News Briefs

Dream Dinners Lawsuits Now Include Allegations Against Outside Counsel

Two lawsuits filed against Dream Dinners, a meal-preparation franchisor, were amended in November to incorporate complaints against outside counsel who advised the company's principals, according to the attorneys working on behalf of the plaintiffs.

The first lawsuit was filed in February 2008 in Washington State Superior Court for Snohomish County on behalf of a husband-and-wife franchisee from Ohio. The lawsuit cited Dream Dinners LLC and its affiliates, company founders Stephanie Allen and Tina Kuna and their spouses, and company COO Brooke McCurdy and her husband, and the Dream Franchise Advisory Council. While undertaking depositions from Allen and Kuna, plaintiffs' attorney Howard Bundy, Bundy Law Firm PLLC (Seattle), heard responses that led him to believe that the franchisor's outside counsel also could be liable. “When we began taking depositions, I began to wonder if the lawyers were complicit, because when I asked the question, 'Did you understand that what you were doing was in compliance with the law?' the response would be, 'Yes, we acted on advice of counsel.' When that happened repeatedly, I felt that I had an obligation to explore counsel's conduct,” he told FBLA.

As a result, Bundy amended his complaint in October to add Dream Dinners counsel John A. Bender Jr., and Bender's current law firm, Ryan Swanson & Cleveland PLLC, and Bender's former law firm, Holland & Knight. Two other Ryan Swanson attorneys, Joanie Y. Kim and Kevin J. Collette, also are named in the amended complaint.

Another lawsuit filed in the same court is following the same path as Bundy's complaint. This lawsuit was filed on behalf of 15 franchisees by Michael Garner, partner, Dady & Garner (Minneapolis), and it has been amended to include complaints against Bender, though not the other Ryan Swanson attorneys. The court has yet to decide whether to allow either amended lawsuit.

Both lawsuits allege misrepresentations made during sales meetings and “discovery days” with prospects, beginning in 2003. “These representations consisted largely of (a) assurances that the Dream Dinners system was 'proven'; (b) of 'earnings claims' or representations to Plaintiffs of how much money they would make in their franchises or the revenues or profits of existing company-owned stores; and (c) provision to Plaintiffs of Uniform Franchise Offering Circulars, which were misleading because they were incomplete,” stated the complaint filed by Dady & Garner. The representations included a claim that an established franchise would achieve sustained revenues of at least $30,000 per month and projections for a typical monthly client base, cost of goods as a percentage of revenue, and other specific financial information.

“The [conduct] is egregious,” said Garner in an e-mail exchange with FBLA. “The franchisor made PowerPoint presentations of earnings claims and handed out FAQs with earnings claims.”

The financial representations to prospects did not conform to franchise offering requirements, according to Garner. In addition to being incomplete, they were not provided in the standardized, required format, and they lacked some of the mandated disclaimers. When presenting the PowerPoint to prospects, Dream Dinners executive Stephanie Allen allegedly admitted that “the lawyers say I'm not supposed to show this to you,” according to the lawsuit. Additionally, the lawsuit also charged that Dream Dinners breached the contract by not providing the training and support that was promised in the UFOC.

Furthermore, Bundy said that he is building evidence that “at the times that stores were operating when those earnings claims were based, neither the company-owned nor the franchised stores were even performing at half the levels that were claimed.”

Bundy added that prospective franchisees were required to sign non-compete and non-disclosure agreements before they were given the UFOCs, which is a violation of federal and Washington State franchise law. “Non-competes mean that you can't compare Dream Dinners to other meal-preparation franchises before becoming a franchisee. That's contrary to the express purpose of the law,” he said.

Dream Dinners' attorney Bender was included in the amended complaints because, according to Garner, he advised the company about preparing the UFOC in 2003. The amended complaint filed by Dady & Garner states, “Bender knew that prospective franchisees such as Plaintiffs were coming to Dream Dinners' headquarters for franchise sales presentations, and [he] knew that franchisees would rely on information provided by Dream Dinners to them in making the decision to purchase a franchise.” Yet, he “knowingly or with a reckless regard of the truth, allowed Dream Dinners to conduct personal meetings with prospective franchisees without providing an offering circular to them, in violation of the requirement that an offering circular be provided no later than the first personal meeting.”

The complaints also charge Bender with inadequate oversight of the sales process and of earnings-related information that was posted on the Dream Dinners website. They note that Bender was onsite at Dream Dinners two days per week, and thus should have been aware of how franchise sales were being promoted and conducted. “We have not brought a malpractice claim. It's a claim for misrepresentation,” said Bundy.

