Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: DirectBuy franchisee sued over refusal to release club member merchandise after franchise termination, (Sep 10, 2015)

By Linda O’Brien, J.D., LL.M.

A former franchisee of DirectBuy consumer buying clubs memberships has refused to release club member merchandise stored in its warehouse following the termination of its DirectBuy franchise, according to a complaint filed in the federal district court in Hammond, Indiana (DirectBuy, Inc. v. Buy Direct, LLC, September 8, 2015).

DirectBuy is a franchisor of a national network of members-only consumer buying centers. DirectBuy franchisees sell memberships to consumers which enables them to purchase products from manufacturers in home furnishings, home improvement, entertainment, outdoor, flooring, and accessories categories at manufacturers’ prices. When a member identifies merchandise to purchase, the member places an order for the product and pays for the item in full at the time of order placement. The product is shipped either directly to the member’s home, a club location, or other DirectBuy receiving facility.

The complaint states that in June 2014, Buy Direct, LLC entered into a franchise agreement for the operation of a DirectBuy franchise in Houston, Texas. Buy Direct’s owners, Tom and Elona Pope, signed an owner’s personal guaranty of the franchisee’s obligations under the agreement. In August 2015, DirectBuy terminated Buy Direct’s franchise, in part due to its failure to meet the minimum membership sales production requirements of the franchise agreement.

According to the complaint, at the time of termination, the defendants had received and stored in their warehouse approximately 600 items of members’ merchandise, having a total value in excess of $317,000, all which was pre-paid in full. Concurrently with the termination, DirectBuy had personnel and a tractor trailer on site at the defendants’ warehouse for the purpose of picking up member merchandise. However, the defendants refused to permit the removal of the members’ merchandise by DirectBuy.

In response to the termination, the defendants immediately terminated their employees and shut down operations. DIrectBuy then arranged with Tom Pope for another date to pick up the member merchandise. On that date, DirectBuy sent personnel and a tractor trailer to the defendants’ warehouse. However, Pope arbitrarily refused to allow DirectBuy to use the loading dock and allowed DirectBuy to remove a few items he placed in the warehouse parking lot.

The complaint also alleges that the members are owed their merchandise immediately since it has been paid in full. On at least two occasions, Tom Pope expressly acknowledged to DirectBuy that the merchandise in his warehouse was the members’ property and did not belong to him or Buy Direct. Even though the franchise agreement gives DirectBuy the right to immediately take possession and remove all member merchandise upon termination of the agreement, the defendants have refused and continue to refuse to release the members’ merchandise from their warehouse.

The plaintiff asserts claims for criminal conversion and breach of contract. The action seeks injunctive relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-00344.

Attorneys: F. Joseph Jaskowiak and Lauren K. Kroeger (Hoeppner Wagner & Evans) and C. Joseph Yast for DirectBuy, Inc.

Companies: DirectBuy, Inc.; Buy Direct, LLC

News: FranchisingDistribution IndianaNews