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Litigation Update: August 12, 2012

posted Aug 14, 2012, 6:21 PM by Cold Stone Facts

August 12, 2012

Dear Kahala Franchisees,

The following statements constitute my opinion:

Janet Sparks has published an article (here) about various lawsuits that Cold Stone Creamery has filed against franchisees following the NIACCF’s declaratory claim.

As you may know, CNBC produced a documentary on franchising, for which I was interviewed.  Kahala-Cold Stone Creamery was painted in a negative light in that program.  Among other things, during my interview, I recounted how at the time, I had talked at least five franchisees out of suicide.  (It was in the course of Kahala-Cold Stone Creamery’s overreaction to the program that I learned the number was in fact substantially higher.)

As a part of Kahala-Cold Stone Creamery’s overreaction to the program, they approached flashy franchise attorney Robert Zarco to confront CNBC and me.  Despite that Zarco and my litigation group had very detailed communications about his firm representing my litigation group against Kahala-Cold Stone Creamery—including the transfer of 100’s of pages of evidence, Zarco agreed to represent the interests of Kahala-Cold Stone Creamery.  In the course of doing so, Zarco wrote and letter to NBC’s legal counsel that was highly critical of me and included numerous false statements that were intended to defame my character.  He then provided that letter to bluemaumau.org, who in turn posted the letter to its website.

Zarco also formed the NIACCF, an independent franchise association that intended to align the interest of the franchisees and Kahala-Cold Stone Creamery in a cooperative manner.  In fact, the NIACCF’s website to this day states:

[T]hrough a working relationship with Kahala/Cold Stone the NIACCF plans to actively work to balance interests of the franchisee with corporate interests.  All parties have the desire, and need, to be profitable.  We simply want to make sure that profit is not one sided…

Kahala has recognized the NIACCF publicly and set forth it’s [sic] willingness to work with franchisees in addressing any challenges that exist in the relationship on a reasonable basis.  We are confident of a new and improved relationship with management in the coming years.

In addition, Zarco has stated in the past that “[t]he [NIACCF] was not organized for the purpose of adversity or litigation, but to try to have the franchisor recognize their existence and be more receptive to their suggestions.”  (Here.)  That statement is really soft if you ask me.

Eventually, Zarco was successful in watering down the subsequent version of the program, which is available here.  In this new version, Robert Zarco and Rudy Puig sit shoulder-to-shoulder with Dan Beem.  Zarco and Beem were on Kahala-Cold Stone Creamery’s payroll and represented them well.  Rudy also sounded as if he was on the company’s payroll.  In any event, despite purporting to represent the franchisees—in my mind—clearly influenced by the king’s ransom he had received from Kahala-Cold Stone Creamery just months earlier, Zarco did an outstanding job of defending Kahala-Cold Stone Creamery and blaming his own clients, the franchisees.  I suppose this is what happens when you’re adversary pays your legal bills and I’m guessing, engages in one-on-one conversations with your attorney outside of your presence.

 

Also, during the CNBC documentary, Rudy Puig claimed that each of his three stores were profitable.  In addition, Rudy stated:

“I can understand there are some tough stories out there and there are some franchisees who have had some tough times. Huh, I just think you know any entity or any person that’s hurting our brand right now is hurting my our existing business. The franchisees love the brand. . .”

Rudy Puig, Ed Reesman and Frank Caperino were members of the NIACCF serving in a leadership capacity.  Despite that there was to be Pollyanna-type cooperation between the NIACCF and Kahala-Cold Stone Creamery, on November 25, 2011, Puig, Reesman and Caperino had clearly had enough.  The three coauthored a letter (here) that was critical of Kahala-Cold Stone Creamery.

For the record, I agree with many of the statements in the letter and frankly feel that it was understated in other respects.  However, his statements clearly go against his very own comments during his CNBC interview.  With all the media and industry oversight that Kahala-Cold Stone Creamery enjoys, surely he knew his words would become public.  This then only serves to violate the principles he set forth during his interview.

In any event, several months later, the NIACCF filed a declaratory complaint against Kahala-Cold Stone Creamery to compel certain information.  Absolutely no damages were sought on behalf of the aggrieved franchisees. 

