superiorcourtofthestateofwashington ......2 bundylawfirm pllc 5400 carillonpoint kirkland, wa...

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individual, Pizza For 4 Kings Corp, a Florida

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8SUPERIOR COURT OF THE STATE OF WASHINGTON

In and For Clark County9

DTD Pizza LLC, a Texas Limited Liability

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)))))))))

couple, DDB Enterprises, Inc., a Texas )

Corporation, Douglas and Lesia Billing, a married ~

couple, Rob & Bud's Pizza, an Missouri Limited )

Liability Company, Robert J. Dickerson Trust UA ~

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

Corporation, Alamo Quality Pizza I, LLC., a Texas)

Limited Liability Company, Alamo Quality Pizza ~

COMPLAINT FOR VIOLATION OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD, NEGLIGENT MISREPRESENT ATION ANDBREACH OF CONTRACT - I

10Company, Brian Watson, an individual, Alton

11 Spears, an individual, LMP Enterprises LLC, a

12 Texas Limited Liability Company, AD Pizza

Enterprises LLC, a Texas Limited Liability13

Company, Alan and Denise Barnett, a married

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17 dtd 2-18-98, Rob Dickerson, an individual, 4LM

18Enterprises, Inc., a Texas Corporation, Jana and

Randell Liles, a married couple, Ben and Kim19 Mayfield, a married couple, SEAMS Holdings,

20 LLC, a Texas Limited Liability Company, Scott

21and Erica Shelby, a married couple; Robert

Hoersting, an individual, PM Savannah LLC, a22 Georgia Limited Liability Company, James and

23 Mona King, a married couple, Hans King, an

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Case No.: 14-2-00904-0

COMPLAINT FOR VIOLATION OFWASHINGTON FRANCHISE INVESTMENTPROTECTION ACT, FRAUD, NEGLIGENTMISREPRESENT ATION AND BREACH OFCONTRACT

BUNDYLAWFIRMPLLC5400 Carillon Point

Kirkland, WA 98033-7357425-822-7888

III, LLC., a Texas Limited Liability Company, )

Gerardo Torres, an individual, George Knost, an ))

2 individual, Arkel Food Services, LLC., a )

Louisiana Limited Liability Company, Reece )3 )

Alexander Overcash, III, an individual, Angelo S. )4 )Chantilis, Jr., an individual, Double AA Partners,

)5 LLC., a Texas Limited Liability Company, Jeffrey)

L Cornish, an individual, John Stalker, an )6 )

individual, and Papa's of Tennessee, LLC., a )7 )Tennessee Limited Liability Company

)8 Plaintiffs, )

vs. )9 )

Papa Murphy's International LLC, a Delaware )10

Limited Liability Company, Papa Murphy's ))

11 Company Stores, Inc., a Washington Corporation, )

12 PMI Holdings, Inc., a Delaware Corporation, Papa ~

Murphy's Intermediate Inc., a Delaware )13

Corporation, Papa Murphy's Holdings, Inc., a ))

14 Delaware Corporation, Lee Equity Partners, LLC., )

a New York Limited Liability Company, John D. )15 )

Barr, an individual, Ken Calwell, an individual, )16 Thomas H. Lee, an individual, Yoo Jin Kim, an )

)17 individual, Benjamin Hochberg, an individual, )

John D. Schafer, an individual, Achi Yaffe, an )18 )

individual, Janet Pirus, an individual, Victoria )19 Blackwell, an individual, Gail Lawson, an )

)20 individual, Dan Harmon, an individual, Scott )

21Mullen, an individual, Jayson Tripp, an individual, )

)Kevin King, an individual, Stephen Maeker, an )

22 individual, Steve Millard, an individual, ))

23 Defendants ))

24 ))

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COMPLAINT FOR VIOLATION OF WASHINGTON BUNDY LAW FIRM PLLCFRANCHISE INVESTMENT PROTECTION ACT, 5400 Carillon PointFRAUD,NEGLIGENT MISREPRESENTATION AND Kirkland, WA 98033-7357BREACHOF CONTRACT - 2 425-822-7888

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BUNDY LAW FIRM PLLC5400 Carillon Point

Kirkland, WA 98033-7357425-822-7888

A. Factual Overview

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

3 Papa Murphy's franchises through fraudulent disclosure documents, misleading

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

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

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

7 their promises to support franchisees. Instead the Defendants misrepresented the

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

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

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

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

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

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

14 nightmare.

