superior court of the state of washington murphy's - complaint... · superior court of the...

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SUPERIOR COURT OF THE STATE OF WASHINGTON

In and For Clark County

Mitch and Kristen Brink, a married couple; Brink

Holdings Inc., a North Carolina Corporation;

Angela Buchanan, an individual, Tim Forester, an

individual, Z-Axis, Inc., a North Carolina

Corporation; Heather and Gary Nychyk, a married

couple, Bar-N Pizza, LLC, a Florida Limited

Liability Company; John DeMattia, an individual,

DeMattia, LLC, a Texas Limited Liability

Company; Harry and Terry Olson, a married

couple; Hot Pizza Inc., a Tennessee Corporation;

Steven Pyatt, an individual; Craig Braun, an

individual; David Mraz; an individual; J1M, LLC,

a Florida Limited Liability Company; Philip

Wilson and Maria Ahn-Wilson, a married couple;

Papa’s South, LLC, a South Carolina Limited

Liability Company; Steven and Holly Mead, a

married couple; Thomas Lance, an individual;

PMG Tampa, LLC, a Florida Limited Liability

Company; Ilya and Chantal Rubin, a married

couple; Pie in the Sky, LLC, a Florida Limited

Liability Company; Joanna and Glenn Patcha, a

married couple; Alchemy Foods, LLC, a Florida

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT

COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 1

BUNDY LAW FIRM PLLC 5400 Carillon Point

Kirkland, WA 98033-7357 425-822-7888

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Limited Liability Company; Ian Hasinoff and

Susan Lorimer, a married couple; Eddrachillis

LLC, a Florida Limited Liability Company; Cole

Kilen, an individual; Eye on the Pie, LLC, a

Florida Limited Liability Company; Ann and

Harvey Callegan, a married couple; Just For Fun,

LLC, an Alabama Limited Liability Company;

Eugene and Joy Hill, a married couple; Edward

Conn, an individual; Edward Turnbull, an

individual; Turnbull Restaurant Group LP, a Texas

Limited Partnership; Turnbull Restaurant Group,

GP, a Texas General Partnership; Turnbull Conn;

LLC, a Texas Limited Liability Company; Loralie

and Trey Bennett, a married couple; Pizza

Revolution of Fort Walton Beach, LLC, a Florida

Limited Liability Company; Pizza Revolution of

Panama City, LLC, a Florida Limited Liability

Company, Pizza Revolution at Tyndall, LLC, a

Florida Limited Liability Company, Steven Terry,

an individual; Matthew and Cindy Terry; a married

couple; Alice and Douglas Worthington, a married

couple; Thomas Stephenson, an individual; Make

Dough Enterprises, Inc., a Florida Corporation;

Jared Richardson, an individual; Russell Crader, an

individual; and Red Rust, LLC, a Texas

Corporation

Plaintiffs,

vs.

Papa Murphy’s International LLC, a Delaware

Limited Liability Company, Papa Murphy’s

Company Stores, Inc., a Washington Corporation,

PMI Holdings, Inc., a Delaware Corporation, Papa

Murphy’s Intermediate Inc., a Delaware

Corporation, Papa Murphy’s Holdings, Inc., a

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )



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Delaware Corporation, Lee Equity Partners, LLC.,

a New York Limited Liability Company, John D.

Barr, an individual, Ken Calwell, an individual,

Thomas H. Lee, an individual, Yoo Jin Kim, an

individual, Benjamin Hochberg, an individual,

John D. Schafer, an individual, Achi Yaffe, an

individual, Janet Pirus, an individual, Victoria

Blackwell, an individual, Gail Lawson, an

individual, Dan Harmon, an individual, Scott

Mullen, an individual, Jayson Tipp, an individual,

Kevin King, an individual, Stephen Maeker, an

individual, Steve Millard, an individual, Steve

Figiola, an individual,

Defendants

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

A. Factual Overview

1. The Plaintiffs are current Papa Murphy’s franchisees who were induced to purchase

Papa Murphy’s franchises through fraudulent disclosure documents, misleading

financial performance information and other deceptive acts by the Defendants. In most

cases, the Plaintiffs were unfamiliar with Papa Murphy’s Pizza and invested in Papa

Murphy’s based on the Defendants’ claims that it was a strong franchise system and

their promises to support franchisees. Instead the Defendants misrepresented the

financial performance of its franchises, required the Plaintiffs to waive their legal rights

in violation of state law, and routinely overcharged the Plaintiffs for required local

marketing. The Defendants encouraged the Plaintiffs to finance their investment by

draining their 401(k) and other retirement and savings accounts or by incurring debt. As

a result of the Defendants’ fraudulent conduct, the Plaintiffs have suffered devastating

financial losses and their dreams of owning their own business have become a

nightmare.

B. Parties COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 3


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Plaintiffs

2. Plaintiff Brink Holdings, Inc. is a North Carolina Corporation, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Mitch and Kristen

Brink are the officers of Brink Holdings, Inc. and are also guarantors of its liabilities

and obligations under the relevant franchise agreements (hereinafter collectively

Plaintiffs Brink).

3. Plaintiff Z-Axis, Inc. is a North Carolina Corporation, which owned and operated a Papa

Murphy’s franchise at relevant times. Plaintiffs Angela Buchanan and Tim Forester are

the officers of Z-Axis, Inc. and are also guarantors of its liabilities and obligations under

the relevant franchise agreements (hereinafter collectively Plaintiffs Buchanan).

4. Plaintiff Bar-N Pizza, LLC is a Florida Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Heather and Gary

Nychyk are its managing members and are also guarantors of its liabilities and

obligations under the relevant franchise agreements (hereinafter collectively Plaintiffs

Nychyk).

5. Plaintiff Demattia, LLC is a Texas Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiff John DeMattia is its

managing member and is also the guarantor of its liabilities and obligations under the

relevant franchise agreements (hereinafter collectively Plaintiffs DeMattia).

6. Plaintiff Hot Pizza, LLC is a Tennessee Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Harry and Terry Olson

are its managing members and are also guarantors of its liabilities and obligations under

the relevant franchise agreements (hereinafter collectively Plaintiffs Olson).

7. Plaintiff J1M, LLC is a Florida Limited Liability Company, which owned and operated

a Papa Murphy’s franchise at relevant times. Plaintiffs Steven Pyatt, Craig Braun, and



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David Mraz are its managing members and are also guarantors of its liabilities and


Pyatt).

8. Plaintiff Papa’s South, LLC is a South Carolina Limited Liability Company, which

owned and operated four Papa Murphy’s franchises at relevant times. Plaintiffs Philip

Wilson and Maria Ahn-Wilson are its managing members and are also guarantors of its

liabilities and obligations under the relevant franchise agreements (hereinafter

collectively Plaintiffs Wilson).

9. Plaintiff PMG Tampa, LLC is a Florida Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Steven and Holly Mead

and Thomas Lance are its managing members and are also guarantors of its liabilities

and obligations under the relevant franchise agreements (hereinafter collectively

Plaintiffs Mead).