In response to the NIACCF’s declaratory complaint, Cold Stone Creamery filed a lawsuit in Federal Court against Puig, Reesman and Caperino.  There is certainly nothing new about Kahala-Cold Stone Creamery suing its franchisees.  In fact, they have a longstanding history of aggressive suits against their franchisees.

I believe Kahala uses the word “partner” in its promotional material aimed at prospective franchisees to ensnare these innocent individuals and to provide them with the false impression that they’ll have an equal voice in the operation as one might expect in a traditional partnership.  Franchisees who dare to speak out are often sued and shocked to learn that the relationship between Kahala and its franchisees more closely resembles that of a master/slave relationship.  Nevertheless, it’s hard to ignore that Rudy was once considered Cold Stone’s favorite son; so much so that some franchisees suggested he received special privileges.  Now it appears they are brutal enemies, I suspect, simply because Rudy dared ask several completely justified questions.  That’s Kahala’s highly active litigation department—the same one that dared sue the IRS.

In any case, as discussed in my earlier emails, Robert Zarco lost a huge decision in the NIACCF case when a Federal Judge put the complaint on ice.  Ignoring the fact that the case sought no damages, that decision has the likelihood of keeping the NIACCF members out of court for years—perhaps a life time.

So here’s my best guess at what happened:

1.      I don’t think the NIACCF was ever intended to serve a legitimate purpose to anyone other than Robert Zarco and Kahala-Cold Stone Creamery.  Puig, Reesman, Caperino and the other franchisees were instrumentalities to serve Zarco’s financial interest and Kahala-Cold Stone Creamery’s interest in mitigating the damage created by the CNBC program.  I think this explains the inordinate lapse of time between the introduction of the NIACCF to the at large franchise community and the declaratory complaint during which we heard little or nothing from Robert Zarco.

 

2.      After representing the interest of the Kahala-Cold Stone Creamery at the expense of his own clients during his CNBC interview, the groundswell of pressure and or criticism that Robert Zarco began to receive from the media, franchisees and most importantly, his own colleagues within the Franchise Bar, forced him to file a complaint.  A declaratory complaint seeking no damages for the franchisees was the least damaging legal measure he felt he could undertake in order to give the franchisees the appearance that he was actually working in their interest, yet causing the least damage to Kahala-Cold Stone Creamery.  In doing so, he would now have something concrete to point to in defending himself against a malpractice claim from the franchisees.

 

3.      In the interim, due to the enormous pressure mounting against Robert Zarco, I think he encouraged Puig, Reesman and Caperino to coauthored the November 25th letter that sharply criticized Kahala-Cold Stone Creamery.  That letter greatly upset the company’s management.  In retaliation for the letter, Kahala-Cold Stone Creamery filed a lawsuit against each of them in Federal Court.  I think my proposition that the lawsuits were retaliatory is supported by: (a) Kahala-Cold Stone Creamery had better options to compel arbitration; and (b) in addition to Puig, Reesman and Caperino, there was a fourth franchisee, Rena Schrein, named in the NIACCF complaint who did not coauthor the letter.  It appears that Rena was not the subject of a Federal lawsuit. 

It is unimaginable to me that Puig, Reesman and Caperino have not fired Zarco, hired a competent attorney who is not tainted with large sums of Kahala-Cold Stone Creamery’s cash and sued Zarco for malpractice.  While Mrs. Spark’s article makes it clear that the latter two have taken whatever they were able to get in settlement and released Kahala-Cold Stone Creamery, Rudy should turnaround and sue Kahala-Cold Stone Creamery for conspiracy.  Despite that he has represented on national television that each of his three stores are “profitable”, his relationship with Kahala-Cold Stone Creamery is over.  He will soon be jettisoned from the system like the other two receiving little or nothing in exchange for his three “profitable” stores.

Please contact me if I can be of any assistance to you.  If I do not answer, please leave your name and a telephone number and I will return the call.  All information shared with me is absolutely confidential.  I will be in touch with you in the future.

Cecil Rolle

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