Crest Foods, Inc. et al. v. FAT Brands, Inc.

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION CREST FOODS, INC., et al., § § Plaintiffs, § § VS. § Civil Action No. 3:24-CV-2447-D § FAT BRANDS, INC., § § Defendant. § MEMORANDUM OPINION AND ORDER In this removed action, plaintiffs Crest Foods, Inc. (“Crest”) and Ziad Dalal (“Dalal”) assert a federal declaratory judgment claim and state-law contractual indemnification claims against defendant FAT Brands, Inc. (“FAT Brands”). FAT Brands moves to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim on which relief can be granted. For the reasons that follow, the court grants the motion. I The relevant background facts of this case are largely set out in a prior memorandum opinion and order and need not be repeated at length for purposes of deciding FAT Brands’s motion to dismiss. See Crest Foods, Inc. v. FAT Brands, Inc. (“Crest I”), 2025 WL 949339, at *1-2 (N.D. Tex. Mar. 28, 2025) (Fitzwater, J.).1 The court dismissed plaintiffs’ first, id. 1On January 27, 2026 the court administratively closed this case after it was notified through a suggestion of bankruptcy that FAT Brands had filed a voluntary chapter 11 bankruptcy petition, resulting in an automatic stay under § 362 of the Bankruptcy Code. On June 19, 2026 the Southern District of Texas bankruptcy court modified the automatic stay to the extent necessary to allow this court to rule on the instant motion to dismiss. The at *10, and second amended complaints, Crest Foods, Inc. v. FAT Brands, Inc. (“Crest II”), 2025 WL 2099249, at *5 (N.D. Tex. July 25, 2025) (Fitzwater, J.). In both decisions the court held that plaintiffs’ contractual indemnification claims were time-barred under the

“survival provision” of the parties’ asset purchase agreement (“Agreement”). See Crest I, 2025 WL 949339, at *8; Crest II, 2025 WL 2099249, at *3-4. Plaintiffs’ third amended complaint alleges similar claims for contractual indemnification,2 but they assert that Tex. Civ. Prac. & Rem. Code. Ann. § 16.070(a) (West 1985) renders the “survival provision”

unenforceable and seek a declaratory judgment to that effect. FAT Brands moves to dismiss under Rule 12(b)(6). In addition to reasserting that plaintiffs’ claims are time-barred, FAT Brands contends that the Agreement forecloses indemnification claims between the contracting parties (“first-party” claims). Plaintiffs oppose the motion, which the court is deciding on the briefs, without oral argument.

II “In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of

bankruptcy court specified that “this relief is limited solely to obtaining a legal determination on the sufficiency of the Claimants’ pleadings and does not authorize any further proceedings against the Debtors on the merits, any collection activities, enforcement actions, or proceedings against the Debtors’ property or assets . . . without further order of th[e] Court.” Order (ECF No. 63-1) at 3 ¶ 1. 2Plaintiffs entitle their state-law claims “Breach of Contract/Breach of Contractual Indemnification.” 3d. Am. Compl. (ECF No. 44), at 33. Having determined that the Agreement’s “exclusive remedies” provision bars breach of contract claims, Crest I, 2025 WL 949339, at *6, the court refers to plaintiffs’ instant claims as contractual indemnification claims. To the extent that plaintiffs reassert breach of contract claims, the court dismisses the claims. - 2 - plaintiffs’ [third] amended complaint by ‘accept[ing] all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff[s].’” Bramlett v. Med. Protective Co. of Fort Wayne, Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (second alteration

in original) (internal quotation marks omitted) (quoting In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff[s] must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when

the plaintiff[s] plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief above the

speculative level[.]”). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (alteration omitted) (quoting Rule 8(a)(2)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678.

III The court will assume arguendo that plaintiffs’ contractual indemnification claims are not time-barred and turn to the question whether the Agreement forecloses plaintiffs’ first- party indemnification claims. - 3 - A The Agreement’s “exclusive remedies” provision makes indemnification pursuant to Article VII the “sole and exclusive remedy with respect to any and all claims for any breach

of any representation, warranty, covenant, agreement or obligation in th[e] Agreement,” absent fraud or misconduct. Ps. App. (ECF No. 44-1) at 25; see Crest I, 2025 WL 949339, at *5. Section 7.3 of the Agreement contains the relevant indemnification provision, which states:

Subject to the other terms and conditions of this Article VII, from and after the Closing, Buyer shall indemnify and defend Seller and its Affiliates (collectively, the “Seller Indemnitees”) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to, or by reason of: . . . any breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement, the other Transaction Documents or any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement. Ps. App. (ECF No. 44-1) Ex. A at 25. FAT Brands contends that the unambiguous language of Article VII permits indemnification only for third-party actions and therefore precludes plaintiffs’ first-party claims. B As a threshold matter, the court considers which law to apply to the Agreement. The court’s two previous memorandum opinions and orders granting dismissal assumed arguendo - 4 - that Delaware law governed plaintiffs’ state-law claims because this issue was uncontested and nonjurisdictional. See Crest I, 2025 WL 949339, at *5 n.5; Crest II, 2025 WL 2099249, at *3 n.7. Plaintiffs now assert that Texas law applies to the Agreement’s survival provision.