10. Plaintiff Northwinds Partners, LLC is a Florida Limited Liability Company, which

owned and operated three Papa Murphy’s franchises at relevant times. Plaintiffs Ilya

and Chantal Rubin acting on behalf of and through Pie in the Sky LLC, a Florida

Limited Liability Company; Joanna and Glenn Patcha acting on behalf of and through

Alchemy Foods, LLC, a Florida Limited Liability Company; Ian Hasinoff and Susan

Lorimier, acting on behalf of and through Eddrachillis LLC, a Florida Limited Liability

Company; and Cole Kilen, acting on behalf of and through Eye on the Pie, LLC, a

Florida Limited Liability Company are its managing members and are also guarantors of

its liabilities and obligations under the relevant franchise agreements (hereinafter

collectively Plaintiffs Rubin).

11. Plaintiff Just for Fun, LLC is an Alabama Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Ann and Harvey



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Callegan are its managing members and are also guarantors of its liabilities and


Callegan).

12. Plaintiffs Joy and Eugene Hill are residents of Texas, who owned and operated two

Papa Murphy’s franchises at relevant times (collectively Plaintiffs Hill).

13. Plaintiffs Turnbull Restaurant Group, LP, Turnbull Restraurant Group, GP, and Turbull

Conn, LLC are, respectively, a Texas Limited Partnership, General Partnership and

Limited Liability Company, which owned and operated a Papa Murphy’s franchise at

relevant times. Plaintiffs Edward Conn and Edward Turnbull are its partners and

managing members and are also guarantors of its liabilities and obligations under the

relevant franchise agreements (hereinafter collectively Plaintiffs Turnbull).

14. Plaintiffs Pizza Revolution of Fort Walton Beach, LLC, Pizza Revolution of Panama

City LLC, and Pizza Revolution at Tyndall, LLC, are Florida Limited Liability

Companies, which each owned and operated ta Papa Murphy’s franchises at relevant

times. Plaintiffs Loralie and Trey Bennett are the managing members of each company

and are also guarantors of the companies’ liabilities and obligations under the relevant

franchise agreements (hereinafter collectively Plaintiffs Bennett).

15. Plaintiffs Steven, Matthew , and Cindy Terry are individuals who owned and operated a

Papa Murphy’s franchise at relevant times (hereinafter collectively Plaintiffs Terry).

16. Plaintiff Make Dough Enterprises, Inc. is a Florida Corporation, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Alice and Douglas

Worthington and Thomas Stephenson are its officers and are also guarantors of its

liabilities and obligations under the relevant franchise agreements (hereinafter

collectively Plaintiffs Worthington).



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17. Plaintiff Red Rust, LLC is a Texas Limited Liability Company, which owned and

operated a Papa Murphy’s franchise at relevant times. Plaintiffs Jared Richardson and

Russell Crader are its managing members and are also guarantors of its liabilities and


Richardson).

Defendants

18. Papa Murphy’s International LLC, (hereinafter Defendant PMI) is a Delaware Limited

Liability Company with its principal place of business in Vancouver, Washington that

offers and sells Papa Murphy’s franchises.

19. Papa Murphy’s Company Stores Inc., (hereinafter Defendant PMC) is a Washington

Corporation, of which Defendant PMI is a wholly owned subsidiary, that directly and

indirectly controls Defendant PMI.

20. PMI Holdings Inc., (hereinafter Defendant PMI Holdings) is a Delaware corporation of

which Defendants PMC and PMI are wholly owned subsidiaries, that directly and

indirectly controls Defendants PMI and PMC.

21. Papa Murphy’s Intermediate Inc., (hereinafter Defendant PM Intermediate) is a

Delaware corporation of which Defendants PMI Holdings, PMC and PMI are wholly

owned subsidiaries, that directly and indirectly controls Defendants PMI Holdings,

PMC and PMI.

22. Papa Murphy’s Holdings, Inc., (hereinafter Defendant PMH) is a Delaware Corporation,

that directly and indirectly controls Defendant PM Intermediate, Defendant PMI

Holdings. Defendant PMC, Defendant PMI, and which owns or claims ownership of the

Papa Murphy’s trademarks and intellectual property.

23. Lee Equity LLC, (hereinafter Defendant Equity) is a New York limited liability

company, which owns the majority interest in Defendant PMH, that directly and



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indirectly controls Defendants PMH, PM Intermediate, PMI Holdings, PMC and PMI.

Additionally, Defendant Equity exerts significant control over the operations of

Defendant PMI including controlling the appointment and approval of executives and

board members of Defendant PMI.

PMI Officer or Director Defendants

24. The following Defendants are or were at relevant times, officers or directors of the

corporate defendants. At all relevant times they were “persons” as defined by RCW

19.100.010(13). At relevant times, the following Defendants were “persons in act of

control of the activit[ies]” of Defendant PMI.

a. Defendant John D. Barr was at relevant times the Chairman of the Board of Directors

and Chief Executive Officer of Defendant PMI. On information and belief he is a

resident of Washington.

b. Defendant Ken Calwell, is and was at relevant times the Chief Executive Officer of

Defendant PMI. On information and belief he is a resident of Washington.

c. Defendant Janet Pirus, was at relevant times the Chief Financial Officer of Defendant

PMI. On information and belief she is a resident of Washington.

d. Defendant Thomas H. Lee is and was at relevant times a Director of Defendant PMH

and at least one of its wholly owned subsidiaries which wholly owns and controls

Defendant PMI. On information and belief he is a resident of New York.

e. Defendant Yoo Jin Kim is and was at relevant times a Director of Defendant PMI. On

information and belief he is a resident of New York.

f. Defendant Benjamin Hochberg is and was at relevant times a Director of Defendant

PMI. On information and belief he is a resident of New York.

g. Defendant John D. Shafer is and was at relevant times a Director of Defendant PMI.

On information and belief he is a resident of Massachusetts.



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h. Defendant Achi Yaffe is and was at relevant times a Director of Defendant PMI,

Defendant PMH and at least one of its wholly owned subsidiaries which wholly owns

and controls Defendant PMI. On information and belief he is a resident of New York.

i. Defendant Gail Lawson was at relevant times a Regional Vice President of the

Southwest Region of Defendant PMI. On information and belief she is a resident of

California.

j. Defendant Dan Harmon is a Vice President of Operations of Defendant PMI. On

information and belief he is a resident of Washington.

k. Defendant Scott Mullen is a Regional Vice President of Defendant PMI. On

information and belief he is a resident of Texas.

l. Jayson Tipp is a Senior Vice President of Strategy of Defendant PMI. On information

and belief he is a resident of Washington.

m. Defendant Kevin King is a Senior Vice President of Development of Defendant PMI.

On information and belief he is a resident of Washington.

n. Defendant Steve Figiola was a Senior Vice President of Sales of Defendant PMI. On

information and belief he is a resident of California.

PMI Franchise Sales and Development Defendants

25. At relevant times the Franchise Sales and Development Defendants were officers or

directors of Defendant PMI and were directly involved in the franchise sales process

including the creation and approval of the relevant franchise disclosure documents and

agreements.

