Cuppy's Coffee CEO Attends Court, Confronted by Franchisees
TUSCUMBIA, Ala. – As the CEO of the virtually disintegrated franchise chain Cuppy’s Coffee stepped up the back stairways of Alabama’s Colbert County district court early Wednesday morning, angry franchise owners were staked out to spot and then confront him.
Franchise owners have not been able to reach Mr. Nabors by email or phone for a number of months.
“Where’s my money?” shouted Cuppy’s franchise owner Alicia Benefield to Cuppy’s CEO, Dale Nabors. She and her husband have lost over $170,000 in a coffee shop business that has little to show for the money. "The only way to pay our business debts is if we sell our house," said Mr. Benefield.
"We aren't going to do that. I am not going to lose my home," replied Mrs. Benefield.
With the doors to the court not yet unlocked for the 8 a.m. session, Mr. Nabors was cornered. He explained that the money meant for the franchise chain is now pretty much gone.
Ms. Benefield and her husband have been franchise owners since 2007 in Carollton, Georgia.
"I am going to make sure that justice is done with Cuppy's, as long as it takes," shouted Ms. Benefield.
Some $30 million dollars from franchise owners were invested in their shops with sometimes very little to show for their money — no equipment and no build-out.
Ms. Elinor (Pinky) Legaspi, a franchise owner in Tyrone, Georgia told her past CEO, “There are Cuppy’s Coffee shops that are making money now that they are independent. Cuppy’s could have made money from royalties on the coffee shops but you guys blew it. How does that make you feel?” Ms. Legaspi was referring to the sparse support that franchise owners received from the franchisor.
Mr. Nabors went quiet.
Ms. Legaspi says she put nearly $180,000 in the franchise investment.
A few minutes after the confrontation, the three Cuppy’s franchise owners attended Mr. Nabors hearing with Judge George E. Carpenter. The judge called Nabors to the bench and quietly asked him some questions that few of the 45 or so attendees could make out.
What was heard was only a few soundbites.
“What’s with these Florida warrants, Mr. Nabors?” asked Judge Carpenter in a slightly elevated voice that some in the courtroom could make out. The judge was speaking about an outstanding warrant for Mr. Nabors for unpaid checks. An order to extradite Mr. Nabors to Florida has been issued. “Do we need to have a Florida governor office’s [issue a] warrant to put you in shackles?” the judge said.
Mr. Nabors responded loud enough for some of the rows to hear. “There were no bad checks written in the state of Florida.”
In a short interview later outside the courthouse, Mr. Nabors explained that these checks were written in Alabama to a terminated employee who had followed the company when it moved to Muscle Shoals, Alabama. When the employee returned to Florida, the employee attempted to cash the bouncing paychecks in that state.
Judge Carpenter responded in a loud enough voice to be heard by those in the court, “We haven’t heard a word [from Florida]."
Mr. Nabors then walked out of the courtroom, followed by the franchise owners. A Huntsville, Alabama television crew was filming him.
--
Local news coverage: Cuppy's Coffee CEO Makes Court Appearance (Alabama's Shoals Insider)
More on this story coming. Blue MauMau interviews CEO Dale Nabors and franchisees.
- Franchise topic:
Don't forget to add the alias R. Dale NABORS.
Very devious.
Even here on BMM you see people hiding behind aliases.
That last posting was actually made by "Robert Weinerhombre."
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Weinerhombre???
Wouldn't you want to hide a surname like that?
In the hallway of Alabama's Colbert county court house, Judge George Carpenter happened to be between sessions. When asked about defendant Mr. Dale Nabors, the judge replied, "Florida doesn't want him very bad or he'd be down there."
Judge Carpenter means that Nabors, the CEO of Cuppy's Coffee and other affiliated companies, has a warrant on him by the state of Florida. But Florida has not sent representatives to take Nabors. Its department of law enforcement and sherrif know of Nabors' original court hearing date.
Although Florida's Okaloosa county sheriff department has issued extradition orders, it may consider the price of having a crew drive up to Alabama to extradite Nabors for a bounced paycheck as too costly.
