UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

SOUTH BEND DIVISION

ARCANGELO, INC. and 

BUYING POWER UNITED, LLC, )

)

Plaintiffs, )

)

v. ) 3:13CV104-PPS/CAN

)

DIRECTBUY, INC. and )

TRIVEST PARTNERS, LP, )

)

Defendants. )

OPINION AND ORDER

Defendant DirectBuy is a franchisor of members-only buying club franchises, from which

members can buy home and office furnishings and other products. The plaintiffs in this would-be

class action are ArcAngelo and Buying Power United, both of whom are franchisees of Direct

Buy. For the sake of simplicity I will refer only to ArcAngelo in this opinion. ArcAngelo

believes that over a period of years DirectBuy charged the franchisees more for advertising and

marketing than the Franchise Agreement allowed. In addition to DirectBuy, Trivest Partners, LP,

is also named as a defendant. Trivest, LP is alleged to control Trivest Fund IV, LP, the company

that acquired a controlling interest in DirectBuy in late 2007. The complaint contains a number

of causes of action, including breach of contract and of the duty of good faith, tortious

interference with the Franchise Agreements, criminal conversion, unjust enrichment, and breach

of fiduciary duty, and also seeks a declaratory judgment that certain provision of the Franchise

Agreements are void and unenforceable. DirectBuy and Trivest have filed a motion to dismiss

the complaint under Fed.R.Civ.P. 12(b)(6).
The Supreme Court interpreted the Rule 12(b)(6) pleading standard in Bell Atlantic Corp.

v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). To survive a

motion to dismiss under that standard, a complaint must “state a claim to relief that is plausible

on its face,” which in turn requires factual allegations sufficient to permit a reasonable inference

that the defendant is liable for the misconduct alleged. Twombly, 550 U.S. 570, 556. Where

even the well-pleaded facts do not plausibly support an entitlement to relief on the legal theory

identified, a claim is subject to dismissal. Bonte v. U.S. Bank, N.A., 624 F.3d 461, 466 (7th Cir.

2010). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it

‘stops short of the line between possibility and plausibility of entitlement to relief.’” Iqbal, 556

U.S. at 678 (quoting Twombly, 550 U.S. at 557). 

Breach of Contract - Count I

Count I is a contract claim which DirectBuy argues is subject to dismissal because it is

based on a flawed reading of the Franchise Agreement. [DE 32 at 8.] Because I conclude that the

relevant contract provisions are not so clear and unambiguous as DirectBuy and Trivest contend,

this argument does not support dismissal.

 ArcAngelo alleges that “Paragraph 3.03 of the DirectBuy Franchise Agreements limits

DirectBuy’s right to charge Franchisees for national marketing and advertising to a maximum of

3% of annual gross new membership sales (the ‘3% Cap’).” [DE 1 at ¶3.] The language

ArcAngelo relies on reads as follows:

3.03 Marketing and Legislative Fund Contributions. You agree to contribute

(at such times as we may designate from time to time) to the Marketing and

Legislative Fund $1,000 during each of our fiscal years, except that you are not

required to make any contributions during the first 12 months in which you

operate your Center. We have the right from time to time to increase the amount

you are required to contribute to the Marketing and Legislative Fund, provided we

may not increase the amount of your contributions to more than 3% of the gross

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amounts you charge for new memberships (including renewal option fees, but

excluding renewal fees). 

[DE 1-1 at 10.] ArcAngelo contends that “Franchisee contributions to fund the creation,

development, and placement of marketing, advertising and related programs are expressly

capped” by the 3% limitation in §3.03, but that DirectBuy breached that limitation by

implementing “a marketing and advertising program that drastically exceeded the mutuallyagreed upon 3% Cap.” [DE 1 at ¶¶27, 29.] 

Section 7 of the agreement also deals with the concept of “Marketing and Advertising.”

Here’s what it says, in pertinent part: “[DirectBuy] may, in our sole discretion, establish and

administer a fund (“the Marketing and Legislative Fund”) for the creation and development of

marketing, advertising, and related programs and/or legislative, legal and regulatory defense

programs relating to buyer clubs and other laws and regulations that affect DirectBuy centers.”

