Nineteen Shakey's franchisees will get their day in court on May 12, when they face off against Shakey's, Inc., the Los Angeles-based franchisor of the 61-unit chain.
The franchisee group filed a class-action lawsuit in December of 2002, accusing Shakey's Inc. of multiple offenses, including fraud, negligent misrepresentation and breach of contract.
Shakey's lawyers moved to have the franchisees' case thrown out during an April 8 hearing in which Judge Ralph Dau agreed to remove four counts from the franchisees' complaint, including fraud and negligent misrepresentation. Five counts centering on breach of contract, however, were left intact. (Several months ago, Shakey's counsel successfully removed a fraud charge from the complaint against Wong Chin-Yong, the pizza chain's chairman.)
Counsel for Shakey's called the ruling a victory for the company, which has been sued numerous times by its franchisees since being purchased by Singapore-based Inno-Pacific Holdings 15 years ago.
"I think quite a bit is out of their case, despite whatever positive spin they want to put on it," said Glenn Plattner, counsel for Shakey's. "It's sort of as we've predicted all along, that the case didn't and isn't going to trial in the way they originally pled it."
Mike Grace, counsel for the franchisees, called the judge's ruling somewhat expected. Few complaints make it to trial unchanged, he said. The breach of contract elements that remain, he added, represent the core of the plaintiffs' case.
"Shakey's tried to get every single claim dismissed; well, they failed," Grace said. "So if they want to call that a victory, they can. ... But that doesn't get them out of a breach of contract. That's a different animal altogether. That's where the damages are, and that's where we need to get a solution for the future."
Franchisees are seeking $10 million in damages based on Shakey's alleged breach of contract.
Shakey's franchisee Chuck Wilburn, who is the spokesman for the class, said he's eager to see the case go to trial, though he called the franchisor's faults clearly visible without it. Shakey's long-term and systemwide neglect of its franchisees, he said, is evident in the chain's dramatic decline in unit numbers; at its peak, Shakey's was some 475 pizzerias strong. Now he believes a jury will confirm the franchisees' long-held complaint that they're getting no return for their royalties.
"We'd like a jury of 12 men and women to settle it, and we're glad it looks like that day's coming," Wiburn said. "We need some kind of a judgment to protect us from these people."
Mitchell Shapiro, lead counsel for Shakey's Inc., expects the case won't make it to a trial.
"(T)he judge has indicated that he's probably going to throw out the rest of the case on May 3rd, when have a conference with him," he said. "So we're optimistic that there will be no more case."
Grace said Shapiro's statement was "a flat-out lie. The judge hasn't said anything at all like that."
The final status conference, Grace continued, includes exchanges of witness lists and exhibits, but will not affect the complaint as it now stands. "The claims remaining in the case are the claims that are going to be tried in the case."
An end in sight?
Wilburn called the 16 months of litigation "grueling," time consuming and very costly to the franchisees involved. And even though the trial is scheduled for May 12 (it originally was scheduled for March), he said he'll believe it's happening only "when I walk in courtroom and the judge says the trial is beginning. I've learned throughout this whole process how many times things can be postponed."
Should Shakey's attempt to settle the case before the trial, Wilburn said he'd have mixed feelings. Not only do the franchisees want their complaint heard in public, he doesn't believe Shakey's can bring anything to the table in a pre-trial settlement.
Referring to an auditor's report written about Shakey's parent, Inno-Pacific, which questioned the company's ability to continue as a going concern (see Looming financial woes threaten Inno-Pacific, Shakey's pizza parent), Wilburn said, "I honestly don't think there's anything to be had if we did settle."
Grace concurred, adding "they're basically saying they're bankrupt anyway; they don't have any money."
However the case ends, Grace said the franchisees most want to know who will be running the company.
"We need to know who's going to be in the shoes of Shakey's to comply with the contractual obligations on a going-forward basis," he said. "Most of our clients have signed up to be in a system with a company performing obligations until the year 2022, so we want to know who's going to be there."
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