B. Parties15

16 Plaintiffs

17 2. Plaintiff DTD Pizza LLC is a Texas Limited Liability Company with its principal place

18 of business in Rowlett, Texas, which owned and operated ten Papa Murphy's franchises

19 at relevant times. Plaintiffs Brian Watson and Alton Spears are the Managing Members

20 of DTD Pizza LLC and are also guarantors of its liabilities and obligations under the

21 relevant franchise agreements (hereinafter collectively Plaintiffs Watson).

22 3. Plaintiff LMP Enterprises LLC is a Texas Limited Liability Company with its principal

23 place of business in Fort Worth, Texas, which owned and operated a Papa Murphy's

24 franchise outlet at relevant times. Plaintiffs Alan and Denise Barnett are the managing

25 members of LMP Enterprises LLC and are also guarantors of its liabilities and

COMPLAINT FOR VIOLATION OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD, NEGLIGENT MISREPRESENT ATION ANDBREACH OF CONTRACT - 3

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Kirkland, WA 98033-7357425-822-7888

obligations under the relevant franchise agreements (hereinafter collectively Plaintiffs

Barnett).

3 4. Plaintiff AD Pizza Enterprises LLC is a Texas Limited Liability Company with its

4 principal place of business in Fort Worth, Texas, which owned and operated a Papa

5 Murphy's franchise at relevant times. Plaintiffs Alan and Denise Barnett are the

6 managing members of AD Pizza Enterprises LLC and are also guarantors of its

7 liabilities and obligations under the relevant franchise agreements, in addition to owning

8 and operating PlaintiffLMP Enterprises (hereinafter collectively Plaintiffs Barnett).

9 5. Plaintiff DDB Enterprises, Inc. is a Texas Corporation with its principal place of

JO business in Wichita Falls, Texas, which owned and operated two Papa Murphy's

II franchises at relevant times. Plaintiffs Douglas and Lesia Billing are the President and

12 V ice President, respectively, of DDB Enterprises, Inc. and are also guarantors of its

13 liabilities and obligations under the relevant franchise agreements (hereinafter

14 collectively Plaintiffs Billing).

15 6. Plaintiff Rob & Bud's Pizza LLC is a Missouri Limited Liability Company with its

16 principal place of business in Missouri, which owned and operated 13 Papa Murphy's

17 franchises in Arkansas, Kansas and Missouri at relevant times. Robert 1. Dickerson Trust

18 UA dtd 2-18-98 is the owner of Rob & Bud's Pizza LLC. Rob Dickerson is the managing

19 member of Rob & Bud's Pizza LLC. Rob Dickerson and Robert 1. Dickerson Trust UA

20 dtd 2-18-98 are guarantors of its liabilities and obligations under the relevant franchise

21 agreements (hereinafter collectively Plaintiffs Dickerson).

22 7. Plaintiff 4LM Enterprises, Inc. is a Texas Corporation with its principal place of

23 business in Keller, Texas, which owned and operated a Papa Murphy's franchise at

24 relevant times. Plaintiffs Jana and Randell Liles and Kimberly and Ben Mayfield are

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COMPLAINTFOR VIOLATION OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD,NEGLIGENT MISREPRESENTATION ANDBREACHOF CONTRACT - 4

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officers of 4LM Enterprises, Inc. and guarantors of its liabilities and obligations under

the franchise agreement (hereinafter collectively Plaintiffs Liles).

8. Plaintiff SEAMS Holdings LLC is a Texas Limited Liability Company with its principal

place of business in Carrolton, Texas, which owned and operated a Papa Murphy's

franchise at relevant times. Plaintiffs Scott and Erica Shelby are the managing members

of SEAMS holdings LLC and are guarantors of its liabilities and obligations under the

franchise agreement (hereinafter collectively Plaintiffs Shelby).

9. Plaintiff PM Savannah LLC is a Georgia Limited Liability Company with its principal

place of business in Savannah Georgia, which owned and operated 4 Papa Murphy's

franchises at relevant times. Plaintiff Robert Hoersting is the managing member of PM

Savannah LLC and is the guarantor of its liabilities and obligations under the franchise

agreements (hereinafter collectively Plaintiffs Hoersting).