[DE 1-1 at 19.] Section 7.01 goes on to explain that DirectBuy “will have sole discretion over all

aspects of programs financed by the Marketing and Legislative Fund, including creative

concepts, media, materials and endorsements of marketing and advertising programs,” and that

DirectBuy cannot assure franchisees “that any particular DirectBuy center will benefit directly or

pro-rata from the placement of advertising.” [Id. at 20.] The Fund “may be used to pay for the

cost of preparing and producing marketing and advertising materials and programs we select,

including television and Internet media (such as Web sites), video, audio and written advertising

materials,” and DirectBuy “may furnish [franchisees] with marketing, advertising and

promotional materials at cost, plus any related administrative, shipping, handling and storage

charges.” [Id.] 

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There is yet another section of the Franchise Agreement which deals with “Marketing

Materials” – that is §4.04. That section provides that the franchisees “agree to execute such

agreements as we may require to protect our interests in connection with any Marketing Materials

and to pay such reasonable charges for Marketing Materials as we may assess from time to time.”

[DE 1-1 at 13.] Section 4.04 defines “Marketing Materials” as “sales and marketing tools and

materials as [DirectBuy], from time to time, develop[s] and use[s] for DirectBuy Centers, such as

infomercials, Internet marketing tools (e.g., member marketing websites), sales videotapes and

sales materials.” 

The definitional language in §4.04 and §7.01 is overlapping in that both sections refer to

marketing and advertising materials, including websites and video. DirectBuy unpersuasively

suggests that the language of the two provisions clearly indicates that costs associated with the

placement of advertising, as opposed to the creation and development of advertising, fall only

within the ambit of §4.04. The problem with this reading is that §7.01 refers to “the placement of

advertising” and §4.04 does not, so the division of the costs associated with the different

functions is not so clear as DirectBuy insists. The overlap in the two provisions hardly

constitutes the kind of “unambiguous terms of the Franchise Agreement” that DirectBuy blithely

insists create a clear distinction that defeats ArcAngelo’s reading of the contract.

At this stage of the case, I can’t make a definitive interpretation of these interrelated

contractual provisions and their application to the disputed charges. DirectBuy raises a question

about whether the Marketing and Legislative Fund ever actually existed, but the allegations of the

complaint plausibly suggest that it did, and any fact dispute cannot be resolved on a motion to

dismiss. In any event, the fundamental question to be answered in this case is whether the

charges that ArcAngelo complains of were assessed as contributions to the Marketing and

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Legislative Fund (under §3.03 and §7.01) or were they assessed as charges for Marketing

Materials (under §4.04)? Or were they imposed as fees of some other kind altogether? What

ArcAngelo characterizes as charges for national marketing and advertising programs subject to

the 3% cap, DirectBuy characterizes as charges for “sales leads” that are governed by §4.04 and

not subject to any cap (except for reasonableness). [DE 32 at 1.] To get to the bottom of the

disagreement about the disputed charges, a number of subsidiary questions need to be resolved.

These involve factual determinations that cannot be made at this time. The complaint’s

allegations are sufficient to permit a reasonable inference that DirectBuy and Trivest are liable for

breach of the Franchise Agreement. 

DirectBuy also suggests that ArcAngelo’s reading of the agreement is defeated by the

contrary determination of a Pennsylvania bankruptcy court. See In re Trinity Innovative

Enterprises, LLC, Case No. 09-20579-REF (Bankr.E.D.Penn. 2009). [DE 32-1 and 32-2.]

Trinity is cited as persuasive authority. Of course, it has no preclusive effect because neither of

the plaintiffs in this case were parties to that proceeding. But more importantly, the bankruptcy

judge’s determinations in Trinity involved factual findings based on an evidentiary hearing and

record that included evidence concerning the history of the Marketing and Legislative Fund, the

practices and methods for DirectBuy’s assessment of fees to its franchisees generally and its

history with the franchisee in that case. [DE 32-1 & 32-2.] 

The procedural posture of the Trinity case demonstrates why I must deny DirectBuy’s

motion to dismiss. The bankruptcy judge in Pennsylvania had the benefit of full factual record

before him; I have no such factual record before me at this point. ArcAngelo argues that Trinity

was wrongly decided, but at this point that is neither here nor there. When and if this case

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reaches a similar stage, I will give Judge Fehling’s analysis the consideration appropriate for such

non-controlling authority.

