Pizza Express embroiled in legal battle

Jeff Mease feels burned.\nMease, founder and CEO of the popular local chain Pizza Express, finds his business ensnared in a legal tangle with an Indianapolis-based business partner. The two companies have each filed dueling lawsuits in federal court.\nA contract dispute arose when the investment group Pizza Head LLC developed a West Lafayette Pizza Express store last summer. Negotiations over the terms of a new licensing agreement had ground to a halt by fall and both parties brought claims to court.\nThe Pizza Express suit contends Pizza Head has failed to pay royalties for using the Pizza Express name since the dispute began. \nThe Pizza Head suit maintains Pizza Express sought an illegal franchise contract without proper registration through the Indiana Securities Division. \nThe business relationship has effectively dissolved, with Pizza Head renaming its former Pizza Express locations Hot Box Pizza.\nPizza Head -- with leaders who are IU alumni -- came to Pizza Express two years ago with the idea of opening stores in Indianapolis. They signed a license agreement for two locations, which Pizza Head now contends amounted to a franchise contract.\n"They sold themselves as having great affinity for the brand," Mease said in an interview. "We were going on faith, as we haven't tried anything like that in 25 years."\nOver the years, Pizza Express has stuck to a policy of slow growth in the local area, with four Bloomington stores and one in Ellettsville. But Mease agreed to the proposal because he wanted to test the waters for eventual franchising.\nIn 2004, Pizza Head committed to an up-front fee and a 5 percent royalty on sales in exchange for use of the Pizza Express trademark and menu. It expanded to the West Lafayette market last summer under a verbal agreement without ink on a new licensing contract.\n"We were being loose," Mease said. "Apparently, in retrospect, we were too loose."\nDavid Klinestiver, the attorney representing Pizza Head, said contractual negotiations ended when Pizza Express sent a cease-and-desist letter.\n"They alleged trademark infringement on a franchise they helped set up," he said. "They insisted upon a license agreement too onerous for my clients to accept.\n"Pizza Head had no choice but to seek a court's opinion."\nPizza Head filed suit shortly after alleging "unlawful offer and sale of franchises." It argues that Pizza Express failed to provide detailed company information required in a franchise agreement under state law.\nPizza Express acted as a franchiser instead of a licenser under state law, Pizza Head's suit contends, because it offered the investors a promotional guide with marketing strategies, such as distributing condoms.\n"It's a classic example of a restaurant franchise contract," Klinestiver said. "It has all the classic hallmarks."\nMease filed a countersuit alleging contractual violations, including the withholding of royalty fees since last September. The sum falls in the "tens of thousands of dollars," he said.\nMease dismisses the Pizza Head suit as a means to maneuver out of a contractual obligation. He said Pizza Express did not issue strict guidelines on how to run the business, an essential component of a franchise agreement.\nThe U.S. District Court of Southern Indiana has set a March 2007 court date.\nFor now, Mease has tabled all plans to introduce the Pizza Express brand to new markets without retaining full ownership. He chalks up the experience as a lesson learned.\n"I'm not really angry because I blame myself," he said. "There are certain kinds of people you can't trust, people trying to take advantage of your company"