26. On information and belief, the Franchise Sales and Development defendants drafted,

reviewed or approved of the use of the franchise disclosure documents (hereinafter

FDDs) which included fraudulent financial performance representations, misstatements

of material fact and unlawful waivers of the Plaintiffs’ legal remedies. These



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documents were used by Defendants in the offer and sale of Papa Murphy’s franchises

to the Plaintiffs.

27. On information and belief the Franchise Sales and Development defendants knew or

should have known that the financial performance representations included in Item 19 of

the FDD were not representative of Papa Murphy’s franchises in the Plaintiffs’ region

and mischaracterized franchised store performance in the region.

28. At relevant times the Franchise Sales and Development defendants knew or should have

known that the required local marketing expenditure including promotional marketing,

Advertising Cooperative fees and required print media purchases exceeded the required

local marketing expenditure described in the relevant FDDs and franchise agreements.

29. At relevant times, the Franchise Sales and Development Defendants knew or should

have known that the waiver of treble damages in the franchise agreement constituted an

unlawful waiver of the Plaintiffs’ legal rights under Washington law.

30. At all relevant times, the Franchise Sales and Development defendants were “person[s]”

as defined by RCW 19.100.010(13). At relevant times, the Franchise Sales and

Development defendants were “person[s] in act of control of the activit[ies]” of

Defendant PMI. The Franchise Sales and Development defendants are:

a. Defendant Victoria Blackwell is a Senior Vice President and General Counsel of

Defendant PMI. On information and belief she is a resident of Washington. On

information and belief, Defendant Blackwell was hired as general counsel in part

because of her knowledge and experience in franchise law.

b. Defendant Stephen Maeker was a Vice President of Franchise Sales of Defendant

PMI. On information and belief he is a resident of Washington.

c. Defendant Steve Millard is a Director of Franchise Sales of Defendant PMI. On

information and belief he is a resident of Washington.



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C. Jurisdiction and Venue

31. Jurisdiction in this Court is appropriate pursuant to the Washington Franchise

Investment Protection Act (RCW 19.100.160) and as agreed by the parties in their

respective franchise agreements.

32. Under the explicit terms of the franchise agreements, the agreements only became

binding upon Defendant PMI when it was accepted in writing by one of Defendant

PMI’s officers. On information and belief, the relevant franchise agreements were

signed, accepted and became binding upon Defendant PMI in Defendant PMI’s

Vancouver, Washington headquarters.

33. Venue is appropriate in Clark County Superior Court because the Defendant PMI’s

corporate headquarters is located therein and as agreed in the respective franchise

agreements.

D. Facts

34. Each of the Plaintiffs purchased at least one Papa Murphy’s franchise and entered into

franchise agreements with Defendant PMI. They operated Papa Murphy’s Take and

Bake pizza franchise outlets throughout Alabama, Florida, South Carolina, North

Carolina, Tennessee and Texas. Some Plaintiffs also signed Area Developer

Agreements in which they agreed to purchase and operate multiple franchises in a

specific territory. All Plaintiffs operated Papa Murphy’s franchise outlets. Each

Plaintiff has devoted extensive personal and financial resources including, in some

cases, 401(k) assets and other retirement savings to their businesses.

35. Prior to Plaintiffs investing in a Papa Murphy’s franchise, Defendant PMI provided

Plaintiffs with Franchise Disclosure Documents (hereinafter FDD). Under state and

federal law, franchisors are required to provide prospective franchisees with an FDD at



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least 14 days before the franchisee signs a franchise agreement or pays any

consideration. The FDD contains information regarding the franchise system, the terms

of the franchise relationship and financial information related to the operation of a

franchise. It is the primary source of information for a prospective franchisee and its

contents are strictly regulated by federal law under the Federal Trade Commission’s

“Disclosure Requirements and Prohibitions Concerning Franchising and Business

Opportunities” Rule (hereinafter FTC Rule) and the Washington Franchise Investment

Protection Act (Chapter 19.100 RCW) (hereinafter FIPA).

36. Under FIPA, it is unlawful for any person to make any untrue statement of material fact

or to omit to state a material fact necessary to make the statements made in light of the

circumstances under which they were made not misleading in connection with the offer,

sale or purchase of a franchise. This includes statements made in the FDD.

37. The Washington State Supreme Court has held that for the purpose of FIPA, a material

fact is “a fact to which a reasonable [person] would attach importance in determining his

choice of action in the transaction in question.”1

38. Defendant PMI misrepresented and omitted material facts related to the financial

performance of its franchises and required advertising “contributions” during the

operation of the franchises in violation of FIPA, the FTC Rule2 and Washington state

common law.

Facts Related to Unlawful Financial Performance Representations in Item 19

1 Morris v. International Yogurt Co., 107 Wn.2d 314, 324, 729 P.2d 33 (en banc) (1986). 2 Plaintiffs make no independent claim under the FTC Rule because there is no private right of action for violation of section 2 of the FTC Act.



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39. Item 19 of the FDD was titled “Financial Performance Information” and consisted of

several tables of information related to the financial performance, typical costs and

profits of Papa Murphy’s outlets.

40. The FTC rule and the North American Securities Administrators Association FDD

Guidelines as adopted by the Washington Department of Financial Institutions pursuant

to FIPA, provide that a franchisor may only present information “about the actual or

potential performance” of a franchise if it has 1) a reasonable basis and 2) written

substantiation of the claim. Such claims are called “financial performance

representations” and may only be presented in Item 19 of the FDD.

41. FIPA and the FTC Rule also require franchisors to disclose whether the information

provided represented the franchise system as a whole or “only a subset of outlets that

share a set of characteristics [for example geographic location].” When relevant, a

franchisor must disclose characteristics of those outlets such as regional locations “that

may differ materially from those of the outlet that may be offered to a prospective

franchisee.”

42. System Stores disclosures: In or about August of 2006, Defendant PMI began providing

prospective franchisees with FDDs that included Item 19 financial performance

representations. In Item 19 of the relevant FDDs, Defendant PMI presented a table

labeled “System Stores” which provided financial information related to the net annual

sales for all system stores, which Defendant PMI defined as all outlets which operated

through all of the relevant year. The “System Stores” were separated into three equal

tiers and Defendant PMI provided the highest and lowest net annual sales, the average

net sales and the number of outlets that exceeded the tier average net sales for each tier

of system stores.



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43. On information and belief Defendant PMI knew that the "System Stores" averages

represented in Item 19 since 2006 were heavily skewed by the extremely high sales

volumes of their franchised stores in the Pacific Northwest. In addition, Defendant PMI

was aware that the eastern region franchised locations, which includes stores in

Plaintiffs’ region, were not achieving anywhere close to the "System Stores" sales

averages represented in Item 19 since at least 2007. In a recent example, in 2013 Papa

Murphy's stores in Oregon, Washington, and Idaho averaged weekly sales of more than

$16,700, $15,500, and $17,600 respectively, while Texas, Arkansas, and Louisiana

locations averaged weekly sales less than $7800, $7400, and $6300 respectively. In the

2014 FDD, Defendant PMI presented those same sales averages with a total "System

Store" average net sales of $586,229 annually which is over $11,200 per week. In fact,

on information and belief, at least 16 of the 20 states in the eastern region (as defined by

Defendant PMI) averaged less than $8000 per week during that period.