Breach of Duty of Good Faith - Count I

Count I of the complaint also asserts a breach by DirectBuy of a duty of good faith.

DirectBuy argues that the governing law of Indiana does not recognize the existence of such a

duty associated with the Franchise Agreement at issue here. Under Indiana law, a duty of good

faith and fair dealing is implied only in certain kinds of contracts, such as insurance contracts,

employment contracts, contracts under the Uniform Commercial Code as adopted in Indiana, and

contracts that are “ambiguous as to the application of the covenants.” Coates v. Heat Wagons,

Inc., 942 N.E.2d 905, 918 (Ind. App. 2011). 

Only the last of these four possibilities might apply here. Coates relied on First Federal

Savings Bank of Indiana v. Key Markets, Inc., 559 N.E.2d 600 (Ind. 1990). First Federal

generally affirms the observation that Indiana law does not imply a duty of good faith in every

contract. Id. at 604. In First Federal, the Indiana Supreme Court explored the general principles

of contract construction and did not actually address whether and when to infer a duty of good

faith in a contract. Instead, the Court said only that in interpreting an ambiguous contract, “the

court may be required to presume the parties were acting reasonably and in good faith to discern

the intention of the parties and resolve the ambiguity or uncertainty.” First Federal, 559 N.E.2d

at 604. At bottom, First Federal is not a case about when to infer a general duty of good faith

and fair dealing in a contract. Instead, its reference to “good faith” arises in a discussion about

how to approach issues of contract construction generally, and is applied in a context where the

Supreme Court actually decided that the lower courts had wrongly construed a lease to impliedly

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require reasonableness in the landlord’s withholding of consent to a lease assignment.1

ArcAngelo cannot cite a case in which a duty of good faith and fair dealing was found to be

implied in a contract on the basis of the sort of ambiguity referenced in First Federal or the

dictum in Coates. 

But even if I consider Indiana law to imply an overall duty of good faith in a contract that 

is ambiguous as to whether it contains such a duty, I would not find such an implied duty here.

This is because the DirectBuy Franchise Agreement states the exact opposite in §18.10: “If

applicable law shall imply a covenant of good faith and fair dealing in this Agreement, the parties

agree that such covenant shall not imply any rights or obligations that are inconsistent with a fair

construction of the terms of this Agreement.” [DE 1-1 at 37.] The clause goes on to express four

further attempts to limit the impact of any such implied duty, by staking out DirectBuy’s ability

to use its discretion in its own interest in the absence of bad faith. [Id.] The language of §18.10

clearly is inconsistent with any express assumption of a duty of good faith, and is not ambiguous

about whether such a duty is to apply. 

Because Indiana law provides no basis for an implied duty of good faith attaching to the

parties’ Franchise Agreements, that portion of Count I asserting a breach of such a duty is not

plausible and is subject to dismissal for failure to state a claim.

Both parties treat Count I as if it also contains a third distinct claim of constructive

termination of the franchises, based on the allegation that the fees in excess of the applicable 3%

cap so significantly impacted the franchises’ net income as to result in a de facto termination of

 1 Judge Hamilton, previously of the Southern District of Indiana, appears to have interpreted

First Federal as I do, at most to support (where appropriate) “turn[ing] to an implied duty of

good faith and fair dealing to help interpret [a] contract,” but not to “support an independent tort

claim.” Ball v. Versar, Inc., 2002 WL 33964449, *7 (S.D.Ind. Sept. 6, 2002) [Hamilton, J.]. 

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the franchises. Count I’s heading does not identify it in that manner, referencing only breach of

contract and breach of the duty of good faith. As just discussed, the latter claim is being

dismissed. To the extent the constructive termination is alleged to constitute a breach of the

Franchise Agreements, it survives this motion to dismiss for the reasons already explained. To

the extent the constructive termination is intended as a separate cause of action, DirectBuy’s

challenge to that theory was not articulated until its reply. [DE 46 at 10.] The issue whether

Indiana law recognizes such a claim has not been adequately briefed and will not be decided here.

