Unusual meeting of Pizza Pizza

“You say to the bank, ‘Look guys, I have no money, I have no money personally.’ Now, some are going to have to go personally bankrupt, which is not a bad thing,” Austin said casually. Under his scheme, the bank would collect the guaranteed loan from the government, not the franchisees…“You did a hell of a job that will never happen again in the history of Canada.”…The other day, Pizza Pizza took back Dave Michael’s store.

The Toronto Star
February 20, 1995

Unusual meeting of Pizza Pizza
Pizza exec delivers his pitch
Kevin Donovan

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MADE OFFER: Vice-president Lorn Austin, shown in a 1993 photo, told leaders of he chain's franchisees that if they gave up $1.4 million they had won in a court judgement, they wouldn't be sued by Pizza Pizza owner Michael Overs.

Welcome to a Pizza Pizza meeting in progress.

The place is a Toronto bar. Lorn Austin, executive vice-president and one time Florida conman, is pitching a deal. With him are leaders of 49 franchisees fighting Pizza Pizza over allegations of harassment and mismanaged money.

The franchisees just won a small victory after a bitter two-year fight and a judge has awarded them $1.4 million. Austin wants the cash back. Now. No waiting for today’s appeal court hearing. Austin lays out his plan:

Pizza Pizza will back down on its threat to launch massive personal lawsuits against them. Just hand back the $1.4 million, Austin tells them, then declare bankruptcy, avoiding debts to lawyers, banks and the government. Austin estimates the franchisees will save thousand of dollars with his scheme.

Under the deal, Pizza Pizza would take over the bankrupt stores.

You are about to become a fly on the wall at a most unusual business meeting:

KEVIN DONOVAN
STAFF REPORTER

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The waitress set the frosty, ice-cube-clinking glass of Coca Cola on the table in front of Lorn Austin.

“Michael thinks I’m nuts to be sitting here with you today,” said Austin, in a voice booming with friendliness. Michael is his boss, Michael Overs, owner and found of Pizza Pizza.

It was Thursday, Feb. 9, 2:30 p.m.

Austin had summoned franchisee leaders Dave Michael, Tony Fammartino, and Abbas Farahani to Cap’s Restaurant at Jarvis and Isabella Sts, beside Pizza Pizza’s headquarters.

The pizza executive went on, consulting notes he had brought with him: “(Overs) said there is no up side …. Because if we do a deal we sign releases and it’s over, and he loses the right to sue you.”

“I’m sure he would sue anyway … just for the hell of it,” said Fammartino, who had heard Overs was so angry about being taken to court, he wanted to retaliate. None of them could withstand the fury of a lawsuit from a $250 million a year corporation.

“No,” Austin vowed. Go along with his deal, he promised, and it’s over.

Fammartino believed it was never over with Pizza Pizza. When the courts recently ordered the chain to fork over $1.4 million in overcharged rent and other amounts, Pizza Pizza had its battery of top lawyers launch an appeal. That money is being held in trust by the franchisees’ lawyers, pending resolution of the appeal.

Dave Michael had a question. He wanted to know what would happen, under Austin’s plan, to the federal government-guaranteed Business Improvement Loans (BIL) that most franchisees had obtained to finance their store; some as high as $100,000.

Austin, a big man crammed into a small chair, leaned forward and lit a cigarette. He had recently taken up the habit again, blaming the stress of the dispute.

“You say to the bank, ‘Look guys, I have no money, I have no money personally.’ Now, some are going to have to go personally bankrupt, which is not a bad thing,” Austin said casually. Under his scheme, the bank would collect the guaranteed loan from the government, not the franchisees.

“Under normal circumstances, the bankruptcy stays confidential … It’s not a bad thing. It does happen. No fault of anybody,” Austin said.

“But Lorn, I have a house,” protested Michael, lighting another in a long line of cigarettes. Before this all started he was just a half-pack-a-day man. Now it was two packs.

“Is it in your name? And does your wife own half of it?” Austin fired the questions out.

