Industry News | January 27, 2012 | QSR Exclusive Brief

Cold Stone Franchisees File Lawsuit Against Company

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A group of Cold Stone Creamery franchisees filed a lawsuit against the company this week over a dispute relating to the company’s Flexible Marketing Plan (FMP) and gift-card breakage policy.

The law firm of Zarco Einhorn Salkowski & Brito, P.A. filed the lawsuit in Miami-Dade County, Florida, on behalf of the National Association of Cold Stone Creamery Franchisees (NIACCF).

The suit was filed against Cold Stone for Declaratory Action claiming that the two sides were in dispute over several issues. At the center of the dispute is whether or not Cold Stone is obligated to disclose certain FMP information.

The information the NIACCF wishes for Cold Stone to disclose includes: what percentage or amount of vendor rebates are earmarked for or used by the FMP and what those funds are used for; what percentage of the aggregate purchase price of the vendor’s products are retained for use by the FMP and what those funds are used for; what percentage or amount of the vendor rebates that are earmarked for FMP use are utilized for marketing purposes; and whether prices of the products purchased from the vendors by the franchisees are increased in order for the vendor to offset its rebate payment to Cold Stone.

The NIACCF also wishes to know whether Cold Stone is required to provide a detailed accounting of the amount of gift-card breakage that exists, whether any revenue generated from the sale of gift cards that remains unredeemed has been retained or utilized by Cold Stone for any purpose, and whether the interest earned from gift-card breakage is required to be used by Cold Stone to offset the costs of the third-party program incurred by the franchisees.

Rudy Puig, Cold Stone franchisee and board member and former president for the NIACCF, says the association felt the lawsuit was necessary because the company has not provided the information after two years of discussions.

“Our plan is to find the truth and to better the system, better our stores, and therefore our profitability,” Puig says.

Puig says there are about 200 members in the NIACCF, which was founded in 2010. “All of the franchisees know what’s happened, and the ones who aren’t a part of the association have been notified,” he says. “And for a lot of them, it’s drummed up interest in joining.”

Because the issue is pertaining to a legal matter, Cold Stone, which is owned by Scottsdale, Arizona–based Kahala Corporation, declined to comment for this story.

By Sam Oches