In August 2005, former franchise sales director Anne Wheatley filed suit, alleging she was denied promised stock options in Moe’s and Mama Fu’s.
“They are trying to argue she is not entitled to be a stockholder,” says plaintiff’s attorney Bob Casey, who is also representing Mama Fu’s and Moe’s franchisees in two separate actions.
Raving Brands claims Wheatley had restricted shareholder agreements, which were not “in place when she was an employee,” Casey says. “I think Martin tried to attract a lot of people to the company with stock options.”
Sprock says that is not true, alleging Wheatley is the “only person who has ever left Raving Brands and said she had unrestricted stock, meaning she is different than everybody else,” Sprock says. “Not one person has ever claimed the rights she is claiming.”
Wheatley requested 50,000 shares of Moe’s stock and 50,000 shares of Mama Fu’s stock. According to her 2004 Schedule K-1 (IRS Form 1120S), Wheatley indeed had deductions taken from her accounts, with a 0.43 percentage of stock ownership for the tax year. The tax documents do not say, however, whether the deductions were for restricted stock.
In February 2005, two months before Wheatley requested her dividends, Raving Brands’ tax accountant advised management to revise shareholder options to help franchise expansion goals.
“As Raving Brands concepts expand, it is necessary for each new concept to be properly capitalized with shareholder equity,” wrote Mark Burns, certified public accountant, in an email to Matt Andrew, Moe’s brand leader. “Inadequate capitalization of a concept will prevent registration in certain states which impairs the sales of new franchisees in new territories.”
Casey believes Raving Brands officials may have coerced employees to change their stock-option agreements, because lawyers told them “they’re basically giving the company away.”
On April 6, Raving Brands motioned for a summary judgment, and the courts have yet to make a decision.
Sprock contends there’s been no wrongdoing in any of the litigation.
“It’s unfortunate that some people get recruited by an attorney and sue you—that’s just the way some people operate,” Sprock says.
Casey says the franchisees and Wheatley approached him.
“The suggestion that I have solicited or recruited people is preposterous,” Casey says. “My clients are smart people, the kind who wouldn’t fall for a slick lawyer. But they clearly needed legal representation.”