44. Since August of 2006 Defendant PMI has made Item 19 disclosures based on average

weekly sales without disclosing either the wide regional variances in average sales or

the poor sales performance that is endemic to the eastern region. All of the Plaintiffs are

based in the eastern region and relied upon the inflated sales averages when they chose

to invest in a Papa Murphy’s franchise. The Plaintiffs prepared their business plans

based upon the artificially inflated Item 19 sales representations. Because Defendant

PMI failed to disclose that franchisees in the eastern region had average weekly sales

dramatically lower than the average sales Defendant PMI presented in the FDD, the

Plaintiffs struggled and usually failed to reach average sales on par with even their

conservative estimation. As a result, the Plaintiffs have suffered great economic losses

while Defendant PMI continues to present skewed average weekly representations to

prospective franchisees.



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45. At no point in the FDD or at any other point during the franchise sales process did

Defendant PMI or any other Defendant disclose to Plaintiffs that a significant number

(estimated to be well in excess of half) of the stores in the lowest performing tier were

located in the same geographic region in which Plaintiffs were considering purchasing

franchises or that the average net sales of the stores located in the states where Plaintiffs

were investing in stores was thirty or more percent less than the national averages

contained in Item 19.

46. Benchmark Stores disclosures: In April 2012, the Defendant PMI added another table

to Item 19 of the FDD titled “Benchmark Costs.” In the “Benchmark Costs” table,

Defendant PMI divided the stores into three performance-based tiers and provided the

average sales, operation cost and profits for each tier of “Benchmark Stores.” The

“Benchmark Stores” whose data was included in the table represented only a fraction of

the outlets in the franchise system. The “Benchmark Costs” table was the only place in

the FDD in which Defendant PMI provided any information regarding the average

annual profits for its franchised outlets.

i. The average gross annual sales of the “Benchmark Stores” were

approximately $50,000 per year higher than the “System Stores” regardless of

performance tier.

ii. The “Benchmark Stores” only represented less than two thirds of the

franchised and company owned outlets.

iii. Defendant PMI stated that the “Benchmark Stores” subset was made up of

those outlets which “had submitted profit and loss statements in an

appropriate format.”

iv. In fact, all franchise outlets were required to regularly submit profit and loss

statements in a standardized format created by Defendant PMI. This policy



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was so important that all new franchisees were required to hire a professional

accounting company to prepare their profit and loss statements during their

first year of operation.

v. On information and belief the “Benchmark Stores” data is skewed by the fact

that the stores that did not “properly report” tended to be stores that could not

afford the cost of such reporting, thus inflating the averages. A significant

number of the non-reporting stores were located in the Plaintiffs’ region and

were not included in the table. On information and belief, a significant

percentage of the non-reporting stores were located in the regions where

Plaintiffs were investing—the southern and eastern United States. The

combined effect was that the numbers, as reported, had the effect of deceiving

franchisees in the Plaintiffs’ geographic areas into believing the Item 19

disclosures were relevant to their decisions.

vi. At no point did any of Defendants disclose that the “Benchmark Costs” table

presented financial performance representations based on outlets that shared

characteristics (geographical location) that were materially different from the

Plaintiffs’ possible franchises.

vii. At no point did any of the Defendants disclose that the “Benchmark Stores”

table was not representative of all outlets or of the outlets in their region, but

rather the table represented only a fraction of those franchise outlets, and

through the selective data, the annual profits shown in the Benchmark Stores

table were dramatically inflated and not representative of either the Papa

Murphy’s system in the Plaintiffs’ region or the system as a whole.

Facts Related to Excessive Required Advertising Expenditures



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47. Item Six of the FDD was titled “Other Fees” and contained a table summarizing some of

the fees for which a franchisee would be responsible.

48. Item Six stated that the Plaintiffs would be required to spend 5% of net sales or a set

dollar amount, whichever was greater, on “local marketing and promotion and Regional

Cooperative Advertising.” The set expenditure on local marketing varied between

franchise agreements and ranged between $500 and $2000. The franchise agreement

defined this required marketing expenditure as “local marketing expense” (hereinafter

“required local marketing expenditure”).

49. The FDD defined “local marketing and promotion” as “expenditures...made directly by

you subject to approval and directions by us or our designated advertising agency.”

50. Plaintiffs were required to only use marketing materials approved by Defendant PMI in

local advertising. Plaintiffs were required to purchase these promotional materials

either from Defendant PMI or a designated supplier.

51. The Franchise Agreement, which was attached as an Exhibit to the FDD further

explained that, if the Defendant PMI established a local or regional Advertising

Cooperative, Plaintiffs would be required to contribute a minimum of three percent of

net sales to the Advertising Cooperative up to a maximum of five percent of net sales.

52. Defendant PMI reserved the right to “require that all or a portion of your local

marketing expenditure or your contribution to the cooperative advertising or promotion

programs be paid into the cooperative advertising fund” and assured Plaintiffs that “such

amounts will be credited toward the required local marketing expenditure.”

53. Both the FDD and the franchise agreements stated that “your contributions to

cooperative advertising or promotional programs will be credited” toward the required

local marketing expenditure.



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54. Advertising Cooperative fees where applicable, print marketing fees, and promotional

marketing purchases were all deducted by Automated Clearing House transfer

(hereinafter ACH transfer) directly from the Plaintiffs’ franchise business bank

accounts. As a condition of receiving the franchise, the Plaintiffs were required to

authorize ACH transfers using the form provided to them by Defendant PMI. Plaintiffs

who were required to participate in advertising cooperatives were later required to

authorize third party agents of Defendant PMI to make such transfers as well.

55. Despite the representations in the FDDs and the franchise agreements, the Plaintiffs

were required to spend more than 5% of net sales on required local marketing

expenditures.

56. False Claims and Excessive Expenditures Related to Advertising Cooperatives:

a. Under the terms of their franchise agreements, Defendant PMI required Plaintiffs to

participate in and pay fees to any advertising cooperative established in their area.

