Interview with Cuppy's CEO: Missing Money and Arrest Warrant

MUSCLE SHOALS, Ala. – In part two of this three-part series, Dale Nabors, the chief executive officer of Cuppy’s Coffee franchise chain, discusses Florida’s error in issuing a warrant for his arrest and allegations of missing money by franchise owners.

It is rare to have events of small start-up franchisors followed by the media so closely from its beginning days until the end. But Cuppy's has been a small chain with big stories that touch on huge issues in franchising. Blue MauMau has reported on this coffee shop concept from when its Java Jo’z founder Roy Snowden went to prison for tax fraud. From the ashes of Java Jo’z, the chain was reborn as Cuppy’s Coffee. The troubled chain peaked over a year ago at 80-plus built coffee shops and some 200 sold but not opened stores.

Continued from Part One

BMM: You mentioned franchisees surviving if they are willing to receive services from Cuppy's. But there's a big 800-pound gorilla in the room. That is what we saw in the courthouse today in that there is a threat that you could be shackled in chains by the legal system and sent to Florida. I don't know how real that threat is but the judge today did mention a scenario in which you are taken away in shackles. If that happens, what then happens to Cuppy's?

Cuppy’s CEO discusses missing money in front of locked courthouse

Nabors: That most likely would cause any hope of Cuppy's surviving or recovering of investments made [for franchisees] and bring it to an end. I don't think there is a large likelihood of that happening. Today's events were not related to anything that took place in Florida.

An employee that worked for the company in Fort Walton Beach, Florida moved to Muscle Shoals, Alabama [when Cuppy’s moved its headquarters from Florida to Alabama] and subsequently returned to Florida. During the time they were here, they were a resident of Alabama. They got themselves an Alabama driver's license. They rented a home in Alabama. I know their landlord very well. The employee received a check. At the time the employee received the check, they knew the check was not good. They also received cash.

When I realized that the company couldn't continue, we made a decision to let everyone know. They returned to Florida. I did not recover the checks. One staff deposited the checks due to family pressure. And then they filed the [bounced] check as a worthless check in Florida [with law enforcement].

I was involved in a minor traffic accident. As a result of that traffic accident, a warrant that had been issued a few days prior that I did not know about popped up to my surprise. I wasn't arrested. I was detained. They told me that there was a warrant for my arrest in Florida for a worthless check. I did not know what it was over. I came to find out that ironically the person who received the check had also written a worthless check in Alabama to their landlord that I stood good for. I don't think they really meant for harm to be done through this. I think they were just trying to appease family and at the same time they felt that if they collected some money – great. The problem is that they are a resident of Alabama. I was in Alabama. The check was written in Alabama. The check was delivered to them in Alabama. I don't believe a crime was committed or a bad check was issued, it was issued in Alabama. It needs to be adjudicated in Alabama and not in Florida.

I have spoken with the authorities in Florida. They were not given the whole story. They believe that the check was given to the employee in Florida, which it was not. I expect that to be resolved.

BMM: But isn't this one charge among possibly many? Isn’t there some sort of bounced check in Florida for office rent of $200k-plus that is also outstanding?

Nabors: There are other business issues that are addressed with the company. They are business issues. I don't want to hide behind the corporate shield. If we were GM or Chrysler we could go through bankruptcy [court] and [resolve our] problems right now. The reason they can handle things the way they are handling it is because they have revenue streams. Our revenue streams dried up in part because of decisions I made and in part because of the economy and in part because of the dissatisfaction we had amongst franchisees who were looking to open and amongst those who were already open.

With no revenue stream, our abilities to make corrective action are a lot more limited than a company that still has an income stream.

There's a figure of $2,000,000 that came in under my watch that has been tossed around quite a bit. That number is not totally accurate.

BMM: There is also a figure of $30 million in the whole system from beginning to end that has evaporated.

Nabors: You have to remember that this system has operated for five, six, seven years. And it had a monthly operating cost of a million dollars a month. When a company brings in a million dollars a month but spends $1.1 million dollars a month, it doesn't work. That was someone else's desire to build this big white elephant, or big machine. I was trying to scale it back so that we could continue to receive a million dollars a month while only spending $50,000 a month. The company could invest the rest of the revenues towards construction and build-outs in stores throughout the country. That is where it should have gone.

Unfortunately, I was not able to turn the battleship in the pond fast enough.

There are those trying to get their money who do not understand that I do not have the money. The company does not have the money.

I cannot say what happened to the money prior to me acquiring the company. Perhaps there are others who are sitting on a big pot of cash but I do not believe that to be the case. I believe they had a nice personal income and had a good cash flow during their employment but I don't believe they stashed a lot of cash because I know what the operating costs of the companies were.

There are also those that understand that they are not going to get money but would be satisfied with a pound of flesh. I can understand those feelings. If I were in their shoes, would I want to feel that Dale did this to me and have Dale walk away from paying the penalties. No, I wouldn't. But Dale didn't do this to everybody. Dale was trying to save the franchise system. Dale made no money off of this. Dale lost a lot of money off of this.

There's a little spark left. There's a little glimmer of hope left. And it maybe that we come out of this with 10, 15 or 20 franchisees that get support by paying royalties. It is run by Dale and a very small staff. And if that happens the plan is that a substantial percentage of royalties and corporate profits will go back to the people that should have received but did not receive anything for the money they paid. It will take time but that is the only way this will succeed.

I hope if we suspend the franchise agreements and there are some people who are not willing to believe in Cuppy's or Dale again that we will earn their trust. They will watch what we do and if we are able to do it well and bring value to the organization by increasing their sales and profitability that they reserve the right to change their mind. I'm just not prepared to force anyone to be a Cuppy's that doesn't want to be a Cuppy's.

Wanting a pound of flesh doesn't help any of us get back what we've lost.

BMM: There are sold but not opened shops, shops without build-outs, without equipment that happened during the period when you were CEO. Where did the money go?

Nabors: All the money that came into the company went to support the overall operations of the company. Again, I was trying to right-size the company as quickly as possible. But the vast majority of the franchisee funds went to SBT [Supreme Building Technologies, Inc.]. At the time, the relationship between Elite and SBT was that the average Elite contract was based on $189,000 or $189 per square foot of build-out. $110 per square foot of that was going to SBT, which was too much because that amount did not include the equipment.

There's been discussions on Blue MauMau that this was too much for construction, which I agree with. Really when you total up the equipment cost and the SBT build-out cost, there was very little money left over for the company. There really was far too much on the SBT side. I saw that and I immediately went after that component, which included the termination of Brian Hayes as president of Elite. Brian was the president of Elite and a 20% owner in SBT. Doug Hibbing, president of Cuppy's, was also a 20% owner of SBT, which I discovered and nixed.

The largest chunk of money went to SBT. As long as the cash flow continued to flow they would continue to move on build-outs. But as soon as it stopped and I started to go to other places, outside interference came in and prevented me from working with other companies. And with the lawsuit and losing lines of credit with certain vendors, it stopped.

BMM: I tried calling your old construction vendor Supreme Building Technologies a few weeks ago and the number was disconnected. I cannot find a Web page for them. Are they still in business?

Nabors: Not to my knowledge.

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A Quick Guide to Cuppy’s Troubled History:

• Roy Snowden of Java Jo’z Gets Four Years
• Regarding fraudulent conveyance of Java Jo’z to Cuppy’s, In-House Attorney Attempts To Set Record Straight
• Cuppy's Coffee & John Dozier: What Franchise Times Won't Tell You
• How Blogging Saved the World: A Tale of Java Jo'z and Cuppy's Coffee
• AAFD Says Cuppy’s Has Fairest Franchise Agreement
• Cuppy's Coffee Sold!
• Cuppy's New CEO To Improve Operations and Meet Refund Obligations
• Cuppy's Speaks Out on Accusations, SBT, AAFD and More
• Official Response of SBT
• Cuppy's Coffee Goes to Court: SBT Sues Elite Mfg.
• Loan Broker Cuts Ties with Cuppy's Coffee
• AAFD Terminates Accreditation of Cuppy's Coffee Franchise Agreement
• Cuppy's Coffee CEO Dale Nabors Arrested! Wanted in Florida
• Cuppy's Coffee CEO Attends Court, Confronted by Franchisees

Click here for a list of all the Cuppy’s Coffee stories