Smoking Gun Emails Billow Dark Cloud over Dunkin' Brands

CANTON, Mass. (Blue MauMau) - When Cindy Gluck, a co-partner franchisee of Dunkin' Donuts, made a decision to transfer 15 percent of her share of the business to a well-deserving store manager, Dunkin' slapped with her with a lawsuit. Although she alleged that she had sought permission from Dunkin' prior to finalizing the transaction, the franchisor immediately filed against her and her partner and terminated both franchise agreements for their two stores.

That was approximately two years ago and now the fate of the Brooklyn store operators still hangs in the balance as they continue settlement talks in federal court with the Dunkin' franchisor conglomerate. But as they continue litigation in U.S. District Court of New York, several revealing emails have surfaced out of the legal documents, raising questions as to whether the termination of the franchisees was pretextual, under the guise that they had breached their contracts.

First, the company email memos bare Dunkin' executives plotting the exit of the franchisees, using tactics such as, "let's continue to push" and "effectively move them along." The email discussions involve not only the Franchise Services Manager and the Directors of Operations, Loss Prevention, and Business Management and Development, but also Dunkin's Legal Department, showing a coordinated interdepartmental effort in terminating the two operators.

Under the topic of "Cases & Resolutions," the first email is from Mark Merrriman, the Franchise Services Manager-Special Services, asking, "Any word on the following networks . . . ."

Although the first two names are redacted, he specifically names the third, "Sam Habib (Brooklyn)", partner of Cindy Gluck. He asks, "Do we have an agreement with them to sell and what was the penalty?" He then expresses that if he and Jeremy Vitaro, the Business Management Director, could be updated "so we can effectively move them along faster that would be great."

In a reply from his boss Leonard Hohmann, Director of Operations, copied on the memo, he writes, " . . . thanks for following up on these matters and let's continue to push so we can resolve." But he continues, "Moving forward please do not email LP [loss prevention] regarding such matters and let's communicate via phone." In depositions Hohmann describes "loss prevention" as an investigation of "underreporting cases, transfer matters. Where it could be a violation of the franchise, they will conduct a case." He adds that the investigation could be related to a violation of the franchise agreement.

But secondly, the emails show that the Dunkin' corporate officials are also talking with another franchisee about the terminated operators whom they have sued. After a Dunkin' paralegal emails Basil Kazepis, the Director of Retail, regarding a default notice from the franchisees' landlord, she writes, " . . . It appears the F/ee has until 11/2/07 to pay. Is this a store that we are interested in exercising under if the default is not cured?" According to a court document, the franchisees withheld lease payments from the landlord for several months until four roof leaks were fixed.

But In his response, Kazepis emails back, "Yes we want to keep it. In fact they were negotiating with Jeremy [Business Management Director] and his team regarding buyout etc." He adds a note to Vitaro, who was copied on the email, "Jeremy,--let's jump on this, I'm pretty sure Skrivanos is interested in the two stores they have."

Konstantino Skrivanos, better known as "The Greek," is a multi-unit operator who is reported as owning a dozen or more Dunkin' shops in the Brooklyn area and 100-plus units on the east coast.

Addressing the Emails under Oath

But in a transcript of a deposition of Leonard Hohmann (Director of Operations), the emails are presented as exhibits to the franchisees' counter-suit. When asked by David Jaroslawicz, attorney for the franchisees, what brand standards the terminated franchisees were not maintaining, Hohmann first only remembered one, that of the "oven toasted program," Dunkin's new breakfast sandwich platform. But when asked if the terminated franchisees are supposed to continue spending money to upgrade their store and get new equipment, Hohmann doesn't know the answer, even though, as Jaroslawicz points out, he has been with Dunkin' for 28 years. Hohmann only states that it is a decision made by their legal department.

Regarding the $100,000 penalty imposed on the franchisees by Dunkin’ (later reduced to $75,000) as part of a post-termination settlement, Jaroslawicz asks Hohmann what a "penalty" is. Hohmann answers that although he has heard the term "penalty" he doesn't set or enforce them. "I don't have anything to do with penalties when it comes to Dunkin' Donuts," he states. When pressed he adds, "Penalty could mean someone has to sell their business," but says that decision again is made by their legal department.

Hohmann also states that he has never talked to anyone about the two franchisees, Cindy Gluck and Asam Habib, other than Merriman his Franchise Services Manager, even though the operators were transferred to his "Special Services" unit. He explains that Special Services is where franchisees are transferred when they are not maintaining brand standards or when they have violated their franchise agreements. He said the two franchisees were terminated due to loss prevention activity. When asked if he knew what Gluck and Habib were accused of, Hohmann then said it was an "illegal transfer."

But again in reviewing the emails, Hohmann is the one stating " . . .let's continue to push so we can resolve." He adds, "Moving forward, please do not email LP [loss prevention] such matters and let's communicate via phone." When questioned on it, Hohmann explains in his deposition that loss prevention matters deal with sensitive information and he didn't want it falling into the wrong hands. But he admits, when challenged by Jaroslawicz, that he feels Dunkin' does have a secure email system.