Bender and the Ryan Swanson law firm have retained the law firm Lane Powell (Seattle). Bender's attorney, Stanton Phillip Beck, wrote to FBLA that “we believe the allegations directed to Mr. Bender and Ryan, Swanson & Cleveland, PLLC are factually and legally without merit, and we expect that Mr. Bender and Ryan, Swanson & Cleveland, PLLC will be fully exonerated in a court of law.”

The next steps in the lawsuit will include more discovery and depositions. Bundy added that Ryan Swanson filed for dismissal of the complaint against Kim, but then withdrew the motion. Bundy has filed a motion to bring all of the issues under the review of a single judge in the court, which he believes will be granted, due to its complexity.

New Jersey 'Mobile Franchise' Act Moves Forward

On Oct. 23, New Jersey legislators took another step toward passing the so-called “Mobile Franchise Act,” as the House Commerce and Economic Development Committee voted 5-2 to send the bill to the full House for consideration.

House Bill 2491 (and the identical Senate Bill 1539) would expand the types of franchises that are subject to the New Jersey Franchise Practices Act (“NJFPA”), explained John E. McDonald, attorney with Stark & Stark. “In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) the franchisee has established or maintains a “place of business” in New Jersey; 4) the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee's sales are derived from the franchise,” he said. “The proposed change in the statute would apply the provisions of the NJFPA to 'mobile' franchises, in other words, franchises that do not have a brick-and-mortar location.”

Under the proposed bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly, from which the franchisor's goods are delivered to customers.

Burger King Retains Right To Set Minimum Operating Hours for Franchisees

On Nov. 4, Miami-Dade Circuit Court Judge Jon Gordon dismissed a lawsuit filed by three Florida Burger King franchisees who objected to the company's new requirement instituted in summer 2008 that all restaurants must be open beginning at 6 a.m. Monday through Saturday and must remain open until 2 a.m. Thursday through Saturday. Burger King instituted the longer hours to compete with other fast-food franchises and quick-serve restaurants.

“We filed a motion to dismiss, which the judge granted. Our position is that the franchise contract is clear. It states that the minimum hours of operation are 7 a.m. to 11 p.m., 'unless otherwise directed by Burger King,'” said Michael Joblove, Genovese, Joblove & Battista, P.A. (Miami), who represented Burger King. “The franchisees argued that it was not what the parties intended ' that the contract only considered Burger King reducing the minimum hours. But the judge agreed with us that the language is simple and clear.”

The franchisees can amend and re-file their lawsuit, but they had not done so by press time. Their attorney could not respond by press time to indicate if they would file an amended complaint.

New Problems Arise in Waffle House Franchisee Bankruptcy

In the latest twist in the bankruptcy filing of SouthEast Waffles, one of the largest Waffle House franchisees in the nation, the judge for the U.S. Bankruptcy Court Middle District of Tennessee denied the salary request of the former CEO of SouthEast Waffles. Shaub had been receiving a salary of $20,000 per month since the filing.

SouthEast Waffles filed for bankruptcy on Aug. 25. Since the filing, six of the restaurants have been closed, but more than 100 were operating as of late November. Shaub became the CEO of SouthEast Waffles soon after it was formed in 1999, but his role in the turnaround was ill-defined after an outside executive was hired to lead the restructuring of the company.

Subsequent to the bankruptcy filing, allegations have arisen in newspapers in Nashville, where SouthEast Waffles is based, that the company had not fully paid employment taxes in 2006 through 2008. In bankruptcy court filings, Southeast Waffles referred to “accounting irregularities” without specifying the irregularities nor who committed them.

Separately, a former employee of SouthEast Waffles filed a class-action lawsuit in November against Shaub for violations of Alabama labor for classifying managers as exempt from overtime compensation. The lawsuit originally was filed against SouthEast, but was withdrawn when the company declared bankruptcy. As of press time, the court had not yet ruled whether Shaub could be held personally liable in the class-action.

Texas AG Charges Tanning Salon Franchisor with Illegal Marketing Claims

In early November, the Texas Attorney General's office filed suit against Houston-based franchisor Darque Tan for “unlawfully claim[ing] that their indoor tanning beds can increase levels of Vitamin D in the body and therefore reduce the risk of cancer.” Under the Texas Health and Safety Code, tanning salons are prohibited from claiming that indoor tanning devices provide any health or medical benefits. Tanning beds are only approved for cosmetic tanning under Texas and federal law. The attorney general charged that Darque Tan's ads and online videos say that the tanning beds “deliver” high levels of Vitamin D to the body, and then link that to a claim that the Vitamin D reduces customers' chances of contracting cancer; this combination violates deceptive advertising and health-and-safety laws.

Darque Tan has about 87 locations in eight states. The suit names Darque Tan LLC; the company's parent, Segler Enterprises Ltd.; and company president Robbie Segler as defendants. Darque Tan did not respond to a request for comment.

