WALID ELKHATIB, Plaintiff-Appellant, v. DUNKIN DONUTS, INC., a Delaware Corp., and ALLIED DOMECQ, Defendants-Appellees.
No. 04-4190
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
493 F.3d 827; 2007 U.S. App. LEXIS 16251; 105 Fair Empl. Prac. Cas. (BNA) 1525; 89 Empl. Prac. Dec. (CCH) P42,890
October 30, 2006, Argued
July 10, 2007, Decided
SUBSEQUENT HISTORY: Related proceeding at Dunkin’ Donuts Franchised Rests. LLC v. Elkhatib, 2009 U.S. Dist. LEXIS 62228 (N.D. Ill., July 17, 2009)
PRIOR HISTORY: [**1]
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 02 C 8131–Charles R. Norgle, Sr., Judge.
Elkhatib v. Dunkin’ Donuts, Inc., 2004 U.S. Dist. LEXIS 23066 (N.D. Ill., Nov. 12, 2004)
CASE SUMMARY:
PROCEDURAL POSTURE: Appellant, a Palestinian Arab franchisee of the Muslim faith, appealed from the United States District Court for the Northern District of Illinois, Eastern Division, which granted summary judgment in favor of appellee franchisor on the franchisee’s claims of race discrimination in violation of 42 U.S.C.S. §§ 1981 1982.
OVERVIEW: The franchisee had operated a number of donut franchises for decades, and in that time had refused to handle pork products, because he asserted that it was forbidden for members of the Arab race by tradition and custom to do so. The franchise agreement obligated franchisees to sell pork products, but the franchisor had not in practice required the franchisor to do so. Ultimately, the franchise told the franchisor that he could not relocate nor could he renew any of his franchise agreements because of his failure to carry pork products. There was no dispute that the franchisee belonged to a protected class, nor was there any question that he suffered an adverse action. The franchises identified as comparators were identical in all relevant respects in that they all failed to carry part or all of the breakfast line of products despite the requirement in their franchise agreement that they do so. Therefore, the franchisor’s argument that their reasons for failing to carry the full product line were different than the franchisee’s was unavailing. There was enough evidence in the record demonstrating that the franchisor’s reason for the adverse employment action was pretextual.
OUTCOME: The decision of the district court was reversed and the case was remanded for further proceedings consistent with the instant opinion.
CORE TERMS: franchise, sandwich, breakfast, pork, lease, franchise agreements, racial discrimination, summary judgment, product line, similarly-situated, renew, meat, franchisees, space, direct evidence, discriminatory, relocate, carrying, prima facie case, legitimate expectations, declaring, managers, cashier, pretext, protected class, non-discriminatory, sausage, bacon, ham, store manager
LexisNexis(R) Headnotes
Civil Procedure > Summary Judgment > Appellate Review > Standards of Review
Civil Procedure > Summary Judgment > Burdens of Production & Proof > Nonmovants
Civil Procedure > Summary Judgment > Standards > General Overview
Civil Procedure > Appeals > Standards of Review > De Novo Review
[HN1] An appellate court reviews de novo the district court’s grant of summary judgment, construing all facts and all reasonable inferences in the light most favorable to the non-movant. The appellate court will affirm only if the evidence shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.
Civil Rights Law > Contractual Relations & Housing > Equal Rights Under the Law (sec. 1981) > General Overview
Civil Rights Law > Contractual Relations & Housing > Property Rights (sec. 1982) > General Overview
[HN2] 42 U.S.C.S. §§ 1981, 1982 provide that all persons shall have the same right to make and enforce contracts, as is enjoyed by white citizens, that those rights are protected against impairment by nongovernmental discrimination, and that all citizens shall have the same right as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property. Those provisions are inapplicable to religious discrimination, but protect against racial discrimination.
Civil Rights Law > Contractual Relations & Housing > Equal Rights Under the Law (sec. 1981) > Proof of Discrimination
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burden Shifting
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Circumstantial & Direct Evidence
[HN3] The United States Supreme Court has recognized that the 42 U.S.C.S. § 1981 protection against racial discrimination applies to discrimination based on a person’s status as an Arab. A plaintiff may prove discrimination under § 1981 either through direct evidence, or through the indirect burden-shifting method discussed in McDonnell Douglas.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Circumstantial & Direct Evidence
[HN4] Direct evidence is evidence that, if believed, shows discriminatory conduct by an employer without reliance on inference or presumption, such as where there is an admission by an employer that the decision was based on the prohibited animus. That may include circumstantial evidence, but such evidence must point directly to a discriminatory reason for the employer’s action.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burden Shifting
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens of Proof
[HN5] Under the indirect method, a plaintiff must first establish a prima facie case of discrimination by producing evidence which would allow a jury to find that: (1) he belongs to a protected class; (2) he meets an employer’s legitimate expectations; (3) he suffers an adverse action; and (4) similarly-situated non-protected individuals are treated more favorably. Once the plaintiff meets that burden, defendant must provide a legitimate, non-discriminatory reason for its actions. The burden would then shift back to plaintiff to demonstrate that the employer’s actions are merely pretextual.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burden Shifting
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burdens of Proof
[HN6] When a plaintiff produces evidence sufficient to raise an inference that an employer applies its legitimate expectations in a disparate manner (i.e., applied expectations to similarly situated younger employees in a more favorable manner), the second and fourth prongs of the McDonnell Douglas test merge–allowing plaintiffs to stave off summary judgment for the time being, and proceed to the pretext inquiry.
Labor & Employment Law > Discrimination > Disparate Treatment > Proof > Burden Shifting
[HN7] The similarly-situated requirement in the McDonnell Douglas test should not be applied mechanically or inflexibly, but rather is a common-sense flexible inquiry that seeks to determine whether there are enough common features between the individuals to allow a meaningful comparison. Substantial similarity, not complete identity, is required. In fact, a court has cautioned against overly technical or rigid interpretations of this requirement: It is important not to lose sight of the common-sense aspect of this inquiry. It is not an unyielding, inflexible requirement that requires near one-to-one mapping between employees–distinctions can always be found in particular job duties or performance histories or the nature of the alleged transactions but the fundamental issue remains whether such distinctions are so significant that they render the comparison effectively useless. In other words, the inquiry simply asks whether there are sufficient commonalities on the key variables between the plaintiff and the would-be comparator to allow the type of comparison that, taken together with the other prima facie evidence, would allow a jury to reach an inference of discrimination or retaliation–recall that the plaintiff need not prove anything at this stage.
COUNSEL: For WALID ELKHATIB, Plaintiff-Appellant: Robert A. Habib, Chicago, IL USA.
For DUNKIN DONUTS, INCORPORATED, a Delaware corporation, ALLIED DOMECQ, Defendants-Appellees: Christopher B. Wilson, Jonathan R. Buck, PERKINS COIE, Chicago, IL USA.
JUDGES: Before KANNE, ROVNER, and WILLIAMS, Circuit Judges.
OPINION BY: ROVNER
OPINION
[*828] ROVNER, Circuit Judge. Plaintiff-Appellant Walid Elkhatib is a Palestinian Arab of the Muslim faith who is a U.S. citizen. In 1979, he purchased his first Dunkin Donuts franchise, and has continuously operated various Dunkin Donuts franchises since that time. Elkhatib attested that he chose to pursue the franchise opportunity with Dunkin Donuts in part because it would not require him to handle pork products, which he asserts is forbidden to members of the Arab race by tradition and custom. Although no pork products were served at Dunkin Donuts when Elkhatib purchased his first franchise in 1979, that situation changed in 1984 when Dunkin Donuts introduced its breakfast sandwiches, which are croissants with egg and a choice of cheese, bacon, ham or [**2] sausage. Elkhatib refused to sell the sandwiches at his store, and District Manager Jeff Zevoral did not object to that decision. In 1995, Elkhatib opened a second franchise in Berkeley, Illinois, and again his refusal to carry pork products was met with no objection from Dunkin Donuts personnel. A year later, Elkhatib began selling breakfast sandwiches without bacon, sausage or ham, at his two locations. Zevoral facilitated those sales, supplying Elkhatib with a sign that stated “Meat Products Not Available.” Zevoral also provided another plastic sign to Elkhatib advertising the breakfast sandwiches, which stated “At participating U.S. shops only [sic] Bacon, sausage or ham may not be available at all shops.” In 1998, Elkhatib opened a Dunkin Donuts store in Westchester, Illinois.
Elkhatib was approached in 2002 by Gene Liguoritis, Development Manager for Dunkin Donuts, about the possibility of moving his location within Westchester to a more advantageous location at the intersection of two busy roads. Elkhatib pursued that opportunity, and entered into a Letter of Intent to Ground Lease for the new location contingent upon the approval by Dunkin Donuts. That approval was not forthcoming, [**3] and in fact, in May 2002, Elkhatib was informed that Dunkin Donuts would not agree to the relocation. Elkhatib met with Dunkin Donuts supervisors Greg Novak and Chuck Cowgill to ascertain the reason for that decision. Near the conclusion of that meeting, the issue of the breakfast sandwiches arose, and Elkhatib informed them that he would continue to sell breakfast sandwiches, but would not sell pork products because he was forbidden to handle pork. No one mentioned at that time that his objection to selling pork was fatal to his future as a franchise owner.
However, on August 12, 2002, Elkhatib received that news via a letter from Dunkin Donuts legal counsel, declaring that although his current franchise agreements would be honored, he could not relocate nor could he renew any of his franchise agreements because of his failure to carry [*829] Dunkin Donuts’ full breakfast sandwich product line. In November, 2002, Elkhatib filed a complaint against Dunkin Donuts and its parent company Allied Domecq (hereinafter “Dunkin Donuts”), alleging that the refusal to allow him to relocate or to renew his franchises based on his refusal to sell pork products constituted racial discrimination in violation [**4] of 42 U.S.C. §§ 1981 and 1982.
Dunkin Donuts sought summary judgment in the district court, arguing that Elkhatib was denied the right to relocate and renew his franchises because of his refusal to carry a full line of Dunkin Donuts products, including pork products, and not due to his race. In granting that motion, the court on its own construed Elkhatib’s claim to be one of religious discrimination rather than racial discrimination, based on the court’s determination that the restrictions on handling pork are associated with religion rather than race. Neither party argues for affirming on that basis. Instead, Dunkin Donuts argues that the district court properly held in the alternative that Elkhatib had failed to meet his burden in demonstrating racial discrimination. [HN1] We review de novo the district court’s grant of summary judgment, construing all facts and all reasonable inferences in the light most favorable to Elkhatib. Cerutti v. BASF Corp., 349 F.3d 1055, 1060 (7th Cir. 2003). We will affirm only if the evidence shows that there is no genuine issue as to any material fact and that Dunkin Donuts is entitled to judgment as a matter of law. Id.
The complaint was filed under [HN2] 42 U.S.C. §§ 1981 [**5] & 1982, which provide that “all persons . . . shall have the same right . . . to make and enforce contracts, as is enjoyed by white citizens,” that those rights are “protected against impairment by nongovernmental discrimination,” and that all citizens “shall have the same right . . . as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property.” Those provisions are inapplicable to religious discrimination, but protect against racial discrimination.
We note initially that [HN3] the Supreme Court has recognized that the § 1981 protection against racial discrimination applies to discrimination based on a person’s status as an Arab. Saint Francis College v. Al-Khazraji, 481 U.S. 604, 613, 107 S. Ct. 2022, 95 L. Ed. 2d 582 (1987). Elkhatib may prove discrimination under § 1981 either through direct evidence, or through the indirect burden-shifting method discussed in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-03, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). Humphries v. CBOCS West, Inc., 474 F.3d 387, 403-04 (7th Cir. 2007); Cerutti, 349 F.3d at 1060-61.
Elkhatib has presented little in the way of direct evidence relating to his race. [HN4] Direct evidence is evidence that, if believed, shows discriminatory [**6] conduct by the employer without reliance on inference or presumption, such as where there is an admission by an employer that the decision was based on the prohibited animus. Cerutti, 349 F.3d at 1061. That may include circumstantial evidence, but such evidence “‘must point directly to a discriminatory reason for the employer’s action.'” Id. at 1061, quoting Adams v. Wal-Mart Stores, Inc., 324 F.3d 935, 939 (7th Cir. 2003). Elkhatib provides only a statement from his store manager that in November-December 2001, she overheard Greg Novak make what she regarded as an anti-Arab statement at a meeting of franchisees and their managers. With Elkhatib’s permission, she reported the comment through the complaint mechanism supplied by Dunkin Donuts, and was told that Novak’s boss, Cowgill, would stop by the store to apologize. Cowgill did visit the store that [*830] week, but did not apologize, and the store manager reported that as well. That incident is potentially relevant in determining the motive for the decision not to renew the franchise agreements, although it arguably indicates retaliatory discrimination rather than racial discrimination. See Humphries, 474 F.3d at 398 (recognizing that [**7] the protections of § 1981 also apply to claims of retaliation). It is so lacking in detail, however, including any indication as to what the statement was, that any thoughts as to its potential relevance are purely speculative. For purposes of this motion, it is enough to note that it does not provide direct evidence that the decision regarding the renewal and relocation of the franchises was based on Elkhatib’s race.
In the absence of such direct evidence, he may survive summary judgment through the indirect burden-shifting method of McDonnell Douglas. [HN5] Under that method, he must first establish a prima facie case of discrimination by producing evidence which would allow a jury to find that: (1) he belongs to a protected class; (2) he met Dunkin Donuts’ legitimate expectations with regard to the franchise agreement; (3) he suffered an adverse action; and (4) similarly-situated non-protected individuals were treated more favorably. Once Elkhatib meets that burden, Dunkin Donuts must provide a legitimate, non-discriminatory reason for its actions. The burden would then shift back to Elkhatib to demonstrate that Dunkin Donuts’ actions were merely pretextual.
There is no dispute that Elkhatib [**8] belongs to a protected class, nor is there any question that he suffered an adverse action. Dunkin Donuts argues, however, that Elkhatib has failed to establish that he can perform his obligations under the contract because he is unwilling to serve the full line of products, and that there are no similarly-situated non-protected individuals treated more favorably.
For its first argument, Dunkin Donuts points to the franchise agreement itself, which requires all franchisees to carry Dunkin Donuts’ full food product line. Elkhatib’s refusal to carry pork products violates that provision, and according to Dunkin Donuts, establishes that he cannot or will not perform his obligations under the contract. Elkhatib responds that Dunkin Donuts has never required its franchisees to carry the full product line despite that language, and in fact that it affirmatively assisted franchisees in carrying less than the full product line by providing signs for stores declaring: “No Meat Products Available.”
