Papa Murphy’s International faces a second lawsuit from franchise owners who say the Vancouver-based company failed to disclose accurate information about the financial performance of stores in Southern and Southeastern states where they operate.
The lawsuit filed Thursday brings to 85 the number of outlets named in the legal complaint. The new group of owners operates outlets in Florida, Texas, Alabama, Tennessee, South Carolina and North Carolina.
Papa Murphy’s has just over 1,400 outlets. Some 5 percent are company-owned and the rest are operated by franchise owners.
Both the new case and the April lawsuit, also involving franchise owners on the South and Southeast, were filed in Clark County Superior Court by the Bundy Law Firm of Kirkland.
Caroline Fichter, an attorney at the Bundy Law Firm, said the franchise owners raise common issues about lower profitability and higher costs than they had anticipated. The lawsuit accuses the company of “fraudulent disclosure documents, misleading financial performance information, and other deceptive acts.” The owners are seeking $20 million in damages.
The complaint said 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.
“What we’ve learned from our clients is that the Papa Murphy’s model does not perform well outside the Pacific Northwest,” Fichter said.
Jessica Liddell, a spokeswoman for the company, issued the following statement from Papa Murphy’s:
“This latest action is just another frivolous attempt to make an issue out of claims that have no basis in the law. As we have previously said, and as our current motion to dismiss on file with the court against these allegations outlines, we believe this lawsuit has no merit whatsoever and we will defend these claims vigorously.
“For over 30 years we have been a strong reputable franchisor with a history of good franchise relations and very little franchise litigation. Assisting franchise owners to grow sales and increase profitability is an ongoing priority for us. We stand behind our concept and our strategies to grow the business.”
Since Papa Murphy’s went public in March, some financial analysts have raised concerns about the franchise owners’ lawsuit and other issues related to the company’s relationship with its franchisees. The company initially valued its stock at $11 per share. It has climbed only briefly above that initial price and closed Thursday at $9.53.
In its first earnings report since going public, the company reported last month a first-quarter revenue increase of 18.9 percent from a year ago, to $25.1 million for the quarter. Domestic comparable store sales increased 3.3 percent for all stores, while net income rose to $819,000 from last year’s $711,000.
Editor’s note: This story was changed to correct the number of Papa Murphy’s outlets and to correct the spelling of Caroline Fitcher’s name.