Noble Roman's wins latest round in fight with franchisees

August 29, 2009

A group of former franchisees of Noble Roman’s Inc. has hired a new attorney to represent them in a case against the chain after a Hamilton County judge tossed their old lawyer.

The case—which pits 14 former franchisees of dual-branded Noble Roman’s Pizza and Tuscano’s Italian Style Subs against the locally based chain that sold the franchises—came to a virtual standstill for three months after Judge Steven R. Nation on March 31 revoked temporary admission for David M. Duree of Illinois. Duree had notarized statements from franchisees who were not in his presence, as required by law.

The decision was a victory for Noble Roman’s, which had attacked Duree in court filings as shady and unethical. Duree, notorious for taking on Subway parent Doctors Associates Inc., had argued that Noble Roman’s acted in “bad faith.”

The new attorney for the former franchisees, P. Adam Davis of locally based Davis & Sarbinoff LLP, now plans to file another lawsuit, this time against Duree to recover part of a retainer the franchisees paid him. Davis made his first appearance in the Noble Roman’s case in July.

The franchisees say Noble Roman’s misled them about the costs and profit potential of operating its stand-alone restaurants. The former franchise locations, in several states including Kentucky, Missouri and California, have since closed.

Davis said he has spoken to at least 10 more franchisees that closed their restaurants and now are eager to join the case. The franchises are seeking at least $8 million—about 70 percent of the company’s total stock market value.

“The franchisees were misled into buying a concept that was not sufficiently tested,” he said. “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.”

In an e-mail, Noble Roman’s President A. Scott Mobley said the accusations are baseless.

“As we have stated from the beginning, the company believes the case to be without merit, and believes it will receive a favorable disposition,” Mobley wrote.

The chain has claimed in court that 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.

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

The company lately has been shifting its focus back toward adding nontraditional locations with lower startup costs and overhead such as convenience stores, bowling alleys and hospitals.

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 44 states.

The suit poses a serious risk to Noble Roman’s, which has $7.5 million in debt and whose shares recently traded for 53 cents apiece. Without a victory in court or a favorable settlement, the company could face insolvency.

The next hearing in the case is scheduled for Sept. 2.•


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