Tortious Interference with Contract - Count II

Count II is a claim against Trivest for tortious interference with contract, the contract

being the DirectBuy Franchise Agreements. The theory is that after Trivest’s acquisition of a

controlling interest in DirectBuy’s parent corporation in 2007, Trivest principals placed on

DirectBuy’s Board of Directors (including as Chairman of the Board) intentionally induced or

directed the aggressive and expensive national marketing and advertising strategy that triggered

the imposition of fees on DirectBuy franchisees in excess of the 3% cap they contend was

applicable to such charges. In support of dismissal of Count II, Trivest first makes the same

contract interpretation argument that is discussed above and found not to support dismissal. 

Nothing more needs to be said about that. 

Second, Trivest points to the principle that an officer or director of a corporation, because

he is the corporation’s own agent, cannot be liable for tortious interference with the corporation’s

contracts. Trail v. Boys and Girls Clubs of Northwest Indiana, 845 N.E.2d 130, 138 (Ind. 2006).

The argument is that where an agent’s conduct is not actionable, neither can vicarious liability

attach to the principal – Trivest in this case. [DE 46 at 11, n.10.] Gordon v. Degelmann, 29 F.3d

295, 298 (7th Cir. 1994) (“You can’t have vicarious liability without primary liability.”). In Trail,

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the Indiana Supreme Court explained the limited immunity an officer or director of a corporation

has from most claims of tortious interference with the corporation’s contracts: 

A party cannot “interfere” with its own contracts, so the tort itself can be

committed only by a third party....In the case of a corporation, the legal entity acts

through its directors and officers. Thus, when officers or directors act in their

official capacity as agents of the corporation, they act not as individuals but as the

corporation itself. In doing so, they are not acting as a third party, but rather as a

party to the contract and cannot be personally liable for tortious interference with

the contract.

Trail, 845 N.E.2d at 138. But directors and officers who act outside the scope of their official

capacity “no longer act as agents of the corporation” and “therefore can be held personally liable

for tortious interference.” Id. They can then also potentially give rise to vicarious liability on the

part of the puppeteer pulling their strings, as Trivest is here alleged to be. 

Trivest argues that the individuals it elected to DirectBuy’s board acted completely within

the scope of their official duties, and that there are no allegations in the complaint to the contrary.

Trivest argues that to be outside the scope of a director’s duty, subjecting him or her to liability,

conduct would have to involve “willful misconduct or recklessness,” notions taken from

Ind.Code §23-1-35-1(e) governing liability of corporate directors. In response, ArcAngelo

argues that the complaint makes factual allegations supporting conclusions that Trivest acted

unfairly and unreasonably, and had an “improper motive” namely to increase DirectBuy’s

revenues without reasonable regard for “the long-term consequences to the system.” [DE 43 at

18.] I’m not sure what ArcAngelo means by “the system,” but ArcAngelo’s own contention that

the Trivest proxies were motivated “to increase DirectBuy’s revenues” sounds exactly like what

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DirectBuy’s Board of Directors should be working for in the interest of the corporation they

serve.2

Criticism of the expensive marketing strategy as a short-sighted failure to consider the

impact on DirectBuy franchisees’ sustainability does not supply the sort of absence of

justification required to support a tortious interference claim. The absence of justification – 

which sets this tort claim apart from a mere breach of contract – requires that “the interferer acted

intentionally without a legitimate business purpose, and the breach is malicious and exclusively

directed to the injury and damage of another.’” Bilimoria Computer Systems, LLC v. America

Online, Inc., 829 N.E.2d 150, 156-57 (Ind.Ct.App. 2005) (emphasis added). See also Haegert v.

McMullan, 953 N.E.2d 1223, 1234-35 (Ind.Ct.App. 2011). Count II alleges that the Trivest

proxies on DirectBuy’s Board were motivated by a desire to increase cash flows into DirectBuy’s

coffers for the benefit of DirectBuy investors. The allegations do not identify an illegitimate

business purpose or a malicious intent exclusively directed to the harm of the franchisees. The

business judgment of these directors exercised in favor of DirectBuy over the interests of

franchisees cannot give rise to vicarious liability for tortious interference. 

At bottom, this case is fundamentally about a difference of opinion as to what the

Franchise Agreement allows. DirectBuy reads the contract one way; the franchisees read it

another way. And that is what the claim in Count I will resolve. But to the extent the case also

reflects a disagreement between the franchisees and the franchisor as to the wisdom of expensive

marketing efforts and their impact on the overall business model, that disagreement cannot be

viably shoe-horned into a tortious interference claim. Count II will be dismissed.