Dunkin Donuts’ decision in the past not to require compliance with that provision would not prevent it from enforcing it in future franchise agreements, as would be the case if Elkhatib relocated or [**9] renewed his franchise agreements. Nevertheless, if Dunkin Donuts continued to allow franchisees to carry less than its full product line without consequence or any other indication that the provision was a material part of the contract, then it could hardly point to that neglected provision to defeat a claim of racial discrimination if it chose to enforce it against only certain racial minorities.
In that manner, this is similar to a line of cases in the employment context in which violations of legitimate employer expectations were met with disparate treatment based on race. For instance, in Curry v. Menard, Inc., 270 F.3d 473 (7th Cir. 2001), an African-American cashier acknowledged that she had violated the store’s progressive disciplinary policy which provided for termination for the three cash discrepancies in her cashier drawer. She maintained, however, that two non-African-American cashiers with [*831] similar violations were not terminated. The issue, then was whether the employer applied its legitimate employment expectations in a discriminatory manner. We held that “it makes little sense in this context to determine whether she was meeting Menard’s legitimate expectations. Rather, [**10] Menard’s argument is more appropriately considered in our analysis of pretext.” Id. at 478. We have reiterated that conclusion in subsequent cases, recognizing that [HN6] “‘[w]hen a plaintiff produces evidence sufficient to raise an inference that an employer applied its legitimate expectations in a disparate manner (i.e., applied expectations to similarly situated . . . younger employees in a more favorable manner), the second and fourth prongs merge–allowing plaintiffs to stave off summary judgment for the time being, and proceed to the pretext inquiry.” Peele v. Country Mut. Ins. Co., 288 F.3d 319, 329 (7th Cir. 2002); Cerutti, 349 F.3d at 1064 n. 8 (quoting Peele).
That same scenario is present here. Elkhatib does not deny that his failure to carry the full line of breakfast products is inconsistent with the requirement in the franchise agreement. He argues, however, that Dunkin Donuts applied that franchise provision in a discriminatory manner. In that context the second and fourth prongs merge in the inquiry. That leads to the issue of whether there were similarly-situated individuals not in the protected class who were treated differently. Of the three franchises in the Chicago area [**11] who refused to carry the full line of breakfast sandwiches, none were owned by an Arab. Dunkin Donuts nevertheless argues that they are not similarly-situated because their reasons for refusing to carry the sandwiches were different from Elkhatib’s. One of those franchises did not carry breakfast sandwiches at all because its lease prohibited it from serving sandwiches. Another did not carry any breakfast sandwiches because it ostensibly lacked space for the toaster oven or microwave needed to do so. Finally, the third franchise did not carry any pork products because it sought to meet the demand in the area for a kosher establishment.
The level of similarity that Dunkin Donuts would require in order for the prima facie case to be met is unworkable and inconsistent with McDonnell Douglas. [HN7] The similarly-situated requirement should not be applied mechanically or inflexibly, but rather is a common-sense flexible inquiry that seeks to determine whether there are enough common features between the individuals to allow a meaningful comparison. Humphries v. CBOCS West, Inc., 474 F.3d 387, 404-05 (7th Cir. 2007). Substantial similarity, not complete identity, is required. Id. at 405. In fact, [**12] we cautioned in Humphries against overly technical or rigid interpretations of this requirement:
It is important not to lose sight of the common-sense aspect of this inquiry. It is not an unyielding, inflexible requirement that requires near one-to-one mapping between employees–distinctions can always be found in particular job duties or performance histories or the nature of the alleged transactions . . . but the fundamental issue remains whether such distinctions are so significant that they render the comparison effectively useless. In other words, the inquiry simply asks whether there are sufficient commonalities on the key variables between the plaintiff and the would-be comparator to allow the type of comparison that, taken together with the other prima facie evidence, would allow a jury to reach an inference of discrimination or retaliation–recall that the plaintiff need not prove anything at this stage.
[citations omitted; italics in original] Id.
The franchises identified as comparators were identical in all relevant respects in [*832] that they all failed to carry part or all of the breakfast line of products despite the requirement in their franchise agreement that they do so. That [**13] franchise provision is absolute in its terms, and does not indicate that exceptions would be made for certain reasons and not others. Therefore Dunkin Donuts’ argument that their reasons for failing to carry the full product line were different than Elkhatib’s is unavailing.
In fact, for at least two of the franchises, the problem arguably could have been resolved if it truly was a concern of Dunkin Donuts. The franchise with the lease prohibition could have relocated to a location without that restriction. Dunkin Donuts did not require that action as a condition of renewing the franchise, and in fact allowed the owner to renew the lease at that location without threat of losing the franchise after the time that it informed Elkhatib that his failure to carry the sandwiches would result in the nonrenewal of his franchise. The original lease issued in 1983 contained the restriction on the sale of sandwiches. In 2003, after the letter was sent to Elkhatib informing him that his franchise would not be renewed for failure to carry meat sandwiches, Dunkin Donuts entered into an agreement extending the lease on that store for an additional 10 years, with no modification of the provision banning [**14] the sale of sandwiches.
Similarly, Elkhatib and a co-worker visited the store with the space limitations and attested that the store had ample room for the equipment needed to serve breakfast sandwiches, but chose to use that space to display multiple shelves of coffee instead. The conversion of that space was not required of it by Dunkin Donuts, and it was not threatened with nonrenewal. Moreover, even if Elkhatib were wrong in that assessment, we would not assume that on summary judgment, and it remains that Dunkin Donuts did not require that franchise to either modify its store or relocate in order to maintain the franchise. Finally, although Dunkin Donuts asserts that the third franchise did not carry pork in acquiescence to customer preferences, it provided no evidence to that effect. In any case, there is no meaningful distinction for purposes of the similarly-situated inquiry between the franchises that refused to carry breakfast sandwiches because of lease and space issues, and Elkhatib.
Because Elkhatib has demonstrated a prima facie case, Dunkin Donuts must respond with a legitimate non-discriminatory reason for its actions. Dunkin Donuts points to the franchise provision requiring [**15] the full line of products as its non-discriminatory reason. There is enough evidence in the record, however, demonstrating that the reason is pretextual, for Elkhatib to survive summary judgment.
As set forth above, there is significant evidence that the carrying of breakfast sandwiches was not an issue of importance to Dunkin Donuts. It allowed other franchises in the area to refuse to carry any breakfast sandwiches at all, when merely relocating the stores, or in one case merely rearranging the displays, would have allowed them to carry the full line. In contrast, Elkhatib carried the breakfast sandwiches with the exception of the meat products. That was apparently so common that Dunkin Donuts supplied signs for such franchises declaring “Meat Products Not Available.” Moreover, despite the failure of Elkhatib to carry pork products for nearly 20 years, his stores received positive reviews and the failure to carry such products was never an issue.
That it was not of importance is strengthened by evidence that breakfast sandwiches accounted for only approximately 4% of sales at all Dunkin Donuts [*833] stores. As was mentioned, unlike the other franchises identified by Dunkin Donuts, Elkhatib [**16] carried breakfast sandwiches but did not carry the pork products, so part of that 4% would presumably still be realized in his store. In any case, there is significant evidence that the carrying of breakfast sandwiches generally, and the carrying of meat products specifically, was not a factor that was important to Dunkin Donuts in the franchise decisions, and there is no evidence that there was any change in corporate policy, or even regional policy, on the matter. In fact, the franchise that failed to carry them because of lease restrictions was allowed to renew that lease, and maintain its franchise, after the decision was made to deny renewal of Elkhatib’s franchise. The evidence was sufficient to allow a jury to find pretext, and therefore the district court improperly granted summary judgment. The decision of the district court is REVERSED and the case REMANDED for further proceedings consistent with this opinion.
Page
493 F.3d 827, *; 2007 U.S. App. LEXIS 16251, **;
105 Fair Empl. Prac. Cas. (BNA) 1525; 89 Empl. Prac. Dec. (CCH) P42,890
FRANCHISE DISCLOSURE DOCUMENT DUNKIN’ DONUTS FRANCHISING LLC
a Delaware limited liability company 130 Royall Street
Canton, Massachusetts 02021 (781) 737-3000
www.DunkinFranchising.com
The Franchisor is DUNKIN’ DONUTS FRANCHISING LLC (“Dunkin’ Donuts” “we” or “DD”). We develop, operate and franchise retail stores utilizing the Dunkin’ Donuts system in single-brand stores. Our franchised stores sell Dunkin’ Donuts coffee, donuts, bagels, muffins, compatible bakery products, sandwiches, and other beverages.
The total investment necessary to begin operation of a DD franchise ranges from $240,250 to $1,699,850. This includes a range of $55,360 to $97,860 that must be paid to the franchisor or affiliate.This disclosure document summarizes certain provisions of your franchise agreement and other information in plain English. Read this disclosure document and all accompanying agreements carefully. You must receive this disclosure document at least 14 calendar days before you sign a binding agreement with, or make any payment to the franchisor or an affiliate in connection with the proposed franchise sale. Note, however, that no government agency has verified the information contained in this document. You may wish to receive your disclosure document in another format that is more convenient for you. To discuss the availability of disclosures in different formats, contact Dunkin’ Donuts Franchise Information, 3 East A, 130 Royall Street, Canton, MA 02021, 1-800-777-9983.
The terms of your contract will govern your franchise relationship. Don’t rely on the disclosure document alone to understand your contract. Read all of your contract carefully. Show your contract and this disclosure document to an advisor, like a lawyer or accountant.
Buying a franchise is a complex investment. The information in this disclosure document can help you make up your mind. More information of franchising, such as “A Consumer’s Guide to Buying a Franchise,” which can help you understand how to use this disclosure document is available from the Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing to the FTC at 600 Pennsylvania Avenue, NW, Washington, DC 20580. You can also visit your public library for other sources of information on franchising.
There may also be laws on franchising in your state. Ask you state agencies about them.
Issuance Date: March 28, 2008
RISK FACTORS:
1. THE FRANCHISE AGREEMENT AND SDA PERMIT EITHER YOU OR US TO SUBMIT DISPUTES TO A COURT OR TO ARBITRATION. THE DECISION TO ARBITRATE OR TO SUBMIT THE DISPUTE TO THE COURT SYSTEM IS BINDING, EXCEPT THAT WE HAVE THE OPTION TO SUBMIT ANY OF THE FOLLOWING ACTIONS TO A COURT: COLLECTION OF FEES; INJUNCTIVE RELIEF; PROTECTION OF OUR INTELLECTUAL PROPERTY, INCLUDING PROPRIETARY MARKS; AND TERMINATION OF FRANCHISE AGREEMENT AND SDA FOR DEFAULT. ANY ARBITRATION WILL TAKE PLACE IN THE STATE IN WHICH THE STORE IS LOCATED. SOME STATES MAY HAVE LAWS REGARDING ARBITRATION/LITIGATION. SEE ADDENDA TO CONTRACTS AND/OR FDD REQUIRED BY VARIOUS STATES (APPENDIX II).
2. THE FRANCHISE AGREEMENT STATES THAT MASSACHUSETTS LAW GOVERNS THAT AGREEMENT, AND THE SDA STATES THAT MASSACHUSETTS LAW GOVERNS THAT AGREEMENT.
THESE LAWS MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW OR LOCAL LAW MAY APPLY REGARDLESS OF THIS STATEMENT. SEE CAVEATS REQUIRED BY VARIOUS STATES (APPENDIX I) AND ADDENDA TO CONTRACTS AND/OR FDD REQUIRED BY VARIOUS STATES (APPENDIX II), INCLUDING: HAWAII, ILLINOIS, MICHIGAN, MINNESOTA, AND RHODE ISLAND. YOU MAY WANT TO COMPARE THESE LAWS.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
AGENTS AUTHORIZED TO RECEIVE SERVICE OF PROCESS ARE LISTED IN SCHEDULE A.
E STATE ENT. IF
NOT FOR USE IN: NORTH DAKOTA OR SOUTH DAKOTA
REGISTRATION OF THIS FRANCHISE WITH THE STATE DOES NOT MEAN THAT TH RECOMMENDS IT OR HAS VERIFIED THE INFORMATION IN THIS DISCLOSURE DOCUM YOU LEARN THAT ANYTHING IN THIS DISCLOSURE DOCUMENT IS UNTRUE, CONTACT THE FEDERAL TRADE COMMISSION AND THE APPLICABLE STATE ADMINISTRATOR(S) LISTED IN SCHEDULE B.
STATE COVER PAGE Your State may have a franchise law that requires a franchisor to register or file with a State franchise administrator before offering or selling in your State. REGISTRATION OF A FRANCHISE BY A STATE DOES NOT MEAN THAT THE STATE RECOMMENDS THE FRANCHISE OR HAS VERIFIED THE INFORMAITON IN THIS DISCLOSURE DOCUMENT. Call the franchise administrator listed in Schedule B for information about the franchisor or about franchising in your State. MANY FRANCHISE AGREEMENTS DO NOT ALLOW YOU TO RENEW UNCONDITIONALLY AFTER THE INITIAL TERM EXPIRES. YOU MAY HAVE TO SIGN A NEW AGREEMENT WITH DIFFERENT TERMS AND CONDITIONS IN ORDER TO CONTINUE TO OPERATE YOUR BUSINESS. BEFORE YOU BUY, CONSIDER WHAT RIGHTS YOU HAVE TO RENEW YOUR FRANCHISE, IF ANY, AND WHAT TERMS YOU MIGHT HAVE TO ACCEPT IN ORDER TO RENEW. Please consider the following risk factors before you buy this franchise: 1. THE FRANCHISE AGREEMENT AND SDA PERMIT EITHER YOU OR US TO SUBMIT DISPUTES TO A COURT OR TO ARBITRATION. THE DECISION TO ARBITRATE OR TO SUBMIT THE DISPUTE TO THE COURT SYSTEM IS BINDING, EXCEPT THAT WE HAVE THE OPTION TO SUBMIT ANY OF THE FOLLOWING ACTIONS TO A COURT: COLLECTION OF FEES; INJUNCTIVE RELIEF; PROTECTION OF OUR INTELLECTUAL PROPERTY, INCLUDING PROPRIETARY MARKS; AND TERMINATION OF FRANCHISE AGREEMENT AND SDA FOR DEFAULT. ANY ARBITRATION WILL TAKE PLACE IN THE STATE IN WHICH THE STORE IS LOCATED. SOME STATES MAY HAVE LAWS REGARDING ARBITRATION/LITIGATION. SEE ADDENDA TO CONTRACTS AND/OR FDD REQUIRED BY VARIOUS STATES (APPENDIX II). 2. THE FRANCHISE AGREEMENT STATES THAT MASSACHUSETTS LAW GOVERNS THE AGREEMENT, AND THE SDA STATES THAT MASSACHUSETTS LAW GOVERNS THAT AGREEMENT. THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE. Effective Date: See the next page for State effective dates.
EXHIBIT A
STATE EFFECTIVE DATES
The following States require that the Franchise Disclosure Document be registered or filed with the State, or be exempt from registration: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin.