Several Plaintiffs had advertising cooperatives established in their region. These

include: Plaintiffs in the Dallas, Texas area (Plaintiffs Terry and Richardson) Mobile,

Alabama (Plaintiffs Callegan and Bennett), and Plaintiffs in the Jacksonville, Florida

area (Plaintiffs King); (collectively Advertising Cooperative Plaintiffs).

b. On information and belief, Defendant PMI provided organizational materials for each

cooperative including bylaws and ACH authorizations. Defendant PMI further

assisted the Dallas-Fort Worth Advertising Cooperative in assessing cooperative fees

by providing information related to cooperative members weekly net sales to the

advertising cooperative or its agents.

c. When the Dallas-Fort Worth Advertising Cooperative was established in late June of

2009, each franchisee’s contribution was set as 5% of net sales, the maximum



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cooperative contribution and required local marketing expenditure permitted by the

franchise agreement.

d. Despite the language in both the franchise agreements and the FDD which stated that

the Plaintiffs would not be required to spend more than 5% of net sales on local

marketing expenditure, PMI continued to require local marketing expenditures in

addition to the Cooperative Plaintiffs’ mandatory contribution to their advertising

cooperative. At no point did Defendant PMI credit or otherwise offset the mandatory

contributions to the Advertising Cooperatives against the required local marketing

expenditure.

e. Defendant PMI had a long held practice of establishing local advertising cooperatives

and requiring franchisees to both join the advertising cooperative and contribute 5%

of net sales to the cooperative. Defendant PMI also required its franchisees who

belonged a cooperative to make other required local marketing expenditures such as

print media and in store marketing materials in addition to their advertising

cooperative fees. As early as 2005, Defendant PMI established an advertising

cooperative in Grand Rapids, Michigan in which cooperative members were required

to contribute 5% of net sales to the advertising cooperative in addition to other

required local marketing expenditures.

f. At no point did Defendant PMI credit advertising cooperative fees toward the required

local marketing expenditure. Nor did Defendant PMI amend either its franchise

agreements or its FDD to reflect the reality that some franchisees were being required

to spend more than 5% of net sales on required local marketing and that despite its

statements in the FDD and the franchise agreements, Defendant was and had not

credited advertising cooperative fees toward the franchisee’s required local marketing

expenditure.



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g. Defendant PMI continued to encourage individuals to invest in Papa Murphy’s

franchises based on FDDs and franchise agreements which stated that 1) franchisees

required local marketing expenditures including Advertising Cooperative

contributions would be capped at 5% of net sales and 2) all Advertising Cooperative

contributions would be credited toward the required local marketing expenditure. As

to any Plaintiff who invested in a Papa Murphy’s franchise any time mid-2005, these

representations were not true as interpreted and enforced by Defendant PMI.

57. False Claims and Excessive Expenditures Related To The Model Market Program.

a. In January of 2012, Defendant PMI introduced the “Model Market Program.” Under

the program, Defendant PMI would reduce the National Ad Fund contribution paid by

franchises by half a percent and the Ad Group would increase the franchisees’

Advertising Cooperative fees from 5% of net sales (the full amount of the required

local marketing expenditure) to 6% of net sales in exchange for increased national

advertising fund marketing in their region. If a majority of the Advertising

Cooperative members approved, all members would be required to participate in and

contribute to the program regardless of explicit language in the franchise agreements

which capped Advertising Cooperative Contributions at 5% of net sales. Several of

the Advertising Cooperative Plaintiffs including Plaintiffs Terry and Richardson were

required to participate in the Model Market Program.

b. The Dallas Plaintiffs agreed to the Model Market program the first year but were

dissatisfied with the results. The second year of the program the Dallas Plaintiffs

voted against it (although the Ad Co-op approved it by a narrow majority). Despite

the Dallas Plaintiffs’ objections and the 5% maximum required local marketing

expenditure stated in the franchise agreements, a local marketing company, as directed



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by Defendant PMI, continued to transfer 6% of net sales from the respective

Plaintiffs’ franchise accounts via ACH.

c. Defendant PMI continued its practice of requiring Dallas Plaintiffs to participate in

other required local marketing expenditures despite the fact that the Dallas Plaintiffs

were being required to spend one percent more than the required local marketing

expenditure on Advertising Cooperative contributions alone.

d. Defendant PMI continued to fail to credit Advertising Cooperative Contributions

against the required local marketing expenditure.

e. Despite the creation of the Model Market Program, Defendant PMI continued to

encourage individuals to invest in Papa Murphy’s franchises based on FDDs and

franchise agreements which stated that 1) franchisees required local marketing

expenditures including Advertising Cooperative contributions would be capped at 5%

of net sales and 2) all Advertising Cooperative contributions would be credited toward

the required local marketing expenditure and 3) that a franchisee’s mandatory

contribution to any Advertising Cooperative was capped at 5% of net sales. As to any

Plaintiff who invested in a Papa Murphy’s franchise any time after January of 2012,

theses representations were not true as interpreted and enforced by Defendant PMI.

Facts Related to Advertising Expense Claims By All Plaintiffs:

f. Plaintiffs are required to pay for monthly print advertising programs in the form of

first of the month ad drops (Sales Build Print Programs) and mid-month ad drops

(Mid-Month Print Program). The monthly fee for these programs ranges between

approximately $250.00 and $4000.00.

g. The Plaintiffs are required to purchase all of their print media advertising including

coupons and newspaper inserts from vendors designated by Defendant PMI.



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h. The Plaintiffs have little or no control over the print media and promotional

marketing. They are not even able to decide which coupons will run at what times.

The Plaintiffs are however required to purchase their promotional materials and print

media advertising from the designated vendors in the amounts and at the prices

decided by Defendant PMI.

i. Plaintiffs are also required to participate in additional local advertising programs such

as text messaging programs and to purchase additional promotional materials from

vendors designated by Defendant PMI.

j. The exact amount of required local marketing varies between Plaintiffs but their

required local marketing expenditures in the form of print media purchases, text

messaging campaigns, promotional materials and Advertising Cooperative fees often

exceeds the 5% of net sales required local marketing expenditure. Some Plaintiffs

have been required to spend as much as 9% to 15% of net sales on required local

marketing during certain periods.

k. Despite representations in the FDD and the franchise Agreements, Defendant PMI has

never offset the Plaintiff’s required advertising fund contribution, print media

purchases or other promotional marketing expenditures against the 5% of net sales

required local marketing expenditure despite several requests by the Plaintiffs for such

an offset as required by the franchise agreements.

l. All Plaintiffs are required to participate in and pay for all required local marketing

programs without regard to whether the mandatory payments exceed the amount

specified in the franchise agreements and disclosed in the FDD. Plaintiffs are subject

to losing their franchised stores and their entire investment if they elect to not pay

more than they can lawfully be required to pay or if they terminate or seek to limit

their ACH payments.



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m. All Plaintiffs are subject to the risk that, if Defendant PMI imposes an advertising

cooperative requirement in their geographic area, they will be required to contribute

on the same or a similar basis as has been required of the Dallas Plaintiffs and that

such a requirement would have a material adverse effect on their net profits.

n. At no point in the sales process did the Defendants disclose to the Plaintiffs that they

would be required to spend as much as twice (or more) the amount stated in the FDDs

or in the franchise agreements on required local marketing expenditures.

o. At no point in the sales process did Defendants disclose to Plaintiffs that franchises in

their region were required to spend almost twice the amount on local advertising

described in item 6 of the FDD to achieve the store performance set forth in Item 19.

There was certainly no disclosure that franchisees in their region were required to

spend approximately twice the amount on local advertising described in Item 6 of the

FDD in order to achieve the at least 30% lower store performance for the relevant

region that was not disclosed in the FDD as required by law.

