PALMDALE, CALIF. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Some of the cases have been settled, but among those that would be disclosed are four pending lawsuits filed by master developer-franchisees who allege fraud, misrepresentation and other charges against RedBrick Pizza Worldwide and its owners, Jim Minidis and his wife. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Minidis, who has countered some of these complaints with legal action, said the charges have no merit and are motivated by disgruntled former area developers who have been officially stripped of their development rights, yet are conspiring to take over the brand. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The bitter disputes with the developers, however, appear to stem in part from the company’s nondisclosure in earlier UFOCs of another lawsuit, also pending, that at one point resulted in a $6.2 million judgment against Minidis. A judge later invalidated the award, but that ruling is now under appeal. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
In the end, the tangled RedBrick Pizza drama that is to play out in Los Angeles courtrooms illustrates a vulnerable point for many franchisors: the disclosure of lawsuits. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Many franchisors may be reluctant to reveal litigation on their offering circular for fear that such disclosure would scare away potential franchisees. Some other brand owners may not regard all pending litigation as material or germane, or may have been advised that disclosure was not necessary. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
But not disclosing lawsuits could leave a franchisor open to charges of fraud for not fully revealing its history. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
That’s why, most franchise attorneys say, the best advice is: When in doubt, disclose. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
New rules by the Federal Trade Commission, or FTC, soon will require that franchisors reveal even more about their experiences in court. For the first time since the FTC began regulating franchising in 1978, the agency has overhauled its mandates with the goal of providing potential franchisees with more information about the brand they might be buying into. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The new FTC rules, known formally as the Franchise Disclosure Document and sometimes called the “UFOC Plus,” will become optional this July and mandatory by July 2008 for franchisors in all states. Essentially, the regulations expand the disclosure requirements of the current UFOC format that now is accepted in the 15 states where franchising is regulated. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Franchisors, for example, will be required to disclose lawsuits they file against franchisees, as well as the bankruptcy histories of their parent companies, its officers or other executives. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
In addition, the new rules will require franchisors to give out information about franchisee associations and to disclose whether franchisees have been asked to sign confidentiality clauses that might prevent them from speaking freely about their history with the brand. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The new rules also will allow franchisors to disclose electronically, which many attorneys hope would lead eventually to the Web-based comparison shopping of UFOCs. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Paul Steinberg, a franchise attorney in New York and a former Subway franchisee, said franchisees looking for a way to get out of their agreements with brand owners often look first for lawsuits that haven’t been disclosed, which can be used as a basis for litigation. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“Failure to disclose is a legitimate claim,” Steinberg said. “One of the very few things that can get you in trouble is not disclosing. It’s a no-brainer.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Franchise attorney David Kaufmann, who wrote the franchise laws in New York, said, “It’s almost reflexive for franchisees facing termination to sue.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
However, he added that lawsuits citing nondisclosure often don’t succeed. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“Rare are the cases when any particular omission can credibly be found by the court as leading to harm,” he said. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Still, increased disclosure could help some companies avoid the situation in which RedBrick finds itself. Charges related to nondisclosure have haunted the fast-casual, brick-oven pizza outfit for years. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Oregon regulators looking into complaints by an area developer there who filed suit in 2001 found, among other things, that Palmdale, Calif.-based RedBrick Pizza Worldwide had failed to disclose prior lawsuits and didn’t reveal its history under a prior name, RedBrick Pizza Inc., which was founded in 1998. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The issue was resolved, but questions about the company’s disclosure continued. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
From 2002 through 2003, RedBrick officials spent more than a year in negotiations with the California Department of Corporations attempting to resolve questions about disclosure—which master developers later contended had stalled their ability to sell franchises. But according to documents from the state personnel board, an examiner was later terminated for holding up the registrations of RedBrick and other franchisors. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Still, another lawsuit filed in 2001 by Michael Marsh and his wife, Mary Dousette, would prove even more a sticking point for RedBrick. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Marsh and Dousette were investors in a separate restaurant concept that Minidis was involved in helping develop. The couple later alleged their money was used by Minidis to help develop RedBrick, and they claimed ownership rights to the brand. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Don Drysdale, RedBrick’s franchise attorney, said he didn’t know about the lawsuit until a couple of years later, and, even then, he believed the complaint to be a “nuisance case” that named Minidis and his wife but didn’t cite RedBrick directly. The case was not disclosed in UFOC filings until 2004, after the state examiner asked why it wasn’t listed. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Company officials said they were shocked when a jury awarded $6.2 million in damages to the couple in April 2005, a result that also threatened RedBrick’s registration. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