 2 A director shall discharge his duties “in a manner the director reasonably believes to be in

the best interests of the corporation.” Ind. Code §23-1-35-1(a)(3).

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Criminal Conversion - Count III

Both defendants are named in Count III, a civil claim of criminal conversion under

Indiana law. ArcAngelo alleges that by causing DirectBuy to charge franchisees far in excess of

the applicable 3% cap, the defendants took “unauthorized control” over the property of the

Franchisees, constituting a criminal conversion under Indiana Code §35-43-4-3 and subjecting

defendants to civil liability and treble damages under §34-24-3-1.

DirectBuy and Trivest launch several arguments against Count III. First, they argue that a

criminal conversion claim can’t substitute for breach of contract or failure to pay a debt. Where

the source of a duty between the parties is a contract, Indiana courts have held that the gravamen

of the action is contract construction and no criminal conversion claim lies. French-Tex

Cleaners, Inc. v. Cafaro Co., 893 N.E.2d 1156, 1167-68 (Ind.Ct.App. 2008). ArcAngelo

responds that the criminal intent distinguishes a criminal conversion from a mere breach of

contract, and that the requisite mens rea has been sufficiently alleged in the complaint. Gilliana

v. Paniaquas, 708 N.E.2d 895, 899 (Ind.Ct.App. 1999) (the mens rea requirement “differentiates

criminal conversion from the more innocent breach of contract or failure to pay a debt situation

that the criminal conversion statute was not intended to cover”). In reply, DirectBuy argues for a

factual conclusion that DirectBuy could not have been operating with the necessary “guilty

mind,” given the ruling of Judge Fehling in Trinity. This of course presumes both that I would

agree with Judge Fehling’s ruling and find it applicable to the factual scenario of this case. 

Unable to make those determinations at this stage, the argument must be rejected.

DirectBuy next argues that taking control of franchisees’ money in payment of the

assessed (though disputed) fees wasn’t unauthorized, as is required for criminal conversion, 

because §3.07 of the Franchise Agreement contains the franchisees’ consent to that sort of offset

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of amounts owed. [DE 32 at 16.] Surely that can’t excuse DirectBuy offsetting amounts it knew

it wasn’t entitled to, however, and ArcAngelo meets DirectBuy’s argument with that response. 

Unauthorized control for purposes of the criminal conversion claim includes control exerted “in a

manner or to an extent other than that to which the other person has consented.” Ind. Code. §35-

43-4-1(b)(2). In view of the parties’ dispute about whether the charges were in excess of limits

imposed by the Franchise Agreement, the franchisees’ general consent to offsets does not defeat

the criminal conversion claim.

DirectBuy’s last and best challenge to the criminal conversion cause of action is that such

a claim can apply only in circumstances involving “a determinate sum that the defendant was

entrusted to apply to a certain purpose.” Trietsch v. Circle Design Group, Inc., 868 N.E.2d 812,

821 (Ind.Ct.App. 2007) (conversion claim inapplicable to dissenting minority shareholder’s share

of retained earnings on the sale of a closely-held corporation). A vehicle was properly the subject

of a criminal conversion claim when the dealer refused to return it to the purchaser who’d

brought it in for repair unless the purchaser made good on his earlier bounced check for the car’s

down payment. Greco v. KMA Auto Exchange, Inc., 765 N.E.2d 140, 148 (Ind.Ct.App. 2002). A

car is obviously a defined chattel. But when the subject of a criminal conversion claim is money,

the definition becomes slightly more amorphous. 

“Money may be the subject of an action for conversion, so long as it is capable of being

identified as a special chattel.” Huff v. Biomet, Inc., 654 N.E.2d 830, 835-36 (Ind.Ct.App. 1995). 

 This requires that the money in question be “a determinate sum with which the defendant was

entrusted to apply to a certain purpose.” Id. A law firm’s refusal to pay a lawyer his share of

retained earnings has been found to be a mere failure to pay a debt and not actionable as a

conversion. Tobin v. Ruman, 819 N.E.2d 78, 89 (Ind.Ct.App. 2005). Even a real estate broker’s

12
refusal to return deposits paid toward a purchase of property that later fell through has been found

not to support a claim of criminal conversion under Indiana law, because “a possessory interest in

the specific funds” was not maintained by the prospective purchasers and the circumstances

“merely amounted to a refusal to pay a debt.” Huff, 654 N.E.2d at 836, discussing Kopis v.