The judge's comment observes that if Florida really wants Nabors, they'd come up and get him. But they have not.
The next court date for Nabors in Colbert County is June 22.
Unlikely unless the State of Florida sends someone up to Alabama for the next court appearance.
From the eyewitness accounts, the Judge made a point of noting that Florida did not appear, and the otherwise sotto voce Judge was clearly heard by the reporters in attendance.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
Jim;
Dale does have business savy, and an understanding of the necessary backroom accounting skills.
He is genuinely skilled.
This makes it all the harder for Dale to accept on an emotional level that Morg played him for a mark - there is nothing worse for a skilled businessman to admit than he was taken by a con.
The theory of cognitive dissonance predicts that when Dale is faced with a) facts that show Morg set him up, and b) his own belief of his business skill, he will seek to discount the facts in a).
Morg's actions will be seen in a different light. Because, like all of us, Dale will not admit to being a mark.
Other individual's who dealt with Morg will have the same problem.
And Jim, this is why serious due diligence costs so much. Cognitive therapy is expensive.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Jim Coen is being way to circumspect and way to kind to Dale Nabors.
From the outset--even before he went down to Florida to meet with Morgan--Dale Nabors was one of the most insightful and savvy businessmen on the planet. (If you didn't think so, just ask Dale Nabors and he would educate you on the topic.)
Also from the outset, there was significant evidence that this whole enterprise was at best dubious if not an outright fraud.
Such evidence predated Snowden & Morgan's involvement with this particular (JavaJoz/Cuppys) company, and continued to mount through the tangled web of companies, as assets and operating entities were shuffled with the dexterity of a Times Square 3-card monte dealer.
Dale Nabors was not only dismissive of franchisor bad behavior in general, he was dismissive of those who pointed out that Cuppy's in particular was engaged in business practices that verged on illegal. Without any apparent royalty revenue coming in, the company kept "refundable deposits" and then arm-twisted the hapless victims into signing "voluntary" agreements to accept repayments over time. In turn, those victims would get a payment or two (as new "depositors" sent in fresh money) and then the payments would stop. The cycle repeated as the new "depositors" went through the same wringer as the old "depositors."
That is the definition of a Ponzi scheme.
Those who pointed out the troubling aspects of the Cuppy's saga were criticized by Dale Nabors and hounded by Cuppy's outside counsel--to my knowledge they hired at least 2 firms (John Dozier's firm and Nixon Peabody) to stop posting "negative" blogs.
And with that knowledge, Dale Nabors got into bed with these people.
I won't go into the "Funding Solutions" or "SBT" debacles which occured while Dale Nabors was in the thick of the action as a "consultant" to Cuppy's, nor of the fact that Dale Nabors continued to criticize those who shone a spotlight on this mess (while not disclosing that while attacking folks on BMM he was on the payroll of Cuppy's) ... again, those who have been following this multi-year saga on BMM, or FranchisePick, or FranchisePundit, or Scoble's website are well-versed in the Snowden/Morgan/Nabors method of doing business.
I am not one of those people who thinks that Nabors bears a lot of culpability, insofar as he was stupid enough to put his name on the masthead just as Morgan wisely exited with his cash stash.
But to pretend that we don't know what went on here despite this all unfolding on multiple internet websites and the comments of Michael Webster (who conducted an investigation at the behest of the AAFD) is to suggest that somehow Dale Nabors innocently stepped into this fraud. That is simply not true.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
Michael Webster used to scratch his head quite a bit. Everyone thought it was dandruff (Bob Purvin even gave Webster an old unused case of Head&Shoulders), but Webster claimed that it was over this Nabors purchase.
It turns out that Webster did come up with a plausible explanation for many of the puzzling aspects of the Cuppy's story.
Webster uncovered this during his investigation on behalf of the AAFD, but his analysis has significant ramifications for SBA lending and the seeming inability of the SBA to ferret out fraud.
Neither the banks nor the loan brokers had any incentive to ask questions since it was the SBA who was ultimately on the hook for defaults. The SBA does not become involved in these scams till way after the fact, and even then generally only if there is a claim resulting in pecuniary loss to the government.