In July that year, four master developers filed suit in Los Angeles Superior Court, all making similar claims of fraud and deceit, breaches of good faith and fair dealing, misrepresentation, and violations of state franchise law, among other charges. The plaintiffs were Jay Bharat Developers, whose territory included Los Angeles and nearby counties, with a total of 14 franchised units; KNJ Investments Inc., which operated three Orange County, Calif., units of the chain; SKSD Investment Group in San Diego County; and Blue Mako Inc., the area developer for North Carolina. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The lawsuits—which at the time also cited Marsh and Dousette as well as Drysdale—stemmed in part from the nondisclosure of the Marsh-Dousette case. Minidis, however, noted that all four of the developers at that point had received termination warnings for failing to pay royalties and other problems. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The $6.2 million judgment in the Marsh-Dousette case was later vacated after it was discovered that a key witness had been hidden—though that decision has been appealed—and the court granted the Minidises’ motion for a new trial. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
RedBrick last year terminated the four master developers, and the company has gone to court to seek injunctions to force some of them to stop operating. Those actions are pending. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
UFOC guidelines don’t require that every legal dispute be disclosed, just those that might be material, such as felony convictions going back as far as 10 years, fraud and similar charges, adverse judgments in civil cases, and actions by franchise regulators, for example. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Drysdale maintains that the company disclosed everything deemed material at the time. What is seen as material can vary, he contended, depending on the state examiner reviewing the case. All questions about disclosure are now resolved, he said. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“Trying to look good, or think you’re looking good, by not disclosing something can backfire,” he said. “RedBrick is absolutely committed at this point to disclosing anything and everything.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Minidis describes himself as a victim of a litigious society who has spent years trying to defend his concept from settlement-hungry plaintiffs attempting to take control of the company. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“Everything we have done is to protect our brand,” he said. “We have prevailed all along the way.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The legal battles have taken a financial toll. Financial statements filed with the state show that the company’s revenues for 2005 were $1.6 million, yielding a net loss of $3,381 after almost $350,000 in legal fees. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Yet RedBrick has continued to grow. The brand now has 16 master developers in good standing, and all of them also operate some of the chain’s 64 units in eight states. Within the next 12 months, RedBrick expects to expand to a total of 90 to 100 stores, based on existing agreements. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Overall the company is working with about 100 franchisees, some of whom are opening second units, Minidis said. RedBrick Pizza, which was named a winner of the Hot Concept! Award by Nation’s Restaurant News last year, now is looking into international development as the next stage of its growth. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Paul Chong, co-owner of RBP of Florida, a master developer and franchisee with two units, said he knew about the company’s litigation history when he signed on, but didn’t think it was unusual. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Most of the chain’s master developers don’t agree with the four who filed suit, Chong said. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“We believe they were trying to band together and take over the company,” he said. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
Hari Dhiman, a master developer in the Los Angeles area and Nevada, signed on with the brand in 2002, and was once a partner with one of the plaintiffs in the current lawsuits. He has 14 stores open and four under construction, and is working with about 20 franchisees. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“I’ve been registered with the state since the beginning and I did not have a problem,” he said. “I can’t comment on their claim. When it comes to business, people have to make their own judgments. RedBrick is a great brand, and we’ll continue to grow.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
One franchisee who asked not to be named, however, said operators in the system feel “caught in the middle.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“A lot of the operators are confused,” he said. “They just want to run their stores and provide good service to their customers.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
The franchisee added that when he signed on he was not aware of much of the litigation the company later disclosed. —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
“Maybe if I would have known, I might have done differently,” he said. “But it’s water under the bridge now.” —When the franchisor of the 64-unit RedBrick Pizza concept files for renewal of its Uniform Franchise Offering Circular in California this spring, the UFOC document likely will disclose nine lawsuits—enough, some franchise lawyers say, to give a potential franchisee pause.
