Edit ModuleShow Tags
Edit ModuleShow Tags

Losing the war

Going active tough on vet 'zees


Published:

 

Leon Batie lost his two Subway restaurants while he was on active duty in Afghanistan, despite setting up a system to keep his stores running.

Leon Batie spent a year in Afghanistan living in a mud hut with limited electricity.    He trained the Afghani Army how to be an army while he avoided explosives and dodged gunfire and mortar shells.

But that was nothing compared to what was hitting him back home.

The 40-year-old returned from active duty two years ago to discover that the two Subway restaurants he had opened in 2003 were about to be shut down, and there was nothing he could do about it.

He said the two people he left in charge of the stores, including his brother and a fellow franchisee, failed to pay the rent bills during his absence, leading Subway to foreclose on the property. Batie offered to pay what was owed on the leases to bring them up to date and rescue the stores but claims he was rebuffed by the franchisor.

Batie filed a federal lawsuit last year against Subway Real Estate Corp. and the franchisee, Travis Brown. The lawsuit against Subway has been dismissed because the judge said it wasn't the correct venue—Batie's attorneys have appealed in a Texas state court—but the suit against Brown for breach of fiduciary duty remains. "When I came home, all my hopes and dreams were destroyed," Batie said.

Many franchisors have successfully targeted returning war veterans as potential franchisees, yet Batie's tale highlights what can happen to existing owners who are reservists or National Guard members that get called into active duty.

Aside from the obvious danger to life and limb, getting called into service uproots lives and creates enormous hassles at home. They are given a limited time to get affairs in order and have almost no choice whether to go.

This is an even greater challenge when the reservist owns his or her own business. Those businesses can suffer without their owners, who obviously can't operate the enterprise from half a world away. "The people who get really knocked in the head are the independent businessmen," said John Odom, a retired colonel in the Air Force Reserve and an attorney who represents reservists in employment and other disputes that arise following tours of duty. "It can be a nightmare for them."

While federal law is straightforward in protecting employees, it is not as clear when it comes to the self-employed, including people who own franchises. An estimated 10 percent of the reservists who've been called up since the Sept. 11 terrorist attacks—about 60,000 people—owned their own business.

Those owners do have certain protections under the Servicemembers Civil Relief Act, or SCRA, a 50-year-old law that provides various protections to members of the armed forces called into service.

Creditors, franchisors, landlords and others have to take into consideration a reservist's active status into account when it comes to loans or leases because the SCRA frequently trumps existing contracts. In the case of a franchise, Odom said the act takes precedence over the franchise agreement when provisions in the deal favor the franchisor.

"I spend a lot of time telling creditors' counsel that I don't care what the contract says," Odom said. "You can put it any way you want to. But once the franchisee or the obligor goes on active duty, he or she gets a protection they didn't have when they signed a franchise agreement." Yet many businesses, he said, don't know this.

Franchisors that terminate the agreement of a franchisee in active duty must tread carefully. Such an action cannot be done without a court order, Odom said. The court must be informed that the franchisee is a member of the military, and then the court must appoint an attorney to act in the franchisee's stead. That attorney must then be given 90 days to notify the franchisee. 

Odom said cases of a reservist getting his franchise terminated while he is on active duty are rare. In most cases, he said, the franchise tries to work with the company.

"The franchisee's main job for the period he's called up is to kill bad guys and not get killed himself," said Odom, who was commenting on general issues and knows nothing of the Batie-Subway case. "The whole rationale behind the SCRA is so the military member doesn't have to concentrate on non-military things during the period of his or her active service.

"We don't want Batie wondering how many sandwiches are being sold when he's in Afghanistan. It's counterproductive. It gets him and the people in his unit killed when his attention is diverted."

Asked to respond to Batie's allegations, an attorney for Subway said that commenting about ongoing litigation is against corporate policy. Calls to Travis Brown, the franchisee who ran the stores, were not returned.

Batie opened his first Subway in South Dallas in August 2002, just a few months after he was laid off from his job as a manager of a telecommunications company. Batie tapped into a neighborhood revitalization program for the city that provided him with a low-interest loan for opening the store in an economically depressed part of town.