Of course, such an event is years (if ever) after the loan is disbursed.
It is a classic combination of the IBG YBG (I'll be gone, you'll be gone) and "no skin in the game" factors which have lead to the tech bubble and the real estate bubble.
The franchisor hooked up with a Michigan company named Funding Solutions LLC . Despite all of the bad press on the internet and other signs of significant trouble, the folks in Michigan worked hand-in-glove with the folks in Florida and the money train chugged along.
Funding Solutions LLC had a bit of a challenge--how do you pitch loans for a relative startup which is selling franchises at a much faster clip than it is opening them? I doubt it is an accident that of all the loan brokers in the country this particular broker was chosen by Robert Morgan; there are significant parallels between Cuppy's growth model and Camp Bow Wow.
The Funding Solutions LLC loans were spread among several banks. Reportedly banks were provided documentation that specific equipment was being ordered and specific buildout work performed, and based on that documentation the banks disbursed funds. Upon information provided by various affected franchisees, it would appear those funds were disbursed to various entities under the control of Morg Morgan and his key cronies.
You may recall that representatives of Funding Solutions LLC and Lou Mangienello claimed that estimates of a $30M fraud were overstated, since they noted that much of that money was not disbursed. You may also recall that although the information previously on the Funding Solutions LLC website suggested $30M, the company stated that much of that money was not disbursed and that the loans were ultimately frozen.
I will return to that point, but for the moment note the statements by reliable parties that much $$ was approved but not disbursed. This is the key to the puzzle.
Webster's theory is that Dale Nabors saw all of that money "in the pipeline" and figured that he could use that to fix the Cuppy's franchise system. Since the buildouts were overpriced, he could take the funds as they came in, build out the required units, and use the fat profits to cover the old "depositor" debts and unpaid build-outs.
Morgan and his cronies were smart enough to see that this was heading for disaster. So they bailed out of the franchise company. But at the behest of Robert Morgan, attorney Lou Manganiello put a provision in the stock purchase contracts which not only obligated Cuppy's to use Supreme Building Technologies, but a provision was inserted into the contract which made the purchaser of the stock a guarantor of the obligations of the company whose stock he was purchasing.
Let's digress for a moment to consider this: If you buy shares in General Motors (even if you buy all the shares) you are not obligating your personal assets in the event that GM goes bellyup or otherwise stiffs its contractual obligations. (There are some statutory exceptions not relevant in this case)
In a move PT Barnum might envy, Dale Nabors did not ask his attorney why this odd provision was in there. Such a question would likely have led Nabors to wonder which of the parties (Morgan?, Nabors?, FranSynergy Inc?, or the corporations being acquired?) was actually being represented by the single attorney involved in the transaction.
Nabors took over the companies, and realized that there was no way he could survive with using SBT. So he alleged shock--shock!--at finding out that there was secret ownership stakes in SBT held by former and current Cuppy's employees. Nabors terminated the relationship and the SBT lawsuit and mechanic's liens resulted.
Ahh... to be a fly on the wall when Nabors consulted with his in-house legal counsel about this contract and the litigation, LoL.
For those of you who have not met Lou, he is a much nicer and laid-back fellow than Nabors. In contrast to Nabors, who comes across as a condescending know-it-all, Lou is the kind of guy you'd invite over for a barbeque and Lou affects an "aw shucks" befuddlement which is why many observers initially thought that Lou was way in over his legal head.
As with businesspeople, some lawyers are fools and some play the role of fool when it suits their client's interest. To this day, Nabors hasn't figured that out.
Much like Obama with Gitmo, Dale Nabors found out that reality is a bitch. And so when he needed to get the books balanced, he did some of the obvious moves such as cut benefits, fire staff, and move to cheaper quarters.
