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Franchise lawyer Peter Dillon recently spoke with Advocate Daily about a Canadian coffee giant and frustrated franchisees that appear to be close to reaching a settlement in two class action lawsuits.

See the full article below.

Coffee giant, franchisee group close to settling two class action lawsuits

A Canadian coffee giant and an association representing some of its frustrated franchisees are close to reaching a settlement in two class-action lawsuits the group filed against the coffee chain.

A source familiar with the cases says the two sides submitted a signed term sheet to the judge.

The three-page document, which comes after weeks of negotiations, is non-binding but outlines the key points agreed to by both parties for a future settlement.

They will continue negotiating details and aim to bring an agreement to the judge on March 21 after which every Canadian franchisee will have four weeks to accept or reject the terms.

The judge will hold another hearing on April 26, when any dissenting franchisees will have their voices heard and make a final ruling on the settlement.

The lawsuits alleged that the chain’s parent company improperly used money from a national advertising fund and subverted the franchisees’ right to associate. The claims have been denied by the parent company and have not been proven in court.

In an interview with AdvocateDaily.com, London, Ont. franchise lawyer Peter Dillon says the proposed settlement should come as a relief to all parties.

“Franchisees were likely chastened after the judge awarded $1.85 million in cost for a previously failed class action against the coffee and doughnut giant,” says Dillon, partner with Siskinds LLP.

“The chain’s purchase in 2014 by a Brazilian-based private equity firm came with dire prognostications,” he says. “The company had a long history of cost-cutting and layoffs. Following the sale, a significant number of franchisees formed their own franchisee association, despite the franchisor-sponsored association already in existence.”

Dillon says the association’s complaints include:

  1. The company’s profit centre re-engineering to transfer wealth from franchisees to the franchisor
  2. Cost-cutting measures that result in product quality going down
  3. Unattainable standards through its “global performance system”
  4. Use of advertising funds
  5. General lack of transparency and accountability by the company in its relations with franchisees

Dillon says the first claim sought $1.7 billion in damages for breach of contract, conversion, breach of duty of good faith, punitive, exemplary and aggravated damages, breach of trust and breach of fiduciary duty.

“The claim alleged that since the 2014 acquisition, the company used the advertising fund — comprised of contributions by franchisees — in ways that the fund had never historically been used and which were not permitted,” he says.

“It also alleged that, contrary to the franchise agreements in place with the franchisees, the company had funneled this money to itself for its own benefit and the benefit of executives. Presumably, the settlement will provide some significant benefits to the franchisees,” says Dillon, who isn’t involved in the case and speaks generally.

“The only known financial term at this time is that the franchisee’s lawyers will receive $2 million in fees,” he says.

The company has spent the last year working closely with its restaurant owners, said the chain’s president in a statement.

“These lawsuits and previous public disagreements with some restaurant owners don’t reflect how positive our relationship is today and all the progress we have made together to focus on building the business,” he said.

“It became obvious to all of us that we need to put these lawsuits behind us and focus on what Canadians care about — great coffee, great food and great support for our communities across Canada.”

© 2019 The Canadian Press
– with files from AdvocateDaily.com

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