The store was a hit. He opened a second unit within mere months. He said both stores were doing well and profitable. "Here I was, living the American dream, owning my own business," Batie said. "It's always been my dream to own my own business.

That dream had a cost: Batie was spending 80 to 100 hours a week in the first store, and again when he opened the second. While that hard work got the stores up and running, the time away from home cost Batie his marriage. He was divorced by 2005 when the Army called.

That was in March. In April he was to go to Afghanistan. Batie said he was given two weeks to put his affairs in order.

He decided to take a two-headed approach to the problem of his Subway units. Batie put his brother Chris in charge of the company, providing oversight. Another franchisee, Travis Brown, was to run the day-to-day operations and pay the bills—a task for which he received $600 per week, according to the lawsuit.

Neither would have absolute control. Chris's job was to pick up the mail at Batie's house, including the bills. He was to bring the bills to Brown to write the checks, which they were both to sign.

But there were problems. In October, according to the lawsuit, Brown complained that Chris wasn't delivering the bills. Batie then transferred the power to fully run the stores over to Brown. But by that time the stores began falling behind on payments. According to the lawsuit, the stores were notified in August that they were behind on rent. The payments were made, the lawsuit said.

Another notification that rent was overdue was sent in November, and again the payments were made within a 10-day window to cure the problem. Yet the third time the stores fell behind on rent, in February 2006, the stores' leases were terminated and Subway took the franchise to court.

Batie didn't find out about the possibility of a termination until March, when he arrived in the U.S. for his first break since being called up, according to interviews and claims in the lawsuit. He planned to spend time with friends in the Carolinas and called Chris to see how things were going. "Not well," Chris said, who then told Batie about the lease problems.

Batie flew back to Dallas in time for the second court hearing on the lease termination. The judge didn't appoint an attorney for Batie and ruled in Subway's favor, said Cheryl Mullin, Batie's attorney. She said Batie offered to pay the back rent but had been told by the area representative that it was too late.

Batie said he flew back to Dallas, just in time for the second hearing on the termination of the leases, when a judge ruled in Subway's favor. He offered to pay the back rent but the request was denied.

Mullin said the stores were in good standing with Subway when Batie left, though there had been some previous problems of unpaid royalties early in the stores' history. She also dismissed the idea that the units didn't make enough money to pay the rent, saying that if this was the case Batie should have been contacted sooner so the problem could be corrected. 

The loss of his stores left Batie deep in debt, with more than $300,000 in outstanding loans on the equipment. He hasn't filed for bankruptcy and is paying the bills by himself, slowly, but he is worried about his ability to pay it all off. The unpaid rent and the loss of the stores have affected his credit and could keep him from advancing further in the military. "The goal is to pay all these people back," Mullin said.

Brown has since purchased one of Batie's two stores. According to Mullin, the other store was purchased by a company owned in part by an official with Subway's area developer for the Dallas region.

Today, Batie regrets only the setup he constructed to operate his stores. "I regret giving any of them power of attorney," he said. "If I had never givenpower of attorney, then Subway would have had to contact me. I would have known what was going on and would have got compassionate reassignment back to the States."

Batie doesn't regret going, however. He had received a bronze star for his service in Afghanistan and, with the collapse of his stores, has returned to active duty. He is stationed at the Scott Air Force Base in Illinois and was recently promoted to Lieutenant Colonel.

"My dream of owning my own business was stolen for a few thousand dollars," he said. "I feel as if I failed. A lot of people trusted me to do the right thing. People gave me money to revitalize the South Dallas area. Here I am, being punished for serving my country. It is wrong."

Edit ModuleShow Tags
Edit ModuleShow Tags
Edit ModuleShow Tags

Development Deal Tracker Newsletter

Receive our free e-newsletter and learn what the fastest growing franchises are up to.

Edit ModuleShow Tags
Edit ModuleShow Tags Edit ModuleShow Tags

Find Us on Social Media


 
Edit ModuleShow Tags