complaint.

Plaintiffs allege that defendants, former franchisees operating Papa John's restaurants in Illinois and Michigan, continued to use the Papa John's trademarks, trade secrets, and copyrighted or otherwise proprietary materials, in the wake of termination of the franchises. Additionally, defendants allegedly continued to operate pizza restaurants, renamed "Pizza Tony's," in the same location as the formerly franchised restaurants. Plaintiffs contend that such actions constitute counterfeiting, infringement, unfair competition and trademark dilution in violation of the Lanham Act; copyright infringement in violation of the Copyright Act of 1976; misappropriation of trade secrets in violation of the Kentucky Uniform Trade Secrets Act; and breach of contract, including breach of the post-term covenants not-to-compete.

Papa John's, including its predecessorsin-interest, have used the Papa John's marks since 1981 to identify and promote its products, including 18 marks federally registered with the Patent and Trademark Office. Papa John's also owns 18 federal copyright registrations for commercials, computer programs, operations checklists, reviews, and reports. Using those identifying processes and marketing techniques, Papa John's has established its business throughout the world, with 80 percent of their 3,000 restaurants operated as franchises.

From 1998 to 2002, defendant Rezko, chief executive officer and sole shareholder of defendants PJ Chicago, Chicago P.J., and East Coast PJ, entered into franchise agreements with Papa John's to open 38 restaurants. The franchise agreements required that the restaurants be operated according to Papa John's standards, specifications, and policies, including use of certain food and food items, payment of royalties, maintenance of insurance, covenants not-to-compete, and obligations to refrain from using trade secrets, confidential information and proprietary knowledge gained during the course of business. Provisions also included post-termination obligations, including immediate cessation of business operation and confidential information, immediate return of Papa John's property and cancellation of any assumed name or similar registration containing Papa John's trademarks.

Based on defendants' alleged failure to acquire appropriate insurance coverage and failure to fulfill their financial obligations to Papa John's and creditors, on May 3, 2004, Papa John's sent defendants notices of termination. The notices included directives to the former franchisees to cease operation of the franchised restaurants, refrain from holding out the franchises as Papa John's restaurants, and to comply with the post-termination obligations contained in the franchise agreements. Additionally, the notices required defendants, by the close of business day, to cover Papa John's signage, post signage in the restaurants stating its disaffiliation with Papa John's, and answer the phone in a manner that would not identify the restaurant as a Papa John's affiliate. According to plaintiffs, "[t]he Former Franchisees have continued to use, without authorization, all or some of the PAPA JOHN'S Marks and Papa John's Registered Copyrights, as well as other elements of the Papa John's System after May 3, 2004" (cplt., ¶ 39). Additionally, plaintiffs claim that harm to them has been exacerbated by plaintiff's continued operation of the restaurants under the name "Papa Tony's."

DISCUSSION

Defendants' original motion to dismiss proceeds on the theory that "[b]ecause the [August 4, 2004] settlement agreement released all claims between Papa John's and Defendants, the Complaint fails to state a claim upon which relief can be granted" (defs' mo. to dis., ¶ 14). As stated in Papa John's II, however, the settlement agreement, at least with regard to the sale of the franchise restaurants to third party Dr. Ray, was unenforceable for failure to come to a "meeting of the minds." Papa John's II, 2006 WL 1697134. Therefore, we deny defendants' motion to dismiss.

Plaintiffs' supplemental motion to dismiss argues that plaintiffs have failed to state a claim upon which relief can be granted under Rule 12(b)(6). Specifically, defendants argue that plaintiffs have failed to plead any viable federal claims and therefore the entire action must be dismissed.

Defendant Rezko

Defendants claim that all infringement claims against defendant Rezko must be dismissed because plaintiffs have failed to allege any facts establishing his personal liability. In general, "in the absence of some special showing, the managing officers of a corporation are not liable for the infringements of such corporation, though committed under their general direction." Dangler v. Imperial Mach. Co., 11 F.2d 945, 947 (7th Cir.1926). Such a "special showing" generally requires evidence of the officer's personal involvement in the infringement. See Syscon, Inc. v. Vehicle Valuation Services, Inc., 274 F.Supp.2d 975, 976 (N.D.Ill.2003); Peaceable Planet, Inc. v. TY, Inc., 185 F.Supp.2d 893, 896 s(N.D.Ill.2002) (A plaintiff fails to "meet the `special showing' requirement when the individual defendant has done nothing beyond the scope of his duties as officer and the corporation `was not organized to permit [the individual defendant] to profit from infringement or hide his personal liability under a corporate shell' so that the alleged infringement was not willful.'").

When an officer signs a contract as an agent of his corporation, he risks no personal liability. See Dugan v. Petty, 1993 WL 317260, *2 (N.D.Ill.1993). When a corporate officer makes a personal promise to guarantee his corporation's debts, however, he may be held liable in his personal capacity. Western Cas. & Sur. Co. v. Bauman Ins. Agency, Inc., 81 Ill.App.3d 485, 36 Ill.Dec. 773, 401 N.E.2d 614, 616 (1980) ("An agent may expressly agree to be personally bound or it may be inferred by implication reasonably drawn from all the facts and circumstances in evidence"). Plaintiffs plead the latter, that by signing the owner agreement "Rezko agreed to be personally liable for Defendants['] post-termination infringement of the PAPA JOHN'S Marks®." (plfs' resp. at 10). Rezko did sign the owner agreement attached to plaintiffs' second amended complaint, including the guaranty provision in which Rezko guaranteed "personally and unconditionally ... the punctual payment when due of all sums, indebtedness and liabilities of every kind and nature that Franchisee may now or in the future owe to any member of Our Group ... not [to] exceed $300,000" (sec. am.cplt, exh. C, ¶ 3). While it is unclear whether Rezko signed the owner agreement in his personal or professional capacity, there are reasons to believe he signed in his personal capacity. He signed his name without following it by his corporate title. Cf. Sullivan v. Cox, 78 F.3d 322, 326 (7th Cir.1996) (Under Illinois law, `[w]hen an officer signs a document and indicates next to his signature his corporate affiliation, then absent evidence of contrary intent in the document, the officer is not personally bound.'). Further, because a guaranty, by definition, is a third party promise to pay another's debt, it is unlikely that Papa John's would allow a corporation, through its agent Rezko, to guarantee the corporation's own debt. Viewing...