Slapfish founder ‘never thought I’d be in lawsuits’
Illustration by Jonathan Hankin
Andrew Gruel, founder and executive chef of Slapfish, has seen success with his young franchise he calls a modern seafood shack, with 13 locations open since selling its first franchise deal in 2013, 12 more slated to open this year and “we’ve got a lot more deals signed, over 150 in the pipeline,” he told me in an interview in May.
But he’s also facing two lawsuits filed against him by vendors—prominent franchise sales consultant Fransmart and Massachusetts-based branding firm Science Creative—plus a lawsuit from an operator that is related to the Fransmart dispute. The trademark dispute with Science Creative, especially, seems to pose a threat to the young brand, since Science Creative is seeking an order to bar Slapfish from using the marks. Gruel says that claim is “absurd.”
Nobody ever told him the franchising world would be this litigious, Gruel said. “As a young brand who’s franchising, that’s a scarier area than we anticipated when we were sold a bill of goods to franchise,” he said. “I never thought I’d be in lawsuits. To everybody else it seems like run of the mill. Wow, I never thought that would be run of the mill.”
Asked what he meant by being “sold a bill of goods” to franchise, he responded it wasn’t any particular person or firm that talked him into it. “That was more about the general notion of franchising. Those that are pro-franchising imply that franchising is an incredibly simple way of scaling, when in actuality…” it’s complicated.
“You’ve really got to understand your partners in every aspect, not just your partners you’re signing deals with, but all the partners along the supply chain as well.”
One lawsuit is called Gustafson v. Slapfish, alleging fraud in obtaining trademark registration, breach of fiduciary duty, self-dealing and unjust enrichment, among other things, as claimed by Lee Gustafson and Victor Donati and the firm Science Creative, which the lawsuit says was hired by Slapfish in 2011 to provide branding, marketing and website support.
In lieu of a retainer and cash compensation, which Slapfish lacked at the time, the lawsuit claims, Science Creative was given an initial equity interest of 5 percent in 10 Fare, the parent company that would eventually create the Slapfish restaurant chain.
But Slapfish went on to improperly use the trademark without compensating Gustafson and his firm, alleges the lawsuit, which also asks the court for a judgment and order “permanently restraining and enjoining” Slapfish from using the marks.
Louis Muggeo, attorney for Gustafson and Donati, with Louis J. Muggeo & Associates in Salem, Massachusetts, said the case is in the discovery phase. “My clients were essentially responsible for creating Slapfish’s brand identity,” he said. “They did all the design work for the logo and everything else regarding Slapfish,” including the “distinctive red hand” that’s on all materials. “And unbeknownst to them, Slapfish went ahead and registered the mark they created and never compensated my clients for the work they did.”
His clients so far “received nothing” for their 5 percent equity stake, Muggeo said, adding “we’re encouraged that Andrew suggests he’s doing well, has at least 12 ongoing concerns and plans 25 more. That’s good news for us.” Why is that good news? “Well, if we have an equity interest, the value increases. So we wish him well.”
Gruel called the Gustafson lawsuit “just an absurd, ambulance-chasing trademark suit that’s just, I don’t even know how to describe it. It’s a vendor that we worked with in 2011 that’s suddenly appeared.” Slapfish has filed a counter-response to that lawsuit.
The other lawsuit is Fransmart v. Slapfish. Virginia-based consulting firm Fransmart regularly partners with young franchise concepts to help them grow, succeeding with such home runs as Five Guys burger chain and The Halal Guys. But its deal with Slapfish led to a lawsuit over alleged unpaid royalties and shows that not all such arrangements work out.
“Slapfish has failed to pay Fransmart for a number of royalty commission invoices,” says the lawsuit filed last year and now nearing a resolution, according to Gruel. The total owed was more than $75,000 as of last July. “Based on Slapfish’s failure to pay the foregoing invoices, Fransmart is concerned that Slapfish will also fail to pay invoices coming due after July 31, 2017.”
Fransmart is the exclusive consultant and general adviser to Slapfish in the marketing and sales of franchises, the lawsuit states. Stefan Black of Ford & Harrison in Los Angeles, who is representing Fransmart, declined to comment via email. Dan Rowe, founder of Fransmart, did not return phone calls seeking comment.
Gruel said the Fransmart suit is related to another lawsuit filed by an operator, Abdelmuti Restaurant Holdings. “We still work with Fransmart and everything is near the resolution stage,” he said.
Gruel said when franchisors work with outside brokers like Fransmart, “as our quote exclusive franchise sales provider,” he said, emphasizing the ‘quote exclusive’ part, they take a different approach than a franchisor selling its own deals. “If you sell your own deals internally, you’re controlling the messaging.”
Slapfish calls itself a modern seafood shack, intent on solving this problem: “Americans want to eat more seafood; however, it is too expensive to do so two to three times a week at a full-service restaurant,” as Gruel explained in an executive summary of its business plan.
He feels confident in his mission, and rattles off the deals on hand. “We’re opening three in the Maryland, D.C., Virginia area this year, one in Oklahoma, two in Arizona, one in Utah, one in northern California, two in Orlando, one in South Carolina. We have deals in the U.K. as well, and then we’re looking to finalize some more leases across the Colorado area.”
The litigation, while unwelcome and initially surprising to him, “can be simply resolved. They’re growing pains and operating issues,” Gruel said. “We’re dealing with it.”
Beth Ewen is editor-in-chief of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.