Franchisees Say Moe's Southwest Secretly Being Sold, Want Protection

Submitted by Don Sniegowski on Thu, 2007/04/05 - 11:07.

Charge Raving Brands with Racketeering and Secret Kickbacks

Franchisees are up in arms with Raving Brands. According to reporter Fred Minnick of QSR.com, 23 of Moe's Southwest Grill operators on March 30 filed a lawsuit in the U.S. District Court of Atlanta alleging racketeering and a secret kickback scheme.

The plaintiffs have asked for a special receivership to be appointed to protect assets owed to the franchisees because of an anticipated sale of Moe's Southwest Grill.

The lawyer of the franchisees, Mr. Bob Casey of Casey Gilson Leibel P.C., states that according to his clients, Roark Capital, owner of Carvel and Schlotzky's, is the buyer. Roark and Raving Brands would make no comment in regards to the pending sale.

The main allegation against Raving Brands is the founder receives private kick-backs from suppliers (raising franchises' cost of goods sold).

Casey says the guts of the lawsuit involves a kickback scheme not disclosed on the franchise agreement or the Uniform Franchise Offer Circular. Franchisees believe they are paying more for food, supplies, and equipment because of this kickback arrangement.

"There were undisclosed rebates paid ultimately to Sprock [Raving Brands founder] as a part owner to SOS, which was involved in the supply chain," Casey says.

Then there is the flat-out charge of theft. Moe's owners were led to believe that a percentage of sales on Cinco de Mayo day (called Cinco de Moe's) would be be donated to the National Center for Missing and Exploited Children. The franchisees say that not only are the children missing but also the donations are now missing.

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(Note from Don: Thank you to the member who emailed in this story and asked for it to be published.)

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Moe's Sells CA Franchises Without Registration

Submitted by Don Sniegowski on Wed, 2007/04/11 - 15:39.

Note: There's a number of allegations from yet another group. These franchisees are from California. The following charges, if true, have teeth.

California Franchise Buyers Say Moe's Claimed $1M Sales

According to a Web Exclusive on QSR magazine, Moe's Southwest Grill is alleged to not have been registered in the State of California while selling franchises. 5 Moe's restaurants opened in California before November 20, 2003. However, "Moe's was not registered and authorized to sell franchises in the State of California prior to November 20, 2003."

(See Confirmation of California Registration, Nov 20, 2003 - pdf)

The franchisees say they were also led to believe that their units would have an average unit sales of $900k - $1 million per year through "newspaper interviews, magazine articles, websites, public relations firms, designated franchisees." 

A UFOC was later registered by Raving Brands in California without a written earnings estimate. California law (and others) require any earnings claim to have a reasonable written back up in Item 19 of the UFOC.

Item 19 of Moe's UFOC (pdf file, see pg 33) states a rather standard clause about not providing a written earnings claim, with a disclaimer of other claims:

"We do not furnish or authorize our salespersons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a 'MOE'S SOUTHWEST GRILL' restaurant.

The plaintiff's attorneys, David Laufer, Joseph Nardulli and Edwin Duncan state in their lawsuit:

Moe's and Defendants, and each of them, represented that each proposed franchise to be purchased by Plaintiffs and to be operated in California would generate annual sales of $900,000 to $1,000,000 per year and would earn 15% to 20% in net profits before the payment of the 5% franchise fee to Moe's. This earnings claim (a) was not registered, (b) was not disclosed in the filings with the California Department of Corporations, (c) was not prepared and delivered in a separately bound "earnings claim document" required by California law, (d) was not prepared in accordance with item 19 of the Uniform Franchise Offering Circular Guidelines, and (e) was not prepared according to Generally Accepted Accounting Standards and Practices. 

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