Breakfast Club Woes Give Franchisees, Investors Indigestion

Chris Kaufman of the Orlando Business Journal reports that the Orlando corporate headquarters of Breakfast Club of America, shut down last week and the founder resigned -- leaving investors, franchisees and noteholders saying they are owed in excess of $1 million.

Even though a last-minute deal may be in the works with an undisclosed local party to buy the high-end networking/business development company, the dispute already has produced one federal lawsuit and a lot of finger-pointing, say the people involved.

Nevertheless, says Lyn Patrick, co-owner of Florida Business Interiors in Lake Mary and an investor/board member of the Breakfast Club, "A positive conclusion is still a possibility. If that happens, the whole organization could go forward."

Founded by Scott Crites in Charlotte, N.C., in 2000 and moved to Orlando about four years ago, the Breakfast Club -- at its apex -- had almost 20 franchises listed on its Web site, including Tampa, Orlando and Brevard County.

The situation with investors and franchisees became strained earlier this summer as attempts to sell the company were made, say a number of investors and board members contacted by Orlando Business Journal. However, they also say that plan couldn't be put into play until issues with San Diego businessman Jim Bernet were resolved.

Crites says Bernet -- who owns seven franchises, including four in California -- failed to pay fees and sales commissions. Though he didn't specify a dollar amount, Crites says Bernet's revenue represented 22 percent of the club's corporate revenue for the coming year.

Bernet, who disputes that he owes any money, filed a seven-count lawsuit, including allegations of fraud and breach of contract, on May 21 in Orange County, Calif., federal court against Crites, his wife and Breakfast Club of America LLC.

Among other things, Bernet alleges Crites failed to register the franchise in California as required by law. He is seeking in excess of $600,000 in damages. Bernet also says he has paid more than $500,000 in fees and revenue sharing since signing up in August 2006.

Crites says the lawsuit is without merit, and that it's Bernet who is at fault.

Anthony Buchignani, the Los Angeles attorney representing Crites and the Breakfast Club, filed a motion on July 24 to withdraw from the case, alleging Crites failed to pay $10,000 of his $20,000 retainer fee, as well as $17,000 in legal fees and costs.

Meanwhile, Patrick says he went to California to meet with Bernet on June 23 to try to resolve Bernet's issues in order to facilitate the sale to another buyer.

The meeting proved fruitless, Patrick says, and the prospective buyer backed out.

Two days before that meeting, Crites told his four employees there was no money in the bank account to pay them, says Wendy Brown, an investor and employee who helped set up franchises. Employees were given a choice to stay or go, she says. All decided to leave.

Crites and his wife, Carol, a board member and employee, resigned about the same time. Crites currently is working for Troy Peple, who has Breakfast Club franchises in Washington, D.C., and Maryland and has bought the rights to 16 more. Peple says he's the club's largest creditor, although he won't reveal how much he's owed. He also says he has considered buying the company.

Most everyone familiar with Breakfast Club agrees the concept is interesting because it brings top-flight companies together to develop business in a monthly breakfast setting that combines trade show elements with a high-end speaker.

One of the first Breakfast Club franchisees, the Orlando Regional Chamber of Commerce -- which paid $100,000 a year for three years for the local rights -- recently ended its franchise relationship a few weeks ago, but "had a spectacular run for three years, and our members were very happy with the club," says President Jacob Stuart.

Stuart says the chamber decided to move in a new direction and has other products and services that compete with the Breakfast Club.

Meanwhile, other franchisees, such as Tracy Bailey, president of the Atlanta Breakfast Club, say they're pulling together and working to keep their individual franchises running.

Bailey, who bought her franchise rights two years ago, had the initial kickoff event last week, which she described as phenomenal. She adds, "We're all moving forward, with or without the headquarters."