Pinnacle Pizza Co. v. Little Caesar Enterprises

• Decision Date: 19 July 2005
• Docket Number: No. Civ.04-4170-KES.,Civ.04-4170-KES.
• Parties: PINNACLE PIZZA COMPANY, INC., Plaintiff, v. LITTLE CAESAR ENTERPRISES, INC., Defendant.
• Court: U.S. District Court — District of South Dakota

395 F.Supp.2d 891

PINNACLE PIZZA COMPANY, INC., Plaintiff, v. LITTLE CAESAR ENTERPRISES, INC., Defendant.

No. Civ.04-4170-KES.

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

July 19, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Stephen C. Landon, Steven W. Sanford, Cadwell, Sanford, Deibert & Garry, LLP, Sioux Falls, SD, for Plaintiff.

Lisa Hansen Marso, Boyce Greenfield Pashby & Welk, LLP, Sioux Falls, SD, for Defendant.

ORDER GRANTING PLAINTIFF'S MOTION TO AMEND PLEADINGS AND GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS

SCHREIER, District Judge.

Plaintiff, Pinnacle Pizza Company, Inc., sued defendant, Little Caesar Enterprises, Inc., (LCE) for breach of contract and several other causes of action related to the alleged misappropriation of an advertising slogan. Pinnacle moves to amend its complaint: (1) to clarify its original complaint; (2) to add LC Trademarks, Inc., and Ilitch Holdings, Inc., as co-defendants; (3) to add a claim that LCE violated South Dakota franchise statutes; and (4) to add a claim for cancellation of the LCE trademark on the phrase "Hot `n Ready." LCE opposes the motion. Plaintiff's motion for leave to amend is granted.

LCE moves for judgment on the pleadings on all of Pinnacle's claims, as amended, except the breach of contract claim. LCE's motion for judgment on the pleadings is granted in part and denied in part.

MOTION TO AMEND PLEADINGS

Motions to amend are freely granted when justice so requires. Fed.R.Civ.P. 15(a). Leave to amend is denied only if evidence exists "such as undue delay, bad faith, or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment." Roberson v. Hayti Police Dep't, 241 F.3d 992, 995 (8th Cir.2001) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)).

Pinnacle moves for leave to amend the complaint to add LC Trademarks, Inc. (LCT) as a defendant. Pinnacle alleges that LCT holds trademarks that LCE uses, including the trademark in "Hot n' Ready." LCE does not oppose the motion as to the claims that survive its motion for judgment on the pleadings. Therefore, the motion is granted.

Pinnacle also moves for leave to add Ilitch Holdings, Inc. (IHI), as a defendant. Pinnacle alleges that IHI owns or controls LCE and employs the management personnel responsible for the alleged misconduct at the heart of the case. LCE contends that the proposed addition of IHI is futile because IHI does not own or control LCE. LCE argues that even if IHI did control LCE, it would not be vicariously liable for the acts of LCE employees because it is a separate corporate entity and there is no justification for piercing the corporate veil.

While there exists a presumption against piercing the corporate veil, a plaintiff should be given the opportunity to test its claim on the merits as long as the underlying facts or circumstances are a proper subject for relief. See Foman, 371 U.S. at 182, 83 S.Ct. 227. In this case, Pinnacle has alleged an alternative claim of unjust enrichment against LCE and IHI. Because this is a proper subject for relief, and LCE has not shown that it would be prejudiced by the addition of IHI as a party, the motion for leave to amend to add IHI as a party defendant is granted. LCE, IHI, and LCT shall hereinafter be referred to collectively as LCE.

LCE's only objection to the proposed amendments to the causes of action set forth in the complaint is that of futility. As a result, the court grants Pinnacle's motion to amend the causes of action set forth in the complaint and will consider LCE's allegation of futility as part of the discussion on whether LCE is entitled to judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).

BACKGROUND

According to the amended complaint, James Fischer and Mike Nichols formed Pinnacle in 1991 to operate three Little Caesars franchises in Sioux Falls, South Dakota. Pinnacle entered into a franchise agreement with LCE, a Michigan corporation. Pinnacle alleges the contract grants LCE ownership over improvements or modifications of the Little Caesars system, but specifies that "in no event shall advertising created by Franchise Owner be considered to be an improvement or modification in the Little Caesar System." Pinnacle contends that the contract recognizes its ownership interests in its original advertising materials in Section XII(B) of the contract. This clause provides that "Little Caesar may not use the original advertising materials created by franchise owner without its prior written consent."

