Latest Liberty Tax CEO Fired, Demoted Co-Founder Hewitt Brings in Franchisees

At the height of the busy tax season, troubled Liberty Tax fired its newly appointed CEO Edward L. Brunot, on the job for six months after he was handpicked by disgraced co-founder and ex-CEO John T. Hewitt, who was accused of having sexual escapades with staff and franchisees.

Hewitt, who remained as chairman, assisted the board in appointing Nicole Ossenfort, a Liberty Tax franchisee, as the new president and chief executive officer.

When Hewitt was ousted, The Virginia Pilot explained that Brunot was a "tax industry outsider hired away from a military commissary supplier to be Liberty Tax's chief operations officer and likely successor to Hewitt." The report said Brunot rose to the top position of the company faster than anticipated when the board of directors voted unanimously to fire Hewitt in September.

Hewitt's risqué sexual behavior led to an investigation by the high-powered law firm of Skadden, Arps, Slate, Meagher & Flom. The resulting report determined that after reviewing a thousand emails between Hewitt and several female employees and franchisees and scrutinizing company credit card charges, including those at a New York racetrack, Liberty Tax had a "good faith basis" to fire Hewitt "for cause," but could have opened itself up to a protracted and costly legal fight if it did. The legal firm determined, "Ultimately, the company fired him "without cause," making him eligible for severance, which amounted to $801,005 in a lump sum payment, 18 months of health benefits and $471,210 in unvested stock awards that had been accelerated."

Liberty Tax, based in Virginia Beach, is the third largest tax preparation chain in the country behind H&R Block and Jackson Hewitt. It states that the company prepared over two million individual income tax returns in 4,000 offices in the U.S., Canada and online.

Franchisees positioned to implement new company strategy

After Liberty Tax (NASDAQ:TAX) made its announcement last Monday regarding the change in the top-level position, Nicole Ossenfort immediately resigned her position as a director on the tax preparation company's board, which Hewitt had appointed her to after he had been fired as CEO in November 2017. The newly elected CEO had been a Liberty Tax franchisee since 2002, operating offices in South Dakota and Wyoming, and an area developer from 2004 to 2017. The firm said Ossenfort had also been elected twice, by her peers, to the Franchisee National Advisory Council, a group "entrusted with helping company executives with advice and recommendations for every aspect of the system including marketing, technology and operations."

Ryan Dodson, an area developer with the company for three areas in North Carolina and Tennessee and a former Liberty Tax franchisee, was elected as chief strategy officer. He also served as a regional director from 2007 to 2010 and as a field consultant from 2004 to 2007. Previously he had worked with Arthur Anderson and Deloitte.

Liberty Tax also appointed Shaun York as its chief operating officer, effective immediately. York had been involved with the company in 2003 when he started working with the central Florida area developers. Currently he owns multiple franchise stores in the Tampa area and has consistently been one of the largest franchise entities in the organization. "Over the last 10 years, York has been an area developer in Tampa, Polk County, and Brevard County in Florida and Birmingham, Alabama. He has also been recognized as a top performing area developer and received the Master AD award in 2015," the company said. York's latest role with Liberty Tax had been in an advisory position to the vice president of operations and the previous COO.

Liberty Tax said the company's new management strategy is based on taking the vast experience and industry knowledge of the franchisees and putting it to use within the corporate infrastructure. "York joins Nicole Ossenfort, CEO, and Ryan Dodson, chief strategy officer, to take the helm and implement the new strategy," the company stated.

New strategy goes against franchisor's past anti-franchisee culture

Liberty Tax has had a history of problems, not only with franchisee litigation but also with the Internal Revenue Service, stemming from preparation of fraudulent returns, usually for lower-income people.

A federal judge in Virginia issued a decision in favor of a multi-unit tax franchisee in New York for $2.7 million, finding Liberty Tax breached its franchise agreement. The judge chastised the franchisor for its conduct during the legal dispute. He said Liberty Tax never intended to live up to its contract, and later it did not pay some of the rent or utilities or reimburse the franchisee for his payments. The judge said he found that incredible.

Liberty Tax also lost a deceptive ad lawsuit in 2009 to California Attorney General Jerry Brown who said, "Liberty Tax Service lured cash-strapped Californians into paying for high-cost loans, when they could obtain tax refunds free from the IRS just weeks later." He explained that Liberty Tax Service's print and television ads misled customers by promising "Most Refunds in 24 Hours."

Another black eye for the franchisor came In March 2016, when a grand jury in Maryland indicted a Liberty Tax Service franchisee and eight employees in a tax fraud scheme that involved enticing homeless people and others to file false income tax returns to generate preparation fees for their company. The Office of the Attorney General explained, "This owner and her associates targeted the most vulnerable, the homeless, disabled, drug addicts, and poor people already struggling for stability. They lured victims by paying them $50, then submitted false tax returns to make a profit without regard to the consequence to their clients."

Franchisee attorney W. Michael Garner of Garner & Ginsburg said in his experience representing Liberty franchisees, the franchisor has been one of the most difficult to work with.  "Over the years, franchisees have complained of broken promises, contract breaches, misrepresentation and more. In many cases, Liberty has extended credit to franchisees for the purchase of the franchise, and then used the threat of calling the loans to extinguish legitimate franchisee complaints of Liberty's conduct. With the new management team, Liberty has the opportunity to turn itself around and become a franchisee-friendly company that will collaborate with franchisees in charting the future."

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