Coffee Beanery Violates Illinois Franchise Act

CEO Shaw Informs Franchisee of UFOC Non-Compliance 

FLUSHING, Michigan (Blue MauMau) - As a result of an investigation prompted by a franchisee in the Chicago area, the Illinois Securities Division has issued its finding that The Coffee Beanery did violate the state's franchise disclosure law. The coffee specialty retail store franchise, founded in 1976, has been franchising different formats of its business at various times (coffee shops, cafe's, kiosks and drive-throughs) since 1985. Now, in a Notice of Violation of the Illinois Franchise Disclosure Act, Coffee Beanery CEO/President JoAnne Shaw informed the offended franchisee, Oliver Garner, of the violation (click photo to read her letter). She states, ". . . the disclosure statement you received prior to the purchase of your franchise failed to disclose certain information required by the Uniform Franchise Offering Circular Guidelines . . ."  

Garner had opened his cafe concept franchise in April 2005. In March 2006, because of financial difficulties his store was sold by the bank for the assets. In early 2007, he filed a complaint with the State of Illinois regarding possible violations of the law related to the business practice of The Coffee Beanery. As an additional note, Garner said he had also been recruited by the Franchise Partnership, a minority recruiting agency hired by The Coffee Beanery. He felt that proper disclosure was not made in the UFOC stating that he would have to pay a fee to the franchise broker. As a result, he now has claims pending against Franchise Partners and The Coffee Beanery. Garner said that the recruiting firm also goes under the name Center for Neighborhood Technology (CNT), along with other banners.

Shaw Explains Franchisee Rights

As a requirement of the state's findings, Shaw issued a letter to Garner explaining the franchisor's violations and what remedies would be provided. Her letter states that the franchisee may sue Coffee Beanery for damages and/or rescission, meaning the signed franchise agreement could be voided. The Coffee Beanery CEO explained that Garner must sue within 30 days of receipt of her letter (December 28, 2007). He is also given the choice to repurchase the franchise for a price equal to the full amount paid less any net income received by the franchisee plus interest, which may require the franchisee to return unsold goods, equipment and leases. Any person who aided in transactions constituting the violation can also be held liable, jointly or severally, according to the letter. And the franchisee, under law, will be entitled to costs and attorney fees.

Response from State of Illinois

Scott Mulford, Illinois Attorney General's communication person, confirmed that Illinois law was violated and that the CEO's Notice of Violation was only sent to a single franchisee, Oliver Garner. A written complaint by Garner had prompted the investigation with the state. He said, "The rules governing preparation of the UFOC and the Illinois Franchise Disclosure Act were violated by failing to disclose certain material facts."  When asked if Coffee Beanery was currently registered, Mulford said it was not, that the franchisor had withdrawn its registration on July 9, 2007.

Franchisor Warned Garner Legal Redress Not Likely to Succeed  

Although Garner had already filed his complaint with Illinois Securities regarding possible violations of the Franchise Act, receiving a letter from a Coffee Beanery executive last April reassured him of his decision to contact state officials. The letter from Kenneth G. Coxen (pdf, 1 pg.), Executive Vice President and Chief Financial Officer, which also included a copy of a recent Arbitration Award favoring the franchisor, gives somewhat of a warning to Garner. It states, ". . . in the decision the Arbitrator agreed with our defense of the claims made against us, confirming our opinion of the lack of legal merit of these claims. It is important that you consider that . . . the claims you have made against us are the same claims made by Richard [Welshan]."  Coxen cautions Garner that The Coffee Beanery would anticipate the same result in any future arbitration proceeding.

The letter also warns of how costly arbitration can be, saying their recent victory cost the franchisee in excess of $150,000, in damages, fees and expenses, but adds that he had spent over $200,000 on the case. Coxen said, "It has been our experience that the only people who win in these situations are the lawyers." 

Repeated calls to Coffee Beanery's attorney Paul Fransway, Pear Sperling Eggan & Daniels, P.C.,  were not returned. 

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Related stories:

• Coffee Beanery Not To Sell Franchises in Illinois  
• Maryland Launches New Probe into Coffee Beanery Violations