Part 1: Judge's Decision Masks Oral Ruling at Mama Fu's Trial

Raving sold Mama Fu's after being sued by franchisees.

Reporter’s Note: Part 1 of a two part series sets the stage of the federal judge’s final decision in a lawsuit filed by franchisee groups against Mama Fu’s. Part 2 will focus on the details of the judge’s oral explanation of why he ruled as he did, stating that although investment and entrepreneurship is the lifeblood of our economy and our country, he must apply the law as he understands it.

ATLANTA – While Mama Fu’s Noodle House defendants and attorneys basked in the glow of their victory in federal court last month, Blue MauMau dug a little deeper to uncover the root of the judge’s oral decision, made from the bench on closing day of trial. In giving his verdict he declared, “I am going to grant a judgment in favor of the defendants. And I do that not without full recognition that significant losses have been incurred by the plaintiffs and that I hate that.” Judge Richard Story then asked the people in the courtroom to stay and hear why he ruled the way he did. But he further explained, “. . . it is hard to mask what you are doing once you start down the roads of your ruling.”

The transcript of the judge’s February 26 oral decision (pdf) shows the detail on his findings on misrepresentations, failure to disclose supply chains and kickbacks, issues on the statute of limitations and “overwhelming evidence” of piercing the corporate veil, while his March 10 written order (pdf) fails to scratch the surface of those issues. It states that the case arises from disputes between approximately twenty-nine franchisees and Mama Fu’s, its entities and officers over the sale and development of its franchises. The franchise store owners claimed that they had relied on oral and written misrepresentations throughout the course of dealing with Mama Fu’s defendants, including its then-chief executive officer H. Martin Sprock and vice president Daryl Dollinger. (Shortly after the amended complaint had been filed on March 3, 2008, franchisee Murphy Adams Restaurant Group acquired the Pan-Asian food chain, which was not involved in the litigation.) 

While many of the details regarding the judge’s findings of misrepresentations and failure to disclose came out during the oral ruling, little of it was revealed in his final written adaptation. In analyzing the two decisions, the attorneys representing the parties on both sides expressed their views. In a recent news brief from DLA Piper, the firm representing franchisor Mama Fu’s, gives their overview of the case and explains that the judge’s written decision confirms his oral ruling. The news bulletin states that alleged misrepresentations contained in the franchise disclosure documents, or allegedly made during the franchise sales process are not actionable unless they are false, could have been reasonably relied upon and were the proximate cause of demonstrated damages. It further states that the franchisee groups were pursuing claims for breach of contract, fraudulent inducement, Georgia RICO and negligent misrepresentation against Mama Fu's Noodle House and several of its affiliates and shareholders. And that two of the plaintiff groups were also pursuing claims under the Florida Franchise Act (FFA) and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). They report that alleged misrepresentations did not support actionable claims, that they "were either not false, lacked justifiable reliance, or did not result in any demonstrated damage to Plaintiffs.”

But Robert Zarco, Zarco Einhorn Salkowski & Brito, felt Judge Story’s written decision masked his findings in his oral ruling. And Zarco had  some strong words regarding Judge Story’s final judgment, saying, “I believe the court has turned disclosure laws on its head by finding that it is unreasonable for a franchisee to rely on express, undisputed misrepresentations contained in a UFOC.”  Zarco said he felt the court did not understand the significance of a franchise and what the obligations were for a franchisor in terms of his responsibilities to try to create enough of a system that it reduces or minimizes the risks of failure. The Zarco law firm had played a small role in the case acting as consultants to lead counsel at Casey Gilson in Georgia, addressing franchise legal issues.

Related reading:

• Part 2: Despite Misrepresentations by Mama Fus, Judge Rules against Franchisees
• Court rules for Raving in Mama Fu's suit – Nation’s Restaurant News
• Sprock and Team Just Getting its Second Wind --Winning Mama Fu's
• Mama Fu's Franchisees Set for Trial Armed with Expert Report
• New CEO Speaks on Mama Fu’s Acquisition
• Mama Fu’s Biggest Franchisee Buys Noodle Chain
• Raving Brands faces litigation from Doc Green’s franchisees