But Nabors also appears to have borrowed a page from his mentor and obtained disbursement of SBA loan monies without actually doing the work. This is apparently the focus of the current Inspector General investigation, but reliable sources indicate that some of the franchisees who were paying on loans disbursed during Morgan's tenure have stopped paying. A certain bank formerly based in New Jersey has been playing hardball with screwed franchisees on the apparent assumption that the franchisees can't afford legal representation to uncover damaging evidence suggesting that the bank and the loan broker should have known about the allegations of malfeasance. Another bank in Pennsylvania is not yet at the point of making a final decision on how to deal with defaulting franchisees, but sources indicate that the bank is pissed and may well upset the apple cart in order to recover any losses suffered by the bank.
As for Webster, he has stopped scratching his head. Whether a result of satisfaction of curiosity or a result of using Purvin's leftover shampoo is a matter of conjecture within the AAFD.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Paul has pretty much sketched out the details of the ponzi construction fraud.
Note that Dale is still yacking about the high cost of running Cuppy's - uh, either it was being run on deposit money in defiance of the California regulator, or the deposits were not going into a trust account.
In the alternative, the funding for Cuppy's was coming from the franchisee's buildout funds - buildouts that didn't take place.
But for the latter to take place, then somebody, somewhere had to produce an invoice for the bank to confirm that advance.
The head scratcher is why Don didn't ask Dale much more about the process by which funds were advanced to SBT and other entities.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
seankelly@ideafarm.net
IdeaFarm, Franchise Pick
Franchisor Marketing
Dale is not an innocent, and I don't read Jim as suggesting that.
Nor is Dale blameless. He surely understands now that Paul and I, among many others, were correct in the assessment of the construction ponzi scheme.
But, Jim asked about how it was possible for Dale to fall into this trap - many will suggest greed and hubris. And while it is true that the greedy and stupid pay a heavy penalty in this world, Dale bought into Morg's something for nothing pitch.
When the liability for the lawsuits are finished, I would ask Dale to show up here again helping us understand the words that were used to pitch him into Cuppy's hell.
Probably owes all of us this much, eh?
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
award and he went to prison for yummie stuff. The AAFD gave Cuppy's/Dale Nabors an award and now he's headed to the pokey to be someone's blushing bride.
Can the Curves guy be far behind? What might his pecadillos include?
Who on earth could even be induced to accept an award from the AAFD anymore? Hey, Don - I sure hope aint nobody lookin for you.
--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Not true.
The AAFD gave the award a full year prior to Dale Nabors taking over the company.
The AAFD gave that award based on a contract which Robert Morgan and his in-house counsel Lou Manganiello had drafted to meet with the AAFD standards.
Based on the post-mortem of Michael Webster, the Cuppy's franchisor under the leadership of Robert Morgan and the counsel of Lou Manganiello continued to sell franchises and have the actual franchise fees paid to a separate company which was owned by Robert Morgan; such action likely in violation of the laws of every registration state.
Cuppy's employees (and Mr. Manganiello) have taken the position that Morgan's pilfering of the "depositor" cookie jar wasn't really theft since it was used to pay for Morgan's overhead. Mr. Manganiello (along with other Morgan defenders) further takes the position that Dale Nabors knew exactly what he was stepping into--including the true owners of SBT and the status of the SBA loans (particularly the relationship with Funding Solutions and the disbursements to various entities controlled by Morgan).
Even assuming all of the foregoing to be true, this only means that Dale Nabors was one of several guilty parties, and a damn fool one at that for coming late to the party.
Cuppy's employees took their paychecks from the SBA and "depositor" monies which did not belong to them. The fact that Dale Nabors continued the practice during the final phase of the Cuppy's implosion does not excuse the actions of Morgan or his staff.
If Dale Nabors is truly facing jail time, he just might decide to cut a deal, turn over such records as he has, and waive the attorney-client privilege which belongs to the client--i.e., the various company entities which Manganiello, Dozier, and Zappia represented.
Middle-aged guys in suits tend to roll over pretty fast when faced with the prospect of jail time. If I were Morgan's cronies, I would be a bit nervous right about now.