10. Plaintiff Pizza For 4 Kings, Inc., is a Florida corporation with its principal place of

business in St. Augustine, Florida, which owned and operated three Papa Murphy's

franchises at relevant times. Plaintiffs Hans, James and Mona King are officers of Pizza

For 4 Kings and are the guarantors of its liabilities and obligations under the franchise

agreements (hereinafter collectively Plaintiffs Kings).

11. Plaintiffs Alamo Quality Pizza I, LLC and Alamo Quality Pizza III LLC, are Texas

limited liability companies with their principal place of business in San Antonio, Texas,

which owned and operated two Papa Murphy's franchises at relevant times. Plaintiff

Gerardo Torres is the managing member of all three companies and is guarantor of their

liabilities and obligations under the franchise agreements (hereinafter collectively

Plaintiffs Torres).

12. Plaintiff Arkel Food Services, LLC., is a Louisiana limited liability company with its

principal place of business in Baton Rouge, Louisiana, which owned and operated



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eleven Papa Murphy's franchises at relevant times. Plaintiff George Knost is the

managing member and the guarantor of its liabilities and obligations under the franchise

agreements (hereinafter collectively Plaintiffs Knost).

13. Plaintiff Double AA Partners LLC., is a Texas limited liability company with its

principal place of business in Arlington, Texas, which owned and operated three Papa

Murphy's franchises at relevant times. Plaintiffs Reece Alexander Overcash, III, and

Angelo S. Chantilis, Jr. are its managing members and guarantors of its liabilities and

obligations under the franchise agreements (hereinafter collectively Plaintiffs

Overcash).

14. Plaintiff Papa's of Tennessee, LLC is a Tennessee limited liability company, which

owned and operated nine Papa Murphy's franchises at relevant times. Plaintiffs Jeffrey

L Cornish and John Stalker are its managing members and guarantors of its liabilities

and obligations under the franchise agreements (hereinafter collectively Plaintiffs

Cornish).

Defendants

15. 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.

16. 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 PM!.

17. 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.



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18. 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.

19. 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.

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

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

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

12 Additionally, Defendant Equity exerts significant control over the operations of

13 Defendant PMI including controlling the appointment and approval of executives and

14 board members of Defendant PMI.

15 PM! Officer or Director Defendants

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

Defendant PMI. 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.


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

PM!. On information and belief she is a resident of Washington.

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

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

5 Defendant PM!. On information and beliefhe is a resident of New York.

6 e. Defendant Y00 Jin Kim is and was at relevant times a Director of Defendant PM!. On

7 information and beliefhe is a resident of New York.

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

9 PMI. On information and beliefhe is a resident of New York.

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

11 On information and belief he is a resident of Massachusetts.

12 h. Defendant Achi Yaffe is and was at relevant times a Director of Defendant PM I,

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

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

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

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

17 California.

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

19 information and belief he is a resident of Washington.

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

21 information and belief he is a resident of Texas.

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

23 and belief he is a resident of Washington.

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

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

COMPLAINT FOR VIOLATION OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD, NEGLIGENT MISREPRESENTATION ANDBREACH OF CONTRACT - 8

PMI Franchise Sales and Development Defendants

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22. 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.

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

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

FDDs) which included fraudulent financial performance representations, misstatements

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

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

to the Plaintiffs.

24. 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.

25. 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.

26. 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.

27. At all relevant times, the Franchise Sales and Development defendants were "person[sJ"

as defined by RCW 19.100.0 IO(13). At relevant times, the Franchise Sales and


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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 beliefhe 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.

c. Jurisdiction and Venue

28. 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.

29. 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.

30. 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

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

franchise agreements with Defendant PM!. They operated Papa Murphy's Take and

COMPLAINT FOR VIOLA nON OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD, NEGLIGENT MISREPRESENT AnON ANDBREACH OF CONTRACT - 10


Kirkland, WA 98033-7357425-822-7888

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COMPLAINT FOR VIOLA nON OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD, NEGLIGENT MISREPRESENT ATION ANDBREACH OF CONTRACT - 11


Kirkland, WA 98033-7357425-822-7888

Bake pizza franchise outlets throughout Arkansas, Florida, Georgia, Kanas, Louisiana,

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

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

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

5 Plaintiff has devoted extensive personal and financial resources including 401 (k) assets

6 and other retirement savings to their businesses.