Dream Dinners Lawsuits Now Include Allegations Against Outside Counsel

Two lawsuits filed against Dream Dinners, a meal-preparation franchisor, were amended in November to incorporate complaints against outside counsel who advised the company's principals, according to the attorneys working on behalf of the plaintiffs.

The first lawsuit was filed in February 2008 in Washington State Superior Court for Snohomish County on behalf of a husband-and-wife franchisee from Ohio. The lawsuit cited Dream Dinners LLC and its affiliates, company founders Stephanie Allen and Tina Kuna and their spouses, and company COO Brooke McCurdy and her husband, and the Dream Franchise Advisory Council. While undertaking depositions from Allen and Kuna, plaintiffs' attorney Howard Bundy, Bundy Law Firm PLLC (Seattle), heard responses that led him to believe that the franchisor's outside counsel also could be liable. “When we began taking depositions, I began to wonder if the lawyers were complicit, because when I asked the question, 'Did you understand that what you were doing was in compliance with the law?' the response would be, 'Yes, we acted on advice of counsel.' When that happened repeatedly, I felt that I had an obligation to explore counsel's conduct,” he told FBLA.

As a result, Bundy amended his complaint in October to add Dream Dinners counsel John A. Bender Jr., and Bender's current law firm, Ryan Swanson & Cleveland PLLC, and Bender's former law firm, Holland & Knight. Two other Ryan Swanson attorneys, Joanie Y. Kim and Kevin J. Collette, also are named in the amended complaint.

Another lawsuit filed in the same court is following the same path as Bundy's complaint. This lawsuit was filed on behalf of 15 franchisees by Michael Garner, partner, Dady & Garner (Minneapolis), and it has been amended to include complaints against Bender, though not the other Ryan Swanson attorneys. The court has yet to decide whether to allow either amended lawsuit.

Both lawsuits allege misrepresentations made during sales meetings and “discovery days” with prospects, beginning in 2003. “These representations consisted largely of (a) assurances that the Dream Dinners system was 'proven'; (b) of 'earnings claims' or representations to Plaintiffs of how much money they would make in their franchises or the revenues or profits of existing company-owned stores; and (c) provision to Plaintiffs of Uniform Franchise Offering Circulars, which were misleading because they were incomplete,” stated the complaint filed by Dady & Garner. The representations included a claim that an established franchise would achieve sustained revenues of at least $30,000 per month and projections for a typical monthly client base, cost of goods as a percentage of revenue, and other specific financial information.

“The [conduct] is egregious,” said Garner in an e-mail exchange with FBLA. “The franchisor made PowerPoint presentations of earnings claims and handed out FAQs with earnings claims.”

The financial representations to prospects did not conform to franchise offering requirements, according to Garner. In addition to being incomplete, they were not provided in the standardized, required format, and they lacked some of the mandated disclaimers. When presenting the PowerPoint to prospects, Dream Dinners executive Stephanie Allen allegedly admitted that “the lawyers say I'm not supposed to show this to you,” according to the lawsuit. Additionally, the lawsuit also charged that Dream Dinners breached the contract by not providing the training and support that was promised in the UFOC.

Furthermore, Bundy said that he is building evidence that “at the times that stores were operating when those earnings claims were based, neither the company-owned nor the franchised stores were even performing at half the levels that were claimed.”

Bundy added that prospective franchisees were required to sign non-compete and non-disclosure agreements before they were given the UFOCs, which is a violation of federal and Washington State franchise law. “Non-competes mean that you can't compare Dream Dinners to other meal-preparation franchises before becoming a franchisee. That's contrary to the express purpose of the law,” he said.

Dream Dinners' attorney Bender was included in the amended complaints because, according to Garner, he advised the company about preparing the UFOC in 2003. The amended complaint filed by Dady & Garner states, “Bender knew that prospective franchisees such as Plaintiffs were coming to Dream Dinners' headquarters for franchise sales presentations, and [he] knew that franchisees would rely on information provided by Dream Dinners to them in making the decision to purchase a franchise.” Yet, he “knowingly or with a reckless regard of the truth, allowed Dream Dinners to conduct personal meetings with prospective franchisees without providing an offering circular to them, in violation of the requirement that an offering circular be provided no later than the first personal meeting.”

The complaints also charge Bender with inadequate oversight of the sales process and of earnings-related information that was posted on the Dream Dinners website. They note that Bender was onsite at Dream Dinners two days per week, and thus should have been aware of how franchise sales were being promoted and conducted. “We have not brought a malpractice claim. It's a claim for misrepresentation,” said Bundy.

Bender and the Ryan Swanson law firm have retained the law firm Lane Powell (Seattle). Bender's attorney, Stanton Phillip Beck, wrote to FBLA that “we believe the allegations directed to Mr. Bender and Ryan, Swanson & Cleveland, PLLC are factually and legally without merit, and we expect that Mr. Bender and Ryan, Swanson & Cleveland, PLLC will be fully exonerated in a court of law.”

The next steps in the lawsuit will include more discovery and depositions. Bundy added that Ryan Swanson filed for dismissal of the complaint against Kim, but then withdrew the motion. Bundy has filed a motion to bring all of the issues under the review of a single judge in the court, which he believes will be granted, due to its complexity.

New Jersey 'Mobile Franchise' Act Moves Forward

On Oct. 23, New Jersey legislators took another step toward passing the so-called “Mobile Franchise Act,” as the House Commerce and Economic Development Committee voted 5-2 to send the bill to the full House for consideration.

House Bill 2491 (and the identical Senate Bill 1539) would expand the types of franchises that are subject to the New Jersey Franchise Practices Act (“NJFPA”), explained John E. McDonald, attorney with Stark & Stark. “In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) the franchisee has established or maintains a “place of business” in New Jersey; 4) the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee's sales are derived from the franchise,” he said. “The proposed change in the statute would apply the provisions of the NJFPA to 'mobile' franchises, in other words, franchises that do not have a brick-and-mortar location.”

Under the proposed bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly, from which the franchisor's goods are delivered to customers.

Burger King Retains Right To Set Minimum Operating Hours for Franchisees

On Nov. 4, Miami-Dade Circuit Court Judge Jon Gordon dismissed a lawsuit filed by three Florida Burger King franchisees who objected to the company's new requirement instituted in summer 2008 that all restaurants must be open beginning at 6 a.m. Monday through Saturday and must remain open until 2 a.m. Thursday through Saturday. Burger King instituted the longer hours to compete with other fast-food franchises and quick-serve restaurants.

“We filed a motion to dismiss, which the judge granted. Our position is that the franchise contract is clear. It states that the minimum hours of operation are 7 a.m. to 11 p.m., 'unless otherwise directed by Burger King,'” said Michael Joblove, Genovese, Joblove & Battista, P.A. (Miami), who represented Burger King. “The franchisees argued that it was not what the parties intended ' that the contract only considered Burger King reducing the minimum hours. But the judge agreed with us that the language is simple and clear.”

The franchisees can amend and re-file their lawsuit, but they had not done so by press time. Their attorney could not respond by press time to indicate if they would file an amended complaint.

New Problems Arise in Waffle House Franchisee Bankruptcy

In the latest twist in the bankruptcy filing of SouthEast Waffles, one of the largest Waffle House franchisees in the nation, the judge for the U.S. Bankruptcy Court Middle District of Tennessee denied the salary request of the former CEO of SouthEast Waffles. Shaub had been receiving a salary of $20,000 per month since the filing.

SouthEast Waffles filed for bankruptcy on Aug. 25. Since the filing, six of the restaurants have been closed, but more than 100 were operating as of late November. Shaub became the CEO of SouthEast Waffles soon after it was formed in 1999, but his role in the turnaround was ill-defined after an outside executive was hired to lead the restructuring of the company.

Subsequent to the bankruptcy filing, allegations have arisen in newspapers in Nashville, where SouthEast Waffles is based, that the company had not fully paid employment taxes in 2006 through 2008. In bankruptcy court filings, Southeast Waffles referred to “accounting irregularities” without specifying the irregularities nor who committed them.

Separately, a former employee of SouthEast Waffles filed a class-action lawsuit in November against Shaub for violations of Alabama labor for classifying managers as exempt from overtime compensation. The lawsuit originally was filed against SouthEast, but was withdrawn when the company declared bankruptcy. As of press time, the court had not yet ruled whether Shaub could be held personally liable in the class-action.

Texas AG Charges Tanning Salon Franchisor with Illegal Marketing Claims

In early November, the Texas Attorney General's office filed suit against Houston-based franchisor Darque Tan for “unlawfully claim[ing] that their indoor tanning beds can increase levels of Vitamin D in the body and therefore reduce the risk of cancer.” Under the Texas Health and Safety Code, tanning salons are prohibited from claiming that indoor tanning devices provide any health or medical benefits. Tanning beds are only approved for cosmetic tanning under Texas and federal law. The attorney general charged that Darque Tan's ads and online videos say that the tanning beds “deliver” high levels of Vitamin D to the body, and then link that to a claim that the Vitamin D reduces customers' chances of contracting cancer; this combination violates deceptive advertising and health-and-safety laws.

Darque Tan has about 87 locations in eight states. The suit names Darque Tan LLC; the company's parent, Segler Enterprises Ltd.; and company president Robbie Segler as defendants. Darque Tan did not respond to a request for comment.