Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-08-03999/USCOURTS-ca8-08-03999-0/pdf.json

Parties Involved:
Ilitch Holdings, Inc.
Appellee
LC Trademarks, Inc.
Appellee
Little Caesar Enterprises, Inc.
Appellee
Pinnacle Pizza Company, Inc.
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 08-3999

___________

Pinnacle Pizza Company, Inc., a *

South Dakota Corporation, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the 

* District of South Dakota.

Little Caesar Enterprises, Inc., a *

Michigan Corporation; LC Trademarks, *

Inc., a Michigan Corporation; Ilitch *

Holdings, Inc., a Michigan Corporation, *

*

Appellees. *

___________

Submitted: October 22, 2009

Filed: March 22, 2010

___________

Before RILEY, SMITH, and GRUENDER, Circuit Judges.

___________

SMITH, Circuit Judge.

Pinnacle Pizza Company, Inc. ("Pinnacle"), a franchisee, brought suit against

Little Caesar Enterprises, Inc. (LCE), the franchisor, alleging, inter alia, breach of the

corporation's franchise agreement and violation of the South Dakota Franchise Act

(SDFA). Pinnacle also sought to cancel LCE's federal trademark for the phrase "HotN-Ready." LCE counterclaimed, alleging breach of the franchise agreement on the

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The Honorable Karen E. Schreier, United States District Judge for the District

of South Dakota. 

2

LCE is incorporated as a Michigan corporation. 

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part of Pinnacle. The district court1

 granted LCE summary judgment on all claims. On

appeal, Pinnacle argues that the district court erred in granting LCE's motions for

summary judgment. Specifically, Pinnacle argues that the district court erred in

finding that (1) LCE did not breach the franchise agreement; (2) LCE did not violate

the SDFA; (3) LCE did not obtain its federal trademark through fraudulent means; and

(4) Pinnacle did breach the franchise agreement by challenging LCE's trademark

application. We affirm.

I. Background

Pinnacle is a South Dakota corporation formed in 1991 by Jim Fischer and

Mike Nichols to own and operate Little Caesar's pizza franchises in Sioux Falls, South

Dakota. Pinnacle entered into a franchise agreement with LCE, LC Trademarks, Inc.,

and Ilitch Holdings, Inc. for each franchise store.2

 The three franchise agreements are

substantially similar and comprise the contract at issue.

The relevant portion of the franchise agreement governs "Advertising." Section

XII.D states:

Franchise Owner, at its sole expense, may utilize LITTLE CAESAR's

television and radio advertising materials (for its sole benefit or jointly

with other LITTLE CAESAR Franchisees), by dealing directly with

LITTLE CAESAR's advertising agency. LITTLE CAESAR may not use

the original advertising materials created by Franchise Owner without

its prior written consent.

(emphasis added).

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Pinnacle claims its original concept was the phrase "Hot N' Ready." LCE later

obtained a federal trademark for the words "Hot-N-Ready." The phrase is referred to

herein as "Hot-N-Ready."

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The parties dispute the right to use the phrase "Hot-N-Ready" in pizza

restaurant advertising. Pinnacle asserts that Fischer coined the phrase after receiving

inspiration following a LCE convention in Las Vegas. This concept and phrase,

Pinnacle asserts, turned around Pinnacle's and ultimately LCE's economic fortunes.

Pinnacle's stores, consistent with LCE franchise and company stores nationwide,

struggled financially during the mid-1990s. To counter this downturn, Pinnacle, via

Fischer, began a new advertising strategy that guaranteed customers a hot, medium

pepperoni pizza for $4 within five minutes of request every Tuesday. Pinnacle first

advertised this offer on May 7, 1997, in a newspaper advertisement coupled with the

phrase "Hot N' Ready."3

 Pinnacle asserts that the "Hot-N-Ready" concept was

extremely successful and rescued its business.

Pinnacle contends that other LCE franchise stores began to copy the "Hot-NReady" concept after observing Pinnacle's success. Pinnacle avers that LCE breached

the franchise agreement and wrongfully used Pinnacle's "original advertising

materials" without its consent.