Savage , 498 N.E.2d 1266, 1269-70 (Ind.Ct.App. 1986), and Stevens v. Butler, 639 N.E.2d 662,

666 (Ind.Ct.App. 1994). The Indiana court noted that the seller in Kopis had “commingled the

deposit with other unrelated accounts” and was not “‘under any obligation to return the specific

$40,000 which [Buyer] had given him.’” Huff, 654 N.E.2d at 836, quoting Kopis, 498 N.E.2d at

1270.

ArcAngelo argues that criminal conversion applies to monies “accounted for and held in a

separate fund,” citing Midland-Guardian Co. v. United Consumers Club, Inc., 502 N.E.2d 1354

(Ind.Ct.App. 1987) [DE 43 at 22.] . Midland-Guardian involved the termination of an ongoing

business relationship between a consumer club franchisor and a finance company. The Indiana

Court of Appeals held that a contingency fund retained by the finance company, based on an

agreed-upon percentage of the price it paid for installment contracts purchased from the

franchisor (the “hold-back reserve account”), was money that belonged to the franchisor and was

“in effect, entrusted to Midland to be separately held and accounted for,” as to which a criminal

conversion claim might apply. Id. at 1355. Plaintiffs argue that the challenged sums at issue in

this case were supposed to be separately held and accounted for in the Marketing and Legislative

Fund, circumstances similarly determinate and therefore sufficient for a criminal conversion

claim. 

But even if the Marketing and Legislative Fund existed and was the basis for the

assessment of the disputed fees as ArcAngelo alleges, the fees assessed were not money that, like

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in Midland-Guardian, continued to belong to the plaintiffs but was merely held and accounted

for separately by the defendant, subject to contingent future events. Instead, the assessed fees

were paid to DirectBuy to be used for the development of marketing programs and not subject to

return to the franchisees in certain circumstances. Nor were the amounts withheld from various

franchisees maintained and accounted for separately from one another, but commingled in the

common fund for marketing programs, and no longer could be said to constitute a definable

chattel as to each franchisee in particular. If as plaintiffs here contend, fees for advertising were

over-charged in excess of applicable limits, it merely constituted an overcharge to be repaid and

not an appropriation of a separate, identifiable chattel. 

The dispute here is much more akin to French-Tex, in which a claim that a landlord overbilled its tenants for more than a decade was found to be based on a question of contract

interpretation and to “constitute a bona fide contract dispute and not a claim for conversion.” 893

N.E.2d at 167. The franchisees do not claim a possessory interest in any definite and identifiable

sum of money that they retained ownership of but entrusted to DirectBuy, who later wrongfully

appropriated it. Because the facts alleged do not plausibly support a claim for criminal

conversion as that claim has been interpreted by the courts of Indiana, Count III is properly

dismissed.

Unjust Enrichment – Count IV

DirectBuy challenges the unjust enrichment claim in Count IV, contending that Indiana

law forecloses such a claim “where an express contract controls the parties’ rights.” [DE 32 at

18.] The Indiana Court of Appeals has stated the general rule that “[t]he existence of an express

contract precludes a claim for unjust enrichment because: (1) a contract provides a remedy at law;

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and (2) as a remnant of chancery procedure, a plaintiff may not pursue an equitable remedy when

there is a remedy at law.” Coppolillo v. Cort, 947 N.E.2d 994, 998 (Ind.Ct.App. 2011). 

ArcAngelo responds that the equitable claim of unjust enrichment is pled as an alternative

to the breach of contract claim, invoking an exception to the general rule should there be a

determination that the Franchise Agreement does not fully address the subject of the parties’

dispute. In Coppolillo, the Indiana Court of Appeals introduced a new exception to the rule

barring equitable relief on an unjust enrichment theory where the parties’ dispute is governed by

a contract. Following the law of several other states, the court held that “when an express

contract does not fully address a subject, a court of equity may impose a remedy to further the

ends of justice.” Id. 