The court need not conduct a choice-of-law analysis because Delaware and Texas law do not conflict with respect to determining whether the indemnification provision permits first-party claims. See Schneider Nat’l Transp. v. Ford Motor Co., 280 F.3d 532, 536 (5th Cir. 2002) (“If the laws of the states do not conflict, then no choice-of-law analysis is necessary.”

(citation omitted)); Klein v. Fed. Ins. Co., 220 F.Supp.3d 747, 767 (N.D. Tex. 2016) (Fitzwater, J.) (similar), aff’d, 714 Fed. Appx. 441 (5th Cir. 2018).3 Courts applying Delaware law presume that purely contractual indemnification clauses do not permit actions between the contracting parties. See, e.g., Deere & Co. v. Exelon Generation Acquisitions, LLC, 2016 WL 6879525, at *1 (Del. Super. Ct. Nov. 22,

2016) (citing Oliver B. Cannon and Son, Inc. v. Dorr-Oliver, Inc., 394 A.2d 1160, 1165 (Del. 1978) (stating that indemnity clauses in construction contracts normally apply only to third- party claims)); Chase Manhattan Mortg. Corp. v. Advanta Corp., 2005 WL 2234608, at *22 (D. Del. Sept. 8, 2005) (“[U]nder Delaware law, indemnification provisions are not applicable to claims between contracting parties.” (citations and internal quotation marks

3There is no binding Supreme Court of Delaware or Supreme Court of Texas case that controls this issue. The court therefore refers to nonprecedential authority in order to make an “Erie-guess,” i.e., “a prediction of how the Supreme Court of [Delaware or] Texas would resolve the issue if presented with the same case.” Charalambopoulos v. Grammer, 2015 WL 390664, at *5 (N.D. Tex. Jan. 29, 2015) (Fitzwater, J.). - 5 - omitted)). To overcome this presumption, “a party seeking indemnification for first-party claims must be able to point to specific language that is applicable to such claims.” Senior Hous. Cap., LLC v. SHP Senior Hous. Fund, LLC, 2013 WL 1955012, at *44 (Del. Ch. May

13, 2013) (quoting Bear Stearns Mortg. Funding Tr. 2007-AR2 v. EMC Mortg. LLC, 2013 WL 164098, at *2 (Del. Ch. Jan. 15, 2013), as revised (Jan. 17, 2013)). Although an indemnification provision need not expressly state that it covers first-party claims, the provision must unambiguously reflect the parties’ intent to permit such claims. Schneider

Nat’l Carriers, Inc. v. Kuntz, 2022 WL 1222738, at *29-31 (Del. Super. Ct. Apr. 25, 2022) (collecting cases). Texas courts take a similar approach to this issue. “[A] defining characteristic of an indemnity agreement is that it does not apply to claims between the parties to the agreement.” Nat’l City Mortg. Co. v. Adams, 310 S.W.3d 139, 144 (Tex. App. 2010, no writ) (citation and

internal quotation marks omitted); see also Munck Wilson Mandala LLP v. Jordan, 2024 WL 2278140, at *6 (N.D. Tex. May 20, 2024) (Lynn., J.) (collecting cases), appeal dism’d sub nom. Munck Wilson Mandala, L.L.P. v. JP-Banner, L.P., 2024 WL 5153587 (5th Cir. Oct. 1, 2024); Sam Rayburn Mun. Power Agency v. Gillis, 2018 WL 3580159, at *18 (Tex. App. July 26, 2018, pet. denied) (mem. op.) (collecting cases). The party seeking to assert a

first-party indemnification claim “bears the burden to prove that the . . . indemnity clause expressly includes language indicating that it . . . applies to direct claims between the indemnitor and indemnitee.” Gillis, 2018 WL 3580159, at *18; GE Oil & Gas Pressure Control, L.P. v. Carrizo Oil & Gas, Inc., 2023 WL 3513141, at *23 (Tex. App. May 18, - 6 - 2023, rev. denied) (mem. op.) (concluding in a contract and negligence dispute that an indemnification provision that lacked express language referencing first-party claims did not permit such claims).

Because Delaware law and Texas law do not conflict with regard to this issue, the court will apply the law of the forum state (here, Texas). See Schneider Nat’l Transp., 280 F.3d at 536. C