LCE, on the other hand, claims that the origin of the "Hot-N-Ready" concept

predates Fischer's asserted inspiration. LCE represents that beginning in 1992, it

encouraged franchisees to hold "Customer Appreciation Days" once per quarter,

during which ready-for-pick-up pizzas were sold at a discounted price. Although not

specifically called "Hot-N-Ready," these promotions embodied the same components

as Pinnacle's later promotion. LCE argues that Fischer derived his "Hot-N-Ready"

concept by adapting portions of sales presentations made by LCE, as well as other

franchisees, that contained components of the concept. 

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Neither party disputes that Fischer and Pinnacle readily shared this "Hot-NReady" concept with other franchisees and in fact encouraged its use by certain

franchisees. Pinnacle neither claimed ownership of the concept when it first shared the

phrase nor restricted those franchisees with whom it shared the idea from further

spreading the phrase. For instance, Scott Stewart, an LCE franchisee, began sharing

"Hot-N-Ready" success stories with LCE and other franchisees in late 1997. Stewart

wrote a September 25, 1997 memorandum to LCE describing the "Hot-N-Ready"

program as "the best local promo we have done in a long time." Subsequently, LCE

distributed Stewart's memo in a booklet of marketing ideas to all franchisees. Stewart

also gave a presentation regarding the "Hot-N-Ready" concept in October 1997 at a

LCE workshop in Nashville, Tennessee.

Following Stewart's presentation, LCE continued to promote the "Hot-NReady" idea to all of its franchisees. By 1999, LCE provided all franchisees with

advertising materials which featured the "Hot-N-Ready" phrase. In June of 2000, LCE

sent franchisees, including Pinnacle, a "Hot-N-Ready" implementation guide. In late

2000, a LCE executive visited Fischer in Sioux Falls and told Fischer that LCE

planned on turning the "Hot-N-Ready" concept into a national program.

The program was unquestionably successful, and according to Pinnacle,

transformed LCE from a company loaded with $200 million in debt into one

brimming with $200 million in assets. In 2002, LCE filed an application with the

United States Patent and Trademark Office (USPTO) to register the phrase "Hot-NReady" as a trademark. In that application, LCE indicated that the date of first use of

the mark was May 6, 1997—the date Pinnacle submitted its first newspaper

advertisement for "Hot-N-Ready" (the advertisement was actually published the

following day). LCE ultimately obtained a federal service mark for "Hot-N-Ready."

Pinnacle filed suit against LCE alleging a variety of claims stemming from

LCE's use of the "Hot-N-Ready" concept. Pinnacle asserted state law claims for (1)

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breach of contract (for violation of the franchise agreement); (2) violation of the

SDFA (because Pinnacle argued that LCE engaged in "unfair and inequitable" conduct

through its use of the "Hot-N-Ready" phrase); (3) breach of fiduciary duty and

confidential relationship; and (4) violation of South Dakota trademark law. Finally,

Pinnacle asserted a federal 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 trademark, Pinnacle breached the franchise agreement.

The district court granted summary judgment in favor of LCE on a number of

Pinnacle's claims. First, the court granted LCE's motion for summary judgment against

Pinnacle's breach of contract claim. The court did so after determining that "original

advertising materials" in the franchise agreement unambiguously refers to only the

tangible advertisements that Pinnacle created, not the underlying concepts or ideas

that such advertisements promote, or the slogans contained in such advertisements that

describe the underlying concepts. 

Because the district court found that LCE did not breach its contract through the

use of the "Hot-N-Ready" phrase, the court also found that LCE did not breach its

obligations under the franchise agreement. Specifically, the district court found that

LCE did not act in an "unfair and inequitable" manner under the SDFA and thus

granted LCE's motion for summary judgment on Pinnacle's claim under the SDFA.

The district court also granted LCE's motion for summary judgment to dismiss

Pinnacle's claim to cancel LCE's trademark application because the court found that

Pinnacle did not set forth any evidence that LCE knowingly made false, material

representations of fact in connection with its attempt to trademark the phrase "Hot-NReady."

Next, the district court awarded LCE nominal damages and denied Pinnacle's

motion for summary judgment to dismiss LCE's counterclaim for breach of contract.