7 32. Prior to Plaintiffs investing in a Papa Murphy's franchise, Defendant PMI provided

8 some of the Plaintiffs with a Franchise Disclosure Document (hereinafter FDD). Under

9 state and federal law, franchisors are required to provide prospective franchisees with an

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

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

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

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

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

15 "Disclosure Requirements and Prohibitions Concerning Franchising and Business

16 Opportunities" Rule (hereinafter FTC Rule) and the Washington Franchise Investment

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

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

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

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

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

22 34. The Washington State Supreme Court has held that for the purpose of FIP A, a material

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

24 choice of action in the transaction in question."

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COMPLAINTFOR VIOLAnON OF WASHINGTONFRANCHISE INVESTMENT PROTECTION ACT,FRAUD,NEGLIGENT MISREPRESENTAnON ANDBREACHOF CONTRACT - 12


Kirkland, WA 98033-7357425-822-7888

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

performance of its franchises and required advertising "contributions" during the

3 operation of the franchises in violation ofFIPA, the FTC Rule! and Washington state

4 common law.

5 Facts Related to Unlawful Financial Performance Representations in Item 19

6 36. Item 19 of the FDD was titled "Financial Performance Information" and consisted of

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

8 profits of Papa Murphy's outlets.

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

10 Guidelines as adopted by the Washington Department of Financial Institutions pursuant

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

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

13 substantiation of the claim. Such claims are called "financial performance

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

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

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

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

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

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

20 franchisee."

21 39. System Stores disclosures: In or about April of2007, Defendant PMI began providing

22 prospective franchisees with FDDs that included Item 19 financial performance

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

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Kirkland, WA 98033-7357425-822-7888

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

3 through all of the relevant year. The "System Stores" were separated into three equal

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

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

6 of system stores.

40. At no point in the FDD or at any other point during the franchise sales process did7

8 Defendant PMI or any other Defendant disclose to Plaintiffs that the overwhelming

9 majority of stores in the lowest performing tier were located in the same geographic

10 region in which Plaintiffs were considering purchasing franchises.

11 4l. Benchmark Stores disclosures: In April 2012, the Defendant PMI added another table

12 to Item 19 of the FDD titled "Benchmark Costs." In the "Benchmark Costs" table,

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

14 average sales, operation cost and profits for each tier of "Benchmark Stores." The

15 "Benchmark Stores" whose data was included in the table represented only a fraction of

16 the outlets in the franchise system. The "Benchmark Costs" table was the only place in

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

18 annual profits for its franchised outlets.

19 1. The average gross annual sales ofthe "Benchmark Stores" were

20 approximately $50,000 per year higher than the "System Stores" regardless of

21 performance tier.

22 11. The "Benchmark Stores" only represented between one half and two thirds of

23 the franchised and company owned outlets.

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111. Defendant PMI stated that the "Benchmark Stores" subset was made up of

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

3 appropriate format."

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

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

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

7 accounting company to prepare their profit and loss statements during their

8 first year of operation.

9 v. On information and belief the vast majority of Papa Murphy's franchises

10 located in the Plaintiffs' region were not "Benchmark Stores" and were not

II included in the table. On information and belief, the overwhelming majority

12 of the "Benchmark Stores" were located in regions in which Papa Murphy's

13 franchises are successful, mainly the Pacific Northwest and North East.

14 VI. At no point did any of Defendants disclose that the "Benchmark Costs" table

15 presented financial performance representations based on outlets that shared

16 characteristics (geographical location) that were materially different from the

17 Plaintiffs' possible franchises.

18 vii. At no point did any of the Defendants disclose that the "Benchmark Stores"

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

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

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

22 table were dramatically inflated and not representative of either the Papa

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

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Facts Related to Required Advertising Expenditures

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42. 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.

43. 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").

44. 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."

45. 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.

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

explained that, if the Defendant PM! 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.

47. 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."

48. 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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49. Advertising Cooperative fees where applicable, print marketing fees, and promotional

marketing purchases were all deducted by Automated Clearing House transfer

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

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

5 authorize ACH transfers using the form provided to them by Defendant PM!. Plaintiffs

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

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

50. Despite the representations in the FDDs and the franchise agreements, the Plaintiffs8

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

10 expenditures.

11 51. Advertising Expense Claims by Advertising Cooperative Plaintiffs:

12 a. Certain of the Plaintiffs have been required by Defendant PMI to participate in and

13 pay fees to advertising cooperatives. These include: Plaintiffs in the Dallas, Texas

14 area (Plaintiffs Liles, Watson, Shelby and Barnett); Plaintiffs in the Jacksonville,

15 Florida area (Plaintiffs Kings); (collectively Advertising Cooperative Plaintiffs).

16 b. Mandatory "contributions" to the advertising cooperatives are set by Defendant PMI

17 and are collected by Defendant PMI or its agents by ACH from Plaintiffs' business

18 bank accounts.