The Franchise Disclosure Document is registered, on file or exempt from registration in the following States having franchise registration and disclosure laws, with the following effective dates:
State Effective Date
California March 28, 2008
Hawaii pending
Illinois pending
Indiana March 28, 2008
Maryland pending
Michigan March 28, 2008
Minnesota pending
New York March 28, 2008
Rhode Island pending
Virginia pending
Washington March 28, 2008
Wisconsin March 28, 2008
This Disclosure Document is not registered in North Dakota or South Dakota.
In all the other States, the effective date of this Franchise Disclosure Document is March 28, 2008.
Table of Contents
ITEM 1: THE FRANCHISOR, AND ANY PARENTS, PREDECESSORS AND AFFILIATES ……… 1 ITEM 2: BUSINESS EXPERIENCE …………………………………………………………………………………………….. 7 ITEM 3: LITIGATION ………………………………………………………………………………………………………………. 12 ITEM 4: BANKRUPTCY……………………………………………………………………………………………………………. 34 ITEM 5: INITIAL FEES …………………………………………………………………………………………………………….. 35 ITEM 6: OTHER FEES ……………………………………………………………………………………………………………… 38 ITEM 7: YOUR ESTIMATED INITIAL INVESTMENT…………………………………………………………….. 43 ITEM 8: RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES…………………………….. 53 ITEM 9: FRANCHISEE’S OBLIGATIONS………………………………………………………………………………… 56 ITEM 10: FINANCING………………………………………………………………………………………………………………. 59 ITEM 11: FRANCHISOR’S OBLIGATIONS ……………………………………………………………………………… 74 ITEM 12: TERRITORY……………………………………………………………………………………………………………… 82 ITEM 13: TRADEMARKS…………………………………………………………………………………………………………. 84 ITEM 14: PATENTS, COPYRIGHTS, AND PROPRIETARY INFORMATION …………………………. 86 ITEM 15: OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS……………………………………………………………………………………. 87 ITEM 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL………………………………….. 88 ITEM 17: RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION………………. 89 ITEM 18: PUBLIC FIGURES…………………………………………………………………………………………………….. 98 ITEM 19: FINANCIAL PERFORMANCE REPRESENTATIONS ……………………………………………… 99 ITEM 20: OUTLETS AND FRANCHISEE INFORMATION ……………………………………………………. 105 ITEM 21: FINANCIAL STATEMENTS……………………………………………………………………………………. 214 ITEM 22: CONTRACTS…………………………………………………………………………………………………………… 215
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A. Store Development Agreement
B-1. Franchise Agreement (DD Only)
B-2. Combo Franchise Agreement (DD/BR Combo)
• Addendum to Store Development Agreement and Franchise Agreement
C. Sample Loan Documents:
C-1. CIT Security Agreement
C-2. CIT Guaranty
C-3. Comerica SBA Security Agreement
C-4. NCB Guaranty
C-5. NCB Security Agreement
C-6. Sovereign Single Guarantor
C-7. Sovereign Security Agreement
D. Lease
E. Option to Assume (Franchisee’s) Lease F-1. Rider to Contract for Sale F-2. Agreement to Transfer by the Sale of Assets G. Option Agreement H. Participant Agreement
I. Contract for Sale
J. Termination of Franchise Agreement [, Sublease] and General Release
K. General Release
L. Temporary Operating Agreement M. Intranet Terms of Use N. Product Supplier Consent Agreement
Other Exhibits
Schedule A List of Registered Agents Schedule B Directory of Administrative Agencies Schedule C Additional Personnel – Illinois Appendix I State Laws on Selected Matters Appendix II State Schedules/Addenda to Contracts Appendix III Operating Manual Table of Contents Appendix IV Market/Region List Appendix V Current List of Dunkin’ Donut/Baskin-Robbins Combo Stores
Item 23 Receipts
Item 1: The Franchisor, and any Parents, Predecessors and Affiliates
The Franchisor is Dunkin’ Donuts Franchising LLC, which will be referred to as “DD”, “we” or “us”. The term “you” means the person, corporation, limited liability company, partnership or other legal entity that is granted the franchise (as well as the direct and indirect owners of any corporation, limited liability company, partnership, or other legal entity that becomes a franchisee).
We are a special purpose, Delaware limited liability company. Our principal place of business is 130 Royall Street, Canton, Massachusetts 02021. We currently do business under the mark Dunkin’ Donuts and in the organizational name “Dunkin’ Donuts Franchising LLC.” Our agents for service of process are disclosed on Schedule A.
At the end of our last fiscal year, on December 29, 2007, there were 5,863 franchised Dunkin’ Donuts stores operating in the United States and an additional 2,219 Dunkin’ Donuts stores operating in 30 other countries, but no company-owned Dunkin’ Donuts stores. Six of the franchised Dunkin’ Donuts stores (both in U.S. and internationally) are operated on military bases. Some of these Dunkin’ Donuts units are part of stores that operate with Baskin-Robbins operations (“Combo Stores”). We do not conduct any business activity other than franchising Dunkin’ Donuts stores.
We are not currently offering Combo Stores, however, we are honoring existing commitments for the development of Combo Stores. If you are developing a Combo Store or purchasing an existing Combo Store, you will receive separate disclosure documents for each of the Dunkin’ Donuts/Baskin-Robbins brands.
Our Parent, Predecessors and Affiliates – The Securitization Financing Transaction
Our parent company is DB Franchising Holding Company LLC (“Franchisor Holdco”), a Delaware limited liability company. Franchisor Holdco is a wholly-owned subsidiary of DB Master Finance LLC (“DB Master Finance”), a Delaware limited liability company. In turn, DB Master Finance is an indirect wholly-owned subsidiary of Dunkin’ Brands, Inc. (“Dunkin’ Brands”), a Delaware corporation.
We and our affiliate Baskin-Robbins Franchising LLC (“BR”) are special purpose, Delaware limited liability companies, formed on or about March 15, 2006 as part of the Securitization Financing Transaction described below. Before May 26, 2006, the franchisors for these 2 brands were Baskin-Robbins USA LLC, originally a California corporation (formerly known as Baskin-Robbins USA, Co.), which was converted to a California limited liability company on March 1, 2006; and Dunkin’ Donuts LLC, originally a Delaware corporation (formerly known as Dunkin’ Donuts Incorporated), which was converted to a Delaware limited liability company on March 1, 2006. Before the Securitization Financing Transaction, Baskin-Robbins USA LLC and Dunkin’ Donuts LLC were direct or indirect wholly-owned subsidiaries of Dunkin’ Brands. Baskin-Robbins USA LLC and Dunkin’ Donuts LLC continue to be direct or indirect, wholly-owned subsidiaries of Dunkin’ Brands following the Securitization Financing Transaction and are the indirect parent companies of DB Master Finance.
DB Master Finance is a Delaware limited liability company that was formed on March 15, 2006 as part of the transaction to refinance the approximately $1.5 billion in debt incurred when Dunkin’ Brands was sold by Pernod Ricard, S.A. to investment funds sponsored by Bain Capital Partners, LLC, The Carlyle Group, and Thomas H. Lee Partners L.P. on March 1, 2006 (the “Securitization Financing Transaction”). These funds, through a holding company, own Dunkin’ Brands Holdings, Inc., which, in turn, owns all of the shares of Dunkin’ Brands.
As part of the Securitization Financing Transaction, existing franchise, store development and related agreements of the Baskin-Robbins and Dunkin’ Donuts brands were transferred to Baskin-Robbins Franchised Shops LLC and Dunkin’ Donuts Franchised Restaurants LLC (respectively, the “BR Assets Holder” and the “DD Assets Holder”), respectively, both of which are special purpose, wholly-owned Delaware limited liability subsidiaries of DB Master Finance that were formed on March 15, 2006. Also as part of the Securitization Financing Transaction, Baskin-
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Robbins International LLC, a wholly-owned subsidiary of Baskin-Robbins LLC formed for the purpose of conducting certain international business relating to the Baskin-Robbins brand, transferred certain license agreements and related agreements, and certain related joint venture interests and rights relating to the BR Assets Holder or the DD Assets Holder, as applicable. The intellectual property of the Baskin-Robbins and Dunkin’ Donuts brands were transferred to newly formed, special purpose Delaware limited liability companies, BR IP Holder LLC and DD IP Holder LLC, respectively (collectively, the “IP Holders”).
At the time of the Securitization Financing Transaction, the IP Holders entered into a 99 year non-exclusive licensing agreement with DB Master Finance giving it the right to use and sublicense the use of the intellectual property related to the Baskin-Robbins and Dunkin’ Donuts brands, including all trademarks. DB Master Finance has, in turn, licensed to BR and DD the right to use and sublicense the use of all intellectual property and trademarks necessary to operate their respective businesses. DB Master Finance has also entered into license agreements with Baskin-Robins Franchised Shops LLC and Dunkin’ Donuts Franchised Restaurants, giving these companies the right to use all of the intellectual property and trademarks necessary to operate their respective businesses.
At the time of the Securitization Financing Transaction, BR and DD entered into a servicing agreement with Dunkin’ Brands. Under the servicing agreement, Dunkin’ Brands will provide all support and services required under franchise agreements entered into by each of these companies. Dunkin’ Brands employs all the persons who will provide service to you under the terms of your franchise agreements. Under the servicing agreement, Dunkin’ Brands will also provide all support and services required under franchise agreements transferred to the Franchise Assets Holders as part of the Securitization Financing Transaction. Dunkin’ Brands will also assist these companies as applicable in managing the Dunkin’ Donuts and Baskin-Robbins systems, marketing and offering new and renewal franchise agreements, implementing quality assurance programs and otherwise fulfilling their duties and obligations under their franchise agreements. Dunkin’ Brands will receive weekly serving fees for the services it provides. If Dunkin’ Brands fails to perform its obligation under the Servicing Agreement, then Dunkin’ Brands may be replaced as the franchise service provider. However, as the franchisor, DD will always be responsible to make sure that all services and support are performed under their franchising agreements.
As part of the Securitization Financing Transaction, DB Master Finance, the Franchise Assets Holders and the IP Holders issued, pursuant to a base indenture, fixed rate notes in the initial principal amount of $1.6 billion and variable funding notes under which DB Master Finance and its affiliated co-issuers can draw up to an additional $100.0 million, on a revolving basis. All of the assets of DB Master Finance and its subsidiaries, including all Baskin-Robbins and Dunkin’ Donuts franchise agreements, have been pledged as security for the debt incurred in the Securitization Financing Transaction.
Besides the affiliates and predecessors described above, other affiliates were formed at or around the time of the Securitization Financing Transaction to own certain assets of various predecessors or affiliates of Dunkin’ Brands and to conduct the activities described below. These affiliates include: DB UK Franchising LLC, a Delaware limited liability company organized on March 15, 2006, which is the franchisor of the Baskin-Robbins system in the United Kingdom; DB Canadian Franchising ULC, a Nova Scotia unlimited liability company formed on March 20, 2006, which is the franchisor of Dunkin’ Donuts and Baskin-Robbins stores in Canada; DB Canadian Supplier Inc. and DB Canadian Holding Company Inc., both of which are Delaware corporations formed on March 15, 2006 and which are the direct or indirect parent companies of DB Canadian Franchising ULC; and DB Real Estate Assets I LLC and DB Real Estate Assets II LLC, both of which are Delaware limited liability companies formed on March 15, 2006 and which own or hold prime leases for properties that are leased or subleased to franchisees for the operation of stores. None of DB Real Estate Assets I LLC, DB Real Estate Assets II LLC, DB Canadian Supplier Inc., or DB Canadian Holding Company Inc. have ever operated Dunkin’ Donuts or Baskin-Robbins stores, or offered franchises in any line of business.
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Our Predecessors’ Prior Experience
The Dunkin’ Donuts System. Dunkin’ Donuts Incorporated was incorporated on January 15, 1960, as Universal Food Systems, Inc., and changed its name on October 24, 1967. Dunkin’ Donuts Incorporated’s predecessor, Dunkin’ Donuts of America, Inc. (“DDoA”) a Massachusetts corporation incorporated June 24, 1954, was merged into Dunkin’ Donuts Incorporated in December 1987. DDoA began operating Dunkin’ Donuts stores in 1954 and began franchising in 1955. DDoA continuously granted franchises until it merged with Dunkin’ Donuts Incorporated (now Dunkin’ Donuts LLC, a Delaware limited liability company), which continuously granted franchises until the date of the Securitization Financing Transaction.
Mister Donut of America, Inc. (“MDoA”), formerly franchised coffee and doughnut stores under the name “Mister Donut.” MDoA began offering franchises in 1959. MDoA was acquired by Dunkin’ Donuts Incorporated on March 30, 1990. Most Mister Donut stores in operation at that time converted to the Dunkin’ Donuts system. Many of the remaining Mister Donut stores signed Trademark License Agreements allowing them to use the Mister Donut trademark until February 28, 1997. After that date, those stores de-identified as Mister Donut stores. There are no stores currently operating in the U.S. under the Mister Donut name.
Our Affiliates’ Prior Experience
The Baskin-Robbins System. Baskin-Robbins USA, Inc., a California corporation (now Baskin-Robbins USA LLC, a California limited liability company) began manufacturing and distributing ice cream products (itself or through third party vendors) in 1946. It began offering franchises in 1960. The former parent company of Baskin-Robbins USA, Inc., Baskin-Robbins Incorporated, a Delaware corporation (now Baskin-Robbins LLC, a Delaware limited liability company), granted area franchises for the manufacture of ice cream, frozen yogurt and other related products. As noted, all franchise and related agreements of these companies were transferred to Baskin-Robbins Franchised Shops LLC as of the date of the Securitization Financing Transaction.
Baskin-Robbins Incorporated was also the parent company of Baskin-Robbins International Company (now Baskin-Robbins International LLC, a Delaware limited liability company). Beginning in July 1976, Baskin- Robbins International Company entered into license agreements and joint and joint venture agreements with individuals or business entities outside the United States for the development and operation of Baskin-Robbins branded stores. Baskin-Robbins International Company does not operate any company-owned stores. As noted, certain license agreements and related agreements, and certain related joint venture interests and rights of Baskin- Robbins International LLC were transferred to the BR Assets Holder or the DD Assets Holder, as applicable, at the time of the Securitization Financing Transaction.
SVC Service II LLC (“SVC”) is a Colorado limited liability company and a direct subsidiary of Dunkin’ Brands. Since June 2006, SVC has managed and implemented the Stored Value Card, which as of the date this Disclosure Document was prepared was only available to Dunkin’ Donuts stores in limited geographic areas. SVC’s activities were managed by SVC Services LLC (SVC I) until June 2006, when SVC I transferred all its interests to Dunkin’ Brands.