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Although not at issue in this appeal, the district court also granted LCE's

motion for summary judgment to dismiss Pinnacle's breach of fiduciary duty claim,

finding that the parties expressly disclaimed the existence of a fiduciary relationship

and that such a relationship is not created by operation of law. The district court also

granted summary judgment against Pinnacle on its claim under South Dakota

trademark law because this law—to the extent that it is applicable to the conduct

alleged by Pinnacle's claims—cannot extend liability to "extraterritorial conduct" and

Pinnacle did not allege that any of the breaches occurred in South Dakota. Pinnacle

neither challenges the district court's rulings on Pinnacle's breach of fiduciary duty

claim nor its claim for violation of South Dakota trademark law. 

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The district court found that the franchise agreement contained a covenant not to sue

that applies to any contest to the validity or ownership of LCE's proprietary marks,

whether made in good faith or in bad faith. The district court found that the undisputed

facts showed that under these terms, Pinnacle breached the franchise agreement.

Finally, LCE alternatively moved for summary judgment on several of

Pinnacle's claims, asserting that they are barred by the applicable statutes of

limitations. The district court held that LCE's alleged actions constituted a series of

repeated breaches and that any breaches of contract or the SDFA occurring within the

limitations period are actionable. Thus, assuming arguendo that LCE did breach the

franchise agreement, the district court held that any such breach after October 25,

1998, would be a valid claim. 

II. Discussion

On appeal,4

 Pinnacle argues that the district court erred in finding that (1) LCE

did not breach the franchise agreement; (2) LCE did not violate the SDFA; (3) LCE

did not obtain its federal trademark through fraudulent means; and (4) Pinnacle did

breach the franchise agreement by challenging LCE's trademark application. Because

all issues involve the granting or denying of summary judgment, we review the district

court's rulings de novo, applying the same standard as the district court. Mehrkens v.

Blank, 556 F.3d 865, 868 (8th Cir. 2009).

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The district court completed a thorough analysis on this choice-of-law issue,

which neither party disputes. We therefore accept the district court's conclusion that

Michigan law must govern the timing of any alleged breach.

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A. Statutes of Limitations

1. Breach of Contract

We choose to first address a relevant and raised threshold question before

reviewing Pinnacle's specific appellate claims: Do the applicable statutes of

limitations bar Pinnacle from making claims for either breach of contract or breach of

the SDFA? More specifically, did LCE's alleged improper use of the phrase "Hot-NReady" give rise to multiple actionable breaches, or did LCE's alleged improper use

consist of one continuing breach that began prior to October 25, 1998? If multiple

breaches occurred, the statute of limitations would not bar all of Pinnacle's claims. But

one continuing breach occurring prior to October 25, 1998, would not reset the statute

with each subsequent use of "Hot-N-Ready" and would therefore time-bar all of

Pinnacle's claims in this case.

"A federal court exercising diversity jurisdiction is required to apply the law of

the forum when ruling on statutes of limitations." Nettles v. Am. Tel. & Tel. Co., 55

F.3d 1358, 1362 (8th Cir. 1995). The forum state in this case, South Dakota, regards

statutes of limitations as procedural. Lyons v. Lederle Labs., 440 N.W.2d 769, 770

(S.D. 1989). Therefore we must apply the South Dakota statute of limitations in

resolving this case. Nettles, 55 F.3d at 1362. Under South Dakota law, the statute of

limitations for Pinnacle's breach of contract claim is six years. S.D. Codified Laws

§ 15-2-13(1). However, because the contract claim itself is governed by Michigan law,

we must analyze the timing of the alleged breach using Michigan law. See Pinnacle

Pizza Co., Inc. v. Little Caesar Enterprises, Inc., 395 F. Supp. 2d 891, 897–98 (D.S.D.

2005).5

 Therefore, the statute of limitations was six years pursuant to South Dakota

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Michigan law also establishes a six-year statute of limitations for breach of

contract claims. Mich. Comp. Laws § 600.5807(8).

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law, and the timing of the alleged breach will be analyzed using Michigan law.6

 Under

Michigan law, a breach of contract claim accrues when the breach occurs—even if the

plaintiff is unaware of the breach. Mich. Comp. Laws § 600.5827; Harris v. City of

Allen Park, 483 N.W.2d 434, 436 (Mich. Ct. App. 1992). Pinnacle filed its original

complaint on October 25, 2004, and therefore to advance this case, there must be an

actionable breach within six years of that filing, that is, subsequent to October 25,

1998. 