19 c. Some Advertising Cooperative Plaintiffs were required to participate in the "Model

20 Market Program." Under the program Defendant PMI would reduce the National Ad

21 Fund contribution paid by franchises by half a percent and the Ad Group would

22 increase the franchisees' Advertising Cooperative fees from 5% of net sales (the full

23 amount of the required local marketing expenditure) to 6% of net sales in exchange

24 for increased national advertising fund marketing in their region.

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d. Some of the Advertising Cooperative Plaintiffs agreed to the increased Advertising

Cooperative fees the first year but were dissatisfied with the results. The second year

3 of the program the Dallas Plaintiffs voted against the increased Advertising

4 Cooperative fees (although the Ad Group approved it by a narrow majority). Despite

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

6 expenditure stated in the franchise agreements, Defendant PMI through its agent

7 continued to transfer 6% of net sales from the respective Plaintiffs' franchise accounts

8 via ACH.

9 e. In addition to the required advertising cooperative fees, the Advertising Cooperative

10 Plaintiffs are required to participate in all of the other local advertising programs

II designated by Defendant PMI-without being credited for money paid to the

12 Advertising Cooperative and without regard to whether the mandatory spending

13 exceeds the amount contained in the franchise agreements and disclosed in the FDD.

14 52. Advertising Expense Claims By All Plaintiffs:

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

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

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

18 $266.49 and $4,153.95.

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

20 coupons and newspaper inserts from vendors designated by Defendant PM!.

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

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

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

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

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

as text messaging programs and to purchase additional promotional materials from

3 vendors designated by Defendant PMI.

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

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

6 messaging campaigns, promotional materials and Advertising Cooperative fees often

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

8 have been required to spend as much as 9% to 10% of net sales on required local

9 marketing during certain periods.

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

11 never offset the Plaintiffs required advertising fund contribution, print media

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

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

14 an offset as required by the franchise agreements.

15 g. All Plaintiffs are required to participate in an pay for all required local marketing

16 programs without regard to whether the mandatory payments exceed the amount

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

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

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

20 their ACH payments.

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

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

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

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

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

2 would be required to spend as much as twice the amount stated in the FDDs or in the

3 franchise agreements (or more) on required local marketing expenditures.

4 J. At no point in the sales process did the Defendants disclose to Plaintiffs that

5 franchises in their region were required to spend almost twice the amount on local

6 advertising described in item 6 of the FDD to achieve the store performance set forth

7 in Item 19. There was certainly no disclosure that franchisees in their region were

8 required to spend approximately twice the amount on local advertising described in

9 Item 6 of the FDD in order to achieve the approximately 40% lower store

10 performance for the relevant region that was not disclosed in the FDD as required by

11 law.

12 Facts Related to Unlawful Waiver ofFIPA Rights

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53. 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."

54. 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

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



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

2 19.100.220(2).

3 Facts Related to Plaintiff Watson's Dough Center

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55. In 2011, Plaintiff Watson attempted to reduce his labor costs by consolidating his dough

production into a single production center in one of his franchised stores. At relevant

times, individuals employed by Defendant PMI toured Plaintiff Watson's test facility

and approved the standards and quality of the dough. Based on this approval, Plaintiff

Watson built out and equipped new space in his Rowlett, Texas outlet, at significant

expense. Between 2011and 2012, Regional Vice Presidents, Market Leaders, Market

Coaches and training personnel of Defendant PMI toured the facility. Defendant PMI

even assisted by helping him design operations and administrative processes for the

dough center.

56. Each representative of Defendant PMI who toured the Rowlett facility expressed their

approval and satisfaction with Plaintiff Watson's Dough Center and his plans to provide

dough to other Papa Murphy's franchisees on a cost recovery basis.

57. In February of2012, Gail Lawson and Jerry Defeo toured the Rowlett facility and

approved Plaintiff Watson's use of this dough production facility for all of his

franchises.

58. Plaintiff Watson shared his plans to sell dough made at his production center to other

franchisees in the area. At its peak, Plaintiff Watson's dough center was providing

dough to 16 franchise outlets including Plaintiff Watson's outlets and those of five other

franchisees.

