Pizza Pizza must pay $350,000

Durocher noted in his ruling that Pizza Pizza not only broke the contract by terminating it abruptly but the company also ignored two court orders specifically telling Pizza Pizza not to interfere with Burnham’s store…the decision “shows the corporate culture of Pizza Pizza. They were contemptuous of the courts, their franchisees, and ultimately their clients, the people who eat their pizza.”

The Toronto Star
September 2, 1995

Pizza Pizza must pay $350,000
Quebec judge rules for franchise owners whose store closed
Kevin Donovan

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Pizza Pizza’s “reproachable” conduct in abruptly closing one of its Montreal stores in 1991 has led a Quebec judge to award over $350,000 in damages and interest to four franchisees who lost much of their life savings in the deal.

Judge Denis Durocher ruled that the famous fast food company induced a Mississauga man and three friends to buy a franchise in 1988 based on heady promises of guaranteed profits, a five-year contract and the option to renew for 15 more years.

But just after New Year’s 1991, Pizza Pizza president Michael Overs decided his 300-store chain wasn’t making enough money in Montreal and pulled the plug on the eight stores there.

One of those stores was owned by Paul Burnham of Mississauga and three partners. Burnham had given up a good job in Toronto, moved to Montreal, studied French and worked so hard at the job of making pizza that his store on St. Denis St. won an award to the best Pizza Pizza franchise in Quebec.

ABRUPT ENDING
But instead of rolling in the dough as they had hoped, they had a sour experience with Pizza Pizza.

Durocher noted in his ruling that Pizza Pizza not only broke the contract by terminating it abruptly but the company also ignored two court orders specifically telling Pizza Pizza not to interfere with Burnham’s store.

“The unilateral, abrupt ending of business by (Pizza Pizza) is surely reproachable,” Durocher ruled.

“When a party unilaterally, and without any form of legal approval, decides abruptly to cease meeting its obligations under a contract, it is liable to be condemned for damages,” Durocher said in his July 27 ruling.

Pizza Pizza is appealing the ruling. Company lawyer Dan Vukovich said Thursday his company would not comment on the case.

Pierre LaTraverse, lawyer for the four partners in the franchise, said the decision “shows the corporate culture of Pizza Pizza.”

“They were contemptuous of the courts, their franchisees, and ultimately their clients, the people who eat their pizza,” LaTraverse said in an interview.

The judge ruled:

  • Pizza Pizza must pay the franchisees $185,677 in compensation for lost investment and future income. This amount includes $25,000 in damages for ignoring the two court orders.
  • Pizza Pizza must pay the franchisees $71,381 to cover the cost of a bank loan the franchisees took out to make part of their $175,000 investment.
  • Pizza Pizza can deduct $9,667 from the total award for amounts the franchisees owed them at time of termination.

The judgments against Pizza Pizza carry with them about $111,000 of interest payments dating back to the time of termination, LaTravers calculates. He said the total cash pay-out will be about $358,000.

Because LaTravers suspects Pizza Pizza has few or no assets in Quebec, he will be asking the courts to make an order securing the total amount of the award pending the appeal.

“If not, I may have to chase them to Toronto for the money,” La Travers said.

According to Durocher’s judgment, Pizza Pizza sold Burnham’s group the store complete with a promise that they would have access to a single telephone number system that would be heavily publicized through advertising.

By 1990, Pizza Pizza was cutting back on its advertising, reducing the number of hours when the telephone order system would operate, and had pulled the plug on a big electronic advertising panel at an important intersection.

Sales plummeted. Many owners went out of business.

Burnham’s group alleged in their action that Pizza Pizza was trying to force them all out of business. Pizza Pizza also tried to end its contractual obligation that promised a minimum $600 a week profit.

Burnham’s group went to court just before Christmas 1990 and obtained a promise from Pizza Pizza to maintain the status quo pending further court hearings on Jan. 15, 1991.

On Jan. 11, 1991, Pizza Pizza disconnected the telephone order line – a “lifeline” that provides most of the business – to Burnhams’ store and stopped delivering food and other supplies.

On Jan. 15, Burnham’s group received two “safeguard” orders from a judge telling Pizza Pizza to restore service.

CLOSED MARCH 1
On March 1, in his examination during the lawsuit, Michael Overs said:

“Selfishly, I was looking at the figures that are garnered for me on my point of view in the market, what I was getting out of it, what it was costing me to maintain the market,” Overs said.

When asked by franchisee lawyer LaTravers what he was getting out of the Montreal market, Overs responded ”Not enough.”

Overs refused, in the examination, to say how much was “enough.” He maintained he was unaware of the court orders when he made the decision to close Montreal.

Another lawsuit involving three franchisee stores and similar concerns is making its way through the Montreal courts.

Several months ago, a group of Toronto area franchisees won a sizable judgment against Pizza Pizza when an arbitrator ordered the company to pay $821,495, plus interest and legal costs, to a group of 50 franchisees.

The arbitrator found that the company had routinely overcharged the amount stipulated in the contract for such things as rent.


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