A Clark County Superior Court judge on Tuesday heard arguments in a lawsuit pitting Vancouver-based Papa Murphy’s International against franchise owners who accuse the company of failing to disclose accurate financial information and of engaging in “other deceptive acts.”
Judge Scott Collier made no decisions in the case after listening to more than two hours of oral arguments by attorneys. He’s expected to rule July 9.
The suit, filed by franchise owners in Southern and Southeastern states, raises issues about lower profitability and higher costs than they had anticipated. It seeks at least $23 million in damages. Papa Murphy’s is asking Collier to throw out the complaint on several grounds, including that franchisees lack standing under the Washington state Franchise Investment Protection Act.
Meanwhile, a motion to force Papa Murphy’s to stop sending notices of default to one or more franchise owners alleging they’ve violated noncompete clauses in their franchise agreements remains undecided, Caroline Fichter, a Kirkland attorney for the franchise owners, said Tuesday.
“It’s a pending motion,” she said. “It’s still active.”
Jayson Tipp, senior vice president of marketing, strategy and technology at Papa Murphy’s, released the following statement late Tuesday: “We are pleased with the proceedings today. That said, we maintain that this lawsuit has no merit whatsoever and we believe the facts will prevail. For over 30 years we have been a strong reputable franchisor with a history of good franchise relations and very little franchise litigation. We stand behind our concept and our strategies to grow the business.”
The main lawsuit makes several accusations, including that Papa Murphy’s issued “fraudulent disclosure documents” and “misleading financial performance information.” Underpinning the suit is the argument that the Papa Murphy’s business model doesn’t work well outside the Pacific Northwest.
The suit alleges prospective franchisees weren’t told Papa Murphy’s stores in Oregon averaged weekly sales of $16,700 in 2013, while stores in Texas averaged weekly sales of about $7,800. The lawsuit says that sales in 16 of the 20 states in what Papa Murphy’s defines as its eastern region averaged less than $8,000 per week in 2013.
But Papa Murphy’s disputes those and other arguments leveled by the plaintiffs. In court documents, the company’s attorneys, Bradley Andersen of Vancouver and Robert Zisk of Washington, D.C., argue, in part, that the franchise owners lack standing to make claims under the Washington state Franchise Investment Protection Act. They also argue that certain franchise owners violated their agreements by failing to “engage in negotiation and mediation” before filing their lawsuit.
Papa Murphy’s has more than 1,400 outlets. Some 5 percent are company-owned and the rest are operated by franchise owners. The company, which sells take-and-bake pizza, went public in March. The company’s stock, which trades as FRSH, closed up 53 cents Tuesday, at $10.11 per share. The company’s shares have traded between $8.32 and $12.10 in the past 52 weeks.