59. After the success of his dough center test and Defendant PMI's approval, Plaintiff

Watson entered into a new Multi Store Agreement, with Defendant PMI to purchase and

open more Papa Murphy's franchises. Plaintiff relied on Defendant PMI's assurances



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BUNDY LA W FIRM PLLC5400 Carillon Point

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that he would be allowed to continue operation the Dough Center when he signed the

Multi-Store Agreement in about June of2013.

3 60. After Plaintiff Watson signed the Multi-Store Agreement, Defendant PMI sent a cease

4 and desist order to Plaintiff Watson demanding that he terminate the operation of his

5 dough center, stop all dough sales to other franchisees and resume producing dough

6 individually in each store.

7 Facts Related to PMI's Failure to Provide FDDs

8 61. Under both FIPA and the FTC Rule, PMI was required to provide a FDD to each

9 Plaintiff at least 14 days before the Plaintiff signed "any binding franchise or other

10 agreement or makes any payment to the franchisor."

11 62. On May 20,2013, Plaintiff Watson entered into an agreement to purchase and develop

12 four additional franchises. Under the terms of the agreement, PMI waived the franchise

13 fee for the four additional franchises and instead would retain the $60,000 Plaintiff

14 Watson paid under a previously terminated area developer agreement.

15 63. PMI failed to provide Plaintiff Watson a FDD for the four new franchises until June 5,

16 2013, more than two weeks after Plaintiff Watson signed the agreement and PMI

17 retained payment.

18 64. The FDD provided to Plaintiff Watson was insufficient to satisfy FIPA's disclosure

19 requirement because it was relevant only to the purchase of a single unit franchise, not

20 the "multi-store commitment" Plaintiff Watson agreed to. At a minimum, FDD items 5,

21 6, 7 and 22 were deficient in that they failed to accurately describe the initial fees and

22 other fees, the estimated initial investment for the multi-store agreement and failed to

23 include a copy of the contract proposed to be signed.

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Facts Related to Defendant PMI's Retaliation

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65. On January 10, 2014, counsel sent Defendant PMI a copy of a draft of this complaint

and a letter inviting the Defendants to enter discussions about a possible resolution

outside litigation. At that time, the only listed Plaintiffs were Plaintiffs Watsons,

Plaintiffs Liles, Plaintiffs Shelby, Plaintiffs Barnett, Plaintiffs Billings, and Plaintiffs

Dickersons (collectively Original Plaintiffs).

66. On February 17, representatives of Defendant PMI (some of whom were named

individually in this suit) and their counsel participated in mediation with the Original

Plaintiffs, which the Plaintiffs were required to "submit to" by the franchise agreements.

That mediation failed to produce a settlement. Because of the contractual requirement,

by the time this complaint is filed, the newly added Plaintiffs will have "submitted" to

mediation-although the mediation will not have been conducted.

67. Since receiving notice of this complaint, Defendant PMI has instituted audits and

inspections against the Original Plaintiffs. While audits and inspections are basic

elements of the franchise system, Defendant PMI conducted audits and inspections on

the Original Plaintiffs that were dramatically different from Papa Murphy's standard

practice both in terms of timing and scope.

68. These inspections were highly subjective and appeared to be intended as harassment.

For example during one inspection, the PMI representative conducting the inspection

claimed that he could "see bacteria" and deducted points from the Plaintiffs' score

because the cookie dough in a container "didn't look right." The inspections went

significantly longer than inspections conducted prior to PMI receiving the draft

complaint and interfered with the operation of the Plaintiffs' businesses. On

information and belief, the field inspectors were instructed to "find things wrong" on the

subject inspections.



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69. The inspection reports also differed dramatically from typical PMI inspection reports.

Deductions for things that had previously been on the lowest level of enforcement were

classified as "brand critical" and "zero tolerance." In some instances, the content of the

inspection report was inconsistent with the inspector's inspection sheet which was

prepared during the inspection and a copy left with the store manager. In one instance, a

PMI inspector told a Plaintiff that he failed the inspection due to "evidence of pest

infestation" yet the inspection sheet gave satisfactory scores for pest prevention and

stated that there was "no evidence of pest infestation."

70. In the short window between the time Defendant PMI received the draft complaint and

the filing of this complaint, each and every one of the Original Plaintiffs was subjected

to some form of audit or inspection from Defendant PM!. In light of past performance,

it strains the bounds of credulity that such actions are coincidences rather than a

comprehensive pattern of harassment intended to punish the Plaintiffs for seeking legal

remedies.