Facts Related to Unlawful Waiver of FIPA Rights

58. The Plaintiffs were required to sign a franchise agreement in connection with each

franchise purchase. Several of the Plaintiffs received a franchise agreement which

included an unlawful waiver of their rights under FIPA. Section 9 of the relevant form

of franchise agreement was titled “Notices and Miscellaneous” and contained a

provision which required Plaintiffs to “expressly waive any claim for punitive, multiple

and exemplary damages.” The provision further stated that “the parties further agree

that if this waiver is unenforceable under applicable law, then any recovery by any party

in any forum shall not exceed two times actual damages.”

59. FIPA expressly forbids any franchisor from requiring franchisees to “assent to a release,

assignment novation or waiver which would relieve any person from liability imposed



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by this chapter.” RCW 19.100.180 (g). FIPA permits franchisees to recover up to

treble damages for a franchisor’s unlawful conduct. RCW 19.100.190(3). The

Defendants’ requirement that the affected Plaintiffs waive their right to treble damages

as a condition of receiving a franchise is a direct violation of FIPA and is void. RCW

19.100.220(2).

60. After signing their franchise agreements, the Plaintiffs sent the agreements and their

initial franchise fee to Defendant PMI’s corporate headquarters in Vancouver,

Washington. According to explicit language in the franchise agreements, the agreements

were not binding upon the Plaintiffs until they were received by Defendant PMI and

were not binding upon Defendant PMI until they were signed by its officers.

61. The Plaintiffs were also required to send a representative to attend “owner’s training” at

Defendant PMI’s Vancouver, Washington headquarters. If the parties did not complete

training to Defendant PMI’s satisfaction, Defendant PMI reserved the right to cancel the

franchise sale, terminate the franchise agreements and refund a portion of the Plaintiffs’

franchise fee.

E. Damages

Fraud and Misrepresentations in the Franchise Sales Process

62. But for the Defendants’ wrongful acts and omissions described herein, the Plaintiffs

would not have invested in Papa Murphy’s franchises, paid the initial franchise fees,

royalties, advertising fees and Advertising Cooperative contributions, the required local

marketing expenditure, purchased equipment, signed leases, and incurred debt to cover

operational losses; and, Plaintiffs would not have foregone, in whole or part,

compensation and return on investment for the duration of their franchises to date.

63. Had the Defendants’ representations been truthful, the Plaintiffs would have had the

benefit of the bargain they made in purchasing a Papa Murphy’s franchise.



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64. Defendants’ wrongful actions described herein have caused damages to the Plaintiffs in

an amount not yet fully known but which is estimated to exceed twenty million dollars

to return them to the condition they would have been in but for the Defendants’

wrongful conduct.

Excessive Required Local Marketing Expenditures

65. But for the Defendants’ unlawful collection of excessive required local marketing

expenditures and failure to credit such expenditures toward the Plaintiffs’ required local

marketing expenditures, the Plaintiffs would not have been required to spend as much as

9-10% of net sales (or more) in required local marketing expenditures including but not

limited to Advertising Cooperative fees, required print media and other promotional

media purchases, text messaging campaigns and other required local marketing.

66. Defendants’ wrongful actions described herein have caused damages to the Plaintiffs in

an amount not yet fully known but which continue to undermine any possibility of

profitability for the Plaintiffs’ franchises and are estimated to exceed three million

dollars.

F. Discovery

67. After opening their Papa Murphy’s franchises, the Plaintiffs realized that their

businesses were not performing as expected. The Plaintiffs continued to request support

and assistance from Defendants. The Defendants responded to every plea for help with

admonitions to “work harder,” to increase access to television advertising by purchasing

and building more outlets, and to spend more on local advertising. The Plaintiffs

continued to work on their businesses, try every suggestion provided and invest

additional capital.

68. Defendants continued to tell Plaintiffs that their stores were underperforming due to a

lack of local marketing and poor performance on operations and customer service.



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69. At no point did any of the Defendants give the Plaintiffs any cause to believe that they

had been misled by the Defendants when they originally purchased the franchises. Nor

did Defendants give the Plaintiffs any reason to believe that the financial performance

information presented in Item 19 was fraudulent or misleading. In fact, as the Plaintiffs

purchased additional franchises they were presented with FDDs that gave increasing

amounts and categories of information regarding the financial performance of franchises

without providing the required basis or geographical relevance for the information. The

additional information presented Papa Murphy’s as a successful franchise system but

did not disclose that its success was limited to the Pacific Northwest and a few Rust Belt

states.

70. At no point did Defendants give Plaintiffs any reason to suspect that the representations

in the FDD were false or misleading. Defendants knew that the Plaintiffs’ weak sales

and poor revenues were endemic to the franchise region and not the result of individual

franchisees not “working hard.” At no point did Defendants disclose this information to

Plaintiffs.

71. The Plaintiffs did not discover that they had suffered damages (and not just business

losses) until 2014 when they learned of another lawsuit against the Defendants in which

the Plaintiffs were alleging fraud and negligent misrepresentation. Several of the

Plaintiffs first learned these facts after Defendants PMI and Blackwell made an

announcement regarding the earlier lawsuit and its basis to a group of franchisees in

March of 2014.

G. Causes of Action

FIRST CAUSE OF ACTION (Defendant PMI) VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT

RCW 19.100.170(2)



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72. The Plaintiffs restate and reallege each and every allegation set forth above as though

set forth here in full.

73. The acts and omissions of Defendant PMI in connection with offering and selling Papa

Murphy’s franchises to the Plaintiffs as described herein, and particularly the following

misrepresentations of material fact constituted violations of RCW 19.100.170(2):

a. That the Plaintiffs’ required local marketing expenditure was limited to 5% of net

sales.

b. That if Defendants created an Advertising Cooperative, the Plaintiffs’ required

Advertising Cooperative fee would be limited to a maximum of 5% of net sales.

c. That Defendant PMI would credit Advertising Cooperative fees and other required

promotional purchases toward the 5% of net sales required local marketing

expenditure.


Murphy’s franchises to Plaintiffs as described herein, and particularly the following

omissions to disclose material facts (each of which Defendant PMI had a duty to

disclose) constituted violations of RCW 19.100.170(2):

a. That the vast majority of the low performing stores were located in the same region in

which the Plaintiffs were considering purchasing franchises.

b. That the performance of the “Benchmark Stores” was not representative of the

franchise system as a whole and the franchise outlets which had either not submitted

“appropriate” profit and loss statements (despite being required by the franchise

agreement to do so) or whose statements had been excluded from the compilation

where performing significantly worse than the “Benchmark Stores.”



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c. That franchisees were charged almost twice the required local marketing expenditure

stated in the FDD and franchise agreement for required local marketing, promotional

purchases and Advertising Cooperative fees.

d. That the franchisees located in the Plaintiffs’ region had spent almost twice the

required local advertising expenditure in advertising in order to achieve the “net sales”

in Item 19 of the FDD and that the vast majority of franchisees in the Plaintiffs’

region were spending that amount and achieving almost 40% less than the average net

sales disclosed in Item 19 of the FDD

e. That Defendant PMI did not and had never credited required Advertising Cooperative

fees and promotional purchases toward a franchise’s required local marketing

expenditure as required by the franchise agreements.

