A nearly yearlong legal battle between Incredible Pizza Franchise Group LLC and its largest franchisee has come to a head in a settlement agreement reached last month, according to attorneys on both sides of the case that sought $46 million from the Springfield-based pizza and games company.
In the agreement, reached Sept. 3 and pending approval by U.S. District Court Judge Richard E. Dorr, Incredible Pizza Co. would receive $398,266 in cash and six 1957 Chevrolet automobiles valued at $90,000 from plaintiff FEC Holdings LP. The cars are used as a part of the Incredible Pizza interior theme, said Mary Clapp, Incredible Pizza Co.’s in-house general counsel.
“Instead of Incredible Pizza Co. paying any money to the franchisee who sued us, the franchisee is now paying us,” said Clapp, who worked with Chicago-based attorney Ric Cohen on the team of six defending Incredible Pizza.
“Anytime somebody sues you and you end up getting money back seems to be a positive thing to me,” added Incredible Pizza President and CEO Rick Barsness.
Under the original franchise agreement, reached in 2003, Lloyd Robert French III was scheduled to open 30 stores by 2018. At the time, Incredible Pizza officials celebrated the deal as having a $130 million value and said it would return $7.5 million in annual royalty fees to the Springfield company.
The lawsuit, filed Oct. 9, 2009, by FEC Holdings LP, alleged misleading franchise claims and sought $46 million invested to open seven family entertainment centers in Texas and Louisiana. FEC Holdings LP, French and eight of FEC’s limited partnerships sued Incredible Pizza Franchise Group LLC and owners Richard and Cheryl Barsness in U.S. District Court, Southern District of Texas, Houston Division. The case moved Feb. 4 to the U.S. District Court for the Western District of Missouri in Springfield, and Incredible Pizza filed a countersuit denying FEC’s allegations the same day.
Among the allegations in the suit:
• Incredible Pizza violated franchise disclosure obligations and misled FEC.
• The company provided misleading earnings claims that led FEC to plan to develop 36 Incredible Pizza locations.
• After executing seven franchise agreements, building out the franchises and taking over day-to-day franchise management, FEC said the family entertainment centers never reached Incredible Pizza’s stated earnings potential.
• Five of FEC’s seven stores suffered a cumulative loss in 2009.
• Incredible Pizza failed to fulfill its contractual obligations, including providing guidance and assistance, and a training and marketing program.
• Incredible Pizza accepted illegal vendor rebates, commissions or kickbacks for buying goods and services from suppliers.
• Incredible Pizza made misleading disclosures and omissions regarding trademarks, mandatory fees, vendor rebates and earnings claims, in the three Uniform Franchise Offering Circulars provided to the plaintiffs during the parties’ relationship.
FEC terminated its area development agreement and franchise agreements for the seven centers based on a provision in the contract with Incredible Pizza and began changing the brands, prompting Incredible Pizza’s countersuit, Cohen said. “We learned that at least at one location they were selling the assets,” he added. “We filed a complaint asking them to stop.”
Following Incredible Pizza’s countersuit, FEC and its seven franchises filed for bankruptcy protection, Cohen said. FEC closed three of its Incredible Pizza franchises and are operating the other four as Lido’s, another restaurant concept.
“The dispute has been resolved to the mutual satisfaction of both parties,” said John Holland, FEC’s lead attorney with Minneapolis-based Dady & Gardner PA.
Springfield attorneys Jason C. Smith and Lincoln J. Knauer of Husch Blackwell LLP also worked on the case for plaintiff French, who could not be reached for comment.
The case is not Incredible Pizza’s first legal matter.
A 2003 lawsuit by Kerrville, Texas-based Mr. Gatti’s Pizza claimed Barsness used proprietary information gained as a Mr. Gatti’s franchisee to start Incredible Pizza. The information, the company said, was learned over the 25-year period that Barsness ran Mr. Gatti’s restaurants in Texas before moving his family to Springfield in 1999. A $1 million settlement requires
Barsness to make annual payments of 1 percent of net sales to Mr. Gatti’s through 2013.
Incredible Pizza was incorporated in December 1999 and moved its operations office to Springfield from Tulsa, Okla., in April 2009. The corporate headquarters already were in Springfield, but the operational offices were in Tulsa, near the Incredible Pizza training store.
Incredible Pizza was named the fastest-growing company in southwest Missouri at Springfield Business Journal’s Dynamic Dozen awards in March 2009. Company revenues in 2008 were $82.6 million, up 29 percent from $64 million in 2007. The company was No. 792 on the 2009 Inc. 5000 list of fastest growing companies, with a 369 percent three-year growth rate.
There are 14 locations in the U.S. and Mexico, Clapp said. There are two stores under construction in Mexico, and stores are planned in Illinois and Texas.[[In-content Ad]]
