A federal district court judge in Georgia has ruled in favor of Moe’s Southwest Grill Holdings LLC and its cofounder Martin Sprock in a lawsuit that charged the franchisor with participating in an illegal kickback scheme.
In a Feb. 3 decision, Judge Richard Story of the U.S. District Court of the Northern District of Georgia effectively rejected all claims in a lawsuit originally filed in 2007 by a group of franchisees, which included charges of fraud, racketeering, breach of contract, breach of covenant and other charges.
The ruling vindicated Sprock and Moe’s Southwest Grill Holdings, which at the time was owned by the now-defunct multiconcept operator Raving Brands Inc.
The lawsuit, Massey Inc. et al v. Moe’s Southwest Grill LLC et al, initially involved 46 Moe’s franchisees who charged that the franchisor and Sprock were stealing money through a deceptive kickback scheme connected to its supply chain. As the legal action proceeded, 17 franchisees brought the case to trial.
At the time, Moe’s was the flagship concept for Atlanta-based Raving Brands, which also once operated and franchised the Shane’s Rib Shack, Planet Smoothie, Boneheads Grilled Fish & Piri Piri Chicken, Mama Fu’s Asian House and Doc Green’s Salads & Grill concepts. All of those brands have been sold over the past eight years.
In 2007, Moe’s was sold to multiconcept operator and franchisor Focus Brands Inc., also based in Atlanta. Focus Brands was not involved in the Massey case.
For Sprock and Daryl Dollinger, who was president of Raving Brands at the time, the ruling brought some closure.
“For the past eight years, this group of franchisees has attempted to discredit and undermine myself, Daryl Dollinger and the Moe’s brand, and we feel redeemed by Judge Story’s ruling, which stated clearly how we saved Moe’s franchisees money with our robust purchasing program,” Sprock said in a statement.
Robert Einhorn, at attorney with Zarco Einhorn Salkowski & Brito of Miami, which represented franchisees in the Massey case, said the ruling was “disappointing,” and that plaintiffs are evaluating whether to appeal.
At the heart of the complaint was a decision by Sprock in 2001 to bring in outside brokers CRM and Tony LaGratta to negotiate contracts with food vendors and distributors. Later, a brokerage named SOS was formed by LaGratta, and Sprock held an ownership interest.
Franchisees charged that the relationship between Sprock and LaGratta was not adequately disclosed, and that commissions paid to CRM and SOS by food vendors and distributors increased their food costs.
In the ruling last week, the court agreed that the failure to disclose the relationship between Sprock and LaGratta was an unfair or deceptive act under the Tennessee Consumer Protection Act. But the court also said plaintiffs failed to prove it had caused them to suffer loss, and that they may in fact have benefited.
“The court could not conclude that plaintiffs suffered actual losses as a result of the actions of defendants,” the ruling said. “Based on the evidence, it was more likely that defendants actually saved plaintiffs money through their purchasing program.”
Over the years, Raving Brands also battled lawsuits filed by franchisees of its Mama Fu’s Asian House and Doc Green’s Salads & Grill brands. The respective courts in those cases also ruled in favor of Sprock and Raving Brands, and have since been closed.
Sprock is now chairman of multiconcept franchise group Big Game Brands, based in Atlanta, which has given new life to two former Raving Brands concepts, The Flying Biscuit and a party-entertainment concept called Monkey Joe’s Parties and Play.
Dollinger is president of Big Game Brands.
Big Game also operates several casual-dining brands poised for franchising, including Ruru’s Tacos & Tequila, the Greek restaurant Ios and a sports bar called Leroy Fox, all in Charlotte, N.C.
Sprock said bringing the Massey case to a close is vital as the company moves forward with new concepts.
Although it would have been more cost effective to settle the case years ago, Sprock said, “We wanted to be redeemed. It was our good names and reputations on the line.”
Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout
