Pinnacle Pizza Co. v. Little Caesar Enterprises

• Decision Date: 05 June 2008
• Docket Number: No. CIV. 04-4170-KES.,CIV. 04-4170-KES.
• Citation: 560 F.Supp.2d 786
• Parties: PINNACLE PIZZA CO., INC., Plaintiff, v. LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation; LC Trademarks, Inc., a Michigan corporation; and Hitch Holdings Inc., a Michigan corporation, Defendants.
• Court: U.S. District Court — District of South Dakota

560 F.Supp.2d 786

PINNACLE PIZZA CO., INC., Plaintiff, v. LITTLE CAESAR ENTERPRISES, INC., a Michigan corporation; LC Trademarks, Inc., a Michigan corporation; and Hitch Holdings Inc., a Michigan corporation, Defendants.

No. CIV. 04-4170-KES.

United States District Court, D. South Dakota, Southern Division.

June 5, 2008.

COPYRIGHT MATERIAL OMITTED

Stephen C. Landon, Steven W. Sanford, Michael A. Henderson, Shawn M. Nichols, Cadwell, Sanford, Deibert & Garry, LLP, Sioux Falls, SD, for Plaintiff.

Arthur L. Pressman, Jason Kravitz, Nixon Peabody LLP, Boston, MA, Thomas John Welk, Lisa Hansen Marso, Boyce Greenfield Pashby & Welk, LLP, Sioux Falls, SD, Irwin Alterman, Kemp Klein, Troy, MI, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

KAREN E. SCHREIER, Chief Judge.

Defendants, Little Caesar Enterprises, Inc., LC Trademarks, Inc., and Hitch Holdings, Inc. (LCE), move for summary judgment on the claims asserted against them by plaintiff, Pinnacle Pizza Co., Inc. (Pinnacle). Pinnacle moves for partial summary judgment on the counterclaim asserted by LCE and on defendants' affirmative defenses. LCE's motion for summary judgment is granted.

FACTUAL BACKGROUND

Pinnacle was formed in 1991 by Jim Fischer and Mike Nichols to own and operate Little Caesar's pizza franchises in South Dakota, Minnesota, and Iowa. Pinnacle entered into a franchise agreement with LCE for each franchise store. The franchise agreements were substantially similar in form.

Pinnacle asserts that during the mid 1990s its franchise stores, consistent with Little Caesar's franchise and company stores nationwide, did poorly financially. In response to this downturn, in 1997 owner Jim Fischer began a new advertising strategy wherein he guaranteed customers could purchase a medium pepperoni pizza for four dollars every Tuesday, and that the pizza would be ready within five minutes of the customer's arrival at the store. PSUMF 11. Fischer advertised this offer with the phrase "Hot N' Ready," a phrase Fischer asserts he "prominently and consistently" used in Pinnacle's advertising pieces since its inception. PSUMF 12.

Pinnacle asserts that the "Hot N' Ready" concept was extremely successful and allowed Pinnacle to stabilize its business. PSUMF 14. Pinnacle asserts that other Little Caesar's franchise stores began to mimic the "Hot N' Ready" concept after observing Pinnacle's success. PSUMF 16. In its second amended complaint, Pinnacle alleges that three years after Fischer began advertising the "Hot N' Ready" concept, LCE wrongfully began using Pinnacle's "original advertising materials" without its consent in violation of the Franchise Agreement. Docket 101, ¶ 30.

LCE's version of the evolution of the "Hot N' Ready" concept differs in many respects from that put forth by Pinnacle. LCE asserts that beginning in 1992 it encouraged franchisees to hold "Customer Appreciation Days" once per quarter, in which ready-for-pick-up pizzas were sold at a discounted price. DSUMF 37-38. LCE asserts that Fischer's "Hot N' Ready" concept was born only after he was exposed to sales presentations by LCE and other franchisees that contained components of the concept. LCE further asserts that Fischer shared his "Hot N' Ready" concept with other franchisees and imposed no restriction on the other franchisees' further spread of the concept. DSUMF 86-87.

LCE asserts that a memorandum prepared by Scott Stewart, a franchisee who owned Little Caesar's stores in Rapid City, South Dakota, and with whom Fischer shared the "Hot N' Ready" concept, described the "Hot and Ready" program as "the best local promo we have done in a long time." Docket 179 at ¶ 96. Stewart's memo was included in a booklet of marketing ideas that was distributed by LCE to all franchisees. DSUMF 97. Stewart also gave a presentation regarding the "Hot N' Ready" concept in October of 1997, at a Little Caesar's workshop in Tennessee. DSUMF 98.