In Coppolillo, the circumstances obviously involved conduct lying outside the boundaries

of the parties’ express agreement. Coppolillo, a chef, arranged to buy a share of the restaurant’s

ownership from Cort. The parties’ contract provided for Coppolillo to pay Cort $50,000 for 100

shares of stock, payable on the execution of the agreement. Id. But the parties did not dispute that

they had actually agreed to a total purchase price of $100,000 with the additional $50,000 to be

paid in monthly installments over several years. Id. After Cort sold the real estate out from

under the restaurant, which then closed, Coppolillo sued Cort for unjust enrichment based on the

side payments. No breach of the express contract was alleged. Because it was “undisputed” that

the arrangements were “not fully controlled by the Agreement,” there was room for equity to

address the dispute in addition to the law of contracts. Id. The Coppolillo court distinguished

other cases in which “there was no evidence that the contract failed to address all aspects of the

parties’ relationship.” Id.

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Since the Coppolillo decision in 2011, only one other published Indiana case addresses

the exception to the general rule. In Kohl’s Indiana, L.P. v. Owens, 979 N.E.2d 159, 167-68

(Ind.Ct. App. 2012), the Indiana Court of Appeals found the Coppolillo exception inapplicable,

rejecting Kohl’s contention that its road-improvement agreement with the county board of

commissioners did not fully control the rights of the parties as to who would bear the cost of such

improvements, even in the event that a larger development project was not completed.

 Here a breach of contract claim has been pled and the parties advocate competing

interpretations of several different provisions of the Franchise Agreement that they contend

govern the charges ArcAngelo now disputes. This is the polar opposite of the scenario in

Coppolillo, where the parties agreed that their contract did not address the side payments on

which the unjust enrichment claim was based. Here there is no serious contention, much less

agreement, that the Franchise Agreement will not ultimately be found to govern the question

whether DirectBuy was authorized to impose the disputed charges in the manner it did. The

relationship between Franchisor and Franchisee was set out in the Franchise Agreement which

under the law of contracts will be interpreted to determine whether or not the fees were

authorized by the contract or constituted a breach of the Franchise Agreement. In this context,

the parties’ contractual relationship provides a remedy at law and precludes a claim for unjust

enrichment. Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009) (the

existence of express contract terms regarding the subject matter precludes the substitution of a

quasi-contractual equitable remedy for unjust enrichment). Count IV will be dismissed. 

Breach of Fiduciary Duty – Count V

Count V asserts a claim that DirectBuy breached a fiduciary duty to the franchisees. 

DirectBuy contends that the claim must be dismissed because it had no such fiduciary duty, citing

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§17.01 of the Franchise Agreement disclaiming such a relationship and citing Indiana law “that

arms-length contractual agreements do not give rise to a fiduciary relationship creating a duty.”

[DE 32 at 19.] Section 17.01 of the Franchise Agreement speaks plainly: “Franchisor and

Franchisee, as between themselves, are and shall be independent contractors. Neither this

Agreement nor the dealings of the parties pursuant to this Agreement shall create any fiduciary

relationship or any other relationship of trust or confidence.” [DE 1-1 at 33.] Section 7.01 of the

Franchise Agreement, the section specifically devoted to the Marketing and Legislative Fund,

expressly provides that DirectBuy does “not act as trustee or in any other fiduciary capacity with

respect to the Marketing and Legislative Fund.” [Id. t 20.] 

Indiana cases repeatedly observe that ordinary business relationships based on armslength contracts do not establish fiduciary relationships between the parties. Paul v. Home Bank

SB, 953 N.E.2d 497, 504 (Ind.Ct.App. 2011); American Heritage Banco, Inc. v. Cranston, 928

N.E.2d 239, 247 (Ind.Ct.App. 2010); Wilson v. Lincoln Federal Sav. Bank, 790 N.E.2d 1042,

1046-47 (Ind.Ct.App. 2003). Citing inapposite cases, ArcAngelo is unable to overcome this legal

principle which, augmented here by the express disclaimers in the parties’ agreement, defeats a

claim for breach of fiduciary duty. Count V is subject to dismissal.

