Antitrust Law Daily Wrap Up, FRANCHISING AND DISTRIBUTION NEWS: Real Estate Office Franchisor Mossy Oak Properties Sues Franchisee and Guarantor , (Apr 29, 2013)

By Peter Reap, J.D., LL.M.

Real estate brokerage office franchisor Mossy Oak Properties, Inc. has filed suit in the Circuit Court of Clay County, Mississippi, against its former franchisee Bioventure Investments, LLC, and the franchisee’s guarantor and principal, Kerry S. Johnson, for breach of the parties’ two franchise agreements and respective guaranty agreements. Mossy Oak seeks damages for unpaid and future royalties, and injunctive relief.

As a result of the discovery in 2012 of multiple breaches by the defendants for each of the franchise agreements, Mossy Oak terminated both agreements "for cause" effective in January and February 2013, it alleges.

According to the complaint, the parties entered into two franchise agreements for real estate offices in Missouri. Effective March 6, 2009, the parties entered into a franchise agreement covering the territory of Howell County, Missouri (the "West Plains Franchise Agreement") and an agreement covering the territory of Cape Girardeau County, Missouri (the "Jackson Franchise Agreement") effective November 1, 2006.

Each franchise agreement was for a term of ten years. As part of the West Plains Franchise Agreement transaction, Johnson agreed to be personally liable for all obligations under the West Plains Franchise Agreement, as well as any/all other franchise agreements between the parties, Mossy Oak contends. Prior to the execution of the West Plains agreement, Johnson transferred a minority of his interest in the West Plain franchise to non-party Curt Dobbs, and Dobbs executed an "Ownership Assignment" whereby he agreed to abide by the terms of the West Plains Franchise Agreement.

On March 30, 2012, Mossy Oak contends that it learned that Curt Dobbs and the defendants failed to comply with the West Plains Franchise Agreement’s requirement that they "diligently, faithfully and continuously conduct a Mossy Oak franchise" at the approved location. Despite written notice of that default, the defendants failed to cure the material breach within 30 days, as the franchise agreement required, Mossy Oak alleges.

In addition, the defendants breached the "Conflict of Interest" provision in the West Plains Franchise Agreement which prohibited the franchisee from operating, managing, or having any interest in a competing real estate business. Specifically, Mossy Oak contends that Curt Dobbs established a competing real estate brokerage company while maintaining his minority interest in the West Plains franchise, in breach of the agreement. Further, Johnson established a competing real estate business called Kingdom Quest Realty, LLC, also in breach of the agreement’s noncompete provision. The defendants further breached the agreement by refusing to permit Mossy Oak to conduct an audit of the franchise.

Johnson retained sole ownership and control of the Jackson Franchise, according to the complaint. Just as with the West Plains franchise, Mossy Oak alleges that the defendants breached similar provisions of the Jackson Franchise Agreement.

The defendants failed to pay minimum royalties and fees for 2012 under the West Plains agreement in the amount of $6,428, and $8,304 for the Jackson franchise, according to the complaint. In addition, the defendants failed to pay royalties as required under the West Plains agreement for the years 2009-2011, and for the Jackson franchise for years 2006-2011.

The complaint seeks recovery of the unpaid royalties and franchise fees, as well as liquidated damages in the amount of $16,800 under the liquidated damages provision in each of the two agreements. Mossy Oak requests an accounting so that it may audit the books and records of the defendants in order to ascertain the full amount of its actual damages. The franchisor also requests an injunction prohibiting the defendants from using any of the franchisor’s trademarks.

The complaint in Mossy Oak Properties, Inc. v. Bioventure Investments, LLC, Case No. 1:13-cv-00084-SA-DAS, was filed April 26, 2013.

Attorneys: Robert J. Barefield, Jr. (Mossy Oak Properties, Inc.) for Mossy Oak Properties, Inc.

Companies: Mossy Oak Properties, Inc.; Bioventure Investments, LLC.

News: FranchisingDistribution MississippiNews