Second Cup franchisees steamed at company

The suit seeks $16 million on behalf of 11 individuals and their numbered companies. The lawsuit wants a court to award damages for “misrepresentation, breach of agreement, and breach of duty of fair dealings and good faith…,“ according to the statement of claim. It also seeks punitive damages.

Second Cup believes the man who helped bring the plaintiffs together, the man with the classified ad, has some sort of vendetta against the company. Certainly that’s implied in a $1.5 million defamation lawsuit previously against Lawrence Eftoda and his firm, Franchise Review Services Corporation (FRSC).

The Toronto Star
January 25, 2003

Second Cup franchisees steamed at company
Plaintiffs file $16 million lawsuit against coffee corporation
Firm says business relations with outlets are ‘strong’
Scott Simmie

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Gabriel Lee, right, who appeared as a company booster in the Second Cup 2000 annual report, is anow a plaintiff in a lawsuit against the company. At one point, Lee ran several different Second Cup outlets; four were repossessed last November.

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Some of the people who made that call filed a lawsuit against the Second Cup Ltd., this week. The suit seeks $16 million on behalf of 11 individuals and their numbered companies.

The lawsuit wants a court to award damages for “misrepresentation, breach of agreement, and breach of duty of fair dealings and good faith…,“ according to the statement of claim. It also seeks punitive damages.

“We confirm that a small group of franchisees, most of whom are no longer associated with the company, have filed a claim against Second Cup,” reads a statement the firm released to the Star.

One of the plaintiffs in the case is Gabriel Lee.

If you check out Second Cup’s annual report from the year 2000, you’ll find a photo of a smiling Lee on page 6. He’s portrayed as a satisfied, even outstanding franchisee.

“Multi-unit franchise operators Hanif Harji and Gabriel Lee give Second Cup two thumbs up on growth,” reads the caption.

That year’s expansion, says the report, was largely due to selling new franchises to existing, successful franchisees. Fifty new cafés were opened in fiscal 2000, pushing the number of Second Cup cafés in Canada to 398 that year. (There are now 384.)

“In fact, a full 70 per cent of our new café growth can be directly attributed to further investment by multi-unit franchising partners,” says the report.

Lee was part of that new wave of expansion, at one point running several different cafés. The statement of claim alleges that Second Cup misrepresented what those cafés would earn when Lee considered purchasing them.

When he ran into problems and repeatedly defaulted on rent and royalty payments, Second Cup repossessed four outlets he was running last November.

“They (previously) told me I was a good operator. (But) When I needed help, they treated me like a bad operator,” says Lee.

Kenny Wong has a similar story, according to the lawsuit. He was running three franchises, when – allegedly at Second cup’s urging and financing – he took on another outlet in Barrie. That café, says the suit, had been repossessed from the previous franchisee two weeks earlier.

Wong says the problems started when he took on that operation.

“I was working 100 hours a week, yet was losing between $50,000 to $100,000 a year. So it actually started me to bleed from other stores. I had to take money from other stores to keep it afloat,” he says.

In addition, the suit claims that Second Cup failed to disclose that the water in Barrie contained a high concentration of lime, which allegedly caused damage to several machines. The allegations are contained in a statement of claim and have not been proven in court.

“I had a good relationship with them up to that point,” says Wong.

Although Second Cup said it could not comment while this case is before the courts, it did state that it has very good relations with franchisees across the country.

“At Second Cup, we are proud to develop and maintain strong relationships with our franchised partners, who operate nearly 400 cafés across Canada,” said its statement.

But that’s just the tip of the latte.

Second Cup believes the man who helped bring the plaintiffs together, the man with the classified ad, has some sort of vendetta against the company. Certainly that’s implied in a $1.5 million defamation lawsuit previously against Lawrence Eftoda and his firm, Franchise Review Services Corporation (FRSC).

“…the activities of Eftoda and FRSC have been motivated by malice,” says that statement of claim,”…and have in fact caused prejudice and damage to the legitimate and bona fide interests of Second Cup.”

That suit involves faxes Eftoda allegedly transmitted to Second Cup franchisees along with a book he has written. The suit says if the average person read that material, they might falsely conclude that the franchisor is “distrustful, threatening and adversarial.”

The suit also states the company Eftoda runs is, “in fact and law, Eftoda’s alter ego.”

“Second Cup does not like Mr. Eftoda,” says Rob MacFarlane, one of three lawyers who work for the Franchise Review Services Corporation. (Eftoda also has another company registered as the Anti-Franchising Agency.)

Part of how Eftoda makes his living is by finding people who are dissatisfied with how their franchise turned out – and who can’t afford an expensive legal challenge.

“Where we’re different is I’m not a lawyer. I work on a contingency basis,” he says.

The defamation case is still before the courts.


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