Lawsuit a drag on Fresh Healthy plan
Reis & Irvy’s is a new brand for Nick Yates, who started Fresh Healthy Vending and then created a new umbrella firm, GenerationNext.
Fresh Healthy Vending founder Nick Yates has been pushing hard to pivot his young franchise away from selling healthier-snack machines and into robotic frozen yogurt dispensers. But a recent million-dollar judgment against the company complicates plans for the new venture, which he has organized under a new umbrella name, GenerationNext Franchise Brands.
John Coffin is the former Fresh Healthy Vending franchisee who sued the company in 2014 alleging breach of contract, intentional misrepresentation, concealment, unfair competition and false advertising. Coffin said the stress of losing his family’s nest egg with the franchisor and the ensuing trial has had a significant impact on his life. Five years after first signing with the brand, he maintains hope of finding peace with an “utterly devastating” franchising experience.
“This judgment is a clear message that franchisors are obligated to follow the law and deliver on what they promise,” said Coffin’s attorney, Theo Arnold of Singler PLC.
“Fighting for franchisees is our core mission, and we are pleased that we were able to protect a hard-working businessman from fraudulent practices.”
But the case is far from over. Fresh Healthy Vending’s attorney, Pat Swan of Jones Day, said the company successfully convinced a judge to overturn several portions of the initial ruling and reduce the judgment awarded in the jury trial, adding the court found two of Coffin’s claims to be “inherently unbelievable” and the claimed damages “unsupportable.”
“The court found there was ‘no credible evidence’ to support the verdict, and reversed the jury’s damage award of $240,000,” Swan said. “The only breach of contract claim that remains resulted in a total of $6,000 in damages.”
Both sides have appealed the case to the Superior Court of California in San Diego County where GenerationNext’s headquarters is located.
Coffin vs. the ‘zor
In Coffin vs. Fresh Healthy Vending, a jury found in February that Fresh Healthy Vending lied and concealed several facts to encourage him to buy a franchise. Coffin’s charges asserted Alex Kennedy, then FHV’s head of sales, made false representations of the revenue he would make with his vending machines.
Additionally, the jury found the franchisor misrepresented details of Coffin’s franchise agreement, including a location contract with Camp Pendleton in Coffin’s territory north of San Diego that became one of several linchpins of a sprawling trial.
Nick Yates, founder
Arnold argued FHV concealed the identities of co-founders Nick Yates and Mark Trotter in asking the court for rescission to cancel Coffin’s franchise agreement with the company.
Following a multiphase trial that began last October, Coffin won on most counts including intentional misrepresentation and concealment, two counts for breach of contract, rescission, unfair competition and false advertising. The jury found FHV and some of its owners and managers committed fraud, awarding Coffin punitive damages against Yates and Kennedy.
Following motions from Fresh Healthy Vending for judgment notwithstanding the verdict and a new trial, the judge threw out portions of the verdict related to one breach of contract claim, unfair competition and false advertising. This reduced Coffin’s compensatory damages from $304,091 to $295,091, but the fraud verdicts and punitive damages against Yates and Kennedy remained intact.
At the same hearing, the judge awarded Coffin more than $565,000 in attorneys’ fees and $30,000 in costs, for a total judgment exceeding $1.05 million.
A frozen future
Nick Yates, who founded Fresh Healthy Vending in 2010 and once boasted more than 5,500 vending machines, said via email he doesn’t believe one lawsuit by one franchisee deserves to be the focus of an article, especially when other franchisors may have multiple suits against them. Further, he emphasized the case is under appeal and repeats his attorney’s assertions about the judge’s reversal of some jury findings post-trial. Meanwhile, he is focusing attention on the company’s future, which he believes has great promise.
As Fresh Healthy Vending forms a new parent company, GenerationNext Franchise Brands, it has shifted its focus away from snack vending machines to frozen yogurt kiosks. Similar to its Fresh Healthy Vending units, its Reis & Irvy’s-branded robotic yogurt machines will be placed in high-traffic locations including schools, malls, military bases and office buildings.
Currently there are no Reis & Irvy’s franchisee units operating in the field. Its first yogurt-dispensing robots are planned to hit the marketplace in the second half of 2017, but Yates said the company has already sold approximately $25 million worth of units. Reis & Irvy’s franchises can be purchased for $160,000.
John Coffin, franchisee
“The value proposition is much different” than Fresh Healthy Vending, Yates said, stressing the company is taking care to avoid overselling the new brand. “We will have a back-end revenue stream from the royalties unlike Fresh that didn’t have a royalty in place, a mistake I made, until the second half of its operating history.”
In a letter to the company’s shareholders in January, CEO Arthur Budman said it booked its 500th “froyo robot” in December of 2016 and that its future objectives include 1,500 yogurt robots and 500 franchisees.
According to the company’s latest 10-Q filing, GenerationNext Franchise Brands had $368,010 in cash on hand as of December 31, with total assets of $10.9 million and liabilities of $29.3 million.
Addressing how the company’s cash position will impact its growth plans—especially if the million-plus-dollar judgment is upheld—Yates said he has provided the company financing in the past and suggested he would be able to do so again if needed.
“We have about $24 million of deferred revenue sitting on our books as of today, and as soon as we start delivering” the units, “we should see the company become profitable almost immediately,” Yates said.
At press time, Yates said Fresh Healthy Vending still had about 200 franchisees with ongoing operations, adding the company intends to support the current franchisees through the end of their contracts. Fresh Healthy Vending hasn’t sold a new franchise since May 2016.
Yates did not offer a specific number, but said some of its Fresh Healthy Vending franchisees have bought into the Reis & Irvy’s system. Reflecting on lessons learned through Fresh Healthy Vending, he said the company is gradually shifting resources and attention toward its new venture.
“Like anybody else that’s been in business before, we plan on learning from any mistakes we’ve made,” Yates said. “We’ve built a great franchise platform, we put a special emphasis especially in the last six to eight months in hiring some fantastic talent … and we’re focused on improving constantly.”
As the lawsuit against the franchisor continues through the appellate process, former franchisee Coffin said he’s counting on the verdict to make him financially whole again. He said, by appealing the ruling, Fresh Healthy Vending is delaying the resolution and increasing the attorneys’ fees and costs.
After some time spent off the grid to find peace, Coffin is now bringing tourists on camping and city tours across North America. He said the job is not something he’s doing “to build equity,” but added the experience and human connections he’s made have brought another form of wealth into his life.
At 35 years old, Coffin first joined the Fresh Healthy Vending system in 2012 after inheriting money when his father and grandfather both passed away within six months of each other. His vending business expanded to 25 vending units at its peak.
He used some of the money “to help my mother with the mortgage, and sunk most into Fresh Healthy Vending and this lawsuit,” he said. “This money is my grandfather’s remaining legacy—seed to sow the business success of his family. Watching it disappear because of Fresh Healthy Vending, a business that sounded so noble, has been utterly devastating.”
Beyond financial compensation, Coffin said he’s looking forward to an end to a negative multi-year experience.
“He doesn’t think he does anything wrong,” Coffin said of Yates. “In Nick’s world, nothing is ever his fault.”