Allied Domecq PLC acquired the Baskin-Robbins system in 1973 and the Dunkin’ Donuts system in 1990. Allied Domecq’s principal business address was The Pavilion, Bridgewater Road, Bedminster Down, Bristol, England. Allied Domecq’s business included the production and marketing of various spirits, wines and liquors. Allied Domecq PLC was known as Allied-Lyons PLC until September 1, 1994, when it changed its name to Allied Domecq PLC in connection with a merger. On July 26, 2005, Pernod Ricard S.A. acquired Allied Domecq PLC. Pernod Ricard S.A. has been primarily engaged in the manufacture and sale of wine and spirits, with its headquarters located in Paris, France (at 12, Place des Etats Unis, 75783 Paris cedex 16, France).
On December 12, 2005, Pernod Ricard S.A. and certain subsidiaries of Allied Domecq PLC entered into an agreement to sell Dunkin’ Brands (including the Dunkin’ Donuts and Baskin-Robbins systems) to the investment
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funds described above. The closing of the sale occurred on March 1, 2006. Information about the private equity firms that have sponsored these investment funds follows:
• Bain Capital Partners, LLC, headquartered in Boston, is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity and leveraged debt assets. Bain Capital Partners, LLC has made private equity investments and add-on acquisitions in various companies around the world, including quick service restaurants (such as Domino’s Pizza and Burger King) and retailers (such as Toys “R” Us, Dollarama, and Staples).
• The Carlyle Group, headquartered in Washington, D.C., is a global private equity firm which invests in buyouts, venture capital, real estate and leveraged finance in Asia, Europe and North America, focusing on aerospace and defense, automotive and transportation, consumer and retail, energy and power, healthcare, industrial, technology and business services and telecommunications and media.
• Thomas H. Lee Partners, L.P. is a Boston-based private equity firm focused on identifying and acquiring substantial ownership positions in growth companies. Transactions sponsored by the firm include: Fisher Scientific International, General Nutrition Centers, Houghton Mifflin, Michael Foods, Nortek, ProSiebenSat. 1, Rayovac, Simmons Company, Snapple Beverage, TransWestern Publishing, Warner Chilcott, and Warner Music Group.
Unless otherwise noted, the principal place of business of each parent, all affiliates and predecessors described above is 130 Royall Street, Canton, Massachusetts 02021 (and, before that, 14 Pacella Park Drive, Randolph, Massachusetts). Unless otherwise described above, none of these affiliates have engaged in any other lines of business, nor have they offered franchises in any line of business.
The Dunkin’ Donuts Franchise
If you sign a franchise agreement, you will operate a franchised Dunkin’ Donuts Store. Under our franchise agreement, we grant our franchisees the right (and they accept the obligation) to operate a Dunkin’ Donuts Store, selling doughnuts, coffee, bagels, muffins, compatible bakery products, croissants, pizzas, snacks and other sandwiches and beverages that we approve. We may periodically make changes to the systems, menu, standards, and facility, signage, equipment and fixture requirements. You may have to make additional investments in the franchised business periodically during the term of the franchise if those kinds of changes are made or if your store’s equipment or facilities wear out or become obsolete, or for other reasons (for example, as may be needed to comply with a change in the system standards or code changes). All Dunkin’ Donuts Stores must be developed and operated to our specifications and standards. Uniformity of products sold in Dunkin’ Donuts Stores is important, and you have no discretion in the products you sell. The franchise agreement is limited to a single, specific location and we have the right to operate or franchise or license others who may compete with you for the same customers.
The distinguishing characteristics of the Dunkin’ Donuts System include, for example, distinctive exterior and interior design, decor, color and identification schemes and furnishings; special menu items; standards, specifications and procedures for operations, manufacturing, distribution and delivery; quality of products and services offered; management programs; training and assistance; and marketing, advertising and promotional programs, all of which we may change, supplement, and further develop.
The typical Dunkin’ Donuts Store depends upon serving a large number of customers for its success and is generally located in heavily populated areas. Most products are purchased primarily for off-premises consumption: “take-out” is estimated at 70-100% of sales, which may vary by region.
DD encourages you to develop a network of Dunkin’ Donuts Stores within a targeted area or areas under the Store Development Program. A network typically consists of a manufacturing store that supplies bakery products to one or more satellite stores. We believe that networks best leverage the manufacturing store’s production capacity. In some markets, franchisees cooperatively own a co-operative manufacturing location. Satellite stores typically cost less to develop than manufacturing stores (though satellite Combo Stores can cost as much, or more, to develop
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than some manufacturing stores). Developing and operating a network of stores is generally more challenging than developing and operating a single store.
Periodically, franchisees sell existing stores at varying prices and terms. Also, we may also periodically sell existing company-operated stores or existing franchised stores we have bought or taken back from franchisees. Many factors affect the sales price and terms for existing stores, such as location, age, length of remaining occupancy and franchise rights, rent, physical condition, operating history, whether the purchase price is paid in cash or financed over time, the prices and terms on which comparable stores have been sold in the market and the negotiations of the parties.
If you agree to buy an existing store from a franchisee, we may exercise our right of first refusal. If we do not, then you and the seller must comply with the transfer provisions of the seller’s franchise agreement, such as obtaining our approval of the terms of sale and of your qualifications to be a franchisee, correcting any defects in the condition of the Store, paying a transfer fee, signing a new franchise agreement, and other conditions in the franchise agreement. You may also have to comply with transfer provisions of the seller’s lease.
You may not achieve potential economies of scale until you have a number of stores operating in the store development area. You should have sufficient working capital to cover potential operating losses and development costs which may be incurred until the additional stores have been approved, and become operational.
In the past, DD offered (and its predecessors entered into) franchises for both wholly owned and cooperatively owned Central Manufacturing Locations in selected markets.
We may pursue opportunities to convert similar businesses operating under different trade-names to one of our systems. We may provide conversion incentives to those businesses. The terms of conversion incentives vary depending on factors such as the number of outlets to convert, perceived competitive advantage of the outlets, their location, physical condition and age, length of remaining occupancy and franchise rights, rent, the outlets’ production or satellite capability, access, visibility, demographic profile, hours of operation, operating history, the prices and terms on which comparable outlets have been sold in the market, our then current conversion policy, the negotiations of the parties, among others. Information on past conversion incentives is available from us upon request.
General Market and Competition
You can expect to compete in your market with locally-owned businesses as well as national and regional chains that sell similar products. The market for coffee and coffee drinks, doughnuts, baked goods, and other breakfast items, as well as related products, is well-established and highly competitive. Stores compete on the basis of factors such as price, service, store location, and food quality. Additionally, you may find that there is competition for suitable store locations. Principal factors that will vary but that will impact our brand’s competitive position are name recognition (which is stronger in some regions than in others), product quality, variety, store appearance, location, and advertising. A business such as a Dunkin’ Donuts Store may also be affected by other factors, such as changes in consumer taste, economic conditions, population, and travel patterns.
You may also compete with other existing Dunkin’ Donuts Stores and with new Dunkin’ Donuts Stores that we may operate, franchise, or license in the future. Your competition may also include other outlets selling coffee and breakfast items, supermarkets, convenience stores, and specialty coffee shops. Competition may also include Dunkin’ Donuts products sold through other channels of distribution (such as supermarket sales, the internet, and other venues). We may grant selected franchisees unique rights or franchises to operate or distribute authorized products through special distribution outlets. (As an example, these might include franchises at airports, universities, supermarkets and other outlets described in paragraph 6 of the Store Development Agreement.) These special arrangements may involve special agreements or modifications to our standard franchise and other agreements.
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Industry-Specific Regulations
You must comply with all local, state, and federal laws that apply to your store operations including health, sanitation, no smoking, EEOC, OSHA, discrimination, employment, and sexual harassment laws. The Americans with Disabilities Act of 1990 requires readily accessible accommodations for disabled people and may affect your building construction, site design, entrance ramps, doors, seating, bathrooms, drinking facilities, etc. You must also obtain real estate permits, licenses, and operational licenses. Federal, state and local laws and regulations also regulate businesses handling food and food products, in particular refrigerated and frozen food items, and these laws and regulations will apply to your business.
Government contractor laws may also apply if your Store is located (or if, subject to your franchise agreement, you sell products) at military bases or other government facilities. For example, you may be required to comply with requirements such as government contractors’ wage and hour restrictions, preparation and maintenance of written affirmative action plans, retention and access of records, special procedures for resolving contractual disputes, listing employment openings with state employment services, and termination of the contract for default or for the convenience of the government. You should carefully review these requirements with your own attorney before entering into any government contracts.
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Item 2: Business Experience Dunkin’ Brands employees will provide services to you on behalf of DD under the terms of the Master Servicing Agreement between Dunkin’ Brands and DD.
The following individuals comprise the Board of Directors of Dunkin’ Brands, Inc.:
Chairman, Chief Executive Officer, President and Managing Member: Jon L. Luther
Mr. Luther joined us in January 2003 and since then has served as our Chairman, Chief Executive Officer and President. He was appointed Managing Member of DD and BR in March 2006. Mr. Luther previously served as President of Popeyes Chicken & Biscuits in Atlanta, Georgia (March 1997 to December 2002).
Director, DD President and Chief Brand Officer, Dunkin’ Donuts Worldwide: William A. Kussell
Mr. Kussell joined Dunkin’ Donuts LLC in May 1994 and has served as DD President and Chief Brand Officer, Dunkin’ Donuts Worldwide since January 14, 2008. Mr. Kussell previously served as Director, Vice President and Chief Operating Officer of Dunkin’ Donuts LLC and Baskin-Robbins LLC (September 2003 to January 2008), Retail Concept Officer (July 1997 to August 2003), President of Dunkin’ Donuts and Retail Concepts (May 1996 to June 1997), and Dunkin’ Donuts Senior Vice President Marketing (March 1994 through May 1996).
Director: Todd M. Abbrecht
Mr. Abbrecht was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Managing Director of Thomas H. Lee Partners, L.P., Boston, Massachusetts (1992 to present). Mr. Abbrecht is also a director of Michael Foods, Inc., Simmons Company and Warner Chilcott Holdings Company, Limited.
Director: Andrew B. Balson
Mr. Balson was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Managing Director of Bain Capital Partners, LLC, Boston, Massachusetts (November 1996 to present).
Director: Todd M. Cook
Mr. Cook was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Principal at Bain Capital Partners, LLC, Boston, Massachusetts (September 1996 to present). Mr. Cook also serves on the Board of Directors for Dollarama.
Director: Daniel A. D’Aniello
Mr. D’Aniello was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Managing Director for TC Group, L.L.C. (collectively which, together with its affiliates and predecessor entities, is referred to as “The Carlyle Group”), Washington, D.C. (April 1987 to present).
Director: Anthony J. DiNovi
Mr. DiNovi was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Managing Director of Thomas H. Lee Partners, L.P., Boston, Massachusetts (1988 to present). Mr. DiNovi also currently serves as director of American Media, Inc., Michael Foods, Inc., Nortek, Inc., US LEC Corporation and Vertis, Inc.
Director: David V. Harkins
Mr. Harkins was appointed to our Board of Directors on June 22, 2006. He also continues to serve as Vice Chairman of Thomas H. Lee Partners, L.P., Boston, Massachusetts (April 1987 to present).
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Director: Sandra J. Horbach
Ms. Horbach was appointed to our Board of Directors on March 1, 2006. She also continues to serve as Managing Director, Global Partner, Head of the Consumer/Retail Group for The Carlyle Group, New York, New York (July 2005 to present). Previously, Ms. Horbach was General Partner at Forstmann Little, New York, New York from August 1987 to July 2005.
Director: Mark E. Nunnelly
Mr. Nunnelly was appointed to our Board of Directors on March 1, 2006. He also continues to serve as Managing Director of Bain Capital Partners, LLC, Boston, Massachusetts (1989 to present).
Director: Stephen D. Owens
Mr. Owens was appointed to our Board of Directors on March 1, 2006. He also continues to serve as a Principal at The Carlyle Group, New York, New York (August 1998 to present).
The following individuals are the Managing Members and Officers of DD:
Chairman, Chief Executive Officer, President and Managing Member: Jon L. Luther
Mr. Luther joined us in January 2003 and since then has served as our Chairman, Chief Executive Officer and President. He was appointed Managing Member of DD and BR in March 2006. Mr. Luther previously served as President of Popeyes Chicken & Biscuits in Atlanta, Georgia (March 1997 to December 2002).
Chief Financial Officer and Managing Member: Kate S. Lavelle
Ms. Lavelle joined us in December 2004 as our Chief Financial Officer. She was appointed Managing Member of DD and BR in March 2006. Ms. Lavelle served with LSG Sky Chefs, Irving, Texas (March 1998 to August 2004) as its Global Senior Vice President Finance (January 2003 to August 2004) and its Senior Vice President Finance – Americas Region (July 2001 to December 2002).
Vice President, Legal Officer, General Counsel, Secretary and Managing Member: Stephen Horn
Mr. Horn joined us in March 1999 and has served as our Vice President, Legal Officer, General Counsel and Secretary since September 2003. He was appointed Managing Member of DD and BR in March 2006. Mr. Horn previously served us as our Senior Vice President and General Counsel (August 1999 to September 2003) and as our Vice President and General Counsel (March 1999 to August 1999). Before that, Mr. Horn was a Partner with the law firm of Schmeltzer Aptaker & Shepard in Washington, DC, where he represented Dunkin’ Donuts in numerous legal matters for over ten years.
Managing Member: Benjamin B. Abedine
Mr. Abedine was appointed a Managing Member in May 2006. He also continues to serve as Senior Vice President, Chief Financial Officer and Managing Director of Lord Securities Corporation, New York, New York (March 1997 to present).
Managing Member: Orlando Figueroa
Mr. Figueroa was appointed a Managing Member in May 2006. He also continues to serve as Managing Director of Lord Securities Corporation, New York, New York (March 2002 to present). Mr. Figueroa previously served as Director of Corporate Services of Loeb & Loeb LLP, New York, New York (September 1995 to February 2002).
DD President and Chief Brand Officer, Dunkin’ Donuts Worldwide: William A. Kussell
Mr. Kussell joined Dunkin’ Donuts LLC in May 1994 and has served as DD President and Chief Brand Officer, Dunkin’ Donuts Worldwide since January 14, 2008. Mr. Kussell previously served as Director, Vice President and
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Chief Operating Officer of Dunkin’ Donuts LLC and Baskin-Robbins LLC (September 2003 to January 2008), Retail Concept Officer (July 1997 to August 2003), President of Dunkin’ Donuts and Retail Concepts (May 1996 to June 1997), and Dunkin’ Donuts Senior Vice President Marketing (March 1994 through May 1996).
Vice President, Treasurer: Bonnie Monahan
Ms. Monahan joined us in October 2006. Ms. Monahan previously served as Vice President, Corporate Planning and Business Development for The Timberland Company, Stratham, NH (May 2000 to October 2006).
