Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Axed exec gets ‘second shot’ in meat franchise fraud case, (Jul 18, 2014)

By Greg Hammond, J.D.

A former executive officer of Meat House Franchising, LLC (MHF)—a company that sold stores combining old-fashioned butcher services with gourmet food and wine—is off the hook for a $200,000 default judgment, the federal district court in Newark decided. In granting the executive’s motion to vacate, the court determined that he has a meritorious defense; the defendants would not be prejudiced; and the executive’s failure to originally respond was ‘excusable neglect’ (Alliots v. Meat House Franchising, LLC, July 14, 2014, Martini, W.).

Background. Plaintiffs, Keith Alliots and Alois Rupp, Jr., attempted to purchase a Meat House franchise in 2013, and they submitted a $200,000 deposit to that effect. However, the pair never returned an executed Area Development Agreement to MHF, which stated that deposits were non-refundable. After finding that MHF was allegedly on the brink of financial ruin and had engaged in activities that tarnished the brand’s image, Alliots and Rupp became disappointed with their investment and requested that their deposit be returned. MHF did not refund the deposit, and Alliots and Rupp filed suit against the company and its three executive officers, alleging—in part—violations of the New York Franchise Sales Act and the New York Consumer Protection Act. Default judgment was entered against former executive officer Thomas Brown, after he failed to answer the complaint.

Excusable neglect. In support of his motion to vacate and for leave to file an answer, Brown asserted that he was served on March 6, 2014, but the next day, he was locked out of his office and fired from his position at MHF, due to the lender seizing control of the company. He alleged that he no longer had access to counsel who successfully represented him in similar actions and that he mistakenly believed he had 60 days to answer the complaint. Brown sought counsel the same day default judgment was entered against him, and he filed his instant motion after Alliots and Rupp refused to agree to a consent order.

The court sided with Brown, finding that: (1) he has a meritorious defense in the event his declaration—stating he made no misrepresentations about the financial status of MHF or any of its franchises—is found to be true; (2) Alliots and Rupp did not allege any prejudice that would result from vacating default judgment; and (3) given his employment situation and loss of counsel, Brown’s overlooking the 21 day deadline for filing his answer could be rendered ‘excusable neglect.’

The case number is 14-cv-1207-WJM-MF.

Attorneys: Lawrence T. Lowen for Keith Alliotts. Brian M. English (Tompkins, McGuire, Wachenfeld & Barry, LLP) for Thomas Brown.

Companies: Meat House Franchising, LLC

Cases: FranchisingDistribution ConsumerProtection NewJerseyNews