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Judge tosses Noble Roman's franchisee claims

February 21, 2011
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Noble Roman's Inc. has won a pivotal courtroom victory in a battle with 14 former franchisees of its dual-branded Noble Roman’s Pizza and Tuscano’s Italian Style Subs restaurants.

The Indianapolis-based chain is pursuing a judgment of more than $3.6 million against the former franchisees after a Hamilton County judge in December tossed civil claims that the chain committed fraud.

The franchisees filed a lawsuit in June 2008, saying Noble Roman’s misled them about the costs and profit potential of the restaurants. The former franchise locations, in several states including Kentucky, Missouri and California, have since closed.

The chain argued the franchisees were entirely at fault for their own failures, thanks to “mismanagement and incompetence.” Yet the chain has acknowledged that its effort to quickly open hundreds of stand-alone, dual-branded Noble Roman’s and Tuscano’s locations did not work out as hoped.

"This has been a long and expensive lawsuit but we are pleased the court has recognized that the allegations of fraud against the company and its officers were without merit," company president A. Scott Mobley wrote in an e-mail.

The franchises were seeking more than $8 million in damages, a sum that could have left Noble Roman's insolvent. The chain, which operates in 45 states, has a market value of just $20 million. Noble Roman's shares closed at $1.05 apiece on Friday.

Hamilton County Superior Court Judge Steven R. Nation wrote that the franchisees had "no reasonable right" to rely on the chain's verbal sales pitch.

"There was an acknowledgment in the franchise agreement that plaintiff understood and acknowledged the obligation to conduct an independent investigation and the business involved a substantial risk," Nation wrote in the ruling on Dec. 23, 2010.

Noble Roman’s has reinvented itself several times over the years since launching in the 1970s as a chain of dine-in restaurants. In 1997, after intense competition and rising costs made stand-alone pizza joints difficult to operate profitably, Noble Roman’s turned to franchising and opened about 800 nontraditional outlets in locations such as convenience stores, bowling alleys and hospitals.

The chain sold about 90 dual-format franchises between 2006 and 2008 and 55 of them opened, but at least half have since closed.

“The franchisees were misled into buying a concept that was not sufficiently tested,” franchisee attorney P. Adam Davis of locally based Davis & Sarbinoff LLP told IBJ in August 2009. “They were in fact the guinea pigs. And that’s not what you buy a franchise for. The point is that you’re getting a tested and proven concept."

Davis, who took over the case after Nation revoked the temporary admission of attorney David M. Duree of Illinois, was not available to discuss the judge's ruling.

Noble Roman's latest reinvention involves a new offering of take-and-bake pizzas, pasta sauces, deep-dish lasagna and other retail products in grocery stores.

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