75. As a direct and proximate result of Defendant PMI’s violations of RCW 19.100.170(2),

Plaintiffs invested in Papa Murphy’s franchises and sustained damages as set forth in

this complaint.

76. Because of Defendant PMI’s violations of RCW 19.100.170(2), the Plaintiffs are

entitled to remedies under RCW 19.100.190 in addition to the remedies available at

common law (RCW 19.100.910).

SECOND CAUSE OF ACTION (Defendant PMI) FRAUD



78. The actions and omissions of Defendant PMI in connection with offering and selling

Papa Murphy’s franchises to Plaintiffs, as described herein, constitute fraud. The

affirmative misrepresentations were false statements of material facts, Defendant PMI

knew or reasonably should have known the statements were false, it intended that

Plaintiffs act upon the misrepresentations, Plaintiffs were ignorant of the falsity of the COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 28


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representations and reasonably relied up on the truth of the representations, and indeed

had a legal right to do so. As a result of Plaintiffs’ reliance, they invested in Papa

Murphy’s franchises and sustained damages as described in this complaint.

79. Defendant PMI’s omissions of material facts as described herein constitute fraud.

Defendant PMI had an affirmative legal duty to fully and truthfully disclose certain

material facts. In violation of that duty, Defendant PMI knowingly and intentionally

failed to disclose material facts as described herein. Defendant PMI knew the truth as to

the omitted facts and withheld them, intending that Plaintiffs would act upon the

omissions by investing in Papa Murphy’s franchises. Plaintiffs were ignorant of the

omitted facts, had no reasonable means of ascertaining the truth as to the omitted facts

before making their investment decisions and reasonably relied upon their

misunderstanding of the facts thus induced. Plaintiffs had a legal right to rely on the

completeness and accuracy of Defendant PMI’s statements. As a result of Plaintiffs’

reliance, they invested in Papa Murphy’s franchises and sustained damages as described

in this Complaint.

80. As a result of Defendant PMI’s fraud, Plaintiffs are entitled to damages and other

remedies.

THIRD CAUSE OF ACTION (Defendant PMI) Negligent Misrepresentation

81. Plaintiffs restate and reallege each and every allegation set forth above as though set

forth here in full.

82. The actions and omissions of Defendant PMI in connection with offering and selling

Papa Murphy’s franchises to Plaintiffs as described herein constitute negligent

misrepresentation. Defendant PMI, acting in the course of its business, supplied false

information to Plaintiffs for their guidance in a business decision to invest in a Papa

Murphy’s franchise. Defendant knew or should have known that Plaintiffs would rely COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 29


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upon the information in a business transaction. Defendant failed to exercise reasonable

care or competence in obtaining or communicating the information. Plaintiffs relied

upon the false information supplied by Defendant PMI. Plaintiffs’ reliance on the false

information was justified (in fact they had a legal right to rely upon it). The false

information was the proximate cause of damages to Plaintiffs as described in this

Complaint.

83. Defendant PMI’s omission of material facts as described herein constitutes negligent

misrepresentation. Defendant had an affirmative legal duty to fully and truthfully

disclose certain material facts. In violation of that duty, Defendant PMI negligently

failed to disclose material facts as described herein. Defendant PMI failed to supply to

Plaintiffs information they had a duty to provide to them for their guidance in their

decision to invest in Papa Murphy’s franchises. Defendant PMI knew or should have

known that Plaintiffs would rely on the completeness and accuracy of that information

in business transactions. Defendant PMI was negligent in failing to obtain or

communicate accurate and complete information. Defendant PMI knew that Plaintiffs

had no reasonable means of ascertaining the truth as to the omitted material facts before

making an investment decision. Plaintiffs relied on the false information supplied by

Defendant PMI. The Plaintiffs were legally entitled to rely on that information.

Defendant PMI’s material omissions proximately caused damages as described in this

complaint.

84. As a result of Defendant PMI’s negligent misrepresentation, Plaintiffs are entitled to

damages and other remedies.

FOURTH CAUSE OF ACTION (Defendant PMI) VIOLATIONS OF THE WASHINGTON CONSUMER PROTECTION ACT

85. The Plaintiffs restate and reallege each and every allegation set forth above as if set

forth here in full. COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 30


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86. The acts and omissions of Defendant PMI in its relations with the Plaintiffs violated

RCW 19.100.180 in that Defendant PMI

a. Failed to deal with the Plaintiffs in good faith as required by RCW 19.100.180(1);

b. Imposed required local advertising expenditures which were not reasonable because

they violated the explicit language of the franchise agreements in violation of RCW

19.100.180(2)(h); and

c. Required Plaintiffs to assent to a waiver of treble damages in violation of RCW

19.100.180(2)(g).

87. Pursuant to RCW 19.100.190, each and every act or omission described above

constitutes an unfair or deceptive act or practice under chapter 19.86 RCW

(Washington’s Consumer Protection Act).

88. Defendant PMI committed the unfair or deceptive acts or practicse in the conduct of

Defendant PMI’s trade or commerce as Defendant PMI committed the unfair or

deceptive practices either during the franchise sales process or during the franchise

relationship.

89. Defendant PMI’s acts and omissions affected the public interest.

90. Defendant PMI’s unfair and deceptive acts or practices were the proximate cause of the

Plaintiffs’ damages.

FIFTH CAUSE OF ACTION (Defendant PMI) VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT

RCW 19.100.080(1)




Murphy’s franchises to the Plaintiffs as described herein, and particularly the sale and



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execution of the multi-store agreement to Plaintiff Watson constituted a violation of

RCW 19.100.080 (1).

93. As a direct and proximate result of PMI’s violations of RCW 19.100.080(1), Plaintiffs

invested in a Papa Murphy’s franchise and sustained damages as set forth in this

complaint.

94. Because of Defendant PMI’s violations of RCW 19.100.080(1), the Plaintiffs are

entitled to remedies under RCW 19.100.190, including recession and the return of any

franchise fees, in addition to the remedies available at common law (RCW 19.100.910).

SIXTH CAUSE OF ACTION (Defendants PMH and PMI) RESPONDEAT SUPERIOR

95. The Plaintiffs restate and reallege each and every allegation set forth above as set forth

here in full.

96. Defendant PMI is liable for the acts and omissions of each Defendant whose acts and

omissions were committed during the time they were an employee, principal or agent of

Defendant PMI and for the benefit of Defendant PMI.

97. Defendant PMC is liable for the acts and omissions of Defendant PMI, its wholly owned

subsidiary, sharing some or all of the same directors and officers. In its relevant actions

and omissions, Defendant PMI acted as agent for Defendant PMC. Defendant PMC

was, at relevant times, a person in act of control of Defendant PMI.

98. Defendant PMI Holdings is liable for the acts and omissions of Defendant PMC, its

wholly owned subsidiary, sharing some or all of the same directors and officers. In its

relevant actions and omissions, Defendant PMC acted as agent for Defendant PMI

Holdings. Defendant PMI Holdings was, at relevant times, a person in act of control of

Defendant PMC and through Defendant PMC, of Defendant PMI.

