Krispy Kreme's biggest franchise sue company for business practices

Krispy Kreme Doughnut Corp.'s largest franchise has sued the company, claiming executives misappropriated marketing money and lied to the franchisees about how much they would be charged.

The Business Journal
September 30, 2005

Krispy Kreme's biggest franchise sues company for business practices

Krispy Kreme Doughnut Corp.'s largest franchise has sued the company, claiming executives misappropriated marketing money and lied to the franchisees about how much they would be charged.

Richard Reinis and Roger Glickman, two partners in Los Angeles-based Great Circle Family Foods LLC, also claimed in their lawsuit that Krispy Kreme is trying to force their company into bankruptcy, according to a news release.

The lawsuit is the third franchisee suit filed against troubled Krispy Kreme, which has been mired in financial and legal problems.

A spokeswoman for Krispy Kreme said the company couldn't comment on the allegations because it hadn't yet reviewed the lawsuit.

The lawsuit alleges that Krispy Kreme misled Reinis and Glickman to persuade them to personally guarantee Great Circle's obligations to the doughnut maker. The Winston-Salem-based doughnut company, the pair say, inflated its prices and "engaged in deceptive business practices," charging them millions of dollars more than what Krispy Kreme originally said it would charge for day-to-day operations.

Krispy Kreme (NYSE: KKD) also required Great Circle to contribute to a "brand fund" that was to be used for marketing and advertising, but the two franchisees say that Krispy Kreme appears to have misappropriated the money and refuses to account for how the money was spent.

Krispy Kreme has insisted that Great Circle pay for all goods in advance, the lawsuit claims, even though for the previous six years franchisees purchased goods with payment due in 35-45 days. If Great Circle refused the new payment terms, Krispy Kreme is alleged to have threatened to stop shipping the supplies Great Circle needs to make doughnuts.

In addition to Krispy Kreme, the lawsuit also names as defendants former chairman, president and CEO Scott Livengood, former senior vice president of franchising Phil Waugh, former CFO and chief operating officer John Tate, consultancy Kroll Zolfo Cooper, and other officers and directors of the company.

Great Circle, which employs nearly 1,000 people, operates 30 Krispy Kreme locations and services 800 wholesale accounts. The company had sales of $64 million in 2004.

© 2005 American City Business Journals Inc.


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