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Kahala Sues Klutz For Unauthorized Transfer

The selling franchisee was a real Klutz, but the buyer was just plain stupid.

In 1999, Thomas & Heidi Klutz bought a "Samurai Sams Terryaki Grill" franchise. In November 2005, they sold the business to William Thorbecke and his wife Regina Norby-Thorbecke for $60,000 cash plus a $110,000 promissory note.

The Thorbeckes sent the royalty payments to Klutz, who forwarded the money along to Kahala. In October 2006, Klutz told Thorbecke to send the payments directly to Kahala. In June 2007 Kahala informed Thorbecke that only Klutz was an authorized franchisee; Thorbecke changed the name of the business but shut the restaurant down in February 2008.

Thorbecke stopped making payments on the promissory note. Kahala sued Klutz for breach of the franchise agreement. And Klutz sued Thorbecke for nonpayment of the note.

The trial court granted Klutz partial summary judgment, despite Thorebecke's objection that the restaurant purchase necessarily included the franchise rights. The trial court said that Thorbecke had purchased a business, "not a transfer in franchise."

The appellate court reversed:

Disputed issues of material fact remain regarding the Thorbeckes' defenses to enforcement of the promissory note and their counterclaims against the Klutzes,  including that the Klutzes' misrepresentations at the time of sale damaged the Thorbeckes and whether the amount of the promissory note included the franchise value that the Thorbeckes did not receive.

An obvious question not answered in the decision is whether the Thorbeckes had an attorney involved in the purchase. If so, the attorney was the real klutz.

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Kahala Franchise Corp v. HIT Enterprises LLC et al, Washington Court of Appeals, January 4 2011

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Kahala v. Klutz OPN 4Jan2010.pdf103.8 KB
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