Executive Vice President, Chief Global Communications & Public Affairs Officer: Steve Caldeira
Mr. Caldeira joined us October 3, 2007. Mr. Caldeira previously served as Co-founder, President and Chief Executive Officer of The Elliot Leadership Institute, Chanhassen, MN (formerly Tarrytown, NY) (December 2004 to October 2007) and Vice President of Industry Relations for Pepsico, Inc,, Purchase, NY (February 2002 to October 2004).
Chief Administrative Officer: Paul Leech
Mr. Leech joined us in 1994 and has served as our Chief Administrative Officer since in September 2005. Mr. Leech previously served as our Chief Operating Officer, International (September 1, 2003 to August 31, 2005), Chief Financial Officer of Dunkin’ Donuts LLC and Baskin-Robbins LLC (August 1996 to September 2003). Mr. Leech also served as Finance Director of Allied Domecq Retailing International (1994 to August 1996).
Chief Creative & Innovation Officer: Joseph Scafido
Mr. Scafido joined us as our Chief Creative & Innovation Officer in June 2003. Before that, Mr. Scafido was Chief Marketing Officer for AFC Enterprises in Atlanta, Georgia (April 1989 to June 2003).
Chief Development Officer: John Dawson
Mr. Dawson joined us as our Chief Development Officer on April 4, 2005. Before that, Mr. Dawson was Vice President of Worldwide Development for McDonald’s Corporation, Oak Brook, Illinois, (November 1988 to April 2005).
Vice President and Chief Information Officer: Daniel Sheehan
Mr. Sheehan joined us as our Vice President and Chief Information Officer on March 13, 2006. Before that, Mr. Sheehan served as Sr. Vice President and Chief Information Officer for ADVO, Inc., Windsor, Connecticut (October 2000 to March 2006).
Brand Marketing Officer: Frances Allen
Ms. Allen joined us June 4, 2007. Previously Ms. Allen served as Vice President Marketing for Sony Ericsson, Research Triangle Park, NC (August 2004 to May 2007) and Vice President Marketing for Pepsi North America, Purchase, NY (December 1998 to February 2004).
Vice President Franchise Sales: Grant Benson
Mr. Benson joined us in January 1986 and was promoted to Vice President Franchise Sales in October 2006. Previously Mr. Benson served as our Vice President Development East (May 2003 to October 2006), Senior Market Executive Northeast (February 1998 to May 2003), General Manager, Detroit/Ohio Valley for Dunkin’ Donuts LLC (February 1993 to February 1998), Development Manager, Midwest (March 1990 to February 1993), and Franchise District Manager, Ohio, Kentucky and Indiana (January 1986 to February 1990).
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Vice President Development: Christopher Bode
Mr. Bode joined us in July 1988 and was promoted to Vice President Development in September 2005. Before that, he served in a variety of capacities, most recently as our Senior Director of Development.
Vice President, Operations Systems: William Brashier
Mr. Brashier joined us in November 2004 and was promoted to Vice President Operations Systems in June 2007. He previously served as our New Concept Development (November 2005 to June 2007), Director of Operations APOD (November 2004 to November 2005). Before that, Mr. Brashier served as Director of New Concepts for AFC Enterprises, Atlanta, Georgia (February 1999 to November 2004).
Vice President, Franchise Systems and Ombudsman: Thomas Canty, Jr.
Mr. Canty joined us in May 2003 and was appointed to Vice President, Operations in January 2007. Before that he served as our Vice President of Franchise Systems and Ombudsman (October 2005 to January 2007) and Director of Restaurant Excellence (May 2003 to September 2005). Before that, he served as US Director of Store Operations for Limited Brands-New York & Co., New York, New York (December 2001 to November 2002) and Senior Regional Manager-Operations Officer for McDonald’s Corporation, Westwood, Massachusetts (January 2000 to August 2001).
Vice President Business Development: John Fassak
Mr. Fassak joined us as Vice President Business Development in April 2003. Before that, he served as Managing Director/General Manager, Out of Home Channels for Ocean Spray Cranberries in Lakeville, Massachusetts (September 1986 to March 2003).
Regional Vice President, Operations: Steven Gabellieri
Mr. Gabellieri joined us in August 1969 and was appointed to Regional Vice President in September 2003. Mr. Gabellieri previously served as our Regional Vice President Operations (August 2000 to August 2003), and Senior Market Executive Northeast. He earlier held a number of positions with Dunkin’ Donuts LLC (since 1969) and Baskin-Robbins (since August 1996).
Regional Vice President, Operations: Patrick George
Mr. George joined us in April 1997 and was appointed Regional Vice President in September 2005. Mr. George earlier served as our Vice President of Franchise Systems and Ombudsman (September 2004 to August 2005), Director of Franchise Services (Multi-Branding) (September 2003 to August 2004) and Senior Market Executive Multi-Branding (April 1997 to September 2003).
Regional Vice President Operations: Algie Hodges
Mr. Hodges joined us as Regional Vice President in January 2006. Previously, he owned Hodges Enterprises LLC, which owned and operated two Quizno’s restaurants, and also operated a restaurant consulting business, in Birmingham, Alabama (September 2002 to October 2005). Prior to that time, Mr. Hodges served as Regional Vice President for R.J.M. Restaurant Group, Atlanta, Georgia, from (January 1998 to December 2002).
Vice President Development, APODS: Kevin Houser
Mr. Houser joined us in October 2005. Previously, he served as Chief Operating Officer for OTG Management, Philadelphia, Pennsylvania (May 2003 to June 2005), and as Regional Vice President for CA One Services, Buffalo, New York (April 1992 to April 2003).
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Vice President and Controller: David Lewin
Mr. Lewin joined us in July 2005. Before that Mr. Lewin was Senior Manager for Deloitte & Touche, Boston, Massachusetts (September 1995 to July 2005).
Vice President, Franchising: K. Lynette McKee
Ms. McKee joined us in July 2005 as our Vice President Franchising. Before joining us, Ms. McKee served as Vice President Franchising for Earl of Sandwich, Orlando, Florida (November 2004 to July 2005), Vice President of Franchising for Burger King, Miami, Florida (February 2004 to November 2004) and Vice President Franchising for Metromedia Restaurant Group, Plano, Texas (December 1996 to October 2003).
Vice President Strategic Manufacturing & Supply: Scott Murphy
Mr. Murphy joined us in March 2004 was appointed Vice President Strategic Supply July 2005. Mr. Murphy served as a Director in Supply Chain (March 2004 to June 2005). Before that he was Manager for A. T. Kearney, Inc., Chicago, Illinois (October 1999 to March 2004).
Vice President Emerging Markets: Raymond “Mac” Shimmon
Mr. Shimmon joined us in October 2003 and was promoted to Vice President Emerging Markets in June 2007. Previously he served as Regional Vice President (October 2003 to June 2007). Prior to that time, Mr. Shimmon served as Division Vice President and in other capacities for Wendy’s International, Dublin, Ohio (January 1987 to October 2003).
Regional Vice President Operations: Willis Smart
Mr. Smart joined us as Director of Franchise Services/All Day in October 2004 and was promoted to Vice President of New Market Entry in Sept 2005. Mr. Smart worked with McDonald’s Corp., Oak Brook, Illinois (July 1977 to October 2001), most recently serving as its Vice President Operations and Training. Mr. Smart accepted an early retirement package from McDonald’s in October 2001 and remained retired until he accepted the position with us in 2004.
Dunkin’ Donuts Operation Executive: Tom Wyczawski
Mr. Wyczawski joined us in May 2000 and since July 2007 he has been leading several special projects for the Dunkin’ Donuts Brand. Previously Mr. Wyczawski served as Dunkin’ Donuts Brand Operating Officer (September 2005 to July 2007), Vice President, Multi-Branding and New Market Entry (September 2003 to August 2005) and Vice President, Restaurant Operating Systems (May 2000 to August 2003). Before joining us, Mr. Wyczawski was the Founder of Strategic Restaurant Engineering, Irvine, California, from April 1995 to May 2000.
The names of additional personnel who may have supervisory responsibility for your Store are available from us upon request.
We may provide referral incentives to franchise brokers and others for qualified referrals of prospective franchisees.
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Item 3: Litigation
The matters listed below arose in connection with our predecessors, as explained below. No litigation or any other claims are pending against DD or BR.
Dunkin’ Donuts:
Except for the 14 actions described below, there is no Dunkin’ Donuts litigation that must be disclosed in this Disclosure Document.
Michael Schrock, et. al. v. Dunkin’ Donuts Incorporated and Gerald M. Conklin (Case No. C-2592-96-B), was filed in the District Court, Hidalgo County, Texas, 93rd Judicial District of Texas. On May 16, 1996, Plaintiffs, Michael Schrock, John F. Schrock and John Schrock, individually and d/b/a Lifetime Foods, Ltd., filed a complaint alleging that Dunkin’ Donuts made numerous false, misleading and material representations to the Schrocks inducing them to enter into franchise agreements; breached the franchise agreements by failing to provide expertise, support and skills promised to Plaintiff; misrepresented its intent to develop, dominate and achieve preeminence in the Western Zone; failed to advise Plaintiff that it did not plan to expand the West as represented; failed to assist in the marketing of its products as promised; failed to assist in advertising its products; failed to send an audit team to assist in increasing gross sales as promised; encouraged Plaintiff to expand knowing the home office directed no expansion as early as 1991; and failed in meeting its franchise agreement obligations generally. Dunkin’ Donuts denied the allegations and removed the case to Federal Court. The parties engaged in court- ordered mediation in which the case was settled by a payment of $780,000 from Dunkin’ Donuts to Plaintiff.
Robert F. Goldhammer, et al. v. Dunkin’ Donuts Incorporated (Case No. 98-CV-12568PBS), filed December 1998, in the United States District Court for the District of Massachusetts. The second Plaintiff was a franchisee who entered into a multiple license agreement for London, England to introduce the Dunkin’ Donuts brand in that market. The first Plaintiff was an investor. They allege that Dunkin’ Donuts breached the parties’ agreement, denied franchisees’ reasonable expectations by terminating its rights to operate the branded case business without sufficient notice, engaged in unfair methods of competition and deceptive acts and made false and misleading statements. Dunkin’ Donuts won a motion staying the Massachusetts case pending the outcome of the following first-filed related action in the Birmingham District Registry, England: Dunkin’ Donuts Incorporated v. DD UK Limited, Queen’s Bench Division (Claim No. 1998 D 40039). In February 27, 1998, DDUK, the former master licensee, filed suit and sought damages of 33.1 million pounds sterling in this foreign action. This foreign action proceeded to trial in Birmingham in October through December 2001, and judgment was issued in May 2002. The judge found in favor of Dunkin’ Donuts Incorporated (“Dunkin’ Donuts”) on all counts with the exception of the determination that Dunkin’ Donuts failed to provide a reasonable notice period for the termination of the branded case business. The judge concluded that the termination of the branded case business by Dunkin’ Donuts with insufficient notice constituted a repudiation of the Master License Agreement. On that basis, DDUK was awarded damages of 710,000 pounds sterling. DDUK sought permission to appeal but appeal was denied.
Manoochehr Fallah Moghaddam, et al. v. Dunkin’ Donuts Incorporated, et al. (Case No. 99007002), filed April 1999, in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. Plaintiffs allege that Dunkin’ Donuts breached franchise agreements and violated Florida’s Deceptive Trade Practices Act and Massachusetts’ Regulation of Business Practice and Consumer Protection Act. The complaint also contains allegations against a corporate employee for violation of the Florida and Massachusetts acts, tortious interference with contractual relations, and defamation. The damages claimed by the Plaintiffs include actual and compensatory damages, punitive damages, and treble damages under the Massachusetts Regulation of Business Practice and Consumer Protection Act. On May 24, 1999, Dunkin’ Donuts filed a Notice of Removal removing the case from state court to the United States District Court for the Southern District of Florida. On June 6, 1999, Plaintiffs moved to remand the case to the state court. Dunkin’ Donuts opposed the motion. On September 2, 1999, the federal court granted the motion and remanded the case to the state court for jurisdictional reasons, but expressly made no determination regarding the merits of Plaintiffs’ claims. Plaintiffs have dropped numerous counts during the course of the case, including a few of the breach of contract counts against Dunkin’ Donuts and the counts that allege that Dunkin’ Donuts violated Florida’s Deceptive Trade Practices Act and Massachusetts’ Regulation of
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Business Practice and Consumer Protection Act. In addition, Plaintiffs dropped a few of the tortious interference counts against the corporate employee. On April 20, 2005, the Court granted Dunkin’ Donuts’ motion for partial summary judgment which dismissed the corporate employee from the case. The breach of contract and breach of the covenant of good faith and fair dealing claims that allege that Dunkin’ Donuts delayed the construction of Plaintiff’s shop in the case. On April 25, 2005 the Court awarded Dunkin’ Donuts Summary Judgment on all counts except the allegation that Dunkin’ Donuts interfered with the development of the Cypress Road Shop and that Dunkin’ wrongfully increased advertising payments by 1% in 1996 and 1999. The case went to trial in January, 2007. After trial, the Court awarded a verdict in favor of Dunkin’ Donuts on all counts and Dunkin’ filed a fee petition for approximately $500,000 against plaintiff that is pending. No appeal has been filed by plaintiff.
Manoochehr Fallah Moghaddam et al v. Dunkin’ Donuts Incorporated (Civil Action No. 02-11794-PBS), was filed in Florida state court in December 2001, after which Dunkin’ removed the action to the Untied States District Court for the Southern District of Florida and then successfully moved to transfer it to the United States District Court for the District of Massachusetts. Plaintiffs purport to represent a class of franchisees who claim that the defendant failed to deposit into its advertising fund, a portion of the monies it received from settlement of lawsuits brought against franchisees who underreport their sales to Dunkin’ Donuts. Plaintiffs allege breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty, conversion and demanded an accounting. Plaintiffs seek compensatory damages, including costs, prejudgment interest, and attorney’s fees. Plaintiffs subsequently dismissed their claims for breach of fiduciary duty, conversion and accounting in their entirety. Plaintiffs have also dismissed, with prejudice, remaining claims for breach of contract and implied breach of good faith and fair dealing to the extent those claims are based on allegations regarding the recovery of monies by the defendant from franchisees who have become or are becoming delinquent in paying contractually required advertising fees. On June 10, 2004, the Court granted summary judgment in Dunkin’ Donuts’ favor on all counts. Plaintiffs have not appealed the ruling.
