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Richard W. Story, federal judge for the U.S. District Court of the Northern District of Georgia, has ruled in favor of Martin Sprock, the cofounder of Moe's Southwest Grill, and Raving Brands, in a case that raised weighty and viscous allegations. In the lawsuit, originally filed in 2007, 46 Moe's franchisees alleged that the franchisor and Sprock were stealing money through a deceptive kickback scheme connected to its supply chain, with 17 franchisees proceeding to bring their cases to trial. On February 4, 2015, Judge Story rejected 100 percent of the claims after hearing evidence and reviewing franchise disclosures and contract terms.
"For the past eight years, this group of franchisees has attempted to discredit and undermine myself, Daryl Dollinger, and the Moe's brand, and we feel redeemed by Judge Story's ruling, which stated clearly how we saved Moe's franchisees money with our robust purchasing program," says Martin Sprock, CEO of Raving Brands and cofounder of Moe's Southwest Grill. "For many brands, it may have been easier to settle with this small minority group of franchisees, but we are glad that we opted to fight these allegations and prove that we indeed provided a program that ended up saving franchisees money on food costs and supplies. We are extremely grateful to see so many current Moe's franchisees support us throughout this lawsuit."
Steven Hill of Hill, Kertscher & Wharton, lead counsel for the defendants, adds, "Mr. Sprock has fought prejudicial allegations for eight years in order to restore his reputation. Although justice was delayed in this case, at least it was not denied. Now everyone knows the truth. The decisions that Mr. Sprock and others at Moe's made during that time easily saved the franchisees money. We hope Judge Story's decision will discourage franchisees and their attorneys in making false claims against their franchisor in the future."
At the heart of the case was Sprock's decision in 2001 to bring in outside brokers CRM and Tony LaGratta to negotiate contracts with food vendors and distributors to offer reasonable costs for franchisees. At a later time, Mr. Sprock obtained an ownership interest in a brokerage named SOS, which was formed later by Mr. LaGratta. Throughout the case, franchisees testified that they were never made aware of these arrangements, and they asserted that commissions paid to CRM and SOS by food vendors and distributors increased their food costs.
According to Judge Story's written opinion, CRM and Mr. LaGratta brought value in the form of buying power that a small start-up franchise system would not otherwise have. The court stated that the brokers offered a combined 40 to 50 years of experience in purchasing and that their services resulted in reasonable prices for franchisees. The court concluded after reviewing the evidence that Moe's franchisees, including the plaintiffs, saved on chicken costs an average $0.15 per pound over prevailing market rates.
"The evidence clearly showed that Mr. Sprock did what was best for the Moe's system in bringing in CRM and Mr. LaGratta, and that they more than paid for themselves. Any payments to SOS were made by CRM from its customary commissions," Hill says. "At no time did Mr. Sprock ever take an action that caused any increase in the cost of food to Moe's franchisees. In fact, the evidence proved that Mr. Sprock, Mr. LaGratta, and CRM together saved the franchisees money."
After hearing all of the evidence and reviewing the franchise disclosures and contract terms, Judge Story rejected the claims of fraud and deceptive conduct, concluding the eight-year lawsuit. Moe's Southwest Grill was founded in 2000 and eventually became a flagship concept for Raving Brands. It was sold in 2007 to Atlanta-based Focus Brands.