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By adding pages to the audited financial statements during a PowerPoint presentation, the franchisor showed revenues and expenses purportedly produced by two company-owned facilities. But at that time, the firm and its attorneys did not provide the prospective franchise owners with the Uniform Franchise Offering Circular (UFOC) as required by the Washington State Investment Protection Act.
Later that month the Turners were given the UFOC containing an Item 19 earnings claims provision that discounted any such claim, declaring, "Dream Dinners does not furnish or authorize its salespersons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a franchise. Actual results vary from unit to unit and Dream Dinners, Inc. cannot estimate the results of any particular franchise."
Although the franchisees did not enter into a franchise agreement until April 6, 2005, Dream Dinners required them to sign a binding contract as a pre-condition to receiving any further information regarding its franchise opportunity, and specifically before receiving the UFOC disclosure documents. The state of Washington requires in law that a UFOC be delivered and signed 14 days before any contract is signed. At the time they executed their agreement, they paid an initial franchise fee of $30,000 and a "grand opening fee" of $5,000. The contract stated, "This agreement and all transactions contemplated by this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Washington."
Dream Dinners' Misrepresentations
At the time of presenting its franchise opportunity to the Turners, Dream Dinners showed that it had a well-developed and tested "system," including uniform standards and procedures. But what the Turners discovered after investing in the franchise was that the company was in early development stages, far from being proven. The franchisor promised such things as assistance with site selection, lease negotiation, training, advertising, marketing, pre-opening inspections, and promotional methods and materials. But it failed to deliver. According to the complaint, Dream Dinners did not have the infrastructure and experienced personnel to perform on those promises, which constituted material breaches of its franchise agreement.
The franchisor's offer of the franchise originated in the State of Washington and the franchisees accepted it in the State of Ohio. The amendment states that Dream Dinners also violated the Ohio Business Opportunity Purchasers Protection Act, and that it did not qualify for an exemption from the Ohio Act.
Actions and Omissions by Counsel Shows Unlawful Actions
Named in the amended complaint are three attorneys who acted as outside counsel to Dream Dinners--John A. Bender, Joanie Y. Kim and Kevin J. Collette. In addition to naming Holland & Knight, it also names the law firm of Ryan Swanson & Cleveland. Bender, licensed in Washington, was retained by the company as its franchise counsel because of his experience in franchise law. He originally was with law firm Holland & Knight but moved over to Ryan Swanson in 2004, when Kim took over his duties. Collette was employed by the Ryan firm in representing Dream Dinners.
Bender drafted or approved the franchisor's franchise agreement, UFOC and all other contracts and documents used by Dream Dinners in offering and selling the franchise to the Turners. He also approved the procedure used by which they required the franchisees to sign a binding contract before they could receive the UFOC or other information, as well as the PowerPoint slides used to give the earnings claims. He allegedly participated in the illegal earnings claims with Dream Dinners and its accountant, disguising them as being part of the audited financial statements.
The lawsuit also claims that Bender knew or should have known that prospective franchisees were receiving materially false, incomplete and misleading information regarding the franchise opportunity, and that he was a "person in act of control of the activities" of the franchisor. Attorneys Collette and Kim assisted Bender in his activities for the franchise company and did nothing to prevent the relevant violations of the Washington Franchise Investment Protection Act on Dream Dinners behalf.
The complaint states that franchisees Nicole and Eric Turner suffered damages in an amount not yet fully determined but which are estimated to exceed $300,000. For judgment against Dream Dinners and its legal counsel, other attorneys and the law firms, it asks for exemplary damages up to three times actual damages as permitted by the Washington Act, and for costs and reasonable attorney fees.
Dream Dinners has not yet responded to pertinent questions regarding issues addressed in this article sent by email. When they do, Blue MauMau will publish their answers.
Another franchisee lawsuit originally filed in New York state court earlier this year represents approximately fifteen Dream Dinners franchisees. Blue MauMau has learned that an amended complaint will be filed shortly for that lawsuit.
|FIRST AMENDED COMPLAINT AS FILED.PDF||1.73 MB|