LCE asserts that subsequent to Stewart's presentation, it further promoted the "hot and ready" idea to franchisees. By 1999, LCE provided all franchisees with advertising material which featured the "Hot-N-Ready" phrase. DSUMF 106. In June of 2000, LCE sent franchisees a "Hot-N-Ready" implementation guide, which Pinnacle received. DSUMF 109. Pinnacle does not dispute that in late 2000, an LCE executive visited Fischer in Sioux Falls, South Dakota, and told Fischer that LCE intended to roll out the "Hot N' Ready" concept as a national program. DSUMF 110.

LCE has used the "Hot N' Ready" concept in its corporate stores and has asked independent franchisees to break out "Hot N' Ready" sales in sales reports. DSUMF 108. In 2002, LCE filed an application with the United States Patent and Trademark Office (USPTO) to register the phrase "Hot N' Ready" as a trademark. In that application, LCE represented that the date of first use of the mark was May 6, 1997. Docket 101, Ex. 4 at 4. LCE was ultimately successful in obtaining a federal service mark registration for "Hot N' Ready." DSUMF 129.

Pinnacle filed suit against LCE alleging a variety of claims stemming from LCE's use of the "Hot N' Ready" concept. Pinnacle's second amended complaint, as construed by this court, asserts a cause of action for breach of contract, violation of the South Dakota Franchise Act, breach of fiduciary duty and confidential relationship, and violation of South Dakota trademark law. Pinnacle also asserts a claim to cancel LCE's registered trademark with the USPTO. LCE filed a counterclaim for breach of contract, arguing that by challenging the validity of LCE's registered mark, Pinnacle breached the Franchise Agreement.

In its motion for summary judgment, LCE asserts that Pinnacle released it from these claims in a series of releases signed from 2000 through 2003. LCE also argues that the majority of Pinnacle's claims are barred by the statute of limitations and doctrines of equity. Additionally, LCE moves for summary judgment on the merits of the claims. Pinnacle moves for partial summary judgment on LCE's counterclaim as well as on LCE's affirmative defenses.

STANDARD OF REVIEW

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56. Only disputes over facts that might affect the outcome of the case under the governing substantive law will properly preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is not appropriate if a dispute about a material fact is genuine, that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

The moving party bears the burden of bringing forward sufficient evidence to establish that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The nonmoving party is entitled to the benefit of all reasonable inferences to be drawn from the underlying facts in the record. Vette Co. v. Aetna Cas. & Sur. Co., 612 F.2d 1076, 1077 (8th Cir.1980). The nonmoving party may not, however, merely rest upon allegations or denials in its pleadings, but must set forth specific facts by affidavits or otherwise showing that a genuine issue exists. Forrest v. Kraft Foods, Inc., 285 F.3d 688, 691 (8th Cir. 2002).

DISCUSSION

I. Releases

LCE seeks summary judgment, in part, asserting that Pinnacle has released it from liability. Pinnacle seeks partial summary judgment on the validity and legal effect of the releases, asserting that the releases do not protect LCE from liability on its claims related to the "Hot N' Ready" concept.

From 2000 to 2003, Pinnacle was a party to a total of four releases with LCE. The first two releases were signed in March and May of 2000 in conjunction with the sale of Pinnacle's franchise located in Sioux City, Iowa. The third release was signed in September of 2001 and was the result of a class action settlement between Little Caesar's franchisees and LCE. The fourth release was executed in conjunction with the November 2003 sale of a Little Caesar's franchise in St. Cloud, Minnesota.

A. March and May 2000 Releases

Pursuant to the Franchise Agreement, Pinnacle was required to resolve its outstanding debt with LCE of approximately $400,000 before LCE would approve the sale of Pinnacle's Iowa City, Iowa franchise to a third party. DSUMF 112. In the franchise termination and surrender agreement, dated March 31, 2000, Fischer in his capacity, as "President" and both Fischer and Nichols in their individual capacities, signed the following release:

The undersigned hereby release and forever discharge Little Caesar Enterprises, Inc., its agents, employees, officers, directors, successors, assigns, and related entities and corporations (collectively, "LCE") from any and all claims, actions, liabilities, causes of action, losses, expenses or damages of any kind, nature or description whatsoever, known or unknown, vested or contingent, arising out of any matter, fact, event or occurrence whatsoever or in any manner relating to or connected with the Franchise Agreements terminated hereby, the franchise relationship, the Little Caesar restaurants identified herein, or LCE and its related entities.

Docket 179, Ex. 58.

With regard to the outstanding debt. Pinnacle agreed to pay approximately $188,000 in cash to LCE and signed promissory notes to LCE for approximately $180,000. DSUMF 115. LCE agreed to forgive the promissory notes if Pinnacle fulfilled certain conditions, namely that Pinnacle be in "good financial standing" with LCE on the due date...