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Rare ruling
Appeals court on Coffee Beanery case
(Previous article: Franchise Times, CFR February 2007)
A Michigan appeals court ruled in August that Coffee Beanery violatedMaryland's Franchise Registration and Disclosure law by failing to disclose the felony grand larceny conviction of Kevin Shaw, son of company CEO JoAnne Shaw. The decision was a highly unusual reversal of a previous district court ruling and an arbitrator's award in the ongoing case between the Michigan-based coffee franchise and two of its franchisees.
Attorney Harry M. Rifkin, who represented franchisees Richard Welshans and Deborah Williams, said of the decision, "Arbitration providers and arbitrators need to look at this and change the way they do business, and they need to respect the rights of citizens of this country." He said their intent was to pursue this to jury trial. "We believe that after we get the pending case reopened, we intend to move for summary judgment on liability and get a jury trial on damages."
Williams said they had not only lost more than $1 million, but had also lost five years of their lives.
"We are not pioneers in this," Welshans said. "The only difference between us and everyone else that has been through this is that we kept every single piece of paper to fight our cause. From day one, we refused to keep silent."
Coffee Beanery response
JoAnne Shaw, CEO of The Coffee Beanery and also IFA's 2000 chairperson, said the company is petitioning the court to reconsider its decision based upon prior case law and recent U.S. Supreme Court decisions. "We are obviously surprised and disappointed. Arbitration lasted 11 days, eight of which were used by WW, (the franchisee company)." She added, "We felt that the arbitrator's award was correct and grounded upon the facts and testimony provided."
Shaw said the company had already amended its current Franchise Disclosure Document to include the decision and has filed for recertification in the applicable states. But, at this time, they had no intention of changing their arbitration clause.
When asked if her son's conviction would be in the amended documents, Shaw answered, "No. Over 20 years ago Kevin pleaded guilty to a misdemeanor, not a felony. Maryland law does not now and has never required disclosure of that type of offense." But in a transcript from Kevin Shaw, he stated under oath that he had been convicted of grand larceny and it remained on his record because he did not complete his probation with the court-appointed officer.
The appeals court stated WW, had raised four arguments in support of vacating the arbitration award: The arbitrator had overreached her authority when she ruled on the Franchise Act claims; the franchise agreement was unconscionable; the arbitrator had a conflict of interest that rose to the level of bias; and the arbitrator manifestly disregarded the law. They contended that the arbitrator ignored undisputed evidence that it was misled about certain promotions and contracts, that Kevin Shaw made false representations about potential earnings, and failed to disclose his prior felony conviction.
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Janet Sparks is the former publisher of Continental Franchise Review, an industry newsletter that covered the franchise community for ,ore than 30 years before being acquired by Franchise Times Corporation. |
Atlanta Bread legal fight heats up as IFA files second amicus
Previous articles: Franchise Times, CFR, March 2008, August 2008)
As the legal battle intensifies between Atlanta Bread Company and former franchisee Sean Lupton-Smith, the IFA filed another amicus (friend of the court) brief, this time to help the Georgia Supreme Court understand the importance of the case to the franchise business model in Georgia.
The legal dispute involves in-term, non-compete restrictions in Atlanta Bread's franchise agreement. The trial court applied a strict standard to the in-term covenants, ruling the company's non-compete was unenforceable. IFA felt the lower court erred in evaluating the in-term restrictions under standards more appropriately applied to post-term limits. But when IFA filed its first amicus brief, the Georgia Court of Appeals affirmed the lower court decision.
David French, vice president of government relations, explained IFA's position: "This case is important to preserving the franchise model because the lower court's ruling, if allowed to remain as is, could render unenforceable the in-term restrictive covenants in the vast majority of franchise contracts for businesses operated in Georgia, including many of the most well-known and respected franchises in the world."
Battle of the briefs
Attorney Randy Edwards, Kilpatrick Stockton, representing Lupton-Smith, opposed Atlanta Bread's petition for writ of certiorari (an order from a higher court), saying, Atlanta Bread is, literally, the "author of its own misfortune. Rather than even attempting to comply with Georgia Law, ABC (Atlanta Bread Company) drafted and now seeks to take advantage of a restrictive covenant that has no territorial limit and that contains an overly broad and vague scope of restricted activity." Without a territorial limit, he declares, the restriction is void and unenforceable under any level of scrutiny.
In filing the amicus, Whitner explained, IFA has called to the court's attention the "publicly available" agreements of franchised businesses operating in Georgia that will be affected by the Court of Appeals' decision. It also gives statistics from the PriceWaterhouseCoopers study which analyzed the latest franchise data at that time, showing that franchising accounts for 16 percent of all jobs in Georgia. Information from FRANdata also was presented as part of the affidavit, including a report from UFOCs containing non-compete clauses of all restaurant and food-related franchise companies headquartered in Georgia.
But in his second response, Edwards points out that the fact that a document may be "publicly available" does not mean that it is in the record, authenticated, tested by discovery, not rank hearsay, otherwise admissible or proper basis to grant certiorari in the case." He declared, "In today's Internet world, an enormous amount of information is "publicly available," but this does not mean that on-line information meets the test for proving a fact in a court of law."
Whitner said it is now just a waiting period. The next step is for the Supreme Court to decide whether it is going to take the case.