Phillip D. Reeve, et al. v. Dunkin’ Donuts Mid-Atlantic Distribution Center, Dunkin’ Donuts Incorporated et al. (Case No. BUR-L-2762-98) filed October 9, 1998 in the Superior Court of New Jersey, Burlington County. The Plaintiff, a former employee of the Mid-Atlantic Distribution Center sued Dunkin’ Donuts Incorporated, among others, alleging that Dunkin’ Donuts Incorporated tortiously interfered with his employment by the Mid-Atlantic Distribution Center resulting in termination of his employment. Plaintiff claimed intentional infliction of emotional distress and defamation against Dunkin’ Donuts Incorporated and a former employee of Dunkin’ Donuts Incorporated. Prior to trial, Plaintiff dropped all damages claims except economic damages. Trial commenced before a jury on August 11, 2003. On August 29, 2003, the jury rendered its verdict on the compensatory damages claims finding Dunkin’ Donuts Incorporated’s employee not liable but found Dunkin’ Donuts Incorporated liable, awarding $746,000 in back and future pay. On March 23, 2004, the Court granted Dunkin’ Donuts Incorporated’s motion to set aside the verdict, finding that there was no evidence to support it. Accordingly, judgment was entered in Dunkin’ Donuts Incorporated’s behalf on April 27, 2004. Plaintiff appealed. February 6, 2006. Upon oral argument, the Appellate Division of the Superior Court of New Jersey affirmed the decision of the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-2762-98 in granting Dunkin’ Donuts judgment notwithstanding the verdict on plaintiff’s claim of tortious interference with prospective economic advantage.
Mandorico, Inc. and Kenneth J. McCulloch vs. Dunkin’ Donuts, Inc. and Cadi Foods, Inc. U.S.D.C. (D.P.R.) (JP) (“the Mandorico Superior Court Action”) (Civil Action Case No. 99-1651), filed November 1998, in the Commonwealth of Puerto Rico. In April, 1997, Dunkin’ Donuts Incorporated (“Dunkin”) filed suit in federal court against Mandorico, Inc. (“Mandorico”), a former Dunkin’ franchise operator of three (3) Dunkin’ Donuts Stores and thirty-three (33) Branded Product Tower stands in Carolina and San Juan, Puerto Rico, to confirm Dunkin’s termination of Mandorico’s Franchise Agreement and Exclusive Development Agreement, and to collect monies due under Mandorico’s Franchise Agreement (the “Mandorico Federal Action”). On May 7, 1997, the Court entered a preliminary injunction in favor of Dunkin’ and against Mandorico, which prohibited Mandorico from holding itself out to the public as an authorized operator of Dunkin’ Donuts Stores and Branded Product Towers in Puerto Rico. Mandorico and its president, Kenneth J. McCulloch (“McCulloch”), thereafter filed counterclaims against Dunkin’, Allied Lyons P.L.C. and Allied Domecq Retailing International in which it sought damages in excess of $9 million based upon allegations that Dunkin’ wrongfully terminated Mandorico’s franchise rights under
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Puerto Rico’s Dealer Termination Law (“Law 75”), and additional allegations of fraud, breach of contract, civil conspiracy and tortious interference with economic relationships. On September 7, 1999, mediation was held which resulted in an agreement to settle all claims and counterclaims. Dunkin’ agreed to pay Mandorico and McCulloch $550,000.
Corporacion Iris, S.A. de C.V. v. Dunkin’ Donuts Incorporated, filed in December 2001, with the American Arbitration Association in Mexico City, Mexico. Plaintiff alleges acts and omissions of Dunkin’ Donuts Incorporated with respect to three Exclusive Development and Franchise Agreements granted to Iris for the development of (1) Veracruz; (2) Puebla; and (3) Acapulco, Cuernavaca and Queretaro. Iris seeks approximately US$6.7 million, claiming breach of contract in failing to provide system support and technical assistance, fraudulent misrepresentation and bad faith. Defendant has counterclaimed for a permanent injunction to close the remaining Shops in Puebla, termination of the contracts, and US$1.3 million for breach of contract including past due royalties, harm to the trademarks and lost profits. Defendants deny all allegations and will vigorously defend all claims. Following an 8-day arbitration hearing in October 2003, the arbitrator, on April 16, 2004, issued final rulings and awards as follows: (1) the parties’ agreements are rescinded; (2) Iris will pay Dunkin’ Donuts US$145,310.00; (3) Iris will cease and desist from use of Dunkin’ Donuts’ trademarks; (4) Dunkin’ Donuts’ post- term covenant against competition will be enforced for two years; (5) the parties will share 50/50 the costs of arbitration; and (6) each party will bear its own legal costs.
Bertico Inc., 3024032 Canada Inc., 3155412 Canada Inc., 3176941 Canada Inc., 3481191 Canada Inc., 2857- 8664 Québec Inc., 3089-8001 Québec Inc., 9067-0308 Québec Inc., Jacques Doyon and Monic Huard, Les Entreprises Doyon et Huard Inc., Les Entreprises Charloise Inc., Les Entreprises Lucien Stephens Inc., Les Entreprises Pierre Maclure Limitée, 9116-5399 Québec Inc., 3089-3309 Québec Inc., 3092-5077 Québec Inc., 9009-6694 Québec Inc., 9064-0947 Québec Inc., 2622-6282 Québec Inc., 2968-7654 Québec Inc., Claude St- Pierre and Lynda Viel, Sylvain Charbonneau, Noemia De Lima & Joao De Lima, René Joly and Charlotte Lévesque, Mariette Long, Raymond Massi, Pierre Maclure, Jean Rioux, Mario Corbeil, John A. Costin, Bernard Stern and Jacques Pomerleau, filed on May 20, 2003 in the Province of Quebec, District of Montreal, Superior Court. Thirty-six (36) Quebec Dunkin’ Donuts franchisees (“Plaintiffs”) have sued Dunkin’ Donuts (Canada) Limited and Allied Domecq Retailing International, (Canada) Limited (Dunkin’) on a variety of claims including: misrepresentation; negligence and incompetence with respect to supervision and support; negligence and incompetence resulting in a deterioration of the brand image; incoherence with respect to management; incompetence and negligence with respect to a competitive market and advertising; disproportionality in the contractual relations; disorganization; questionable attitude and disregard for the Quebec market; breach of the duty of loyalty; and bad faith. Plaintiffs allege that Defendants are liable for: excessive turnover in management in Canada; treating the Quebec market as a component of the US market ignoring different consumer habits in Canada; ignoring competition threat and failing to purchase a competing system, as recommended by franchisees; negligence in not responding sternly to franchisees who did not comply with all of their franchise agreement requirements; failing to ensure compliance by all franchisees with standards in all stores; inadequate public relations response to media attention given competition, as recommended by franchisees; failing to make a massive financial investment in marketing and advertising to increase sales so franchisees would be able to remodel, as recommended by franchisees; substantial reduction in services and support provided by Dunkin’; failure to stem decreasing sales; failure to invest in the Dunkin’ system; specific percentage sales increases from remodels were promised but not realized; excessive changes in menus and promotions; poor judgment in removing fresh eggs from menu; wrongfully banning the sale of frozen donuts; mismanagement in application of the renovation program; failure to conduct research and development and provide franchisees necessary tools to be competitive; and encroachment in developing new stores.
Plaintiffs seek orders terminating eleven (11) of their franchises, orders requiring Dunkin’ to comply with its contractual obligations, and damages representing a refund of investment and operating losses for 31 franchises in the amount of $8,498,953.00 (CDN$), plus costs. Defendants deny all allegations and will vigorously defend all claims.
Amano, et al. v. Allied Domecq PLC, et al., (Case No. CV-03-5685-JG-VVP), United States District Court for the Eastern District of New York), filed on November 11, 2003. The Plaintiffs are the franchisee for a Dunkin’
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Donuts/Baskin-Robbins combo shop in Astoria, New York, its principal, and his wife. The complaint seeks total damages of over $3 million for alleged fraud, violation of the New York Franchise Sales Act, and breach of contract. The Plaintiffs allege that the Defendants fraudulently induced them into buying their existing corporately- developed franchise, a second corporately-developed franchise, and the right to develop two additional franchises by misrepresenting that they would obtain the rights to two other, allegedly more lucrative stores. The Plaintiffs also allege that sales of their existing store have been negatively impacted by the opening of a Baskin-Robbins franchise and a Dunkin’ Donuts franchise in the surrounding geographical area, and claim that the Defendants failed to disclose the development of those franchises. Finally, the Plaintiffs claim that the opening of their existing store was delayed because the Defendants purportedly failed to complete construction of the store on time. The Defendants filed counterclaims against the Plaintiffs for failing to develop and open franchises pursuant to two store development agreements and a contract for sale. The case was settled and dismissed after Dunkin’ Donuts and Baskin-Robbins agreed to repurchase the franchise for $1,130,000.
Walid Elkhatib v. Dunkin’ Donuts Incorporated and Allied Domecq (Case No. 020-8131) United States District Court for the Northern District of Illinois, Eastern Division, filed on November 8, 2002. Plaintiff is a Dunkin’ Donuts franchisee of two stores in the Chicago area. Plaintiff claims that Dunkin’ Donuts discriminated against him by requiring that he sell pork-product based breakfast sandwiches, as a condition of franchise renewal, in violation of his religious beliefs. Plaintiff seeks a declaratory judgment that Dunkin’s actions are in violation of Title 28, U.S.C. section 2201 and section 1981 and 1982 of the Civil Rights Act. Plaintiff also seeks damages of $500,000.00, plus fees and costs, and a trial by jury. On November 12, 2004, the Court granted defendants’ motion for summary judgment finding that: (1) Plaintiff’s claim is one of religious discrimination, not racial discrimination; (2) Plaintiff did not present any direct evidence to show that defendant’s intentionally discriminated against him; (3) Plaintiff failed to make out a prima facie case of discrimination; (4) Plaintiff has shown that he cannot perform his obligations under the franchise agreement; and, (5) even if Plaintiff had established a prima facie case, he did not offer evidence to show that defendant’s actions were merely pre-textual. Plaintiff has appealed. Defendants will vigorously defend the appeal. Oral argument was held on October 30, 2006, before the Seventh Circuit. July 10, 2007: The seventh circuit issued an 11 page decision reversing the District Court’s summary judgment decision for DD and remanded the case to the District Court for trial.
Bronx Dough, Inc., Richard Ross and Peter Brookman v. Dunkin’ Donuts Incorporated, Baskin-Robbins USA, Co., Allied Domecq Quick Service Restaurants, Inc., Third Dunkin’ Donuts Realty, Inc., and Peter Marrinan, and Dean Foods Company (Case No. 03-CV-1455) (DC) Supreme Court of the State of New York, Bronx County), filed on February 13, 2003. Plaintiffs are franchisees of two stores and own development rights in the Bronx, New York. Plaintiffs allege that when they purchased the stores and development rights, an employee of defendant made representations about the sales volumes that could be expected from the new stores that proved to be false. Plaintiffs seek rescission, compensatory damages of $13 million, and punitive damages of $25 million. Dunkin’ Donuts has counterclaimed for monies owed. On March 4, 2005, the case was settled by dismissal by Plaintiffs of all claims and payment by Plaintiffs to Defendants of $100,000.00.
Charles T. Robinson, Sr., and Silverback, LLC v. Allied Domecq Quick Service Restaurants (Case No. CCB 03 CV 460) United States District Court for the Southern District of Maryland), filed on February 20, 2003. Plaintiff alleges that he began the process of becoming a Dunkin’ Donuts franchisee in the Baltimore, Maryland metropolitan area. Plaintiff alleges that he received approval from Dunkin’ Donuts, was offered a location, acquired necessary financing, and then Dunkin’ Donuts withdrew the offer of the franchise. Plaintiff alleges breach of contract, detrimental reliance, and breach of implied covenant of good faith and fair dealing. Plaintiff seeks compensatory damages of $5,505,919, punitive damages of $5,000,000 plus attorney’s fees and costs. Defendants deny the allegations but have settled the claims by making a payment of $30,000 to Plaintiff.
Oral Sezer and Kazem Yahyapour v. Allied Domecq Quick Service Restaurants (Case No. 04CV017361) Superior Court, Wake County, North Carolina) filed December 17, 2004. Plaintiffs purchased a Multiple Unit Store Development Agreement (SDA) on October 15, 2003 for the development of three stores in identified territories, the first to be opened by February 15, 2005. Plaintiffs complained that defendant did not do its due diligence in mapping the territories for development potential, that they could not find any sites in the territories suitable for development, and asked for the return of the monies paid ($120,000) and cancellation of the SDA.
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Defendants conducted a further study of the development potential of the territories and concluded that they did have development potential, that plaintiffs had not done their due diligence in exploring development opportunities, and refused to return the monies paid. Plaintiffs filed a claim in arbitration and after a hearing the arbitrator awarded plaintiffs $53,625.00 of the $120,000.00 paid for the development rights.
DD Jacksonville, LLC v. Dunkin’ Donuts Incorporated and Baskin-Robbins USA, Co. (Case No. 16-060CA- 003505), Circuit Court of the 4th Judicial Circuit and for Duval County, Florida. Plaintiff entered into negotiations with Dunkin’ Donuts and Baskin-Robbins (DDBR) to develop a number of Dunkin’ Donuts and Baskin-Robbins franchises in the Jacksonville Florida Designated Market Area (DMA). Plaintiffs allege that DDBR was advised from the outset that funding for development would include participation by foreign investors from the middle-east. Plaintiffs allege that DDBR did not object and proceeded to enter into a formal agreement dated February 17, 2006 in the form of a Letter of Intent (LOI). Plaintiffs made a $50,000 deposit with $455,000 due by 4-1-06. It is alleged that on March 24, 2006 a letter was sent by DDBR to plaintiffs informing them that DDBR had decided not to make an exception to its longstanding policy of precluding foreign investors as equity holders in SDAs or Franchise Agreements. As a result, all shareholders or members, whether active or passive, must be US citizens or resident aliens. Plaintiffs claimed that DDBR’s longstanding policy had never been communicated to them. Plaintiffs further claimed that DDBR rejected the investors based solely on their foreign status. Plaintiffs’ claimed breach of covenant of good faith and promissory estoppel as a basis for recovery and sought reliance damages and lost profits in an unstated amount. The case was settled by a payment of $125,000.00 in reliance damages by defendants to Plaintiffs.
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Dunkin’ Donuts is and has, from time to time, been engaged in several matters of routine litigation arising in the ordinary course of its business, including disputes in connection with terminations of Franchise Agreements often involving claims or threats of claims of fraud and misrepresentation, breach of contract, misuse of advertising funds, improper store auditing, restraint of trade, antitrust, wrongful termination and other violations against Dunkin’ Donuts. As to pending claims, Dunkin’ Donuts denies the charges of wrongdoing in these cases and will vigorously oppose them. In the opinion of Dunkin’ Donuts, the outcome of these other matters is not likely to have any material effect on its financial position. As to past claims, all have been settled on terms that have varied from case to case with none individually or in the aggregate having a material effect on Dunkin’ Donuts.
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Baskin-Robbins:
Except for the 5 actions described below, there is no Baskin-Robbins litigation that must be disclosed in this Disclosure Document.