E. Damages

Fraud and Misrepresentations in the Franchise SalesProcess

71. 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.

72. 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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73. Defendants' wrongful actions described herein have caused damages to the Plaintiffs in

an amount not yet fully known but which are 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

74. 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.

75. 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.

Plaintiff Watson's Dough Center

76. But for the Defendants' agreement and support of the development of Plaintiff Watson's

dough center he would not have incurred the substantial equipment and manufacturing

costs in establishing the center. Nor would he have entered into a Multi-Store

Agreement to purchase and open additional Papa Murphy's franchises. As a direct and

proximate result of Defendants' actions, Plaintiff Watson has incurred substantial

damages in an amount not yet fully known but which will probably exceed one million

dollars in equipment, leasehold liabilities and in increased labor costs and cost of goods.


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F. Discovery

77. 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. Plaintiff Watson attempted to reduce costs by building out space in

one of his franchise locations for a dough center to reduce overhead, including by

providing dough to other franchisees on a cost recovery basis.

78. 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.

79. 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 Rust Belt

states.

80. 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



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

Plaintiffs.

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

losses) until 2013. During the summer of2013, some of the Plaintiffs were involved in

preparing and gathering information for a Papa Murphy's franchisee association project.

It was at this point that the Plaintiffs realized that the Defendants had systematically

misrepresented the strength of the franchise system in the Plaintiffs' region and that

despite complying with all marketing and advertising programs and expenditures and

operating requirements, the vast majority of franchise outlets in the Plaintiffs' region

were materially underperforming in relation to other regions, and had been throughout

the Plaintiffs' ownership of their franchises and before.

82. In the summer of2013, the Plaintiffs learned that Defendants' fraud and

misrepresentations in the franchise sales process were actionable under FIPA and

Washington state common law.

83. The Plaintiffs first discovered that their damages had been caused by the wrongful acts

and omissions of the Defendants in the summer of2013.

E. Causes of Action

FIRST CAUSE OF ACTION (Defendant PMDVIOLATION OF WASIllNGTON FRANCHISE INVESTMENT PROTECTION ACT

RCW 19.100.170(2)

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

set forth here in full.

85. 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):


BUNDY LAWFIRMPLLC5400 Carillon Point

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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.

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

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 ofRCW 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."

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'



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

sales disclosed in Item 19 of the FDD

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

4 fees and promotional purchases toward a franchise's required local marketing

5 expenditure as required by the franchise agreements.

6 87. As a direct and proximate result of Defendant PMI's violations ofRCW 19.100.170(2),

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

8 this complaint.

9 88. Because of Defendant PMI's violations ofRCW 19.100.l70(2), the Plaintiffs are

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

II common law (RCW 19.100.910).

12 SECOND CAUSE OF ACTION (Defendant PMI)VIOLATIONS OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT

13 RCW 19.100.180

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

forth here in full.

90. The acts of Defendant PMI in its relations with Plaintiffs violated RCW 19.100.l80 in

that Defendant PMI:

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

b. Imposed on the Plaintiffs required local marketing expenditures which were not

reasonable as required by RCW 19.100.180(2)(h) because they exceeded the local

marketing expenditure set forth in the FDD and agreed to in the franchise agreement;

and

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

19.100.180(2)(g).


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91. As a direct and proximate result of Defendant PMI's violations ofRCW 19.100.180,

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

this complaint.

92. Because of Defendant PMI's violations of RCW 19.100.180, the Plaintiffs are entitled

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

law (RCW 19.100.910).

THIRD CAUSE OF ACTION (Defendant PM!)FRAUD



94. The actions and omissions of Defendant PMl 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

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.

95. 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



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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.

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

remedies.

FOURTH CAUSEOF ACTION (Defendant PMI)NegligentMisrepresentation

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

forth here in full.

98. 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

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 PM!. 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.

99. 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



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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 that information. Defendant

PMI's material omissions proximately caused damages as described in this complaint.

9 100. As a result of Defendant PMI's negligent misrepresentation, Plaintiffs are entitled to

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damages and other remedies.

FIFTH CAUSE OF ACTION (Defendant PMDVIOLATIONS OF THE WASHINGTON CONSUMER PROTECTION ACT

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

forth here in full.

