Two years of fighting between John Hewitt, ousted CEO and founder of Liberty Tax Service, seemed to be winding down by July 2018, when Hewitt agreed to a $20.58 million buyout of his controlling shares. The two prior years were “civil war. It was the worst battle ever,” he told Franchise Times in October 2018.
The war is back on. Liberty Tax in March sued Hewitt, his holding company Loyalty Brands and the new tax prep franchise he acquired, ATAX, alleging a “wide-ranging and ongoing scheme to unfairly compete against Liberty.”
Hewitt has “misappropriated Liberty’s confidential information in violation of the Defend Trade Secrets Act, and in breach of the employment contract he entered as Liberty’s CEO, to target Liberty’s most profitable franchise locations” and convert them to ATAX, the lawsuit claims.
Liberty also sought injunctions to stop the actions, filing a brief April 19 that included an affidavit from Trisha Grabert, former Liberty Tax franchisee and an employee of ATAX from August 2020 until March 2021, when she was terminated. During that time, Hewitt identified Liberty’s franchisees who were “ripe for the picking,” based on confidential information, her affidavit said.
Hewitt’s general scheme was to “get the band back together” or to “reunite the Liberty family” at ATAX. “To that end, he would invite current and former Liberty employees to his home, to dinner, and to events, during which he would ply them with alcohol to cause them to talk more freely,” the affidavit said.
Brent Turner, CEO of Liberty Tax since mid-2019, originally agreed to an interview but then canceled it and sent a statement that said in part, “What happened here goes well beyond competition and instead constitutes unfair business practices.”
Hewitt and defendants “have incited parties to breach agreements with Liberty Tax in order to join with ATAX to try and help ATAX illegally compete with Liberty Tax in the marketplace, at Liberty Tax’s expense. This calculated conduct of defendants is not at all surprising, considering Mr. Hewitt is banned from any involvement with Liberty Tax under a DOJ Order,” Turner wrote.
“At Liberty Tax, we will take a stand against anyone, particularly competitors, who utilize unfair business practices to their advantage to try and damage the goodwill and reputation of Liberty Tax.”
High-interest loans ahead
The accusations come at a critical time for Liberty Tax, as the franchise is set to merge with a SPAC called NextPoint Acquisition Corp., based in Canada, for $243 million. NextPoint is also seeking to buy LoanMe, a California-based lender that issues consumer and business loans, at interest rates reaching at times triple digits. WalletHub said LoanMe personal loans charge an APR range of 9.9 to 98 percent. Business loans have interest rates ranging from 14.9 percent to 149 percent.
The deal is set to close mid-June, with Turner becoming CEO of the newly named NextPoint Financial, Turner confirmed. Franchisees could then offer tax preparation and lending services. Turner called the loan products “very profitable” on a conference call and said they’d be available at 850 Liberty Tax locations by 2023. Liberty Tax has 1.6 million customers and 2,700 locations, Liberty said. At the start of 2017 it had 3,668 units, its FDD said.
The seller, called Franchise Group Inc. after a name change from Liberty Tax, will use cash proceeds of $182 million to pay down debt. Franchise Group, backed by venture capital firm Vintage Capital Management at the time of Hewitt’s exit, began acquiring other brands in 2019, and its holdings now include Buddy’s Home Furnishings, American Freight, The Vitamin Shoppe and Pet Supplies Plus.
Sued ‘70 or 80 times’
“Another scurrilous lawsuit. It’s a pack full of lies and exaggerations,” Hewitt said when asked about the allegations, noting CEO Brent Turner signed a statement at the end attesting to the lawsuit’s truthfulness. “Look at that. He perjured himself. We’re going to defend it vigorously but it has no validity at all. He swore under penalty of perjury, so we’re looking very seriously at going after him for perjury, with everything that we can.”
“The more successful you are the more you get sued, and I learned that when I started to become successful,” with Jackson Hewitt, the previous franchise he founded after leaving industry giant H&R Block. “I’ve been sued 70 times or 80 times, by H&R Block, by franchisees, by Jackson Hewitt and now by Liberty. Ninety-nine percent of the time the only people who win are the attorneys.”
Hewitt officially launched Loyalty Brands, his new umbrella company, in March 2019, when he said his non-compete agreement with Liberty Tax ended. Since then, Loyalty has purchased 10 brands. Its largest, with 60 units, is ATAX, acquired in July 2019 when it had 40 units. Also under the umbrella are At Home Elder Care, First Choice Business Brokers and Zoomin Groomin, a home-based mobile grooming service, according to Martha O’Gorman, chief marketing officer at Loyalty.
Asked why Liberty Tax is suing him, again, Hewitt is characteristically defiant. “It’s a joke. They’ve lost 500 franchisees. They’re trying to punch me to stop me, to slow me down, because they know we’re going to be the fastest-growing tax company in the country.”
I ask if he’s having fun in his new gig. “I am, I am. You know I’m old, right? I’m 71. I’ll be 72 in two months. People say why do you keep doing that? I built two half a billion dollar public companies. Why do you keep working?
“And I say, I work to help change people’s lives. This isn’t the biggest thing, but I’ve created over 800 millionaires. That means I’ve created 5,000 half a millionaires…and 10,000 quarter-millionaires. I’ve changed people’s lives, and that is rewarding,” Hewitt said.
“When I was a kid, I thought I’d retire early. Well, I don’t know what I would do. There’s nothing more fun than changing people’s lives. I think I invented this phrase: Thank God it’s Monday.”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.