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Noble Roman's awarded $1.5M in battle with franchisees

March 27, 2014

Noble Roman’s Inc. is still waiting to collect about $1.5 million more than a year after scoring an apparent victory in a lengthy court battle with some of its former franchisees.

The Indianapolis-based chain had pursued a judgment of more than $3.6 million against former franchisees after a Hamilton County judge in December 2011 tossed civil claims that the chain committed fraud.

The dispute started in June 2008, when the franchisees filed suit claiming Noble Roman’s misled them about the costs and profit potential of the restaurants. The former franchises, in several states including Kentucky, Missouri and California, have since closed.

After a judge dismissed the claims, Noble Roman’s countersued against 14 franchisees, arguing that the restaurants failed to stay open for 10 years, a requirement of the franchise agreement. A dozen of those franchisees were eventually dropped from the countersuit.

A jury awarded Noble Roman’s $86,290 and $78,302, plus court costs and interest, in late 2012 against the two remaining franchisees. But Hamilton Superior Court Judge Steven Nation didn’t sign off on the verdict until last month, when he ordered the franchisees to pay additional fees of $1.1 million to the chain’s attorneys.

“The agreements required [the franchisees] to keep [their restaurants] open for a 10-year term,” said Jeffrey Gaither, an attorney for Noble Roman’s. “When they closed after a year or two years or whatever, Noble Roman’s was entitled to damages and the royalties they would have received.”

Attorneys for the franchisees argued, however, that Noble Roman’s franchise agreements do not provide for future royalties.

They asked the judge in a March 19 motion to reconsider both the jury award and the attorneys’ fees.

“We’re appealing everything,” said P. Adam Davis, a lawyer for the two former franchisees. “[The motion] gives him an opportunity to reconsider what he awarded and what he ruled on before we go to appeal.”

A hearing on the motion is set for June 17.

With the threat of an appeal looming, lawyers for Noble Roman’s have asked the court to require the former franchisees to post what’s known as an appeals bond in the amount of $1.5 million each.

“You have the right to appeal. But because the judge entered a final judgment, we could start the collection now,” Gaither said. “If you post the bond with the trial court, it says we’re not going to let Noble Roman’s seize your bank accounts. But if we win, the assets will be right there immediately for us.”

The franchises had sought more than $8 million in damages against Noble Roman, a sum that could have left Noble Roman’s insolvent had the judge not dismissed their claims.

In recent years, Noble Roman’s has begun concentrating on a take-and-bake concept similar to that of the industry-leading Papa Murphy’s chain. Pizzas in the Noble Roman’s Take-n-Bake P’ZA locations are made to order at room temperature, so customers can cook them at home.

In its latest earnings statement released March 12, Noble Roman’s said it has signed agreements for 55 stand-alone take-and-bake locations. The first of the 22 stand-alone locations operating opened in October 2012.

For the fourth quarter, the franchisor of Noble Roman's Pizza and Tuscano's Italian Style Subs said it earned $496,000, or 3 cents per share, compared with $566,000, or 3 cents per share, in the same period in 2012.

Quarterly revenue was flat, at $1.7 million.

For the entire year, Noble Roman’s earned $2.6 million, or 14 cents per share, compared with $2 million, or 10 cents per share, in 2012.

Annual revenue increased 9.1 percent, to $7.5 million.
 
Shares of Noble Roman’s are thinly traded on the over-the-counter exchange and were priced at $1.40 Thursday morning.
 

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