- WHITE PAPERS
An official of Singapore-based Inno-Pacific Holdings, Ltd. has disputed a May 1 story published in the Singapore Business Times about the strained relationship between that company and its U.S. subsidiary, Shakey's Pizza, Inc., in Garden Grove, Calif.
Responding to the story, Lee Koh Sing, Inno-Pac secretary, wrote that he wished "to clarify and correct the presentation."
Sing's comments were published by BT on May 2 and referred to reporter Serena Ng's mention of "several lawsuits looming in the U.S.," when "to the best knowledge of the Company" there are only two.
The two suits were filed last year by a pair of California-based Shakey's franchisees who accused Shakey's, Inc. of negligent misrepresentation, breach of contract, fraud and other charges. The plaintiffs are John McNulty, a one-store franchisee, and Sterling Foods, a five-store franchisee company owned by Mick Clark. (See related stories, A Shadow Over Shakey's and Franchisee, consultant question Shakey's solvency.)
Sing wrote that after both McNulty's and Clark's 20-year franchise agreements with Shakey's expired in 2000, both men refused to accept new franchise agreements proposed by Inno-Pac, but have been allowed interim extensions.
McNulty told PizzaMarketplace.com that Sing's claims do not reveal the whole truth, saying specifically that Inno-Pac presented contracts that weren't negotiated with Shakey's franchisees.
"They ... told us to sign it or leave the system," said McNulty. "This was a contract that was wholly unacceptable, and they had been told that it was unacceptable by Craig Claussen, who was then (in 2000) president of the Shakey's Franchised Dealers Association." McNulty became the SFDA president in August of 2002.
The "terms of it were onerous," McNulty added, saying that Inno-Pac continually avoided negotiations despite repeated franchisee attempts to engage the company in discussions.
Inno-Pac's Sing also accused McNulty and Clark of suing the company in order to gain "the assets of the Company or Shakey's, which are its trademarks and trade names as settlement."
McNulty called the accusation "completely false."
"Mick and I have made no such claims," he added. "What we want and expect is our damages. There is never a time when we said we wanted to be franchisors."
Clark's Sterling Foods is seeking approximately $6 million in damages, and McNulty is seeking approximately $2 million.
The BT report stated that at least one Inno-Pac director traveled to the U.S. in 2001 to discuss a possible plan to turn Shakey's into a U.S. corporation. In the plan, Shakey's franchisees could take equity positions in the company by pledging their stores to it.
In an e-mail to Ng, which was published by BT, McNulty wrote, "We saw this proposal as their attempt to rescue Inno-Pac, and use our assets to protect their debt liability."
"This was a contract that was wholly unacceptable, and they had been told that it was unacceptable ... the terms of it were onerous."
BT also reported that McNulty mentioned a separate proposal to allow Shakey's Inc. to file for bankruptcy was put forth by Malaysian businessmen Soh Chee Wen and Patric Lim Hong Koon.
In his response to the BT report, Sing wrote, "The Company is not aware of and has not endorsed any plan or proposal" to turn Shakey's into a U.S. company that franchisees could own. Additionally, he wrote, "Neither the company nor Shakey's Inc. is aware of or is a party to the proposal from Malaysian businessmen Soh Chee Wen and Patric Lim mentioned by Mr. McNulty."
McNulty responded by saying that Inno-Pac representative, Queck Lan, came to the U.S. in December of 2001 to discuss such matters with him, Clark and Randy Hill, president of Los Angeles-based Jacmar Restaurant Group, which operates 19 Shakey's in Southern California. Queck, he said, asked the men to "release our claims in exchange for an equity position for a new IPO company."
Though the late May court date for the lawsuits was not mentioned in the BT report, Sing asserted that "Shakey's has an excellent chance of prevailing, as it has been successful in winning previous motions filed by the plaintiffs." His reference was to the U.S. court's denial of an injunction, filed by lawyers for both Shakey's franchisees, to force Shakey's, Inc., to stop sending royalty money to Inno-Pac in Singapore.
McNulty countered that the judge's denial of the injunction was of little consequence.
"What (the judge) said was the court would not prevent them from sending money back -- if there were some to send," said McNulty. "The irony here is that Shakey's should have agreed to the injunction, as it would help them retain their assets."
In an e-mail sent by McNulty to both BT and PizzaMarketplace.com, he indicated that and he and other franchisees believe Shakey's is insolvent. McNulty stated that the pizza company's balance sheet contains an $8.5 million receivable from Monarch Foods, Inc., an Inno-Pac subsidiary "that has no assets and ceased doing business years ago. Taking that 'asset' away, Shakey's has a negative net worth."
Included in Sing's statements was criticism of Alan Siskind, a consultant hired by Shakey's to revive the ailing brand. Sing wrote that Siskind "is a disgruntled ex-consultant and he has violated his consultancy confidentiality agreement by providing information to the plaintiffs... ." He also accused Siskind of "making defamatory and libelous statements to the media about Shakey's Inc. and the Company in recent weeks."
Throughout 2001, Siskind worked for Shakey's to develop new products and marketing strategies, and was directed to persuade franchisees McNulty and Clark to settle their cases out of court. His consultancy contract was not renewed when it expired at the end of 2001.
Siskind told PizzaMarketplace.com that he wasn't surprised by Sing's comments, but firmly denied defaming or libeling his former employers or violating any confidentiality agreements.
"After I was terminated, the information I provided to the plaintiffs was through the deposition process," said Siskind, adding that Shakey's violated his consultancy contract in which it agreed to provide him legal representation for such disputes. "So I gave the deposition and had contact with the plaintiffs without the required legal counsel."
Additionally, Siskind said the only confidentiality agreement he recalled signing was one drawn up after he created Shakey's Triplets products (essentially miniature versions of popular Shakey's menu items).
"That was signed four or five months after my consultancy started," Siskind said. "To the best of my knowledge I haven't violated my contract."
Siskind created Triplets to fit a more streamlined, kiosk-type Shakey's format that would be deployed in malls, airports and shopping centers. He also envisioned Triplets would someday be sold from grocers' freezers.
Though the Triplets items were developed and introduced to franchisees last September, none have been market tested or rolled out in any existing Shakey's restaurant.