Several facts surrounding the birth of the "Hot-N-Ready" concept are not in

dispute. Fischer first used the phrase "Hot-N-Ready" promoting his store in radio and

newspaper advertisements on May 7, 1997. Fischer then shared the idea of "Hot-NReady" with fellow franchisees Stewart and Derek Kothe. Later that year, LCE held

a series of regional workshops. In preparation for these workshops, LCE asked

franchisees to share information about successful sales promotions. On September 25,

1997, Stewart wrote a memo to LCE describing a promotion in which he "sell[s] the

12[-inch] pepperoni pizza for $4.00. . . . We call it the Hot and Ready. We guarantee

it ready in 5 minutes or the first 2 are Free." This memo was included in a booklet

containing marketing ideas that was mailed to every LCE franchisee and distributed

to all LCE franchisees at the workshops. On October 2 or 3, 1997, Stewart made a

presentation on the "Hot-N-Ready" concept to approximately 150 franchisees at a

Nashville, Tennessee workshop. 

LCE thereafter began actively marketing the "Hot-N-Ready" concept to its

franchisees. LCE produced a marketing presentation that included a slide containing

the phrase "Hot and Ready $4 Medium Pepperoni Pizza." LCE conducted workshops

for franchisees containing this presentation and slide throughout 1997 and 1998.

During this time, as part of its regular business practice, LCE also conducted regular

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For purposes of the analysis in this section, and this section only, we will

assume that LCE did in fact breach the franchise agreement when it used the phrase

"Hot-N-Ready."

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in-store visits to monitor various franchisees . LCE produced evidence of nine letters

sent to different LCE franchisees between October 15, 1997, and September 15, 1998,

summarizing its visit to each franchisee. These letters show that, at that time, LCE

encouraged these franchisees to either begin using or continue using the "Hot-NReady" concept in their store marketing and advertising. For example, on October 15,

1997, Jim Dexter, a LCE franchise coordinator for the West region, wrote a letter to

a Bismarck, North Dakota franchisee, remarking, "As we discussed, consider trying

the Tuesday night Hot-N-Ready. I think a majority of your stores are . . . capable of

jumping right into this." On December 10, 1997, Joedy Coleman, LCE director of

operations for the Midwest region, documented in a letter to a Tallahassee franchisee

that "[y]ou are trying 'Shaker Boards' and 'Hot and Ready' with some success, this will

help with attracting attention to the stores. . . . Make this a weekly event. . . ." Joe

Gaitan, also a franchise coordinator for the West region, suggested in a letter dated

June 26, 1998, that if a Washington state franchisee would "give the Hot-n-Ready

Tuesday a try it will help increase sales on the slower days of the week." 

Pinnacle does not dispute that LCE first used the phrase "Hot-N-Ready" prior

to October 25, 1998, and that the examples cited above would constitute a breach of

the franchise agreement under Pinnacle's theory. Rather, Pinnacle asserts that the

contractual duty set forth in the franchise agreement is a continuing duty, and

therefore even if it was first breached prior to October 25, 1998, each subsequent use

of the "original advertising materials" resulted in a separate and actionable breach for

purposes of the statute of limitations. LCE, meanwhile, claims the accrual date for the

single, continuing breach of the franchise agreement occurred sometime before

October 25, 1998.7

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Pinnacle relies upon H.J. Tucker & Associates, Inc. v. Allied Chucker &

Engineering Co. to support its theory that repeated breaches of a contract can give rise

to separate claims for each breach. In Tucker, the plaintiff sought damages from

nonpayment of certain commissions due under contract. 595 N.W.2d 176, 179 (Mich.

Ct. App. 1999). The contract called for the plaintiff to receive a commission each time

he referred potential customers to the defendant. Id. The plaintiff sought payment for

commissions generated from each of the referrals—some occurring outside of the

limitations period and some within the limitations period. Id. at 180. The court

concluded that an employment contract that paid a commission-based salary was

periodic in nature and that the defendant's continuing non-payment constituted

multiple, independent breaches of contract. Id. In holding that the plaintiff could

recover for breaches inside the limitations period but not for breaches outside of it, the

court stated that 

[a]lthough defendant asserts that plaintiff's claim accrued in 1986, more

than six years before plaintiff filed its complaint, and thus the entire

breach of contract action was time-barred, we conclude that claims for

payments due under the contract between the parties are analogous to

claims for payments under an installment contract, claims for alimony

payments, or claims for monthly pension payments, all of which accrue

as each payment becomes due. In the present case, the commissions

earned by plaintiff were separately computed, were to be paid monthly,

and were of a periodic nature. 

Id. (internal citations omitted). The court was then able to separately compute the

damages the plaintiff suffered from the contract breaches both inside and outside of

the limitations period and compensate him accordingly. Id. 

Other Michigan courts have similarly held that only contracts that create duties

occurring and resetting monthly are analogous to installment contracts and can

constitute separate breaches. In Lube USA Inc. v. Michigan Manufacturers Service

Inc., a manufacturer entered into a contract with a distributor, in which the distributor

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would be the exclusive distributor for the manufacturer's products. No. 07-cv-14284,

2009 WL 2777332 at *1 (E.D. Mich. Aug. 27, 2009) (slip op.). The manufacturer then

made direct sales in violation of the contract, and with evidence of multiple examples

of such direct sales, when the first breach occurred was an issue in the case. Id. The

court held that the statute of limitations barred all of the distributor's claims because

[t]he pivotal date for statute of limitations purposes is the date of the

breach, and later transactions that [the distributor] may point to are not

sufficient to restart the limitations period. This contract does not fall

within the narrow species of contract which permit discrete independent

breaches to reset the statute of limitations. 

Id. at *7 (internal citations omitted). The Lube court also pointed out that the

distributor was aware of the manufacturer's breach well before the start of the

limitations period. Id.

A Michigan statute-of-limitations case not involving installment contracts is

Proctor & Schwartz, Inc. v. U.S. Equipment Co., 624 F.2d 771 (6th Cir. 1980). In

Proctor & Schwartz, a company contracted with a business to install a machine and

all necessary safety parts. Id. at 772. Two years later a person was injured because a

necessary safety device was not installed. Id. The court rejected the breach of contract

claim under the statute of limitations. Id. at 773. The court found that the original

breach occurred when the company installed the machine without the required safety

devices and that it was not a repeated breach for every day that the safety device was

not installed. Id. Key language comes in a footnote, in which the court declined to

extend a "continuing wrong" theory to contract cases: 

Michigan courts have found certain acts, such as trespass and nuisance,

were continuing wrongs, but we find no authority for treating a breach

of contract in the same manner. M.S.A. § 27A.5827, M.C.L.A

§ 600.5827 (1968) provides: 

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We note that this case, coincidentally, involves the "Hot 'N Now" restaurant

chain.

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Except as otherwise expressly provided, the period of

limitations runs from the time the claim accrues.

Id. at n.3 (internal citation omitted).

Michigan courts further defined that state's notion of a continuing wrong in

Blazer Foods, Inc. v. Restaurant Properties, Inc., 673 N.W.2d 805 (Mich. Ct. App.

2003). In Blazer,

8

 a franchisee sued the franchisor, claiming that the franchisor failed

to provide adequate training, delayed site approval, and improperly changed menu

items. Id. at 808. The franchisor's first failure came outside the limitations period, but

the parties continued a relationship, and the franchisor continued to neglect to fulfill

its duties under the contract. Id. The franchisee claimed that the franchisor's

"continuing wrong" extended the limitations period. Id. at 809. The court rejected this

theory, noting that there are "no cases extending the continuing wrong . . . theor[y] to

a situation in which a party to a contract fails to perform adequately under the

contract." Id. at 812. Blazer also interpreted Tucker, noting that

the H[.]J[.] Tucker Court made clear that each improper payment at

issue in H[.]J[.] Tucker constituted a separate breach that was not tied

to earlier breaches falling outside the limitations period. The Court

essentially found that there were repeated breaches that gave rise to

separate claims of breach of contract, each of which arose, accrued, and

became extinguished separately. The plaintiff could recover only for

those breaches occurring within the limitations period.

Id. at 811 (internal citations omitted). 