“Yes,” said Michael.

“They can’t touch the house in bankruptcy,” Austin shot back. He was an expert, being personally bankrupt since 1991; having another personal bankruptcy and two corporate bankruptcies in his past. Still, he drew a hefty salary and lived in a North York mansion.

“I know in my bankruptcy in 1980,” Austin continued, “ which was a business deal, I guaranteed a loan for the business. I went personally bankrupt because there was a lot of stuff that I had signed for. They didn’t touch the house. The house slid by. The house sold for $700,000 and my wife got the money.”

Farahani felt ill. He had come to Canada from Iran to make a good life for his family. The idea of bankruptcy was distasteful.

Fammartino saw another problem. “How about this GST and PST?” he asked, referring to sales taxes individual stores owed the governments. If they bankrupted their stores, would they be on the hook?

“We’re trying to find a way around the GST and PST,” Austin said. “Because right now, the government holds you personally liable for government taxes. But.. in the knowledge of four or five people I spoke to, they have never gone after anybody before.”

After all the hatred and bitter words between both parties, this meeting was strangely calm. Fammartino took advantage of Austin’s chatty mood to ask a nagging question.

“One thing I don’t understand. How come we can’t make any money?”

“I don’t know if the stores can be profitable,” Austin replied. “I know that our corporate stores are running probably half and half right now. Half are profitable, half are borderline.”

“Sales are up,” agreed Austin. “That’s income; that’s not value.”

But Austin said there was hope. “It takes time to build it back up again. It’s not going to happen overnight, and there are some stores that are just not going to survive.”

“And what happens to the bank in that situation if you shut down a store?” Fammartino asked.

“It’s over,” Austin said. “You’re going to have to go bankrupt. One way or the other …whether it is corporately, or personally, because the taxes, Sotos and (Pizza Pizza) will leave (franchisees) on the line.”

The “S” word. Sotos. John Sotos of the law firm Sotos Karvanis.

Pizza Pizza had a lot of reasons to fixate on John Sotos.

He was the lawyer the franchisees hired in February, 1993, to sue Pizza Pizza. Sotos was also a member of a provincial government task force studying the possibility of tough franchise legislation.

Austin was fond of telling franchisees their winning would be eaten up by legal fees billed by Sotos and fellow lawyer Tim Mitchell of the firm Stockwood Spies.

“Okay, let me put this all together now,” said Fammartino. “Your suggestion is what?”

“I’m suggesting that you walk in, you sign a consent that we win the appeal,” Austin replied.

“And Sotos has to turn that money back?” Fammartino asked, referring to the $1.4 million the lawyer was holding in trust.

“Yes, that comes automatically,” Austin said.

Another thought hit Austin. “And you’d better see another lawyer; I wouldn’t go to Sotos on this for advice.”

Laughter ran around the table, some hearty, some apprehensive.

The waitress broke the moment of uneasy camaraderie. “Do you want another Coke?” she asked Austin.

“I’ll have another Coke please,” Austin said.

There was a time when he enjoyed a different kind of coke, in Florida in the mid-1980’s, the habit, coupled with gem and time-sharing condo scams, landed him in prison for racketeering and fraud. In an attempt to avoid prison, Austin had even told prosecutors that he was such an experienced conman they should hire him to catch fraud artists.

“Coffee please,” said Fammartino.

“Rolaids,” said Michael.

Like the scene from Jaws in which Quint and his boatmates compare seafaring wounds, they compared ailments caused by pizza battle stress.

Pasquale Finelli, the other Pizza Pizza executive at the meeting, said he had major chest pains. Everybody else had an ulcer. Austin said he had two, plus gallstones.

“We’re all sick about this,” Fammartino said. “Everybody lost money.”

“That’s right,” Austin said. “At the end of the day, if you don’t go along with this program you’ll lose another forty.” Austin explained that Pizza Pizza could end up taking another $40,000 from the equity of each of their stores unless they followed his scheme.

