Article
Appeals court finds in favor of Raving Brands
Atlanta's Eleventh Circuit Court of Appeals affirms the company provided a fully functional franchise system for Mama Fu's Asian House.
April 8, 2010 by Valerie Killifer — senior editor, NetWorld Alliance
On April 5, 2010, the Eleventh Circuit Court of Appeals affirmed the judgment given by the Northern District of Georgia, Atlanta Division, in February 2009, that states Martin Sprock and Daryl Dollinger, creators of Mama Fu's Asian House, provided a fully functional operating system to franchisees, promoted and marketed the brand to the best of its ability, provided exemplary services to support the success of its franchisees and did not create a false impression of the restaurants' potential business and profitability.
The company was sued in November 2007 by a group of nearly 30 franchisees who claimed fraudulent financial documentation, theft by falsification and theft by taking and concealments. The lawsuit also said Raving Brands received undisclosed kickbacks from suppliers, keeping plaintiffs from seeking more competitive pricing.
According to anamended complaintfiled in federal court March 2008, franchisees allege that Mama Fu's did not have a developed and perfected system before selling franchises; it had not established a national advertising fund for which it was collecting fees; it did not disclose the "kickbacks" it was receiving from suppliers and it was selling worthless development rights to the restaurant operators.
In February 2009, US District Court Northern District of Georgia ruled in favor of founder Martin Sprock, president Daryl Dollinger and Raving Brands on all claims associated with 'Peterson vs. Sprock,' said trial attorney Roy Barnes at the time.
Dollinger said the appeals ruling has been a relief for for both him and the company.
"We fought for three years with this particular and case ... and it is very gratifying to know the court found in favor of us," he said. "It's very overwhelming and is exciting ... and let's us focus on the business of running a franchise company."
Raving Brands, which at one time boasted more than seven franchise concepts in its portfolio, now only owns Monkey Joe's Parties and Play and The Flying Biscuit Cafe. While both are growing, Raving Brands isn't completely out of the woods in regard to pending litigation.
The company still has two lawsuits to fight out; it was sued by six Doc Green's franchisees in 2008 for misrepresenting that the franchise system had a proven business model. Additionally, more than 100 franchisees and their financial backers sued the company in 2007 over allegations of fraud and breach of contract. No movement has been made in either case, Dollinger said.
In regard to the Mama Fu's lawsuit, the court found that Raving Brands' franchise representations were either not false, lacked justifiable reliance or did not result in damage.
Dollinger said the company also feels vindicated from the ruling and will work to implement lessons learned from the lawsuit.
"We are definitely more particular and do a lot more screening," he said. "And we are a little bit more sensitive with who we partner to be with in business today. We learned that people will bend the truth, a lot. And sitting through two weeks of trial I heard things from franchisees that I couldn't believe they were saying. And that upset me because it was a credibility thing."
Dollinger also hopes the ruling will help brighten the company's poor industry reputation.
"We got kicked around and we got kicked in the gutter," he said. "We always had to disclose lawsuits ... so it's always there and attached to me by the hip. I was sued personally and Martin was sued personally. I take that personally and I think anybody would. We certainly want to show franchisees that we've been vindicated."
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