Here, Pinnacle claims that LCE made repeated breaches and that any breach

inside the limitations period (but not breaches outside the period) is actionable—the

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exact argument that the Blazer court did not consider. The district court considered

Pinnacle's argument and ruled that every LCE use of the phrase "Hot-N-Ready"

constituted an individual breach, meaning that those within the statute of limitations

are thus actionable. However, upon review, we conclude that Pinnacle's breach-ofcontract claims are more analogous to the claims in Blazer than the installment claims

in Tucker. We note that Pinnacle is not claiming that events outside the limitations

period should be saved by the "continuing wrong" theory. 

In the present case, for Pinnacle's reliance on Tucker to be effective, we must

conclude that the franchise agreement is analogous to an installment contract. We do

not. We hold that franchise agreements restricting a franchisor from using a

franchisee's "original advertising materials" are materially different from an

installment or commission contract, and Tucker is thus distinguishable. In Tucker, the

plaintiff sought payment for a series of individual and discrete referrals. Unlike the

computations the court was able to complete in Tucker, it would be wholly

impracticable to separately compute damages for each breach by LCE, as the

advertising campaign by LCE was ultimately ubiquitous and national in nature. 

Additionally, in Tucker the defendant's multiple breaches had no relation to one

another. Here, LCE first used "Hot-N-Ready" in 1997 and then continued to use the

phrase with no interruption. LCE never changed its position with regard to Pinnacle

during the period in question, and the entire breach is related to the single phrase,

"Hot-N-Ready." Therefore, the alleged "breaches" are all related to the single use of

the phrase. Unlike an installment contract, which pays fees that are calculated and

reset periodically, and therefore creates a duty that is reset periodically, LCE owed

one relevant duty toward Pinnacle—do not use the "original advertising materials"

created by Pinnacle. Once breached, nothing reset this duty. Tucker and the

installment contract cases like it involve separate and distinct duties for each

installment and separate breaches for which specific recovery may be calculated. LCE

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had one duty. Each subsequent use of "Hot-N-Ready" is merely more evidence of the

original breach but not a new, distinct breach. 

Here, as in Lube, Pinnacle was aware that LCE was using the phrase "Hot-NReady" before October 25, 1998. LCE never cured its breach and never made a

separate, material breach of the contract apart from its use of "Hot-N-Ready" that

would give rise to a new cause of action. LCE did not use any "original advertising

materials" other than "Hot-N-Ready" and never indicated to Pinnacle that it would

cease using the phrase once it learned of the phrase's existence. We thus conclude that

if LCE breached the franchise agreement, it did so once—the first time LCE

appropriated "Hot-N-Ready." Pinnacle's action for breach of contract, therefore,

accrued when LCE allegedly materially breached the contract. This breach would have

occurred before October 25, 1998. "'The fabric of the relationship once rent is not torn

anew with each added use or disclosure, although the damage suffered may thereby

be aggravated.'" Shatterproof Glass Corp. v. Guardian Glass Co., 322 F. Supp. 854,

870 (E.D. Mich. 1970) (quoting Monolith Portland Midwest Co. v. Kaiser Aluminum

& Chem. Corp., 407 F.2d 288, 293 (9th Cir. 1969)). "'The cause of action arises but

once. . . .'" Id.

We find that recovery for repeated breaches is only appropriate in specific

circumstances not present in this case. We therefore hold that if LCE breached the

contract, it made a single breach of the franchise agreement in 1997. Pinnacle's breach

of contract claims are thus time-barred.

2. South Dakota Franchise Act

The SDFA does not include a statute of limitations provision. Therefore, we

will apply the six-year period provided in South Dakota Codified Laws § 15-2-13(2),

as this is an "action upon a liability created by statute other than a penalty or

forfeiture. . . ." Pinnacle's SDFA claim is premised on the same facts as its contract

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claim, and thus, for the same reasons discussed in Section II.A.1, Pinnacle's claim

under the SDFA is also barred by the applicable statute of limitations. 

B. LCE's Federal Trademark

Because we find that Pinnacle's breach-of-contract claims run afoul of the

statute of limitations and that its SDFA claim accrued more than six years from the

time of LCE's alleged breach, we need not decide whether LCE actually breached the

franchise agreement or violated the SDFA. We must, however, consider Pinnacle's

other issues on appeal. 