99. Defendant PM Intermediate is liable for the acts and omissions of Defendant PMI

Holdings, its wholly owned subsidiary, sharing some or all of the same directors and COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 32


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officers. In its relevant actions and omissions, Defendant PMI Holdings acted as agent

for Defendant PM Intermediate. Defendant PM Intermediate was, at relevant times, a

person in act of control of Defendant PMI Holdings and through Defendants PMI

Holdings and PMC, of Defendant PMI.

100. Defendant PMH is liable for the acts and omissions of Defendant PM Intermediate, its

wholly owned subsidiary, sharing some or all of the same directors and officers. In its

relevant actions and omissions, Defendant PM Intermediate acted as agent for

Defendant PMH. Defendant PMH was, at relevant times, a person in act of control of

Defendant PM Intermediate and through Defendants PM Intermediate, PMI Holdings

and PMC, of Defendant PMI.

101. Defendant Equity is liable for the acts and omissions of Defendant PMH, of which it is

majority owner and which it controls and with which it shares some or all of the same

directors and officers. In its relevant actions and omissions, Defendant PMH acted as

agent for Defendant Equity. Defendant Equity was, at relevant times, a person in act of

control of Defendant PMH and through Defendants PMH, PM Intermediate, PMI

Holdings and PMC, of Defendant PMI, both by common ownership, common officers

and directors, and by contract.

SEVENTH CAUSE OF ACTION (Defendant PMI) BREACH OF CONTRACT


set forth in full.

103. The relevant portions of the franchise agreements clearly provide that franchisees will

be required to spend a set amount or 5% of net sales on required local marketing

expenditures including Advertising Cooperative fees, local marketing and promotional

materials. The franchise agreements also provide that Advertising Cooperative fees and



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the purchase of required promotional materials would be credited toward the required

local marketing expenditure.

104. The Defendant PMI required an ACH authorization which permitted Defendant PMI

and its agents to transfer payment for required local marketing expenditures, including

but not limited to print media purchases and text messaging campaigns directly from the

Plaintiffs’ bank accounts.

105. Defendant PMI develops marketing and promotional campaigns and dictates which

marketing programs and promotional materials the Plaintiffs would be required to

participate in or purchase and at what cost.

106. Defendant PMI knew or reasonably should have known the combined Advertising

Cooperative fees and other required local marketing and promotional purchases

exceeded the required local advertising expenditure set forth in the franchise agreements

and had a duty under the franchise agreements to offset advertising cooperative fees

against the required local marketing expenditures.

107. In material breach of the franchise agreements, Defendant PMI not only made no

attempt to credit Advertising Cooperative fees and required promotional purchases

against the required local marketing expenditure but failed to provide any information

related to such expenditures.

108. As a result of Defendant PMI’s breach of contract, Plaintiffs have been charged as much

as 50% to 100% more in required local marketing expenditures than is required by the

franchise agreements. The Defendants’ breach of contract was the proximate cause of

substantial damages suffered by the Plaintiffs in an amount to be proven at trial.

EIGHTH CAUSE OF ACTION (All PMI Defendants) PERSONAL LIABILITY


set forth here in full. COMPLAINT FOR VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT, FRAUD, NEGLIGENT MISREPRESENTATION AND BREACH OF CONTRACT - 34


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110. All Defendants are “persons” as defined by FIPA and, because of their actions and

positions each has personal liability for all actions and omissions by and on behalf of

Defendant PMI.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully ask the Court for relief as follows:

1. For a declaration that Defendants violated the Washington Franchise Investment

Protection Act (FIPA) by offering and selling franchises to Plaintiffs using a Franchise

Disclosure Document that did not comply with FIPA and which contained false

representations of material facts or omitted to state facts necessary in order to make

statements made not misleading;

2. For a declaration that Defendant PMI’s claimed exemption from registration under the

Washington Franchise Investment Protection Act was invalid and void because of

Defendant PMI’s failure to comply with the Act’s conditions precedent to claiming the

exemption;

3. For a declaration that Defendants’ violations of the disclosure requirements of the FIPA

were willful;

4. For a declaration that any agreements executed by the parties as a result of Defendants’

violations of FIPA are unlawful, illegal, void and unenforceable in their entirety by

Defendants;

5. For an injunction directing Defendant PMI, its parents, officers, directors, agents and

employees to immediately and permanently cease and desist the offer or sale of any new

Papa Murphy’s franchise to any Plaintiffs through the use of an FDD which contains

fraudulent Item 19 disclosures or omissions, including regional relevance as

appropriate, and specifically any Item 19 disclosures related to “System Store”



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performance or “Benchmark Store” Performance that do not have a reasonable basis as

required by applicable law;


employees to immediately and permanently cease and desist from charging Advertising

Cooperative fees which exceed the 5% of net sales maximum established in the relevant

franchise agreement unless specifically authorized by the franchisee in writing;


employees to immediately and permanently cease and desist from requiring or charging

for required local marketing such as printing and newspaper drop fees which, combined

with Advertising Cooperative fees, exceeds the required local advertising expenditure

established in the relevant franchise agreement unless specifically authorized by the

franchisee in writing;


employees to immediately and permanently cease and desist from making any and all

ACH transfers for local marketing which in total exceed the required local advertising

expenditure established in the relevant franchise agreement unless specifically

authorized by the franchisee in writing;

9. For an award of Plaintiffs’ damages caused by or resulting from Defendants’ wrongful

acts related to excessive advertising fees in the amount of approximately three million

dollars or such other amount to be proved at trial;

10. For a declaration that the Defendants are liable for fraud and negligent

misrepresentation;

11. For a declaration that all waivers of FIPA rights contained in the franchise agreements

or other documents are void;



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12. For an award of Plaintiff’s damages caused by or resulting from Defendants’ violations

of FIPA in the amount of approximately twenty million dollars or such other amount to

be proven at trial;

13. For an award of Plaintiff’s damages caused by or resulting from Defendants’ fraud and

misrepresentation;

14. For a declaration that all Defendants are jointly and severally liable to Plaintiffs;

15. In the alternative, for an order confirming and defining rescission of any agreements

executed by the parties as a result of Defendants’ violations of FIPA, plus an award of

damages suffered by Plaintiffs to the extent not duplicative of the remedy of rescission

as permitted by FIPA (RCW 19.100.190);

16. For an award of exemplary damages up to three times actual damages as permitted by

FIPA (RCW 19.100.190);

17. For an award of Plaintiffs’ costs and reasonable attorneys’ fees herein as permitted by

FIPA (RCW 19.100.190) and as provided by the franchise agreements herein; and

18. For such other and further relief as the Court may deem necessary or appropriate under

the circumstances.

Dated this May 1, 2014 Bundy Law Firm PLLC By: Howard E Bundy, WSBA # 11762 [email protected] By: /s/ Caroline B Fichter, WSBA # 42554 [email protected] 5400 Carillon Point Kirkland, WA 98033-7357 TEL: 425-822-7888 FAX: 206-770-6130



Kirkland, WA 98033-7357 425-822-7888