Raving Brands denies misrepresentation, fraud alleged in Mama Fu's franchisee suit

Nation's Restaurant News, Nov 27, 2006 by Jack Hayes

ATLANTA -- Raving Brands and four of its fast-casual brands have denied allegations of fraud, breach of contract and misrepresentation contained in a lawsuit filed by about 40 franchisees and investors in its Mama Fu's Noodle House chain in six states.

The lawsuit, filed Nov. 17 in Fulton County Superior Court here, seeks a yet-to-be-determined dollar amount as restitution for alleged breach of contract and negligent misrepresentation by franchisor Raving Brands, Mama Fu's and its sibling brands Moe's Southwest Grill LLC, Doc Green's Gourmet Salads Inc. and Bonehead's Seafood Inc.

Also named as defendants were Raving Brands chief executive Martin Sprock, vice president Daryl Dollinger and individuals identified only as John Does.

"We remain absolutely focused on our franchisees and on making them successful," said Stephen LaMastra, president of Atlanta-based Raving Brands. "We're as receptive and communicative as we can be, [and] we always have the lines open."

The lawsuit also alleges that Mama Fu's Noodle House and its co-defendants, through interaction with the plaintiffs, conspired in falsification, concealment and financial fraud, all racketeering violations based on Georgia's Racketeer Influenced and Corrupt Organizations, or RICO, statute. The claims of contract breaches and negligent misrepresentation reference alleged defendant actions involving the sale of franchises and failed support of the brand.

"Basically, it's our allegation that there never really was a Mama Fu's system--certainly not one that was developed and perfected," said Bob Casey, an attorney with Atlanta-based Casey Gilson Leibel PC who is representing the plaintiffs. "There was only nominal effort by Mama Fu's to comply with contracted obligations. In fact, it was a total failure to provide service and assistance."

The plaintiffs represent about half of the active Mama Fu's franchise system, including North Carolina-based Fu's Gold LLC and Triad Restaurant Management LLC; Florida-based Full Plate LLC, Big Mama's LLC and Attitude Latitude Inc.; Georgia-based H&J Goldt Corp.; Kentucky-based We 3 Inc.; and California-based Wong Fu's Noodle House Inc.

A key allegation in the complaint is that the Mama Fu's system had only a single company unit in operation in 2003 when the franchisor began representing that it had developed a system of open and operating Mama Fu's restaurants.

In May 2003, one month before the scheduled Mama Fu's company store debut, a Nation's Restaurant News report quoted Dollinger as saying that 30 franchisees had signed commitments to open some 60 Mama Fu's units, including 12 to 15 stores by the end of that year.

By estimates, the Mama Fu's system had reached or exceeded approximately 40 restaurants within 24 months. That growth allegedly was aided by trade reports quoting Raving Brands executives with unsubstantiated reports of franchisee commitments, according to Casey. But, according to the complaint, Mama Fu's never became successful. According to Casey, the brand now has fewer than 20 stores.

LaMastra confirmed there are 18 Mama Fu's currently operating, including two that opened this summer, in Austin, Texas, and Charleston, S.C.

"We're scheduled to open another Austin location in the first quarter of 2007," LaMastra said.

Another allegation in the lawsuit is the defendants' failure to disclose kickbacks for required or recommended Mama Fu's goods and services. According to the lawsuit, Mama Fu's purchasing was managed by a third-party supplier/distributor owned wholly or in part by one or more of the defendants. This action not only prevented plaintiffs from seeking more competitive pricing, but also caused them substantial losses, the lawsuit alleges.

According to Casey, five of the plaintiffs organized nearly a year ago to form the Mama Fu's Ad Hoc Franchising Committee as a way to bring their grievances to Raving Brands.

The complaint wants the court to appoint a receiver who would oversee an accounting of Mama Fu's assets in the hope of substantiating alleged misappropriations and determining their extent as a way of arriving at a dollar amount for the total claim.

jhayes@nrn.com