Pinnacle seeks to cancel LCE's trademark on the phrase "Hot-N-Ready,"

asserting that the trademark was registered in bad faith. Pinnacle argues that LCE's

admission that it used the same date on which Pinnacle first employed the phrase in

LCE's trademark registration application shows fraud. Now, on appeal, Pinnacle also

asserts that even without a showing of bad faith, Pinnacle has the power to cancel the

trademark because Pinnacle has shown evidence of LCE's inequitable conduct under

the franchise agreement. Pinnacle alternatively argues that irrespective of its rights to

cancel the mark, the issue should not have been decided on summary judgment

because LCE's intent was at issue, and summary judgment is not appropriate to

resolve issues involving intent.

LCE responds that Pinnacle has not met the high standard required to

demonstrate fraud and bad faith. LCE contends that it properly used the date because

federal law and the franchise agreement establish that LCE owned the phrase on the

date of use by a franchisee. LCE also submits that Pinnacle did not meet its burden to

bring forward evidence of fraudulent intent to avoid summary judgment. 

Pinnacle relies primarily on LCE's use of May 6, 1997, as the date of its first

use of the phrase in its trademark application. This date also happens to be the date

that Pinnacle first used the phrase. Pinnacle alleges that this proves that LCE

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registered the mark in bad faith. A petition to cancel a registration for a federal

trademark may be filed "[a]t any time if the registered mark['s] . . . registration was

obtained fraudulently. . . ." 15 U.S.C. § 1064(3). "Cancellation [of a fraudulently

procured trademark registration] is a discretionary matter for the district court."

Gilbert/Robinson, Inc. v. Carrie Beverage-Mo., Inc., 989 F.2d 985, 993 (8th Cir.

1993). But to succeed in its trademark cancellation claim, Pinnacle must prove fraud

on the part of LCE by clear and convincing evidence. Allen Homes, Inc. v. Weersing,

510 F.2d 360, 362 (8th Cir. 1975). 

The franchise agreement, however, expressly authorizes LCE's actions. LCE's

acts were not deceptive but instead were open and consistent with the contract entered

into by LCE and Pinnacle. According to the franchise agreement, the rights in the

"Hot-N-Ready" phrase and the goodwill that inures as a result of the use of the phrase

became the property of LCE upon its use by the franchisee. Section V.B of the

franchise agreement states:

Franchise Owner expressly acknowledges that any and all goodwill

associated with said Proprietary Marks, including any goodwill which

might be deemed to have arisen or to arise in the future through the

activities of any Licensee of LITTLE CAESAR, inures directly and

exclusively to the benefit of LITTLE CAESAR.

In turn, 15 U.S.C. § 1055 provides:

Where a registered mark or a mark sought to be registered is or may be

used legitimately by related companies, such use shall inure to the

benefit of the registrant or applicant for registration, and such use shall

not affect the validity of such mark or of its registration, provided such

mark is not used in such manner as to deceive the public.

When read in combination, § 1055 and the franchise agreement indicate that

LCE's use of May 6, 1997—the date of first use by Pinnacle—on LCE's trademark

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application is not fraudulent or unreasonable. The relevant sections make clear that

use of such marks inure to LCE upon Pinnacle's use. Thus, LCE had reason to believe,

notwithstanding Pinnacle's assertions to the contrary, that it could properly trademark

the phrase "Hot-N-Ready." Pinnacle presented no other evidence to show bad faith on

LCE's part. 

Pinnacle alternatively argues that it has broad rights under the Lanham Act,

specifically 15 U.S.C. § 1065, which provides that an application to cancel a

trademark may be filed when "the use of a mark registered on the principal register

infringes a valid right acquired under the law of any State." However, Pinnacle did not

present this argument below. Count VIII of Pinnacle's Second Amended Complaint,

the only count involving trademark cancellation, states that "LCE . . . illegitimately

obtained registered rights to this mark by negotiating in bad faith to acquire the

registration of the mark . . . . " The same count states that "LCE has . . . acquired in

bad faith the rights to a federally registered mark despite knowing that [Pinnacle] has

senior rights based on first use and a contractual property right, both of which impedes

a good faith acquisition of the mark." Pinnacle's complaint reflects that the district

court examined only an argument that LCE obtained the trademark in bad

faith."Ordinarily, we do not consider an argument raised for the first time on appeal."

