More Franchisees Suing Moe's

More than 50 franchisees and their financial backers are now suing Tex-Mex chain Moe's Southwest Grill LLC and its former parent company over allegations of fraud and breach of contract.

A lawsuit filed last week in federal court in Atlanta by 34 plaintiffs makes many of the same claims as a lawsuit filed by nearly two dozen plaintiffs in late March.

Robert Casey, an attorney representing both groups of plaintiffs, said Tuesday that it will be up to a judge whether to consolidate the cases.

A settlement isn't likely anytime soon, he said.

"We would always entertain that, but there's not been any discussions thus far in that regard," Casey said.

Moe's attorney, John Dienelt, said he just learned about the new complaint Tuesday and has not had a chance to read it. He declined to comment, except to say that arbitration is an alternative the chain may wish to pursue.

Among other things, the franchisees allege in the lawsuits that the chain improperly took advertising dollars from them and failed to give money to a charity that the chain collected.

The lawsuits accuse Moe's and its Atlanta-based parent company, Raving Brands Inc., of fraud, breach of contract, racketeering and other offenses. They seek unspecified damages. No trial dates have been set.

Privately held Moe's, which specializes in hand-rolled burritos, tacos and fajitas, and has relied solely on franchising for its growth, was sold to Atlanta-based Focus Brands, operator of Carvel and Cinnabon shops, in August. At that time, there were roughly 360 Moe's locations in 34 states and the District of Columbia. A sale price was not disclosed when the deal was announced in April.

Aware that a sale might be on the horizon, the original plaintiffs had asked for the court to appoint a receiver to run the chain until the litigation was resolved.

It's not clear how that request will be handled now that the sale has been completed. The new plaintiffs allege that if the proceeds from the sale have been distributed to people who owned a stake in the Moe's chain, it should be considered a fraudulent transfer.

Dienelt said Tuesday he did not know if the proceeds had been distributed.

The chain, whose name is based on a Three Stooges character, was started in December 2000 by founder Martin Sprock, who is also named as a defendant in the lawsuits.

The menu is filled with references to "Seinfeld" and other TV shows. And employees are required to greet every customer with a shout of "Welcome to Moe's!"

Moe's charges franchisees an initial fee and gets a percentage of each restaurant's annual net sales. The franchisees also contribute to a pool used for advertising; in exchange, corporate officials help scout out restaurant locations.

The lawsuits allege the chain wrongfully debited plaintiffs' bank accounts for "local advertising fees" and "co-op fees." The plaintiffs also claim they overpaid for food, supplies and equipment because of a "kickback" arrangement the defendants had with their exclusive suppliers.

The charity allegation involves an annual fundraiser for the National Center for Missing and Exploited Children. A portion of purchases of certain Moe's items is expected to go to the charity, the lawsuits say.

The lawsuits allege the chain has not given some of the money collected to the charity.

The plaintiffs include franchisees in Kansas, Wisconsin, North Carolina, South Carolina, Tennessee, Alabama, Georgia and Florida, Casey said.

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On the Net:

Moe's: http://www.moes.com