Dickey’s Barbecue Restaurants, Inc., franchise salesman Jerrel Denton, & President Roland Dickey Jr. are being sued by franchisee Justin Trouard for alleged violations of Maryland franchise registration and disclosure law including disclosure violations, illegal earnings claims, and fraud.
(UnhappyFranchisee.Com) According to a lawsuit filed in the United States District Court of Maryland on May 28, 2014, Justin Trouard “was induced to purchase a Dickey’s Barbecue Pit franchise and suffered financial loss in excess of $1,000,000.”
The lawsuit JUSTIN D. TROUARD, JESSICA CHELTON v. DICKEY’S BARBECUE RESTAURANTS, INC., ROLAND DICKEY, JR. & JERREL DENTON was filed by attorneys Andrew K. Wible, Russell J. Gaspar, & C. Patteson Cardwell, IV of Cohn Mohr, LLP of Washington, D.C.
It includes familiar allegations that we’ve heard before about Director of Franchise Sales Jerrel Denton’s pre-sale representations.
Dickey’s Alleged Illegal Earnings Claims
On or about August 7, 2012, Trouard had a telephone conversation with Denton regarding Dickey’s franchise opportunities, and Trouard’s interest in opening a franchise in Alexandria, Virginia. During the phone conversation, Denton made express financial performance representations regarding Trouard’s potential earnings from the operation of the franchise. Specifically, Denton represented that:
a. the typical Dickey’s franchisee earns $80,000 – $100,000 per month in gross profit;
b. the typical Dickey’s franchisee would earn a monthly net profit of between 17-20% of the gross; and
c. during the time Denton had been working for Dickey’s, not a single restaurant had failed due to poor financial performance.
Franchisor’s are prohibited from making earnings claims that are not disclosed in Item 19 of their Franchise Disclosure Document. According to the lawsuit:
In connection with the sale of a Dickey’s Barbecue Pit franchise to Trouard in August 2012 and February 2013, Dickey’s, by and through its authorized agent Jerrel Denton, made numerous representations of, or from which could be ascertained, specific levels or ranges of actual or potential sales, income, or profit from Dickey’s franchised units, which earnings claims were not included in any FDD provided to Trouard. This conduct was in violation of MD. CODE REGS. (COMAR) 02.02.08.16(D)(3) and, by operation of law, Section 14-229(a)(3) of the Act.
Dickey’s Allegedly Understated Start-up Costs
According to the complaint:
11. During the same phone conversation, Denton made express representations regarding the low initial investment required to open a Dickey’s franchise. Specifically, Denton represented that:
a. the average cost to open a restaurant using a second generation restaurant space was $60,000 – $70,000;
b. some franchisees had successfully opened second generation restaurants for as little as $30,000;
c. a major feature of Dickey’s system, which allowed them to keep their opening costs so low, was that they recommended franchisees obtain second hand restaurant spaces, and allowed and encouraged franchisees to use second hand equipment and furniture to outfit the restaurant;
d. Dickey’s had a “team of ladies” that search the internet on behalf of franchisees and locate second hand restaurant equipment and furniture;
e. that Dickey’s “team of ladies” could obtain chairs, which cost $60 new, for $5.
Trouard’s actual start-up costs were significantly higher than represented by Denton and by the Dickey’s FDD:
Specifically, the statements made by Denton on august 7 and the information contained in Item 7 of the FDDs materially misrepresented the initial investment amount required to open a Dickey’s franchise. Denton represented to Trouard that a second generation restaurant could be converted to a Dickey’s restaurant for $70,000 or less, and that many franchisees had converted second generation restaurants for as little as $30,000. The FDDs stated that the total initial investment required to open a Dickey’s restaurant from a second generation restaurant was between approximately $109,000 and $163,000. Trouard’s actual initial investment was more than $370,000.
More Dickey’s Barbecue Pit franchise allegations
The complaint includes many other allegations, including advertising promises not kept, and the fact that the franchisee was provided with an invalid disclosure document:
12. During the same phone conversation, Denton made express representations regarding the advertising support that Dickey’s provided its franchisees. Specifically, Denton represented that “a portion of the monthly royalty fee went to ‘ad fund’ that was used exclusively for promotion in the franchisee’s local area.” Denton made this representation without disclosing the manner by which the funds are to be raised and spent, or that Trouard would be able to obtain an accounting of those expenditures.
13. After the phone call, Denton sent Trouard by email a copy of Dickey’s Virginia Franchise Disclosure Document for 2011 (“2011 VA FDD”). A copy of the 2011 VA FDD is attached as Exhibit A.
14. Trouard, a resident of Maryland, was unaware that the 2011 VA FDD was not registered under the Act.
Of course, the validity of these allegations haven’t been proven in a court of law, but the number of similar complaints we are receiving here at Unhappy Franchisee World Headquarters is setting off alarm bells and launching red flags aplenty.
When it comes to Dickey’s Barbecue franchise sales practices, where there’s smoke there may indeed be fire… and not that lovely BBQ kind.
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