Papa Murphy’s franchise owners who accuse the corporation of deceptive actions will be allowed to pursue some claims in their lawsuit against the take-and-bake pizza chain, a Clark County Superior Court judge decided Wednesday.
However, Judge Scott Collier also ruled partially in favor of the corporation, including determining that franchise owners who live outside Washington cannot seek fraud claims against Papa Murphy’s International under the state’s Franchise Investment Protection Act.
During a 30-minute hearing, Collier delivered nuanced rulings in a complicated case involving more than 30 franchisee groups and a corporation that has more than 1,400 outlets and that recently completed a public stock offering.
The Vancouver, Wash.-based company had asked Collier to toss out the suit. Although the judge dismissed fraud claims by out-of-state franchise owners under one part of the state’s Franchise Investment Act, he also said franchisees should be able to pursue certain allegations under another part of that state law.
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Those allegations, which can be brought forward even by franchise owners who live outside Washington, include breach of contract and negligent misrepresentation. In pursuing those claims, Collier said, franchisees must further refine their complaints by adding and sorting out crucial details and documents.
“I’m not dismissing those (claims) at this point,” Collier said. “I’m going to allow further discovery to be done by (the franchisees).
In a phone interview after Collier’s rulings, Caroline Fichter, a Kirkland attorney for the franchise owners, said the company had “asked the court to dismiss all of our claims” but that only “roughly 20 percent” were actually dismissed. That means franchise owners will amend their complaint with additional information. “Our clients are excited to tell their story,” Fichter said.
The company on Wednesday saw Collier’s rulings as advantageous to Papa Murphy’s, saying that it’s “extremely pleased” with the judge’s partial ruling against franchisees under the state’s Franchise Investment Act. In a statement emailed to The Columbian, Jayson Tipp, senior vice president of marketing, strategy and technology, said: “We are also pleased with the court’s ruling on the motion to require plaintiffs to allege their fraud claims with particularity and look forward to seeing the plaintiffs provide the details of their fraud claims as we believe the facts will prevail.”
In other rulings related to the lawsuit, Collier decided:
• Franchise owners who have yet to enter mediation, per their franchise agreements, must do so before pursuing legal claims against the company. That’s not to say their claims are dismissed, Collier said. Rather, the claims are suspended for now, he said, “until the good faith mediation is complete.”
• A motion by one group of franchise owners to force Papa Murphy’s to stop sending notices of termination to one or more franchisees also is suspended, for now, but may get a hearing if such notices continue to be sent. “I’m not denying it,” Collier said of the motion, “just reserving it.”
The suit, filed by franchise owners in Southern and Southeastern states, raises issues about lower profitability and higher costs than they had anticipated. It seeks at least $23 million in damages. It levels multiple allegations, including that Papa Murphy’s issued “fraudulent disclosure documents” and “misleading financial performance information.” Underpinning the suit is the argument that the Papa Murphy’s business model doesn’t work well outside the Pacific Northwest.
Papa Murphy’s denies the allegations, saying it has a history of good franchise relations and that it stands behind its business concept and its plans to grow.
The company, which sells take-and-bake pizza, went public in March. The company’s stock, which trades as FRSH, closed down 7 cents Wednesday at $9.28. The company’s shares have traded between $8.32 and $12.10 in the past 52 weeks.