Mama Fu's franchisees sue Raving Brands

Mama Fu's franchisees sue Raving Brands
Tags: Franchising & Growth, Legal Issues
December 6, 2006

A group of franchisees operating Mama Fu's units is suing Raving Brands, the Asian fast-casual chain's parent company. The group has filed a class-action lawsuit against the franchisor and two Raving Brands executives. The franchisees are seeking undetermined damages.

The lawsuit, filed Nov. 17 in Georgia Superior Court of Fulton County, accuses Raving Brands of fraudulent financial documentation, theft by falsification and theft by taking and concealments. All these claims are considered racketeering under Georgia's Racketeer Influenced and Corrupt Organizations (RICO) statute. The lawsuit says Raving Brands received undisclosed kickbacks from suppliers, keeping plaintiffs from seeking more competitive pricing.

"This lawsuit has no merit whatsoever," said Steve LeMastra, president of Raving Brands.

In addition to Raving Brands and Mama Fu's, the franchisees also are suing Martin Sprock, the company's founder, and Daryl Dollinger, a principal shareholder.

Plaintiffs include Sugarloaf Noodle House, Wong Fu's Noodle House, WE 3 Inc., Triad Restaurant Management, Central Florida Land Investments Inc. and H&J Goldt Corp. They are represented by Casey Gilson Leibel P.C., which represented franchisees during Raving Brands' copyright suit with Jerry Garcia's estate.

The franchisees were not immediately available for comment and represent half of the 18 Mama Fu's open in six states.

Plaintiffs say Mama Fu's misrepresented itself in its Uniform Franchise Offering Circular by claiming to have developed and perfected a system of opening and operating its noodle house restaurants. But in 2003, when Raving Brands was initially seeking franchisees, one company-owned store and no franchised Mama Fu's were open.

"In the UFOC, Raving Brands said the system was perfected. Well, there never really was a Mama Fu's," said Bob Casey, the plaintiff's attorney. "My clients were looking at Raving Brands and seeing how successful Moe's was. And Raving Brands was saying Mama Fu's was going to be the next big thing."

Casey said he learned of the franchisee's issues during the Jerry Garcia talks, when he said they came to him. He said the two sides tried to settle their differences before a lawsuit, but they couldn't reach a middle ground.

"The system is in decline and failing, and we had to file before the statute of limitations passed," Casey said. "This brand was never supported."

In the UFOC, Raving Brands states it will provide franchisees with selection and layout help, training, advertising support, bookkeeping support, inventory control and other general advisory services. But Casey said the franchisor did not assist its operators.

"This is something my clients thought long and hard about before they filed," Casey said. "I understand Steve's (LeMastra) position. But, this is far from a bogus lawsuit."

Some legal experts contend the franchisees should have done a better job digging through Raving Brands' financials and "going to the one store open and evaluating the brand for themselves instead of just reading the UFOC," said Jeff Letwin, a franchise attorney for Schnader Harrison Segal & Lewis.

"Since I see these (UFOCs) all the time, I usually go through the financial statements and see what kind of net worth the franchisor has ... and I can determine myself if this company has substantial experience and is legit," said Letwin, who reviewed the lawsuit on behalf of FastCasual.com. "This is just my opinion, but I don't think these are statements that are actionable."

Casey said Raving Brands has until Jan. 8 to respond to the lawsuit.

"We are prepared to take this suit to court," Casey said.