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Unrepentant, Moe’s Southwest founder touts judge’s ruling.


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Beth Ewen

Martin Sprock, co-founder of Moe’s Southwest Grill and the now-defunct Raving Brands, says he’s back in the franchise sales business after a federal judge in February rejected “100 percent” of the claims against the system he formerly owned. An attorney for the plaintiffs disagrees with Sprock’s characterization, and seven remaining franchisee groups are deciding whether to appeal.

But Sprock considers this vindication after an eight-year ordeal, during which he says he spent $5 million on legal fees, fighting allegations by 17 franchisees that the franchisor and Sprock were stealing money through a kickback scheme at Moe’s. Similar charges at Mama Fu’s, another Raving brand, were decided in Sprock’s favor last year.

“The court could not conclude that plaintiffs suffered actual losses as a result of the actions of defendants,” wrote U.S. District Court Judge Richard Story in his February 3 ruling about Moe’s Southwest, which is now owned by Roark Capital. He ordered judgment be entered in favor of the defendants and against the plaintiffs.

Sprock’s attorney promptly filed a motion seeking to recover $1.84 million in legal fees. The overall cost to Sprock in taking the rare stance—vowing never to settle the case but to see it all the way through trial—is incalculable, and still without end.

Awash in bad press

Sprock had to change the name of his holding company, to Big Game Brands, because the name “Raving” was awash in bad press. Daryl Dollinger, his business partner, has struggled in the meantime to sell franchises of his other brands, from Monkey Joe’s to Flying Biscuit.

Prospects get almost to signing only to be scared off in the end. “We lose the fish off the hook at the last minute. Having that hanging over your head and your partners’ head and the other brands you’re already doing—it hasn’t been fun,” Sprock says. “It kept dragging, dragging, and it hurt our business. When people read that much about you,” they think “when there’s that much smoke there’s got to be fire.”

Sprock sold Moe’s Southwest Grill to Roark Capital in 2007, and that’s when the trouble began. Two franchisees “found out the number we were selling the business for, which was quite large,” Sprock claims. “We have emails that they threatened us, not that they wanted to get rid of their stores, but that they wanted more stores, for free. It was personal, that’s how the whole thing started.

“It was so outrageous, we didn’t engage properly. We were laughing when they called me up. We just thought they were numbskulls,” Sprock says.

Like a TV drama

Robert Einhorn, attorney for the plaintiffs at Zarco Einhorn Salkowski & Brito in Miami, rejects Sprock’s characterization of the ruling as an outright victory. “I don’t think that’s a fair reading of the court order,” he says, adding the seven remaining franchisee groups are evaluating whether to appeal.

“The ruling was very disappointing. We fight for our clients until the end and we thought this was a good case. Not every case is going to go our way.”

On March 3, right before the deadline to indicate whether they’d appeal, the plaintiffs filed a brief in Massey v. Moe’s seeking to amend the court’s finding and judgment, which also buys plaintiffs more time to consider their next move.

“In the interest of justice,” the brief says, the court should “hold Moe’s and Sprock accountable for the negligent omissions” in the franchise agreement “regarding the plans of the franchise chain to impose markups on virtually all food products purchased by the plaintiffs.”

Sprock’s attorney is Steve Hill, of Hill Kertscher & Wharton in Atlanta, who says business attorneys rarely have clients who refuse to settle. “He’s an original,” Hill says about Sprock.

In civil litigation, “it tends to be just arriving at a right number, where all the businesses involved can see the light to say, you know what, this makes sense given the risk of proceeding forward.

“The way this played out, it was much more like a TV crime drama, with someone in the back room telling his lawyer, ‘I didn’t do it. I’m not going to plead to something I didn’t do.’

“Although years have probably been lost where Mr. Sprock felt the reputational damage, at least now he’s free to report to potential franchisees that he was wrongfully accused, and in fact the court held that the decisions that were made in the early years of the Moe’s system actually improved pricing,” Hill says.

‘Ringing for dollars’

Sprock himself is back to his old self, bragging about a fabulous future for his new brands, and claiming interest from prospective franchisees is sky high since the judge’s ruling. “When we win our lawsuits, we’re just ringing for dollars,” he says.

Leroy Fox, a sport bar, is “crushing it,” he claims, and they’re preparing franchising documents now. RuRu’s, a tacos and tequila joint, looks spectacular to Sprock. All told, Big Game Brands has about 100 units among all its concepts now, far below the 1,500-plus units before the lawsuits began. Sprock himself had to turn to the movie business and mining companies, as he found he couldn’t make a living in franchising in the meantime.

What has he learned from the ordeal? “We’re now double crossing our I’s and our T’s. My God, they’re going to make sure that nothing comes even close to something that’s sloppy,” Sprock says, referring to his attorneys.

He’s angry at the plaintiffs, incredulous they would tarnish the brand they themselves owned. “They were before suicide bombers were popular. These people want to blow up their own leg and their own brand and their own business. I don’t even understand that,” Sprock says.

But would he handle it differently, if he had it to do over? “I hope so,” he says at first, but then backtracks. “The problem is, when somebody comes at you and they’re so outrageous, how do you react? Well, if it’s me personally, I’ll probably react the same way I did. When you crap on my head I can tell that it’s crap,” he says.

Beth Ewen is managing editor of Franchise Times. Send interesting legal and public policy cases to bewen@franchisetimes.com.

 

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