Questionable accounting has franchisees pondering action against Shakey's, Inc.

June 2, 2002

LOS ANGELES -- Concerned that Shakey's, Inc., has misappropriated funds collected through product purchase rebates, board members of the Shakey's Franchised Dealers Association (SFDA) agreed on May 9 to consider possible legal action against the company.

Shakey's, Inc., based in Garden Grove, Calif., currently faces two franchisee lawsuits accusing the company of fraud, negligent misrepresentation and breach of contract. Both nearly identical suits will be heard simultaneously beginning May 28, in the California's Superior Court in Los Angeles.

In an e-mail to, SFDA president John McNulty, a one-store Shakey's franchisee in El Monte, Calif., and one of the franchisees suing the company, said the board members "have informally authorized the SFDA Board to begin gathering information necessary for filing an additional action over the misdirection of funds from the purchasing program -- monies that were (and are) held in trust for the benefit of franchisees."

Typically such monies are reinvested in brand and product development initiatives, but according to McNulty, franchisees believe the company has failed to do so. Additionally, McNulty wrote that Shakey's has ignored three separate SFDA requests to explain the monies' whereabouts.

At press time, an attempt to speak with Shakey's president Sean Flynn was unsuccessful.

In multiple published reports, Inno-Pacific Holdings, Ltd., Shakey's Singaporean parent company, has denied any wrongdoing by it or Shakey's.

Should franchisees seek damages, McNulty said that collective damages would amount to only slightly more than $100,000, but that "the franchisees are rightfully angry ... and I intend to support the Franchisees who elected me to serve their interests."

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