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

RCW 19.100.180 in that Defendant PMI failed to act in good faith, imposed required

local advertising expenditures which were not reasonable because they violated the

explicit language of the franchise agreement, and required Plaintiffs to assent to a

waiver of treble damages.

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

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

(Washington's Consumer Protection Act).

104. Defendant PMI committed the unfair or deceptive act or practice in the conduct of

Defendant PMI's trade or commerce.

105. Defendant PMI's acts and omissions affected the public interest.



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106. Defendant PMI's unfair and deceptive acts or practices were the proximate cause ofthe

2 Plaintiffs'damages.

3 SIXTH CAUSE OF ACTION (Defendant PMDBREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

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108. The actions and omissions of Defendant PMI, its employees and agents including, but

not limited to, their pattern of harassing and retaliatory store audits, inspections and

defaults, unwarranted interference with store transfers, and their bad faith withdrawal of

approval for Plaintiff Watson's dough center violated the covenant of good faith and fair

dealing implied in every contract.

109. Defendant PMI's breach was the proximate cause of Plaintiffs' damages.

SEVENTH CAUSE OF ACTION (Defendant PMD13 VIOLATION OF WASHINGTON FRANCHISE INVESTMENT PROTECTION ACT

RCW 19.100.080(1)14

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Ill. 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 sale and

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

RCW 19.100.080 (1).

112. As a direct and proximate result ofPMI's violations ofRCW 19.100.080(1), Plaintiffs

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

complaint.

113. Because of Defendant PMI's violations ofRCW 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).



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EIGHTH CAUSE OF ACTION (Defendants PMH and PMDRESPONDEAT SUPERIOR

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

3 here in full.

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

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

Defendant PMI and for the benefit of Defendant PM!.

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

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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 PM!.

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

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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 PMl

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

Defendant PMC and through Defendant PMC, of Defendant PM!.

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

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Holdings, its wholly owned subsidiary, sharing some or all of the same directors and

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.

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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



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Defendant PM Intermediate and through Defendants PM Intermediate, PMI Holdings

and PMC, of Defendant PMI.

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

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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.

NINTH CAUSEOF ACTION (Defendant PMI)BREACH OF CONTRACT


set forth in full.

122. 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

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

local marketing expenditure.

123. 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.

124. 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.



Kirkland, WA 98033-7357425-822-7888

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

2 Cooperative fees and other required local marketing and promotional purchases

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

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

5 against the required local marketing expenditures.

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

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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.

10 127. As a result of Defendant PMI's breach of contract, Plaintiffs have been charged as much

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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.

TENTH CAUSE OF ACTION <Defendant PMDPROMISSORY ESTOPPEL

128. Plaintiff DTD restates and realleges each and every allegation set forth about as though


129. Defendant PMI and other Defendants stated to Plaintiffs Watson that the dough center

was approved and that the dough produced met all quality standards. Defendants

encouraged Plaintiffs Watson to incur significant expenses in building out the new

dough center and even arranged the purchase of dough making equipment.

130. Defendants created an expectation of and thus an obligation, of Defendant PMI's

approval of the continued operation of the dough center and the transfer of dough to

other franchisees on a cost recovery basis, and thus had an obligation of treatment in

accord with this promise. Defendants' promises to Plaintiffs Watson constitute an



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implied contract in fact with Plaintiffs DTD and Watson under Washington common

law.

3 131. Defendants' acts and omissions set forth herein breached their promises and thereby

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breached their implied in fact contract with Plaintiffs Watson. Defendants' acts and

omissions also violated the Washington common law of promissory estoppel.

6 132. As a direct and proximate result of Defendants' breach of their promises to Defendants

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Watson, Plaintiffs suffered economic damage in an amount estimated to be not less than

1million dollars, or in such other amount as is proved at trial.

ELEVENTH CAUSE OF ACTION (All PM! Defendants)PERSONAL LIABILITY



134. All individual 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


BUNDY LAW FIRM PLLC5400 CarillonPoint

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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 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" 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



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

expenditure established in the relevant franchise agreement.

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.

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 ofFIPA, 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).



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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.

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

the circumstances.


Dated this April 3, 2014

By: /s/Caroline B Fichter, WSBA # 42554

[email protected]

5400 Carillon PointKirkland, WA 98033-7357TEL: 425-822-7888FAX: 206-770-6130


Kirkland, WA 98033-7357425-822-7888

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