Caught in a franchise fiasco

York Region detective Fred Kerr said the force would investigate complaints about Pizza One. But it concerns him that Ontario's franchise law has no penalties. "I would like to see the law changed," he said.

The Toronto Star
March 14, 2006

Caught in a franchise fiasco
Brothers wonder if they'll ever collect payments awarded them by court.
James Daw

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Pattie and Seeram Ramjit are working seven days a week to pay for a bitter lesson they learned from franchisor Reza Solhi. * They paid him $128,000 for the right to run a pizza-and-wings shop on Yonge St. back in 2000, but Solhi managed to take the shop back by withholding rent money and forcing the Ramjits' eviction. * He kept their money and re-sold the franchise again and again. * A judge called Solhi "deliberately dishonest" and ordered him to pay the child-care provider and factory worker $154,000 for their losses, plus punitive damages and legal fees. * But Solhi never paid the total of $365,000, or judgments in several other cases. * He and his family have moved on to new franchise enterprises, where they are facing another string of lawsuits.

Meanwhile, the Ramjits, parents of two children, have spent their savings and added $70,000 to their mortgage. They still have their lawyer to pay.

The man they sued owned 3 for 1 Pizza & Wings (Canada) Inc. of Toronto, which once claimed 90 stores. But it has collapsed under the weight of competition, staff turnover, internal turmoil and publicity over lawsuits, court orders and fraud charges.

The latest lawsuits are stacking up against Pizza One Group Inc., the first of three new companies incorporated under the directorship of Ashraf (Ashley) Mirkhan, Solhi's mother. Franchisees seeking refunds say they were never told about Solhi, or his history.

And newcomers from China, India, Iran, Sri Lanka and Europe are discovering the limitations of Ontario franchise and commercial law; so is a police detective investigating their complaints.

Ontario's franchise law allows franchisees to demand refunds if they do not get full and true disclosure before buying. But there is no agency to enforce a franchisor's obligations to disclose or pay refunds. Dissatisfied franchisees are left to sue in court, with no guarantee of payment if they win. They can even be sued for backing out of a deal.

Pizza One has sued three men for a total of $1.3 million because they did not complete their purchases after paying $100,000 in deposits.

The Solhi family — Reza, 38, his mother, 54, and his uncle/stepfather, Behnam Solhi, 59 — came to Canada from Iran in the 1980s. Solhi's uncle started a pizza-and-wings shop on the Danforth, but by 1993 he and his young nephew had declared bankruptcy. They lost a home in North York.

The young Solhi had a vision, though. He had incorporated 3 for 1 Pizza & Wings — one-upping rival 241 Pizza with a single price for three pizzas — and other companies with similar names. Soon he was selling franchises from Ottawa to Vancouver. By 1997, he had moved into a huge, million-dollar home with indoor pool in Richmond Hill. Former associates say he drove a Porsche 911 sports coupe until his recent troubles.

Relations with franchisees were tense. Solhi reported one knife threat to police and he was served with millions of dollars worth of lawsuits. Outlets started disappearing.

Prior to last year, Solhi, his associate Farzad Bagherzadeh and various companies were sued more than two dozen times. They lost the nine suits, plus appeals, that came before judges after 1998.

In the case of the Ramjits, a judge found their contract with Solhi's company was cancelled when a landlord locked them out for non-payment of rent on the Toronto pizza shop. But he ruled that Solhi had fraudulently engineered the eviction by not paying the landlord. The Ramjits had paid the first and last month's rent as part of the franchise purchase price.

In other cases, judges ruled there had been concealment of information contrary to Ontario franchise law. Judges have also found that Solhi's companies had bullied franchisees, made misrepresentations and committed fraud. One compared Solhi's tactics with piracy on the high seas.

Most of the judgments remain unpaid. Plaintiffs and lawyers say about $1.1 million of $1.2 million in court awards are still owing, plus additional interest and legal costs.

Solhi's most serious brush with the law came in 2004 when he and Bagherzadeh were charged with 25 counts of fraud over $5,000. Police charged that the men had targeted new Canadians with the promise of ready-to-operate outlets, but they did not supply the outlets and refused to refund payments.

Charges were withdrawn last October after several days of preliminary hearings. The Crown struck a deal to have the men first repay $530,000, most of it to buyers who had never received a franchise. The Ramjits, and most others with unpaid civil awards, did not benefit.

In the wake of Solhi's legal battles, the corporate-owned house where he lives in Richmond Hill is now mortgaged to the hilt.

One of Solhi's lawyers registered a $300,000 claim, and a $500,000 mortgage to be repaid by March 19 was added around the time Solhi reached the deal on the fraud charges. There was already a $600,000 mortgage registered in 1997 when his family company bought the house for $1 million.

Revenue from 3 for 1 Pizza dried up last summer. Owners of a dozen franchises asked a judge to put the company into receivership, accusing Solhi of destroying the company and diverting money and locations to Pizza One. Solhi denied their allegations, although he admitted he had started to call himself Anthony.