Declaratory Judgment – Count VI

Section 18.05 of the Franchise Agreement contains this language: 

Except with respect to any of [franchisee’s] obligations herein regarding the

Confidential Information and the Marks, Franchisor and Franchisee (and its

Owners) each waives, to the fullest extent permitted by law, any right to or claim

for any punitive or exemplary damages against the other. [Franchisee and each of

its owners] waive, to the fullest extent permitted by applicable law, the right to

recover consequential damages for any claim directly or indirectly arising from or

relating to this Agreement. Furthermore, the parties agree that any legal action in

connection with this Agreement shall be tried to the court sitting without a jury,

and all parties waive any right to have any action tried by jury.

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[DE 1-1 at 36.] In Count VI, ArcAngelo seeks a declaratory judgment that these provisions of

the Franchise Agreement that deprive franchisees of their right to a jury trial and prohibit the

recovery of punitive damages are void and unenforceable under Indiana law as against public

policy. DirectBuy contends the claim should be dismissed because Indiana law holds that the

right to jury trial may be contractually waived and damages limitations are likewise subject to

contractual agreement. 

Indiana law recognizes that its constitutional right to jury trial may be waived, and that a

freely-bargained agreement waiving the right is enforceable. Sanford v. Castleton Health Care

Center, LLC, 813 N.E.2d 411, 420 (Ind.Ct.App. 2004); Scott v. Crussen, 741 N.E.2d 743, 746

(Ind.Ct.App. 2000); 1st Source Bank v. Ryan Contracting Company, 2008 WL 2002228 at *1

(N.D.Ind. May 5, 2008). The Indiana Supreme Court has also upheld the enforceability of

exculpatory clauses that limit damages liability. Trimble v. Ameritech Publishing, Inc., 700

N.E.2d 1128, 1129 (Ind. 1998). “Indiana courts have...upheld numerous contractual provisions

that, in one way or another, limit the legal avenues available to a party when such provisions are

freely negotiated and not unjust or unreasonable.” 1st Source Bank, 2008 WL 2002228 at *1. 

Plaintiffs are unable to overcome the force of these precedents contrary to their claim.

ArcAngelo cites a case in which the federal court in Indianapolis held that a distribution

agreement’s waiver of jury trial was unenforceable because it violated the Indiana Deceptive

Franchise Practices Act, which prohibits franchise contract provisions “[l]imiting litigation

brought for breach of the agreement in any manner whatsoever.” Ind.Code §23-2-2.7-1(10). 

Carrel v. George Weston Bakeries Distribution, Inc., 2006 WL 2524124 at *2 (S.D.Ind. 2006). 

But DirectBuy points out that the IDFPA applies to agreements involving “a franchisee who is

either a resident of Indiana or a nonresident who will be operating a franchise in Indiana.” 

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Ind.Code §23-2-2.7-1. The plaintiff franchisees are not Indiana residents and their franchises are

not operated in the State. So the IDFPA is not applicable, which may explain why it is not cited

in Count VI itself as a basis for the claim of unenforceability.

ArcAngelo’s general arguments that the jury trial waiver and damages limitations are

contrary to public policy don’t attempt (and therefore don’t succeed) in distinguishing the

contrary case law supporting DirectBuy’s motion to dismiss Count VI. Finally, ArcAngelo

argues that as to the criminal conversion claim in Count III, the Indiana Crime Victim Statute

makes the trebling of damages mandatory, so that a contrary provision in the Franchise

Agreement would be against public policy. Indiana Code §34-4-30-1 has long since been

amended, however, so that an award of treble damages is discretionary rather than mandatory. 

White v. Indiana Realty Associates II, 555 N.E.2d 454, 456 n.1 (Ind. 1990). Even if Count III

were otherwise to survive the motion to dismiss, this argument would not save the challenge to

the Finance Agreement’s damages limitation. Count VI is subject to dismissal because under

Indiana law, it presents no plausible right to relief.

ACCORDINGLY:

Plaintiffs Motion for Leave to Submit Supplement Authority [DE 47] is GRANTED.

Defendants’ Motion to Dismiss [DE 31] is DENIED IN PART as to the breach of contract

claim in Count I, and GRANTED IN PART as to the breach of a duty of good faith claim in

Count I, and Counts II, III, IV, V and VI.

SO ORDERED.

ENTERED: November 20, 2013 /s/ Philip P. Simon 

PHILIP P. SIMON, CHIEF JUDGE

UNITED STATES DISTRICT COURT 

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