FRANCHISOR INITITED LITIGATION INVOLVING THE
FRANCHISE RELATIONSHIP
Royalty Collections suits
filed in 2007
Certa ProPainters, Ltd.
v. James Rozell; Certa ProPainters, Ltd. v. Chris Valley; and
Certa ProPainters, Ltd. v. Anthony Zaborny.
SETTLED LITIGATION
Certa Pro v. Ronald Bacskai and David Moura.
On or about March 24, 2003, Certa Pro instituted arbitration
proceedings before the American Arbitration Association, Nos.
14 114 00732 03 and 14 114 00733 03, against two franchisees,
Ronald Bacskai and David Moura. Certa Pro asserted that Messrs.
Bacskai and Moura breached their franchise agreements and other
agreements with Certa Pro by failing to pay royalties, operating
a competing business and misusing Certa Pro''s proprietary marks.
Messrs. Bacskai and Moura, filed a counterclaim asserting that
Certa Pro breached its obligations under their agreements, violated
the Massachusetts consumer fraud act, breached its fiduciary
duty and the covenant of good faith and fair dealing, and tortuously
interfered with, and defamed, their business. The matter was
amicably settled and the parties agreed that Messrs. Bacskai
and Moura would pay Certa Pro $31,100 for unpaid royalties and
that they would individually execute new franchise agreements
with Certa Pro.
Jay Seward v. Certa Pro , et al.
On or about November 5, 1997, the plaintiff filed this action
in the Superior Court of the State of California, Santa Clara
County, Case No. CV769045. This case alleged intentional misrepresentation,
negligent misrepresentation, breach of contract, promissory
fraud, breach of covenant of good faith and fair dealing, violation
of California Corporations Code Sections 31201, 31301 and 31302,
and violation of the California Business and Professions Code
Section 17200 all in connection with Certa Pro''s offer and
sale of a franchise to the Plaintiff. Mr. Seward sought unspecified
damages in excess of $50,000. On or about February 25, 1998,
the parties agreed to submit this matter to arbitration before
the American Arbitration Association of California. This case
was settled in 1999 (see Note land Note 2 below).
Hoffman v. Certa Pro . et al.
On or about July 21, 1998, the plaintiff filed this action in
the Superior Court of the State of California, Orange County,
Case No. 795852. This case alleged fraud and deceit, intentional
misrepresentation, concealment, negligent misrepresentation,
breach of contract, promissory fraud, breach of implied covenant
of good faith and fair dealing, violation of California Corporations
Code Sections 31201, 31301 and 31302, and violation of the California
Business and Professions Code Section 17200 all in connection
with Certa Pro''s offer and sale of a franchise to the Plaintiff.
Mr. Hoffman sought unspecified damages in excess of $50,000.
This case was settled in 1999 (see Note 1 and Note 2 below).
Couqhlin v. Certa Pro , etal.
On or about July 22, 1998, the plaintiff filed this action in
the Superior Court of the State of California, San Diego County,
Case No. 721738. This case alleged fraud and deceit, intentional
misrepresentation, concealment, negligent misrepresentation,
breach of contract, promissory fraud, breach of implied covenant
of good faith and fair dealing, violation of California Corporations
Code Sections 31201, 31301 and 31302, and violation of the California
Business and Professions Code Section 17200 all in connection
with Certa Pro''s offer and sale of a franchise to the Plaintiff.
Mr. Coughlin sought unspecified damages in excess of $150,000.
This case was settled in 1999 (see Note 1 and Note 2 below).
Kuhn v. Certa Pro , et al.
On or about July 21, 1998, the plaintiff filed this action in
the Superior Court of the State of California, Santa Clara County,
Case No. CV774754. This case alleged fraud and deceit, intentional
misrepresentation, concealment, negligent misrepresentation,
breach of contract, promissory fraud, breach of implied covenant
of good faith and fair dealing, violation of California Corporations
Code Sections 31201, 31301 and 31302, and violation of the California
Business and Professions Code Section 17200 all in connection
with Certa Pro''s offer and sale of a franchise to the
Plaintiff. Mr. Kuhn
sought unspecified damages in excess of $50,000. This case was
settled in 1999 (see Note 1 and Note 2 below).
