Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Baskin-Robbins franchisees allege Washington Franchise Act violations, breach of contract, and conversion claims, (Apr 24, 2014)

By Linda O’Brien, J.D., LL.M.

A franchisor of retail ice cream shops has engaged in misrepresentation, violations of Washington Franchise Act, bad faith, and conversion by taking over the leases for the franchises, locating new franchisees for the franchisees’ retail locations without their knowledge or consent, and threatening default on credit extended to the franchisees, according to a complaint filed in the Washington superior court in Everett (Vu v. Alpenrose Dairy, Inc., April 23, 2014).

Baskin-Robbins Franchising, LLC sells franchises for Baskin-Robbins ice cream shops. Alpenrose Dairy, Inc. is the authorized agent for Baskin-Robbins Franchising, LLC to sell franchises and supply ice cream and other products to Baskin-Robbins franchise stores in the Pacific Northwest.

The complaint states that, in 2002, Patrick and Alissa Vu entered into an agreement with Alpenrose and Baskin-Robbins to own and operate a retail ice cream store under the Baskin-Robbins name. The Vus also purchased additional franchises to operate Baskin-Robbins stores at other locations. Since 2008, the revenue from their franchise stores has substantially declined due to the economic downturn. The economic climate magnified issues with the Baskin-Robbins brand, which made it difficult for franchises to remain in business. Specifically, the defendants refused to permit franchisees to update the appearance of their stores or to expand their menu and product line in an effort to increase sales, according to the plaintiffs.

Many franchisees, including the Vus, made the decision to sell their franchises. When the Vus secured a qualified buyer for one of their franchises, the defendants allegedly withheld their approval of the sale unreasonably. Instead, the defendants located their own buyers so they did not have to share the purchase proceeds with their franchisees under the terms of the franchise agreements. The investment, sweat equity, and goodwill built into franchise locations by franchisees is their single greatest asset and they cannot afford to lose their equity in their franchises, the complaint alleged.

According to the complaint, the defendants exacerbated the financial hardship suffered by their franchisees by creating a scheme that kept many franchisees in debt to the defendants. In winter months when ice cream sales declined and the Vus were unable to pay their bills, the defendants extended credit to them, charging an unusually high interest rate. The defendants used the debt to induce their franchisees to act in conformity with their demands, whether or not they conformed to the contract between the parties. If the franchisees asserted their rights under the franchise agreements, the defendants allegedly threatened to file with the IRS Forms 1099 for the amount of the unpaid debt if the franchisees resisted the directives of the defendants.

In certain situations, the defendants take over the lease for a retail store for the franchise. When the defendants find a buyer, they enter into an agreement to sell the franchise without the knowledge or consent of the franchisee. The defendants willthen force the franchisee out of the retail location by threatening default on the debt that is owed by the franchisees, the franchisees charged. The plaintiffs have actively engaged in negotiations with the defendants to resolve their disputes and transfer ownership of their franchises to new franchisees with the least disruption to the franchise brand and business. However, the defendants have ignored the plaintiffs’ attempts to resume negotiations and ceased all ice cream deliveries to the plaintiffs’ franchise locations. This action will effectively close the plaintiffs’ franchises, the complaint alleged.

The plaintiffs assert claims for breach of contract, misrepresentation, bad faith, conversion, and violations of Washington’s Franchise Act and Consumer Protection Act. The action seeks compensatory damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:14-cv-00603.

Attorneys: Eugene N. Bolin, Jr. (Law Offices of Eugene N. Bolin, Jr., P.S.) for Patrick T. Vu and Alissa K. Vu.

Companies: Alpenrose Diary, Inc.; Baskin-Robbins Franchising, LLC

News: FranchisingDistribution WashingtonNews