Orr v. Wal-Mart Stores, Inc., 297 F.3d 720, 725 (8th Cir. 2002).

Finally, Pinnacle argues that its trademark cancellation claim should survive

summary judgment because the district court was required to make a determination

of LCE's intent when it submitted its trademark application. Pinnacle is correct that

"[s]ummary judgment is notoriously inappropriate for determination of claims in

which issues of intent, good faith and other subjective feelings play dominant roles."

Pfizer, Inc. v. Int'l Rectifier Corp., 538 F.2d 180, 185 (8th Cir. 1976). However, in this

case, "[t]he party seeking cancellation for fraudulent procurement 'must prove the

alleged fraud by clear and convincing evidence.'" 3M Co. v. Intertape Polymer Group,

Inc., 423 F. Supp. 2d 958, 962 (D. Minn. 2006) (quoting L.D. Kichler Co. v. Davoil,

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Inc., 192 F.3d 1349, 1351 (Fed. Cir. 1999)). "[D]isposition by summary judgment

may still be appropriate if the party in opposition to the motion has adduced no

evidence whatsoever of the requisite intent to defraud." Demerath Land Co. v. Sparr,

48 F.3d 353, 355 (8th Cir. 1995). "The mere labelling [sic] of [LCE's] representations

as fraudulent does not make them so without some evidence to support that assertion."

Id.

Pinnacle failed to show any evidence of LCE's alleged fraudulent intent beyond

its own assertions. Viewing the facts in the light most favorable to Pinnacle, LCE

knew Pinnacle believed that it had rights to the phrase "Hot-N-Ready" when LCE

submitted its trademark application. This fact alone, however, is not sufficient to show

bad faith, and Pinnacle has shown no more. The franchise agreement and relevant

statute vested in LCE rights to the phrase upon Pinnacle's use. We conclude that

Pinnacle can prove no fraud in LCE's trademark application.

We hold that the district court did not err in denying Pinnacle's claim for

cancellation of LCE's federal trademark. 

C. Pinnacle's Breach of the Franchise Agreement

In its final argument, Pinnacle asserts that the district court erred in granting

LCE's motion for summary judgment in its counterclaim that Pinnacle breached

§ V.A.2 of the franchise agreement. Pinnacle argues that the district court was wrong

to conclude that LCE owns the trademark to "Hot-N-Ready." Alternatively, Pinnacle

contends that § V.A.2 violates § 66 of the South Dakota Franchise Act and is

unenforceable. 

Section V.A.2 of the franchise agreement provides: 

Franchise Owner expressly covenants that during the term of this

Agreement, and after the termination or expiration thereof, the Franchise

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Section 66 has been replaced in part by South Dakota Codified Laws § 37-5B41. However, § 66(7) was repealed in its entirety.

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Owner shall not directly or indirectly contest or aid in contesting and/or

consent to a third party contesting the validity or ownership of said

Proprietary Marks. 

As we held in Section II.B, LCE owns the proprietary mark "Hot-N-Ready,"

even if the phrase was first used by a franchisee. Pinnacle contested the validity and

ownership of the "Hot-N-Ready" concept by filing a lawsuit challenging LCE's rights

to the mark. Pinnacle also sought the cancellation of LCE's trademark with the

USPTO. Pinnacle asserts that its actions did not trigger the covenant not to sue

because it brought the lawsuit against LCE in good faith. However, Pinnacle points

to no provision in the franchise agreement or anything in Michigan law that implies

a good-faith exception to the covenant not to sue. The express terms of the franchise

agreement apply to any contest to the validity or ownership of LCE's proprietary

marks.

Finally, Pinnacle asserts that LCE's action in bringing this claim constitutes an

"unfair or inequitable" practice under South Dakota Codified Laws § 37-5A-66(7)

(repealed 2008). This section allowed the state to issue a cease and desist order to a

franchisor if the franchise agreement contains a term that "is or would be unfair or

inequitable to franchisees."9

 Pinnacle has provided no authority to suggest that it is

unfair or inequitable for a franchisor to exercise its rights under a mutually agreed

upon covenant not to sue. We therefore reject Pinnacle's final argument and hold that

LCE was entitled to summary judgment on its counterclaim for breach of contract. 

III. Conclusion 

Accordingly, we affirm the judgment of the district court.

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