While some claim any free PR is good PR, that doesn’t hold true in the franchise world. I would wager that the vast majority of people before they become franchisees do some searches on the Internet (or their loved ones will do it for them) about the franchise. Blogs come up high in search engines because, in part, to frequent postings and incoming links. They serve as a powerful self-disinfecting spotlight. But, this spotlight can be abused by franchisees who failed because of their own fault. Nevertheless, franchisees will flood towards franchisors that are committed to ethically maximizing both for themselves and franchisees.
The Java Jo’z / Cuppy’s Coffee story
- There has been a lot of negative blogger buzz with shark ferocity surrounding Cuppy’s Coffee and Java Jo’z. Apparently, Cuppy’s Coffee (formed in May 2006) purchased the assets of Java Joâ€™z Coffee & More, LLC. Allegedly, Java Jo’z orally promised a return of the $20-30,000 franchisee fee if the franchisee did not build out. However, things turned bleak – the CEO was sent to the pokey for tax issue, the assets were sold to Cuppy’s Coffee, and now there is supposedly no money to return the franchise fees. The Franchise Agreement does not provide for a refund of franchise fee, but allegedly oral promises were made to franchisees by Java Jo’z and its CEO, Roy Snowden. The asset sale under impending bankruptcy is suspiciously ill-timed and no one has released dollar amounts to determine whether fair value was paid. And if it was, where is the money?
- Should people be concerned about the ethics of Cuppy’s? Probably not at this point. Many details are unknown and just because people lose money does not mean anything unscrupulous occured.
I have a few questions:
1) Why did Aaron Weinstock from a few miles outside Fort Walton Beach register in Florida the business: CUPPY’S JAVA JO’Z COFFEE & MORE, INC. ? Is Aaron Weinstock related to Kristin Weinstock who name appears on blog spamming, and it always reads:[update 1-25-2007: this text has been deleted] As both an Employee and an Owner, I get to experience Cuppy’s in a way that not everyone can. I love Cuppy’s because of the dedication of the employees, to each other and to the Franchisees and Licensees. I also love having the chance to work with our owners every day, and learn from their experiences to help me in the process of opening my own store.
2) If Doug Hibbing, President of Cuppy’s Coffee, never had a legal relationship with Java Jo’z, why did a Russell Hibbing register “Java Jo’z International, Inc.” in Nevada last year?
For fun – what are the possible claims/theories of liability based on the allegations that have swirled around?
1) fraudulent conveyance/transfer:
As attorney Paul Steinberg pointed out, and Cuppy’s objected via a tersely worded letter from their attorneys, the asset sale may be unwound if under the Uniform Fraudulent Transfer Act, if Cuppy’s received or bought assets from Java Jo’z and Java Jo’z
(1) intent was to hinder, delay, or defraud creditors (pay back the franchisee their deposits),
(2) Cuppy’s did not receive a reasonably equivalent value in exchange for the transfer or obligation, and the debtor
(a) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(b) intended to incur or believed or reasonably should have believed that the debtor would incur debts beyond the debtorâ€™s ability to pay as the debts became due.
Under the Bankruptcy Act, an aggrieved party may bring suit against those persons who received transferred property and may recover from the transferees the value of that property if they have subsequently converted the property.
2) criminal conspiracy
US Code Title 18, Part I, Chapter 19, Â§ 371. Conspiracy to commit offense or to defraud United States:
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.
3) civil RICO statutes
Most civil RICO claims are filed under Section 1962(c), which makes it unlawful to “conduct or participate, directly or indirectly, in the conduct” of an enterprise through a pattern of racketeering activity. The four primary elements are “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.”
4) civil conspiracy
The typical elements for civil conspiracy include: (1) an agreement (2) by two or more persons (3) to perform an overt act(s) (4) in furtherance of the agreement or conspiracy (5) to accomplish an unlawful purpose or a lawful purpose by unlawful means (6) causing injury to another.