Coffee Beanery Franchisees Sue Franchisor Attorney and Law Firm

BALTIMORE, Maryland. – Coffee Beanery franchisees Richard Welshans and Deborah Williams have filed a lawsuit against the attorney and law firm responsible for preparing the franchise disclosure document which they relied on in purchasing their franchise in 2003. They allege the franchisor’s legal counsel knew that the Uniform Franchise Offering Circular (under a new FTC upgrade, it is now called the Franchise Disclosure Document) was in violation of Maryland’s franchise law because it failed to disclose required information and misstated certain facts. Filed in Maryland federal court by Harry M. Rifkin and the Franchise Business Law Group, the suit claims that in preparing the UFOC the firm omitted a felony conviction on one of Coffee Beanery’s officers, the differences between the mall traditional retail coffee store and other concepts, the gift card program, a contract it had with Pepsi and the mandatory DMX Remote Eyes and Music Program.

Further, the complaint states that at their arbitration hearing in February 2007, JoAnne Shaw, president of The Coffee Beanery, testified that Paul R. Fransway of Pear, Sperling, Eggan & Daniels prepared the disclosure documents provided to the franchisees and that they advised Coffee Beanery on what information to include and exclude. Shaw testified that her company relied on the advice the attorneys gave in preparing and registering the UFOC.  And, on September 12, 2006 the State of Maryland and The Coffee Beanery entered into a consent decree in which the company admitted that the offering circular omitted the material facts mentioned above.

After the American Arbitration Association entered an award in favor of Coffee Beanery, Rifkin filed a motion to vacate the award in Michigan federal court, followed by an appeal to the U.S. Sixth Circuit. That court entered an order vacating the arbitration award for manifest disregard of law and ordered the parties to try their claims in court. The Sixth Circuit denied Coffee Beanery’s petition for rehearing and rehearing en banc on February 9, 2009. One month later on March 2, the court issued the mandate.

The franchisees’ complaint seeks compensatory damages from Fransway and the Pear, Sperling law firm on two counts—negligent misrepresentation and fraudulent inducement. They are seeking compensatory damages for the latter count in the amount of $1.5 million, which they claim they lost in owning and operating their Coffee Beanery Cafe franchise in Annapolis, Maryland. They are also asking for interest and costs of the suit and other relief as the court deems necessary and proper. Plaintiff franchisees demand a trial by jury on all issues triable by jury.

Attorneys representing both sides declined to make comment.

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