Larry Brock, et al. v. Baskin-Robbins USA, Co., et al. (Case No. 5.99CV274), filed December 15, 1999 in the U.S. District Court for the Eastern District of Texas, Texarkana Division. Plaintiffs’ Seventh Amended Complaint has fourteen counts purporting to state claims for violations of the Texas and Louisiana Deceptive Trade Practices Acts, fraud, fraudulent inducement, promissory estoppel, intentional interference with contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty and violations of the California Franchise Relations Act and the California Investment Law. (Plaintiffs are a group of current and former franchisees.) Plaintiffs allege that Baskin-Robbins failed to timely disclose to them that they would not be offered new franchise agreements once the terms of their current agreements expired and, furthermore that they had been promised, explicitly or implicitly, that their franchise agreements would be “perpetually renewed.” The Plaintiffs also allege misuse of advertising fees paid by Plaintiffs to the Baskin-Robbins Advertising Fund, failing to provide audit information on the Fund, failure to audit the Fund regularly, failure to timely file tax returns for the Fund or to spend money from the Fund on national advertising from 1997 to 1998. Plaintiffs seek an unspecified amount in compensatory damages and $40 million in punitive damages. Defendants deny the allegations and the lawsuit is being vigorously defended. Discovery is closed and the matter is proceeding to trial. Plaintiffs have dropped any claims related to Combos and their allegation that Baskin-Robbins failed to disclose that single brand stores were allegedly unprofitable. On August 29, 2002, the Court dismissed a companion case that sought class action status on advertising fund issues.
In January 2003, the court granted summary judgment in Baskin-Robbins’s favor on all of Plaintiffs’ claims except their advertising related claims for breach of fiduciary duty and conversion and the breach of contract claim brought by one Plaintiff. The court conducted a bench trial limited to liability with respect to the advertising claims in February 2003. In August 2003, the court issued a decision in Baskin-Robbins’s favor on all claims.
The court also denied Plaintiffs’ motion to amend their complaint post-trial to add additional claims related to Baskin-Robbins’ administration of advertising monies. Plaintiffs’ appeal of the court’s decision on summary judgment and its findings at trial has been decided. Claims for breach of contract brought by one Plaintiff also remain pending, but are stayed pending the outcome of the appeal. During the pendency of the appeal, Baskin- Robbins has settled or agreed to settle with all but six of the Plaintiffs. The settling Plaintiffs have agreed to dismiss all claims against Baskin-Robbins with prejudice in exchange for the Company’s agreement to drop its attorneys’ fees claims against them. Defendants deny the remaining allegations and will continue to vigorously defend all claims. On November 29, 2005, the U.S. Court of Appeals affirmed the District Court’s decision holding that Baskin-Robbins did not commit an actionable breach of fiduciary duty in administering the Fund nor were there any errors in denying Defendants’ leave to amend or in the various other rulings on discovery or in any other aspect of the proceedings raised on appeal by Defendants. The case is closed as to all plaintiffs, settling and non- settling, except as to Baskin’s claim for attorney’s fees as to non-settling plaintiffs. A ruling as to Baskin’s claim is pending with the district court.
Baskin-Robbins v. Best Serve Ice Cream Inc., and Anne M. McFadden (Case No. C-2000-61364-CN), filed February 29, 2000 in the U.S. District Court for the District of Maryland, Northern Division. This is a nonpayment of fees case against franchisees that Baskin-Robbins brought in state court in Maryland. The Defendants counterclaimed and added a third-party claim against Allied Domecq PLC. Based on the addition of Allied Domecq to the case, counsel removed the case to federal court in Baltimore. The counterclaim contains three counts against Baskin-Robbins Incorporated and Baskin-Robbins USA, Co. for breach of contract, breach of the implied covenant of good faith and fair dealing, and for an accounting of the national advertising fund; one count against Baskin-Robbins Incorporated, Baskin-Robbins USA Co., and Allied Domecq for violation of the Robinson- Patman Act, violation of the Maryland Franchise Registration Act, unfair and deceptive trade practices, fraud, fraud in the inducement, negligent misrepresentation, and violation of the federal and Maryland Fair Debt Collection Acts. The counterclaim also alleges that Allied Domecq planned Dunkin’ Donuts’ takeover and “dismantling” of the Baskin-Robbins organization with the aim of diverting resources away from “nonstrategic markets.” Part of the
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alleged plan was to develop combos or trombos at the expense of single brand Baskin-Robbins operators. Defendants allege a plan by Baskin-Robbins to eliminate stand-alone Baskins by withdrawing all support for them. The ABC rating system also allegedly was part of the plan intended to make it impossible for C franchisees to sell or relocate their stores. The “tiered” marketing system, which shifted advertising programs from a national to a regional basis, then allegedly was employed to direct advertising monies to other markets, allegedly to the harm of McFadden. The counterclaim also alleges that Baskin-Robbins violated the Robinson-Patman Act by selling ice cream to McFadden at higher prices than charged to franchisees in other markets. There also is a claim relating to some alleged failures to deliver ice cream in 1997. The counterclaim seeks compensatory damages in excess of $2,000,000, treble damages under the Robinson-Patman Act, attorney’s fees and costs, punitive damages, and rescission of the franchise agreements. Defendants (former franchisees) have closed the stores and filed bankruptcy. The court dismissed the case and all claims upon the bankruptcy filing. No claims have been filed by the bankruptcy trustee and the bankruptcy matter is now closed.
Oliver Enterprises, LLC v. Baskin-Robbins USA Co., et al.(Case No. 5:01-cv333), filed December 19, 2001 in the United States District Court for the Eastern District of Texas. Plaintiff is a Baskin-Robbins franchisee who has claimed that Baskin-Robbins denied it the ability to relocate its ice cream store at the end of the term of the franchise agreement and that Baskin-Robbins promised that the franchise agreement would be perpetually renewed. Plaintiff has raised claims of fraud, fraudulent inducement, breach of the covenant of good faith and fair dealing, promissory estoppel and punitive damages, and is seeking an unspecified amount of compensatory damages and punitive damages in excess of $1 million. Plaintiff moved to amend its complaint to add allegations related to Baskin-Robbins’ administration of advertising monies and then withdrew the motion after Baskin-Robbins filed an opposition. Defendants deny the allegations and will vigorously defend all claims. There has been no activity in this case following the decision for Baskin-Robbins by the U.S. Court of Appeals in the Brock case (above).
Order administratively closing case pending appeal. This case is on appeal to the U S Court of Appeals for the Fifth Circuit, renamed Brock v Baskin-Robbins USA, No 04-40496. See Notice of Appeal, filed 4/15/04 (Dkt No 337). Until such time as the Fifth Circuit decides this case, the court orders this action is hereby administratively closed. Either party may file a motion to reinstate this case upon ruling by Fifth Circuit. Signed by Judge David Folsom on 12/6/04. (mpv, ) (Entered: 12/06/2004)
Daniel C. Weaver v. Baskin-Robbins (Case No. CV 803848), filed December 17, 2001 in the Superior Court for the State of California, County of Santa Clara. This action is filed by a Baskin-Robbins customer allegedly on behalf of and as a representative of all purchasers of Baskin-Robbins gift certificates within the past three to four years. Plaintiff claims that he obtained a gift certificate issued by Baskin-Robbins which bore an expiration date of December 31, 2001. Plaintiff claims that since January 1, 1997, Baskin-Robbins has sold thousands of gift certificates in the State of California bearing an expiration date in violation of Civil Code Section 1749.5, which prohibits the expiration of gift certificates sold in the state of California. The complaint alleges a violation of the Consumers Legal Remedies Act and an unfair business practice in violation of California Business and Professions Code Section 17200. Baskin-Robbins believes that ice cream is exempt under Section 1749.5C(3) of the California Civil Code because it is a food product. On March 1, 2005, the Court entered a Final Settlement Order and Judgment in which: (1) the parties stipulated to certifying a class for purposes of settlement consisting of all persons who purchased Baskin-Robbins gift certificates with expiration dates between January 1, 1997 and the present; (2) for 60-days Baskin-Robbins would publish notice of the settlement in a manner approved by the Court; (3) during the 60-day period, Baskin-Robbins would provide replacement gift certificates to all persons who submit a sworn declaration that they were in possession of a Baskin-Robbins gift certificate but discarded it based upon a belief that it had expired; (4) Baskin-Robbins would refrain from enforcing any expiration date on any existing Baskin-Robbins gift certificates; (5) for one year, Baskin-Robbins would display a placard at all franchisee stores indicating that Baskin-Robbins gift certificates do not expire; and (6) Baskin-Robbins would pay $70,000 in attorney’s fees to counsel for Plaintiff and the class.
The People of the State of California v. Baskin-Robbins, USA. On or prior to March 7, 2002, California Weights and Measures officials responded to a complaint that Baskin-Robbins advertised hand-packed ice cream by volume but delivered less than the advertised quantity to customers because the store employees weighed the ice cream instead of filling the container by volume. Weights and Measures conducted an investigation in 29 counties
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and at 188 locations where 416 containers of hand-packed ice cream were purchased. They found that 343 containers were not adequately filled by volume. It was acknowledged that, in most cases, the correct advertised weight of ice cream was delivered to the customer. Baskin-Robbins was claimed to have engaged in deceptive advertising under the California Business and Professions Code. An Offer of Compromise agreement, with injunction, has been offered in settlement by the office of the District Attorney in San Diego and has been accepted by Baskin-Robbins. A Stipulated Final Judgment has been entered by the Court enjoining Baskin-Robbins and its franchisees from directly or indirectly engaging in the following acts or practices: A. Representing that specific volume quantities, such as pint, quart or half-gallon of hand-packed ice cream, or other commodities, are delivered when purchased by customers, when in truth less than the represented quantity is actually so delivered; B. Representing that specific quantities of hand-packed ice cream, or other commodities, are sold by volume, when in truth such are sold by weight, or vice-versa; C. Selling commodities in less quantity than represented, in violation of California Business and Professions Code section 12024; D. Making or causing to be made, orally or in writing, any untrue or misleading statement, in violation of Business and Professions Code section 17500, et seq., in connection with the sale of ice cream or any other commodity based upon or utilizing measurements calculated in weight or volume. Further, Baskin-Robbins was required to serve a copy of the Judgment on the franchise owner of each and every Baskin-Robbins ice cream store in the State of California. In addition, Baskin-Robbins was required to pay $343,000.00 to the California Attorney General’s Office and the San Diego District Attorney’s Office and $148,164.00 in costs to various agencies involved in the matter.
* * * * * * * * * * * * * *
Baskin-Robbins is and has, from time to time, been engaged in several matters of routine litigation arising in the ordinary course of its business, including disputes in connection with terminations of franchise agreements, which often involve claims or threats of claims against Baskin-Robbins of fraud and misrepresentation, breach of contract, misuse of advertising funds, restraint of trade, antitrust, wrongful termination and other violations against Baskin- Robbins. As to pending claims, Baskin-Robbins denies the charges of wrongdoing in these cases and will vigorously oppose them. In the opinion of Baskin-Robbins, the outcome of these other matters is not likely to have any material effect on its financial position. As to past claims, all have been settled on terms that have varied from case to case with none individually or in the aggregate having a material effect on Baskin-Robbins.