Fischer claims he created the advertising slogan "Hot n' Ready" while returning from a Little Caesars franchisee convention in 1997. "Hot n' Ready" referred to a promotion that Fischer allegedly created, which offered a pre-cooked medium pepperoni pizza for $4. Instead of waiting in the restaurant for the pizza to be cooked, or calling ahead to make sure that it would be ready when the customer arrived, the pizza was already cooked and ready to go when the customer entered Pinnacle's Little Caesars restaurants.

Pinnacle alleges that it began promoting "Hot n' Ready" pizzas in radio and newspaper advertisements on May 7, 1997. Pinnacle added placards and traffic signs with the "Hot n' Ready" slogan to its ad campaign. Pinnacle alleges that its sales increased dramatically on days it advertised "Hot n' Ready" pizzas.

Pinnacle alleges that LCE noticed the dramatic increase in sales at Pinnacle's franchises and began advertising "Hot n' Ready" pizzas at LCE's restaurants without obtaining Pinnacle's permission in violation of the franchise agreement. Pinnacle alleges that LCE eventually required all 2,500 of its franchises to advertise "Hot n' Ready" pizzas. As a result of the "Hot n' Ready" slogan, Little Caesars franchises have increased sales dramatically, while sales at other pizza chains have declined. Pinnacle alleges that LCE secretly attributes its growth in revenue to the "Hot n' Ready" slogan. In an effort to deceive its competitors and prevent them from imitating the campaign, LCE publicly reported that changes in its pizza recipe and new management techniques caused the increase in sales.

Pinnacle sued LCE for breach of contract, breach of its duty of good faith and fair dealing, conversion, misappropriation of an advertising idea, unjust enrichment, and imitation of trademark. Pinnacle is seeking a money judgment, punitive damages, a statutory penalty of $100 for each wrongful use of its trademark, costs and attorney's fees, and other relief the court deems fair and equitable. LCE moves for judgment on the pleadings pursuant to 28 U.S.C. § 12(c).

STANDARD OF REVIEW

The court considers a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) under the same standards as a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir.1990). See also Wiles v. Capitol Indemnity Corp., 280 F.3d 868, 870 (8th Cir.2002). Rule 12(b)(6) requires the court to review only the pleadings to determine whether they state a claim upon which relief can be granted. In considering a motion to dismiss, the court assumes all facts alleged in the complaint are true, construes the complaint liberally in the light most favorable to the plaintiff, and should dismiss only if "it appears beyond a doubt that the plaintiff can prove no set of facts which would entitle the plaintiff to relief." Coleman v. Watt, 40 F.3d 255, 258 (8th Cir.1994). "The issue is not whether a claimant will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 191, 104 S.Ct. 3012, 3017, 82 L.Ed.2d 139 (1984).

DISCUSSION

I. Choice of Laws

First, the court must determine whether the laws of Michigan or South Dakota apply. LCE contends that Michigan law applies to all of Pinnacle's claims, while Pinnacle argues that South Dakota law applies. In diversity cases, federal courts apply the choice of law rules of the forum state to determine which state's substantive law applies. Retail Associates, Inc. v. Macy's East, Inc., 245 F.3d 694, 697 (8th Cir.2001). Thus, the court will apply South Dakota's choice of law rules.

In South Dakota, parties may stipulate in a contract to the application of a particular state's law. Dunes Hospitality, LLC v. Country Kitchen Int'l Inc., 623 N.W.2d 484, 488 (S.D.2001). The addendum to the franchise agreement provides in pertinent part:

A. The law regarding franchise registration, employment, covenants not to compete, and other matters of local concern will be governed by the laws of the State of South Dakota; but as to contractual and all other matters, this agreement and all provisions of this instrument will be and remain subject to the application, construction, enforcement and interpretation under the governing law of Michigan.

B. Any provision which designates jurisdiction or venue or requires the Franchise Owner to agree to jurisdiction or venue in a forum outside of South Dakota is void with respect to any cause of action which is otherwise enforceable in South Dakota.

Choice of law provisions, however, "are subject to limitation and invalidation by the overriding public policy of the forum state." Id. (quotations omitted). See also Wright-Moore Corp. v. Ricoh Corp., 908 F.2d 128, 132 (7th Cir.1990) (choice of law provision violated public policy against allowing parties to contract out of the protections of Indiana franchise law)....