And if I were Funding Solutions, SBT, PNC Bank and TD Bank--I would fervently hope that those sucker franchisees continue to pay back those scammed SBA monies. If there are defaults, the banks just may decide to try to claim their bucks from the government, and that will give the feds firm grounds for a federal investigation and prosecution.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
of Dale Nabors' participation - is grerat evidence of what a completely pestilential organization the AAFD is.
The AAFD award enabled Cuppys/Dale Nabors to flaunt the AAFD award as a franchise selling tool - A Selling Tool for a Total FranWhack.
Not changing its spots, the AAFD then turns around and gives poositive recognition to another FranWhack - Curves. The AAFD and its leader are just a waste of DNA.
--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Given statute of limitations issues (which vary by state, and may depend on how the cause of action is pled), it may be wise to consider a declaratory action.
That is a procedure by which a judicial determination is made as to what monies (if any) are owed. Such a procedure would necessarily entail naming all parties potentially affected by a judicial determination and as such would provide an avenue for discovery and depositions under oath.
Caution: this is not a "do-it-yourself with a kit from Office Depot" type of case. Consult an attorney in your state.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
The SBA/SBA lenders usually don't go after small biz franchise borrowers who poop out.
When you complain about AIG and BOA, remember that there has always been a bailout/giveaway for franchise victims. It aint enough to git you back on your feet, but what do you expect for no lobbyist money?
--
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
In the interest of full disclosure, I should mention that members of my family and some of my clients have business with Commerce Bank.
It is a decent bank, even after the Canucks bought it. However, what "Guest" states has been discussed within the franchise community for some time, and Funding Solutions LLC and the banks it worked with may indeed have reason to have made certain inquiries, failure of which responsibility may impose legal liability to various parties.
That being said, my understanding is that for some bizarre reason most of the victims left with nothing are in fact paying off their loans like well-behaved sheep. Under such circumstances there would be no claims for federal reimbursement of losses and hence no pecuniary loss for the Justice Department to seek recovery of.
My understanding is that a Pittsburgh bank got wind of the Funding Solutions LLC/SBT/Cuppys issue and shut down the pipeline within a matter of hours, in addition to notifying the SBA Inspector General. After that, Funding Solutions LLC took Cuppy's off their website and the franchise collapsed.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Paul writes: "Middle-aged guys in suits tend to roll over pretty fast when faced with the prospect of jail time. If I were Morgan's cronies, I would be a bit nervous right about now."
Lou Manganiello has his attorney's license at stake.
Lou knows this and that is why he was at the AAFD meeting in San Antonio, in my opinion.
Morg knows that if Lou and Dale turn over, it might go hard for him.
Was me, and if I was either Lou or Dale, I would be talking before the SBA investigator arrives at the doorstep.
Jest saying...
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Here in the United States, you can't do that. But if you are going to do that, make sure that you have malpractice insurance coverage.
I was going to leave this subject off the public record, but since Webster has raised the issue I shall observe that I am very uncomfortable with that San Antonio event, and other involvement of Lou.
I am not clear as to who Lou was representing, and I doubt Lou knows either.
But as a general rule, if in doubt you can not go spilling the beans.
For Lou to discuss what went on at Cuppy's and the relative culpability of Dale Nabors and Morg Morgan, and to discuss Morg's alleged motivations in requiring certain contractual provisions in the stock sale agreement... frankly Dale Nabors could get Lou disbarred for that kind of stuff.
And I know I am not the only one hearing that various former Morg cronies are trying to steer people's wrath towards Dale.
Much as Dale does deserve blame--particularly for the SBA paperwork submitted while he was at the helm-- that does not mean that Dale's former counsel and company attorney can actively seek out lawyers, reporters, and potential adverse litigants and dish the dirt on his former client(s) and try to get 3rd parties to pursue one of his clients to deflect the heat from one of his other clients.
I remain bothered by that San Antonio bit, and I have no idea as to what that was all about. Since Webster has let the cat out of the bag, that's my two cents.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
seankelly@ideafarm.net
IdeaFarm, Franchise Pick
Franchisor Marketing
'A Huntsville, Alabama television crew was filming him.'
Would not mind seeing that if it were to become available. Looked but nothing.
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