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Litigation Against Franchisees Commenced by Dunkin’ Donuts (and Baskin-Robbins for Combo stores) in the Past Fiscal Year
Breach of Contract:
1. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. United Restaurant Association, Inc., et al., (Case No. 4:07-cv-59-RGD-TEM), United States District Court for the Eastern District of Virginia, Newport News Division, June 27, 2007
Collections:
2. Baskin-Robbins Franchised Shops, LLC, Dunkin’ Donuts Franchised Restaurants, LLC et al. v. Bullwinkle Donuts, LLC, et al., (Case No.0:07-cv-02903-JFA), United States District Court for the District of South Carolina, Rock Hill Division, August 22, 2007
3. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC v. EMST Donuts LLC, (Case No. 2:07-CV-00422-(MMH)-(DNF)), USDC Middle District Florida, Fort Myers Division, July 2, 2007
4. Dunkin’ Donuts Franchised Restaurants LLC v. Jaisrikar II, Inc., et al, (Case No. 033221-CV-2007, Civil Court City of New York, County of New York, June 25, 2007
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5. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC et al, v. Tim & Tab Donuts, et al, (Case No. 07-CV-3662 (CBA) (KMA)), USDC Eastern District of New York, August 30, 2007
6. Dunkin’ Donuts Franchised Restaurants LLC, et al v. Cardillo Capital, Inc. et al, Case No. 2:07-CV- 278-FTM-29 (SCP)), USDC Middle District of Florida, Fort Myers Division, April 30, 2007
Loss Prevention:
7. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC v. Ladhani Development Network, Inc., et al., (Case No. 1:07-cv-20670-PCH), United States District Court for the Southern District of Florida, March 14, 2007, bribery
8. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. EZ Donuts, Inc., et al. , (Case No. 07-2332 (KSH)), United States District Court for the District of New Jersey, May 17, 2007, bribery
9. Dunkin’ Donuts Franchised Restaurants, et al. v. Vmshree, LLC, et al., (Case No. 07-cv-1333 (LLS)), United States District Court for the Southern District of New York, February 22, 2007, failure to pay overtime
10. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Shivam Sundram Inc., (Case No. 07-cv-11134 (RJH), United States District Court for the Southern District of New York, December 10, 2007, failure to pay overtime/ failure to pay minimum wages/ failure to withhold payroll taxes
11. Dunkin’ Donuts Franchised Restaurants, LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Global Dining Westland, LLC, et al., (Case No. 2-07-cv-11510), United States District Court for the Eastern District of Michigan, Southern Division, April 3, 2007, failure to produce records
12. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Manassas Donut Incorporated, et al., (Case No. 1:07-cv-446), United States District Court for the Eastern District of Virginia, Alexandria Division, May 2, 2007, failure to produce records
13. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Aekta Corporation, et al., (Case No. 2:07-cv-4725-LS), United States District Court for the Eastern District of Pennsylvania, November 8, 2007, failure to produce records
14. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. West Concord Donuts, Inc., et al. , (Case No. 1:07-cv-10715-JLT), United States District Court for the District of Massachusetts, April 13, 2007, hiring of illegal aliens/refusal to provide records
15. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. All Season Restaurant Group, Inc., et al., (Case No. 2:07-cv-3638-TCP-WDW), United States District Court for the Eastern District of New York, August 29, 2007, illegal aliens/ failure to use Basic Pilot/ payroll tax fraud
16. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. D&D Donuts, Inc., et al., (Case No. 3:07-cv- 0660-VMC-TEM), United States District Court for the Middle District of Florida, Jacksonville Division, July 19, 2007, in term covenant not to compete
17. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Zam Zam Café, LLC, et al., (Case No. 1:07-cv-1766-AMD), United States District Court for the District of Maryland, Northern Division, July 6, 2007, income and payroll tax fraud
18. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Strategic Venture Group, Inc., et al. , (Case No. 2:07-cv-01923 SRC-CCC), United States District Court of New Jersey, April 24, 2007, payroll fraud/ refusal to provide records
19. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Sanjay Patel, (Case No. 8:07-cv-01902-AW), United States District Court for the District of Maryland, Northern Division, July 17, 2007, payroll tax fraud
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20. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Gold-Aly-Two, Inc., et al., (Case No. 07-cv-6002), United States District Court for the Northern District of Illinois, October 23, 2007, payroll tax fraud/FLSA violations/failure to use Basic Pilot
21. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Kabir, Inc., et al., (Case No. 2:07-cv-11583), United States District Court for the Eastern District of Michigan, Southern Division, April 6, 2007, unapproved transfer
22. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchising LLC, et al. v. Queens Delphi Donut Corp., et al. , (Case No. 1:07-cv-01712-CBA-JMA), United States District Court for the Eastern District of New York, April 25, 2007, unauthorized transfer
23. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Jay Ambe LTD., et al., (Case No. 2:07-cv-00388-JDH-NMK), United States District Court for the Southern District of Ohio, Eastern Division, May 3, 2007, unauthorized transfer
24. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchising LLC, et al. v. 1700 Church Avenue Corp., et al., (Case No. 1:07-cv-2446-CBA-MDG), United States District Court for the Eastern District of New York, June 16, 2007, unauthorized transfer/ underreporting
25. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Grand Central Donuts, Inc., et al., (Case No. 1:07-cv-4027-ENV-MDG), United States District Court for the Eastern District of New York, September 26, 2007, unauthorized transfer/payroll tax fraud/income tax fraud
26. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. K&L Donuts, Inc., et al. , (Case No. 07-2643), United States District Court for the Eastern District of Pennsylvania, June 25, 2007, underreporting to the IRS
27. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Sandip, Inc., et al., (Case No. 1:07-cv-0779), United States District Court for the Northern District of Georgia, Atlanta Division, April 6, 2007, underreporting/ income tax fraud/ payroll tax fraud/ illegal aliens
28. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Anuja, Inc., et al., (Case No. 2:33-av-00001), United States District Court for the District of New Jersey, April 19, 2007, underreporting/ payroll fraud/tax fraud/employee identity theft/ hiring of illegal aliens/ failure to use Basic Pilot case
29. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchising LLC, et al. v. Fifth Avenue Donuts Corp., et al., (Case No. 1:07-cv-2880-SJ-SMG), United States District Court for the Eastern District of New York, July 16, 2007, underreporting/ payroll tax fraud/ FLSA violations/ (possible in term covenant not to compete)
30. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Coffee And…, Inc., et al., (Case No. 07-60579), United States District Court for the Southern District of Florida, April 19, 2007, underreporting/ tax fraud/payroll fraud
31. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchising LLC, et al. v. Chelsea DB Associates, Inc., et al. , (Case No. 07-cv-7218(RJH), United States District Court for the Southern District of New York, August 13, 2007, undocumented workers/fraudulent costs of goods sold/income tax fraud/cash payroll/FLSA violations/failure to report government investigation to franchisor/failure to use basic pilot/failure to keep and maintain records
32. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. The Monroe Donut Company, LLC, et al., (Case No. 07-10043), United States District Court for the Southern District of Florida, May 30, 2007, undocumented workers/illegal aliens/ failure to use basic pilot program/payroll issues
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33. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v Agawam Donuts, Inc., et al. , (Case No. 1:07-cv-11444-RWZ), United States District Court for the District of Massachusetts, August 6, 2007, undocumented workers/tax fraud/failure to pay overtime
Failure to Remodel:
34. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Nilesh Mehta, (Case No. 07-0423(JC)), United States District Court for the Western District of Pennsylvania, March 30, 2007
35. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Café Donut, Inc., et al., (Case No. 1:07-cv-02699-WMN), United States District Court for the District of Maryland, Southern Division, October 5, 2007
Standards:
36. Dunkin’ Donuts Franchised Restaurants LLC v. P&P and L&L Inc., (Case No. 4:07-cv-00111-MM), United States District Court for the Middle District of Pennsylvania, January 22, 2007
37. Dunkin’ Donuts Franchised Restaurants LLC v. Sonraj, Inc. , (Case No. 3:07-cv-0042), United States District Court for the Northern District of New York, Binghamton Division, January 11, 2007
38. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Bertling, Inc., (Case No. 8:07-cv-00058-JSM-EAJ), United States District Court for the Middle District of Florida, Tampa Division, January 9, 2007
39. Dunkin’ Donuts Franchised Restaurants LLC v. Satyam Shivam, Inc. , (Case No. 07-cv-164 (LAK)), United States District Court for the Southern District of New York, New York Division, January 9, 2007
40. Dunkin’ Donuts Franchised Restaurants LLC v. Fresh Serve Bakeries, Inc. , (Case No. 3:07-cv-31), United States District Court for the Western District of Kentucky, Louisville Division, January 22, 2007
41. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Triple J. Family, Inc. , (Case No. 2:07-cv-00702-KSH-PS), United States District Court for the District of New Jersey, Newark Division, February 6, 2007
42. Dunkin’ Donuts Franchised Restaurants LLC v. Fantasy Donuts #1, Inc. , (Case No. 3:07-cv-00316), United States District Court for the Northern District of New York, Binghamton Division, March 23, 2007
43. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. P.A. Donuts, Inc. , (Case No. 3:07-cv-01766), United States District Court for the District of New Jersey, April 17, 2007
44. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Unique Group, Inc. , (Case No. 07-cv-1940), United States District Court for the Northern District of Illinois, Eastern Division, April 9, 2007
45. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. TKNY Partners LLC, (Case No. 07-cv-3108 (RWS), United States District Court for the Southern District of New York, New York Division, April 18, 2007
46. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Canyon Donuts Syosset, LLC , (Case No. 2:07-cv-1561-JS-AKT), United States District Court for the Eastern District of New York, April 17, 2007
47. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. KNZ 110th Lexington, LLC, et al., (Case No. 07-cv-3612 (LMM)), United States District Court for the Southern District of New York, May 7, 2007
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48. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Ashland Eatery, LLC, (Case No. 07C-2432), United States District Court for the Northern District of Illinois, May 21, 2007
49. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. AKCL Int’l Group, LTD., (Case No. 07-cv- 3699 (HB), United States District Court for the Southern District of New York, New York Division, May 10, 2007
50. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. NW 167th Street Donuts, LLC, (Case No. 07-21277), United States District Court for the Southern District of Florida, May 16, 2007
51. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. P.A. Donuts, Inc. , (Case No. 3:07-cv-03107-AET-TJB), United States District Court for the District of New Jersey, July 5, 2007
52. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. M & J Donuts #3, Inc. , (Case No. 1:07-cv- 22086-FAM), United States District Court for the Southern District of Florida, Miami Division, August 14, 2007
53. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Fantasy Donuts #2, Inc. , (Case No. 3:07-cv- 0736-TJM-DEP), United States District Court for the Northern District of New York , July 15, 2007
54. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Riank, Inc. , (Case No. 3:07-cv-01343), United States District Court for the Middle District of Pennsylvania, July 24, 2007
55. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Mt. Pleasant Donuts, Inc. , (Case No. 2:07-cv-00687-PJG), United States District Court for the Eastern District of Wisconsin, July 27, 2007
56. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Central Baking Company, Inc. , (Case No. 8:07-cv-02052-PJM), United States District Court for the District of Maryland, Northern Division, August 1, 2007
57. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. RP-Ringoes Donuts, Inc., (Case No. 2:33-av- 00001), United States District Court for the District of New Jersey, August 10, 2007
58. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops, LLC, et al. v. Aekta’s Q.S.R., LLC , (Case No. 2:07-cv-03266-JKG), United States District Court for the Eastern District of Pennsylvania, August 8, 2007
59. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Kinjal Enterprises LLC, (Case No. 1:07-cv- 03849-RBK-JS), United States District Court for the District of New Jersey, August 13, 2007
60. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shop LLC, et al. v. Allied Management Group, LLC, (Case No. 5:07-cv-341-WTH-GRJ), United States District Court for the Middle District of Florida, Ocala Division, August 21, 2007
61. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Sunrin Group, Inc., et al., (Case No. 4:07-cv-399), United States District Court for the Eastern District of Texas, Sherman Division, August 28, 2007
62. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shop LLC, et al. v. Yaskar, Inc., (Case No. 07-cv-61277-PCH, United States District Court for the Southern District of Florida, Ft. Lauderdale Division, September 7, 2007
63. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Angelo Torres & Sons-Downtown Broward Blvd., Inc., (Case No. 0:07-cv-61287-WJZ), United States District Court for the Southern District of Florida, Ft. Lauderdale Division, September 10, 2007
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64. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Rizvi, Inc., (Case No. 07-61308), United States District Court for the Southern District of Florida, September 14, 2007
65. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Best Treat Incorporated, (Case No. 3:07-cv-4762-JAP-JJH), United States District Court for the District of New Jersey, October 2, 2007
66. Dunkin’ Donuts Franchising LLC, Baskin-Robbins Franchising LLC, et al. v. SPS Manhattan, LLC, (Case No. 1:07-cv-4280-CPS-CLP), United States District Court for the Eastern District of New York, October 12, 2007
67. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Jay Ambica – H & N Corporation, (Case No. 2:07-cv-14624-JAC-RSW), United States District Court for the Eastern District of Michigan, Southern Division, October 29, 2007
68. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Al-Karim Donuts, Inc. , (Case No. 07-61634), United States District Court for the Southern District of Florida, November 14, 2007
69. Dunkin’ Donuts Franchising LLC, et al. v. Millville Bakery Inc., (Case No. 1:07-cv-05415-RBK-JS), United States District Court for the District of New Jersey, November 11, 2007
70. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Nilkanth Donut Corporation, (Case No. 2:07- cv-4935-HB), United States District Court for the Eastern District of Pennsylvania, November 21, 2007
71. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Motaz Alsayed, (Case No. 1:07-cv-03690-SO), United States District Court for the Northern District of Ohio, Eastern Division, December 3, 2007
72. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. St. Augustine Donuts, LLC, (Case No. 3:07-cv-1150-J-33-VMC-JRK), United States District Court for the Middle District of Florida, December 6, 2007
73. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Tremont Donut LLC, (Case No. 07-cv-11274 (AKH)), United States District Court for the Southern District of New York, New York Division, December 14, 2007
74. Dunkin’ Donuts Franchised Restaurants LLC, et al. v. Shivam Sundram Inc., (Case No. 07-cv-1134 (RJH), United States District Court for the Southern District of New York, December 10, 2007
75. Dunkin’ Donuts Franchised Restaurants LLC, Baskin-Robbins Franchised Shops LLC, et al. v. Utica Donuts, Inc., et al., (Case No. 1:07-cv-4615-ENV-RML), United States District Court for the Eastern District of New York, November 5, 2007
Dunkin’ Brands, Inc.:
Director Anthony J. DiNovi
Local Union No. 150A, United Food and Commercial Workers International Union, AFL-CIO-CLC, et al. v. The Dubuque Packing Company Health & Welfare Plan, an Employee Welfare Benefit Plan, et al, (Case No. 8:99CV183, U.S.D.C. Nebraska), commenced March 2000.
Mr. DiNovi served as Director for BeefAmerica, Inc. from 1988 to 1996. The Amended Complaint in this class action brought on behalf of union members who are beneficiaries of the Dubuque Packing Company Health & Welfare Plan (the “Plan”) alleged that ML-Lee Acquisition Fund, L.P. (the “Fund”) was an “employer” under ERISA, and was, therefore, liable under ERISA and state law for the failure of BeefAmerica, Inc. N/K/a BAI Liquidating Corp. (“BAI”) and BeefAmerica Operating Company, Inc to make contributions to the Plan. Plaintiffs also alleged that BAI was intentionally undercapitalized by the Fund. Plaintiffs therefore sought to have the corporate existence of BAI disregarded, and to hold the Fund liable for the failure of BAI to make payments to the Plan. Plaintiffs further alleged that the general partners of the Fund were liable for the Fund’s failure to make
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contributions to the Plan. Plaintiffs also sought to treat the Fund’s debt investment in BAI as an equity investment (either through recharacterizing the investment, or by equitably subordinating that investment), and to, therefore, hold the Fund, its Independent General Partners, and the directors of BAI (including Mr. DiNovi) liable for all of BAI’s potential liabilities to the members of the plaintiff class. Plaintiffs also sought to hold the Fund and others liable for tortiuously interfering with the contract between BAI and the Union and for fraudulently transferring substantially all of the assets of BAI to the Fund. The Union sought to recover the alleged fraudulent transfer from the Fund and the general and limited partners of the Fund. The parties reached a settlement without admission of fault, which was approved by the Court on December 1, 2000.
Wolfe v. Perik, et al., Civil Action No. 99-11672; Weintrob V. Perik, et al., Civil Action No. 99-12145 (United States District Court Central District of California), commenced November 1999.
Mr. DiNovi served as a Director for the Learning Company (“TLC”) from 1997 to 2000. Mr. DiNovi was named as a defendant, in his capacity as outside director of TLC, in two securities class actions alleging violations of Sections 11, 12(2) and 15 of the Securities Act of 1933. The complaints, filed on behalf of a putative class of persons who acquired common stock of TLC in exchange for the common stock of Broderbund Software, Inc. in connection with TLC’s merger with Broderbund that was consummated on August 31, 1998, name former senior officers and the directors of TLC as defendants, together with Mattel, Inc. as successor-in-interest of TLC. The complaints, which sought damages in an unspecified amount, alleged that the registration and joint proxy statement/prospectus filed in connection with the merger were materially false and misleading and, in particular, TLC’s financial statements included therein overstated TLC’s revenues. The claims were dismissed with prejudice by the District Court on May 18, 2001, which dismissal was affirmed by the Ninth Circuit on July 24, 2002.
Director Daniel A. D’Aniello
Mr. D’Aniello has been named in several suits as a director of IT Group, Inc., a publicly-traded portfolio company of Carlyle Partners II, which filed for bankruptcy in 2002. These suits name The Carlyle Group, Carlyle Partners II, and the directors of IT Group as defendants. In general, the plaintiffs allege misrepresentation of IT Group’s financial situation, breach of securities laws and fiduciary duties by the directors, and corporate waste. The courts have dismissed some of the core claims against the defendants, but many of the cases remain at an early procedural stage.
Howard G. Clair, et al, vs. Anthony J. DeLuca, et al. (IT Group Securities Litigation), (Civil Action No. 03 0288, United States District Court for the Western District Pennsylvania) filed February 27, 2003.
Thomas L. Payne, et al. v. Anthony J. DeLuca, et al. (IT Group Securities Litigation
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