Note 1: To avoid
continuing litigation costs and without admitting any wrongdoing,
Certa Pro, together with the other defendants, entered into
settlement agreements with all the plaintiffs on or about August
12, 1999. At the same time, Certa Pro also entered into a settlement
agreement with another former franchisee, John Novak, who had
made similar claims but never filed an action: Certa Pro agreed
to pay the plaintiffs and Mr. Novak a total of $280,000. of
which $40,000 was paid at the time of settlement and $240,000
was to be paid over a period of 18 months. The plaintiffs all
dismissed their lawsuits with prejudice, and all parties executed
mutual general releases. All amounts due under the settlement
agreements have been paid.
Note 2: Charles
E. Chase, the President of Certa Pro and Steven S. Rogers, one
of Certa Pro''s directors and the Chief Executive Officer of
its parent corporation, The Franchise Company (U.S.) Inc., were
all named in each of these cases because of their relationship
to Certa Pro.
AFFILIATE LITIGATION
Alorisa Glassworks. Inc..
et al. v. Stained Glass Overlay.
Inc.. et
al. Alorisa Glassworks, Inc.,
a former franchisee of Stained Glass Overlay (SGO), which purchased
its franchise in 2005, 19 days after our parent company sold
SGO, filed suit against SGO, certain of its employees and SGO''s
affiliate (collectively the SGO Defendants), as well as SGO''s
former owner, which is also our current parent company, The
Franchise Company (US), Inc. (TFC), and SGO''s former director,
Steven Rogers, who is also one of our directors, in March 2006,
in the Superior Court of California, Alameda County, Case No.
RG0261157, alleging violations of the California Franchise Investment
Law, unfair competition law, common law fraud, breach of a guaranty
and seeking rescission of the franchise agreement and damages.
In August 2006, the court granted the SGO Defendants'' motion
to compel the case against them only to arbitration, and also
granted separate motions by TFC and Rogers to stay the action
as against them. A Case Management Conference has been scheduled
in the Superior Court action for May 21, 2008; TFC and its president
deny all of the allegations and will vigorously defend if the
matter proceeds.
INJUNCTIVE ORDERS
The following injunctive or restrictive orders
or decrees are currently effective against Certa Pro''s affiliate
corporation, College Pro:
In the Matter of College Pro Painters (U.S.)
Ltd. (Case No. EF-92-011). On
September 3, 1991, College Pro entered into a Consent Order
with the Securities Commissioner of Maryland in an administrative
proceeding. The Commissioner alleged that College Pro violated
the Maryland Franchise Registration and Disclosure Law by selling
unregistered franchises in Maryland. The Commissioner found
that College Pro sold unregistered franchises in Maryland and
did not provide each prospective franchisee with an disclosure
document. College Pro paid Maryland $10,000 for administrative
costs associated with the investigation. College Pro is now
registered to sell franchises in Maryland and is in compliance
with the order.
Commonwealth
of Virginia ex. rel. State Corporation Commission v. College
Pro Painters (U.S.) Ltd. (Case
No. SEC 920019). On February 25, 1992, College Pro assented
to an Order of Settlement with the State Corporation Commission
of Virginia. The State Corporation Commission alleged that College
Pro violated the Virginia Retail Franchising Act by selling
unregistered franchises in Virginia. College Pro did not admit
or deny these allegations and entered into a settlement agreement
whereby it agreed to comply with Virginia Retail Franchising
Act and pay a penalty of $4,500. College Pro is now registered
to sell franchises in Virginia and is in compliance with the
Order of Settlement.
In the Matter of College Pro Painters (U.S.)
Ltd. (File No. FR9206716/MJR).
On February 1, 1993, College Pro entered into a Consent Cease
and Desist Order with the Minnesota Commissioner of Commerce.
The Commissioner alleged that College Pro violated the Minnesota
Franchise Act by selling unregistered franchises in Minnesota.
College Pro paid a $8,200 penalty.
In the Matter of College Pro Painters (U.S.)
Ltd. (File No. FR9306506/JRL).
On October 19, 1993, College Pro entered into a second Consent
Order with the Minnesota Commissioner of Commerce. The
Commissioner alleged that College Pro violated
the Minnesota Franchise Act by continuing to offer and sell
unregistered franchises in Minnesota. College Pro paid a $25,000
penalty.
Other than these twelve actions, no other litigation,
criminal or civil, alleging a violation of any franchise law,
securities law, fraud, embezzlement, fraudulent conversion,
restraint of trade, unfair or deceptive practices, and misappropriation
of property or comparable allegations is required to be disclosed
in this disclosure document.