Because the franchisees are still operating their stores, Jaroslawicz asks Hohmann repeatedly if they were told to take down or leave up the Dunkin' signs. He answered that neither he nor any subordinate ever told Gluck or Habib to stop using the Dunkin' Donut franchise name. And Hohmann states that he has never spoken to the two franchisees, even though they are under his Special Services area. Again he says the decision is made by their legal department after a franchisee is terminated.

When Jaroslawicz asks again, "In your area of operations, who decides whether the store should take down the Dunkin' Donuts name or leave it up?" Hohmann responds, "That would be done probably by a court of law." He also says that he does not know if the franchisees offered to take down the signs.

During the deposition, Jaroslawicz showed Hohmann yet another email also marked as an exhibit. It was from Hohmann to Vitaro, the Director of Business Management, stating that the franchisees had been evicted and he wanted to act to "preserve the location." When questioned as to what that meant, Hohmann said Dunkin' was in the business of running Dunkin' stores and continuing the Dunkin' trademark--"not to close locations." When questioned if he wanted to keep the store operating, Hohmann explained what he meant was that he just wanted to evaluate it. But when asked if he did evaluate it, he said no, he hadn't.

In regards to Konstantino Skrivanos who was mentioned in the emails, Hohmann said he had heard the name but didn't know him.

Contradiction in Testimonies

But in Mark Merriman's deposition, prior to Hohmann's testimony, he answers questions about whether or not terminated franchisees should continue to operate their stores. He states, " . . . it's not about them staying open, sir, there's no reason for them to close." And he adds when asked if a terminated franchisee is supposed to stay open, he says, " . . .Well, yes, they stay open, because as far as I look at it, they're a franchise with the sign up taking care of customers, and the termination is part of the legal piece, and as far as I'm concerned, it's operation as usual."

When questioned on what Hohmann meant in wanting to "preserve the location," Merriman said, "He had stated that "preserve" would mean to keep the location as a Dunkin' Donuts, that it was important to keep the store operating successfully. He adds, "It's hard to preserve locations sometimes when the operations go down." Merriman said what termination means is, " It's over, your franchise is over, get out."

Associate General Counsel and Assistant Secretary Jack Laudermilk gave his testimony in a later deposition, countering some of the statements made by Hohmann and Merriman. He first explained that the two franchisees had been terminated for breach of the franchise agreement, with respect to a transfer of interest in one of the stores. He also said it was for alleged misrepresentations in the franchise as well as fraud committed on the company in connection to the transfers and misrepresentations.

But when asked if there can be a transfer without Dunkin's approval, Laudermilk states, "Not one that we recognize, but there can certainly be a transfer." He said it could be the transfer of an interest for consideration.

In explaining what a penalty was, Laudermilk stated, "Some people call it a penalty. We call it a negotiated settlement payment. We sometimes refer to it and use it to settle these cases."

In answering questions on whether Gluck and Habib should continue operating their stores, he states that they shouldn't. He said they reported to Merriman and no one else, but if Merriman told them not to stop operating their stores, they should not have listened to him. According to Laudermilk they should have taken off the Dunkin' name and respected and honored the post-term restrictions on the compensation. He explained, "In other words, they cannot continue to run a coffee and donut business, which is probably what they were suggesting of Mr. Merriman."

Dunkin' Response

Stephen J. Caldeira, Dunkin's Chief Global Communication spokesperson, issued this statement regarding the litigation with Gluck and Habib:

"The franchises of Cindy Gluck and Asam Habib were terminated because they transferred an interest in one of their stores and knowingly concealed it from Dunkin' Brands, Inc. (the franchisor) with fraudulent documents which is entitled to know who owns its licenses per the franchise agreement.

After the fraud was detected, Cindy Gluck confessed in a letter to the franchisor. As a result of that confession, Ms. Gluck was deposed under oath and denied the contents of her own letter.

As is the case with all franchisees that have been terminated, Ms. Gluck and Mr. Habib have been offered an opportunity to sell their stores rather than lose their franchises as part of the termination process. As a franchisor, we seek to retain locations when a franchisee is terminated. As part of that process, field personnel naturally discuss (as part of their collective responsibility) what will potentially happen to the store locations as a result of the litigation.

To be clear, there is absolutely no evidence in the emails to suggest the termination was pre-textual (sic), and any such characterization is misguided, wrong and irresponsible. To reiterate, Dunkin' Brands does not enter into litigation with franchisees unless there is clear cause, which was unequivocally the case with Ms. Gluck and Mr. Habib, end of story."

Because Dunkin's statement was received on the weekend we were unable to get a copy of the Gluck deposition. If a copy is obtained next week, it will be attached with the other depositions as an update to this article.

Mr. Skrivanos is currently in Greece and not available for comment, according to a store manager. Repeated phone calls to his office were not returned. Blue MauMau will try to arrange an interview with Mr. Skrivanos on his return.

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