The judge did not order a receivership, but did make an order that prevented Solhi from locking franchisees out. When a Toronto landlord locked out the company and its call centre, franchisees stopped paying royalties.

Mississauga franchisee Taufique Kazemi says he's unsure how many others continue to operate pizza stores, but he has taken down his 3 for 1 Pizza sign.

Pizza One started advertising for franchisees in 2004. It had a booth at a show organized by the Canadian Franchise Association, which represents franchisors who agree to a code of ethics and full disclosure to franchisees. President Richard Cunningham says association members complained when they saw Solhi around the Pizza One booth. So the association refused to let the company join the association.

Potential franchisees say they were impressed by Pizza One's Thornhill offices, with the Persian carpets, leather furniture and dark oak trim. Yet the chain has never amounted to much. There are only two stores operating in Toronto and Hamilton.

At one point, Pizza One was facing lawsuits regarding $540,000 in payments and deposits for nine franchises, plus other damages. A supplier is suing to collect a bill for $32,000 worth of pizza boxes.

Last month, a judge ordered Pizza One to pay former franchisees Jianhua (Colin) Guo $106,580. Earlier a judge ordered the company to refund a $10,000 deposit to Qun (Frank) Du. One suit was dismissed.

In its one statement of defence, Pizza One says franchisees signed contracts that stated deposits would not be refunded. But franchisees allege the contracts they signed are void. They accuse the company, and in some cases the individuals involved, of such deal-breakers as misrepresentation, breach of contract and violation of franchise disclosure law.

Ontario's Arthur Wishart Act (Franchise Disclosure), 2000, allows 60 days to demand a full refund if a franchisor's disclosure document is late or incomplete, two years if there was no disclosure at all.

Three of the lawsuits allege that Pizza One gave no disclosure at all, because it left out 22 required items, such as its finances and the background of persons behind it.

Balasundaram Rudranantha and Uthayakumar Subramaniam, two school chums from Sri Lanka, say Solhi's common-law spouse, Julia Pronesti, told them the "wealthy woman" who owns Pizza One was busy in California. They allege the man they knew as Anthony called himself the operating manager and signed the name of Ashraf Mirkhan, his mother.

Solhi's name appears nowhere on documents of incorporation, or in disclosure documents for Pizza One obtained by the Toronto Star.

After the men from Sri Lanka sued Pizza One in Toronto to recover $60,000 in deposits for a franchise in Richmond Hill, the company did not file a defence. Last week, the men won a default judgment for $63,927.62.

In the meantime, Pizza One had sued the men for $950,000 in Newmarket for failing to close their deal. Pizza One is also claiming an Ottawa man from Iran should pay $300,000 for not closing his franchise purchase deal.

In their statements of defence, the three men say that they tried to recover deposits when Pizza One would not supply leases for the locations it was promising.

Other Pizza One franchisees also mention dealing with Solhi, stating he had made decisions about franchise sales, signed his mother's name on contracts and refused demands for refunds.

Only three lawsuits name Solhi personally; others name his spouse, Pronesti, and his mother and uncle. Pronesti has not returned telephone calls, and Solhi has refused comment.

Solhi's mother and uncle denied any involvement with head office affairs when a reporter found them working at a Pizza One shop in Hamilton last September.

"That's not my job," Mirkhan said when told two Sri Lankans had a dispute with Pizza One.

"That's not our business," said her husband, Behnam Solhi, whom private lenders sued in November to evict the couple from a home in Niagara Falls and recover $133,312.

"We thought that when we signed a contract our money would be safe," says Rudranantha, an electrical engineer. "But now we learn that it is very difficult to get your money back."

Two other companies — Anthony's Pizza Uno Inc. and Anthony's Kitchen Inc. — have since popped up with Mirkhan as their sole director. They have advertised franchises for $300,000.

An advertisement at http://www.foodfranchise.com states Anthony's Kitchen — "a food theme park" — has a master plan for 400-plus locations, including in the United States and Europe. "The recipe behind Anthony's Kitchen is simple: a dash of vivid imagination, a pinch of culinary creativity, and a touch of pure commitment to the best."

Anthony's Kitchen claims six Ontario locations "currently will be under construction" in major shopping malls. But the spokesperson for Oxford Properties Group, owner of all six malls listed on the website, said Oxford has only had preliminary discussions with Anthony's Kitchen.

"There is no construction," said Claire Kennedy. "We don't have any leases signed with Anthony's Kitchen. They haven't taken possession of any premises in any of the locations."

Cunningham of the Canadian Franchise Association said prospective franchisees should always consult a franchise lawyer before signing any deal.

York Region detective Fred Kerr said the force would investigate complaints about Pizza One. But it concerns him that Ontario's franchise law has no penalties. "I would like to see the law changed," he said.


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