“What’s the next step? Fammartino asked.

“Ultimately,” Austin replied, “you have to wipe out the whole chain, you have to bankrupt all the stores.”

Austin’s words raised eyebrows. They had long suspected that was his master plan.

Fammartino said he figured Sotos, their lawyer, would sue if he were not paid.

“Sotos won’t, Austin said sharply. “Because Sotos, you see, you’ve got to understand the other side. Sotos is trying to build a reputation. He’s got an in now with the government where he’s going to these f—ing meeting. He’s building a credibility reputation and he’s got franchisees based on the fact of what he did with Pizza Pizza. He ain’t gonna sue anybody.”

“You’re sure Sotos won’t go after us?” Fammartino persisted.

“No, I’m not sure,” Austin replied. “But my gut tells me that his future is more important than the past. It is to me. It is to most people.”

Fammartino was still concerned. “How do I know Michael (Overs) won’t go after me personally?”

“You’ll get a release.”

“Or else he’s going after me personally?

“He’s coming after everybody. Trust me, win or lose the appeal.”

Earlier in the meeting, Austin had told them a business evaluator determined Pizza Pizza had lost $50 million in value since the franchisees started their lawsuit, due to publicity about the dispute.

“So what’s he going to get from me, I’m already broke?” Fammartino asked.

“The equity in your store… He just wants to know he gets all the stores for free,” Austin replied.

Michael, whose store in Orillia was days away from being taken away by Pizza Pizza – which claimed he owed thousands of dollars – asked if there were other options.

“There aren’t” Austin said.

“I see Michael (Overs) still living in this dream where he’s going to end up with all the stores; he’s going to be able to put them all in receivership; he’s going to have all the equity, and the lawsuit he’s going to have against you guys.”

The table grew silent, soothed by Austin’s deep, paternal voice. He was older than the franchisees and had far more experience in the world. Dressed in a fine suit, he was like a father to these small businessmen in jeans.

“But I’m saying, ‘Michael, it’s an illusion, the bottom line is it’s over. It’s over for you, and it’s over for them. Why doesn’t everybody just own up, face up to the plate, then we’ll do the best damage control we possible can with a deal’ … And I am saying that If I can get back a million four hundred thousand dollars, then maybe there is a chance to change everybody’s head trip around.

“But right now there isn’t,” Austin continued. “I’m not trying to make a deal with you, I’m not sitting here begging or pleading to make a deal. There’s nothing in here that could do damage to us (Pizza Pizza).”

Dave Michael proposed a deal that he thought was better than Austin’s - let the franchisees sell their stores and walk away, without going bankrupt.

Austin said he would consider it but doubted owner Overs would go for it, because it did not allow him to get the $40,000 equity in each store. “Remember, it (the equity) helps us. We get back the store. It helps us too, this million four. It not only takes money out of John’s (Sotos’) pocket, it helps you because you are off the hook personally.”

The franchisees looked at each other. Could they trust Austin?

Toward the end of the meeting, Austin said he was looking forward to some peace and quiet. Although bankrupt, he planned to buy a cottage up north.

“I’m looking for a place now…I want to find a nice little house for myself, quiet, away from everybody.”

Austin left them with his car-phone number, and a compliment.

“You did a hell of a job that will never happen again in the history of Canada.”

The other day, Pizza Pizza took back Dave Michael’s store.


Risks: Lorn Austin, Lorne Austin, Lawrence Austin, Hates publicity, Franchise Sector Working Team, Retaliation, Convicted fraud artist, Government guaranteed loans, Threats of lawsuits, Business Improvement Loans, BIL, Fear of poverty, Health consequences, Cocaine, Broken relationships, ruined lives and alienated children, Franchisor bankruptcy, Bankruptcies, several, Bankruptcy, Most lucrative form of commercial lending, franchising, Unpaid government obligations, Stock price plummets, Racketeering, Conspiracy to commit fraud, Canada, 19950220 Unusual meeting

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