The court concludes that the Agreement precludes first-party indemnification claims. Article VII contains no language authorizing first-party indemnification claims. Instead, section 7.3’s language is typical of the indemnification provisions that courts applying Texas law have concluded authorize only third-party claims. See, e.g., Adams, 310 S.W.3d at 143 (“Carolyn agrees that NCM and its agents and attorneys will be indemnified

and held harmless from any and all actions, claims, demands, damages, costs, expenses, and other liabilities.” (cleaned up)); Munck Wilson Mandala, 2024 WL 2278140, at *6 (“Tenant will Indemnify and Defend Landlord Parties against . . . any breach, violation or nonperformance of any obligation of Tenant under this Lease.” (cleaned up)). Contrary to plaintiffs’ assertion, section 7.3 uses the hallmark language of a third-party indemnification

provision. Compare Ps. App. (ECF No. 44-1) at 25 (“indemnify,” “defend,” “hold . . . harmless”), with Wallerstein v. Spirt, 8 S.W.3d 774, 780 (Tex. App. 1999, no writ) (“Typical indemnity language is ‘indemnify . . . , protect, save/hold harmless.’” (citation omitted)). And the words “pay and reimburse,” Ps. App. (ECF No. 44-1) at 25, do not clearly indicate - 7 - that the Agreement contemplates first-party indemnification. Nor does the Agreement’s definition of “Losses”4 imply that the section 7.3 permits first-party claims. Plaintiffs contend that section 7.3’s broad language “naturally encompasses direct

losses” and therefore authorizes first-party indemnification claims. P. Br. (ECF No. 53) at 26. That an indemnity clause is broad, however, is not sufficient to satisfy the express language requirement. GE Oil & Gas, 2023 WL 3513141, at *23 (“The indemnity provision associated with the quote, the invoice, and the OVRs was broad, but it did not expressly state

that it applied to first-party claims.”). Plaintiffs also maintain that the “exclusive remedies” provision would not make sense unless the indemnification provision permitted first-party claims. But even if it was disadvantageous for plaintiffs to enter into a contract that forecloses direct claims seeking damages for breach, this is not a reason for the court to look past the unambiguous language

of the Agreement. See Venture Cotton Co-op. v. Freeman, 435 S.W.3d 222, 228 (Tex. 2014)

4The Agreement defines “Losses” as follows: damages, Taxes, claims, Liabilities, diminution in value (including losses calculated based on valuation multiples), lost profits, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’, accountants’ and other professionals’ fees and expenses and the cost of investigation and enforcement of any right to indemnification hereunder; provided, however, that “Losses” shall not include punitive damages or consequential damages. Ps. App. (ECF No. 44-1) at 9 (emphasis in original). - 8 - (“Unambiguous contracts . . . are presumed to reflect the intent of the contracting parties and are generally enforced as written regardless of whether one or more of the parties contracted wisely or foolishly, or created a hardship for himself.” (citation and internal quotation marks

omitted)); Gillis, 2018 WL 3580159, at *18 (the party seeking to assert a first-party indemnification claim must point to express language authorizing such a claim). Moreover, this interpretation of the Agreement does not leave plaintiffs without any remedy for a breach. The “exclusive remedies” provision states: “[n]othing in this

Agreement shall limit any Person’s right to seek and obtain non monetary, injunctive relief or specific performance, or other equitable relief or remedy (including those arising from or related to fraud or criminal misconduct) to which any Person shall be entitled.” Ps. App. (ECF No. 44-1) at 25. So, although the Agreement seems to permit Crest to seek some remedies, it does not permit the first-party contractual indemnification claims that plaintiffs assert here.5

Accordingly, the court dismisses plaintiffs’ contractual indemnification claims.6

5Although plaintiffs jointly assert this claim, the indemnification provision at issue expressly applies to Crest, not Dalal. See Crest I, 2025 WL 2099249, at *1 n.1. But even assuming arguendo that Dalal has contractual standing, he has failed to state a claim on which relief can be granted. 6Having concluded that Texas and Delaware law do not conflict with regard to this issue, the court need not conduct a separate analysis under Delaware law. But even assuming arguendo that such a conflict exists, the court’s analysis is the same under Delaware law. See, e.g., Deere, 2016 WL 6879525, at *1 (concluding that a substantially similar contractual indemnification provision precluded first-party indemnification claims); Chase, 2005 WL 2234608, at *22 (similar); Fortis Advisors LLC v. Bos. Dynamics Inc., 2025 WL 1356521, at *6 (Del. Super. Ct. Apr. 29, 2025) (“[T]ypically, the broader the indemnity provision’s - 9 - IV Having dismissed plaintiffs’ contractual indemnification claims, the court dismisses plaintiffs’ federal declaratory judgment claim, which is based on these claims. See Val-Com Acquisitions Tr. v. CitiMortgage, Inc., 421 Fed. Appx. 398, 401 (Sth Cir. 2011) (per curiam) (“Once the district court had dismissed the underlying . . . claims, there were no claims for which the district court could grant declaratory relief.”); Campo v. Bank of Am., N.A., 2016 WL 1162199, at *6 (S.D. Tex. Mar. 24, 2016) (Rosenthal, J.) (dismissing declaratory judgment claim where it depended on claims that had been dismissed), aff'd, 678 Fed. Appx. 227 (5th Cir. 2017) (per curiam). x ok x

For the reasons explained, the court grants FAT Brands’s motion to dismiss.’ SO ORDERED. August 20, 2026.

SENIOR JUDGE

language is, the less likely it will be read to cover first-party claims.’’). ’The court is not entering a final judgment due to the limited scope of the Southern District of Texas bankruptcy court’s June 19, 2026 order modifying the automatic stay. See supra note 1. -10-