ICE CREAM FRANCHISEE’S CLAIMS AGAINST FRANCHISOR BARRED BY ONE-YEAR CONTRACTUAL STATUTE OF LIMITATIONS PERIOD IN FRANCHISE AGREEMENT
Scott Krumholz v. AJA, LLC and Emack & Bolio (January 13, 2010)
All of the claims brought by the Emack & Bolio’s ice cream franchisees against a franchisor were time-barred by the one-year contractual limitations clause in the parties’ franchise agreement. The franchisees filed their complaint against the franchisor on December 24, 2007. The franchisees alleged that the franchisor had fraudulently induced them to invest significant financial resources in their franchise. The alleged misrepresentations occurred during a meeting between the parties on December 14, 2002. The franchise opened for business in May, 2003, and by the end of 2004 it was clear to the franchisees that the costs of construction, equipment, and inventory were significantly higher than the amounts quoted to them by the franchisor and that their earnings had fallen far short of the franchisor’s projections. In light of those facts, it could not be reasonably contended that, at least by December 2006, after closing the store due to $800,000 in losses, the franchisee did not have notice of the alleged cause of the harm-the franchisor’s alleged gross misrepresentations.
A Tale of Two Bakeries: Why Panera Rose While Cosi Fell
Carol Tice at BNET Insight does a detailed comparison of each franchise and offers some insight into some reasons Panera had success and why Cosi seemingly struggled:
Two bakery-cafe chains have been in the news recently — Richmond, Mo.-based Panera Bread (PNRA) announced growing sales despite the downturn, while Cosi (COSI) of Deerfield, Ill., said its sinking sales have led to a delisting warning notice from the Nasdaq. Both chains began around the same time, and Cosi certainly got as much positive initial press and consumer raves. Some of the key differences that made Panera the winner:
Management strength and consistency. Panera was the second chain idea from seasoned Au Bon Pain visionary Ron Shaich, who’s been actively involved until just the past few months. By contrast, Cosi founders Jay and Shep Wainwright were fresh out of college when they brought back Cosi’s concept from a bistro they saw in Paris. Cosi’s ownership has been a revolving door — it merged in 1999 with Xando, another small chain that later busted. Efforts to sell it again last spring failed. Shep left after the 2002 IPO, and Jay was forced out in a 2005 management shuffle, so founders have been out of the loop for years.
A concept that franchise owners wanted. Panera was able to attract investors willing to open more than 500 franchised units. Though Cosi made many announcements over the years of big expansion plans and hundreds of planned units, growth was slow. A restaurant can have the best food in the world, but if its business model doesn’t make sense for franchisees, they won’t buy restaurants.
An emphasis on more experienced, wealthier franchise owners. Panera sets a higher bar for its franchise owners, requiring previous multi-unit restaurant experience. Though it only sold multi-unit franchises, Cosi just asked for previous restaurant experience. Panera also recruited franchisees with at least $7.5 million in net worth and $3 million in liquid assets, while Cosi requires only $900,000 in net worth and $400,000 liquid. Translation: If stores need investment to improve results, Panera’s franchisees have more resources to make it happen.
Read more at: BNET Insight
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