Peaberry Coffee Shuts Down, Cuts off Franchisees
DENVER – On August 31, Bill Tointon, owner and CEO of Peaberry Coffee, sent out notices of termination to the remaining five franchisees out of the original ten, advising them that the company was closing its doors. The franchisees were immediately cut off from needed supplies to run their stores and disconnected from the POS computer system, leaving them greatly handicapped in ringing up customer sales. Two franchisees, who were subleasing from Peaberry, were told their property leases were terminated.
One said he had no choice but to put up signs advising loyal customers that his coffee shop was out of business. Five company-owned stores were also closed.
Peaberry attorney Hugh Gottschalk explained it this way, “When you close your business you simply decide it is no longer worth continuing the effort to try to make money.” When asked if the franchisor was going into bankruptcy, he said, “No, they do not have to file bankruptcy. Bankruptcy says I don’t want to pay my creditors. I think the initial effort is going to be to deal with the creditors they have and try to negotiate resolution for obligations they have.” On the business front, Gottschalk said PCI (Peaberry Coffee Inc.) and PCFI (Peaberry Coffee Franchising Inc.) are just going to deal with the creditors and wind up the business in an orderly way. “I’m not sure there is a specific plan. I know they want to honor their obligations but they are out of the retail coffee business,” he explained.
Last week in a Denver Post article, Gottschalk stated that the decision came from a combination of factors: under-performing stores, the economic downturn and the burden of a lawsuit brought by franchisees. The attorney for the franchisor said Bill Tointon, who founded the company in 1990, loved the business and loved the company, and it was the hardest decision he ever had to make.
But Richard B. Podoll, the attorney representing the franchise owners, thinks the franchisor left its franchisees high and dry with little communication and warning of its precarious predicament. He said closing down the coffee chain is typical of Tointon. “He knows the remaining franchisees are totally dependent on the Peaberry product and he has signed 10-year agreements with them to go five years down the road. So now he sends them notices of termination, knowing it was contrary to terms of the franchise agreement.” Podoll said Tointon portrays himself as a kind guy, but in reality he couldn’t care less about the ten people that he induced to invest more than $400,000 into a cloned business that had been losing a million dollars a year since 1990. Closing down Peaberry Coffee without notice to the franchisees evidences the same lack of character for the franchise owners.
Podoll stated that Tointon did not have a proven and successful model as he and his law firm, Perkins Coie, portrayed in setting up and selling franchises. Franchise owners in 2006 filed suit against Peaberry, the law firm, Tointon and VP of development James Orr, alleging they gave misleading and inaccurate financial information, and concealed material financial facts in sale of franchises. The franchisees were seeking million dollar awards for damages, but Denver District Judge William Robbins last year ruled against them, even though he found the Peaberry defendants had actively and intentionally concealed material facts concerning the financial history of Peaberry Coffee and the performance of its retail stores. He ordered the franchise owners to pay the royalties owed, as well as costs and fees. The case is now on appeal. Last Friday, a hearing took place before Judge Anne Mansfield, now assigned to the case, on Peaberry’s application for fees and cost awards against franchisees.
Regarding Peaberry’s closing of its business, Podoll said, “The inevitable happened. Peaberry Coffee Inc. had a business concept that was losing a million dollars a year. It sold franchises through a separate entity, and concealed its history of losses. Peaberry did not have a proven or successful model. The franchisees lost their investments, which left them economically devastated. What else could Peaberry possibly do with this business except to close it down?”
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Related Reading:
- Part 1: Judge Rules for Peaberry Coffee and Attorneys, Franchisee Counsel Sees Future Victory
- Part 2: Relevant Aspects of Peaberry Coffee Decision
- Experts weigh in on franchisees' lawsuit against Peaberry Coffee, Franchise Times
- Some Peaberry Coffee stores close, Denver Business Journal
- Denver's Peaberry Coffee chain closes shop, The Denver Post
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