Case

Another Fifteen Franchisees Sue Dream Dinners Attorneys

In 1 on January 16, 2009 at 12:13 pm

Submitted by Janet Sparks on Sun, 2008/12/21 – 21:08.

Dream Dinners

Dream Dinners workers assemble meals to go. Photo/Dream Dinners

SNOHOMISH, Wash. (Blue MauMau) – Fifteen Dream Dinners franchise owners are suing the attorneys of the meal-assembly franchisor. The suit claims that the attorneys failed to comply with franchise laws in preparing the Uniform Franchise Offering Circular (called Franchise Disclosure Documents after June 2008). It also stipulates that franchisor's lawyers helped oversee Dream Dinners’ misleading sales process with potential buyers. Lead attorney John R. Bender, Jr. of Ryan, Swanson & Cleveland, originally working with the prestigious law firm of Holland & Knight, is accused of breaching his duty to prospective franchise owners by not ensuring that the disclosure information he received from Dream Dinners matched other written sales representations. As a result, he and the two law firms are included in the franchisees’ original lawsuit against the company and its officers.

Howard Morrill

The amended complaint filed in Washington state court by Howard R. Morrill, Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, is the second case against Dream Dinners attorneys, the first filed by Howard Bundy last October on behalf of francisees Eric and Nicole Turner on similar allegations. Although litigation against franchisor attorneys is rare, the franchise community is closely watching another case reported last summer in Franchise Times. Peaberry Coffee franchise operators claim that they have lost millions of dollars after buying into a system that was not viable for franchising. They accuse the company and law firm Perkins Coie, which was acting as legal counsel and business consultant, of misrepresentations and omissions, in selling the concept.

In this latest filing against Dream Dinners, Morrill alleges that the legal counsel, knowing that the sale of franchises is highly regulated and that earnings claims information could only be given to prospects in compliance with Federal Trade Commission guidelines, ignored that Dream Dinners executives were operating unlawfully and giving earnings information, outside the UFOC and without disclaimers. Bender had even advised the company to include a negative disclosure in its FDD under Item 19-Earnings Claims section, stating that Dream Dinners did not furnish or authorize its salespersons to furnish such data.

Dream Dinners Item 19 states:

Dream Dinners, Inc. does not furnish or authorize its salespersons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a franchise. Actual results vary from unit to unit and Dream Dinners, Inc. cannot estimate the results of any particular franchise.”

The complaint states that Bender permitted Dream Dinners to conduct personal meetings with prospective buyers without providing the UFOC to them on the first visit, which is required by law. He also approved the procedures used by the company, requiring prospects to sign a binding contract before they received the disclosure documents. Bender is alleged to have allowed Dream Dinners to use financial statements giving illegal earnings claims, and then made an attempt to conceal it. He is also accused of being a member of the franchisor's de facto board of directors and maintained an office at their headquarters which he used two days a week. According to the complaint, Bender participated in business decisions, and decisions that were not subject to attorney-client privilege, which would have protected him from litigation.

In the original lawsuit, Dream Dinners founders Stephanie Allen and Tina Kuna were accused of making a series of misrepresentations and omissions when inducing investors to purchase their franchises. Not only were they making assurances that Dream Dinners had a proven system, but they were also supposedly showing prospects how much money owners could make in a franchise by showing them the revenues or profits of existing company-owned outlets. And Allen and Kuna were presenting the franchise disclosure documents in a misleading way, mainly because they were giving it out in pieces that were incomplete. Adverse information, such as unaudited financials, was withheld and later presented in a form not in compliance with FTC guideline.

PowerPoint Presentations

At the center of all litigation is the PowerPoint program given at Dream Dinners Discovery Days. Blue MauMau has since received these presentations giving the details of company claims. Kuna and Allen showed that franchisees would have a certain minimum number of customers per month, and what their gross revenues, cost of goods, operating expenses and net profits would be in various scenarios, giving different revenue levels. According to the complaint, prior to the presentation Allen smiled and said in substance, "I know the lawyers say I'm not supposed to show this to you, but if you write fast, you can get it all down."

The PowerPoint states that a full store would have 500 customers a month, and a second at least 150. It shows that the number of customers would generate $26,700 in monthly revenue and maximum gross revenues per week would be $21,360. Company-owned stores were shown to have operated profitably from January 2003 through April 2004, with certain stated numbers of customers, as set forth on Franchise Questions and Answers  on Dream Dinners website. Kuna and Allen further represented that the franchise operated with what the perfect number is to make a profit. In addition to giving a monthly income and expense forecast in writing, they showed that the cost of food for the operation of a franchise would not exceed 45 percent of the franchisees' revenue, when in reality it exceeded that amount. 

Claims of State Law Violations

Because the fifteen franchisees are from various states, the amended complaints assert violations of different states' franchise laws. It also names which law firms were involved in the sale of franchises, depending on when the individual franchisees made their purchases. Other claims against Dream Dinners include common law fraud, negligent misrepresentation, breach of contract, and negligence of defendant attorneys. Plaintiff franchisees are requesting a jury trial and seeking rescission of their franchise agreements. Those still in operation will continue to operate their meal-preparation centers and pay royalties. Franchise operators are asking for damages, fees, interest and other costs.

Source

Posted via email from HKLaw Investigation

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