Heidi’s Suit Claims Franchisees’ Action Is Jeopardizing Sale

Heidi’s Frogen Yozurt Shoppes has filed a lawsuit accusing three franchisees of jeopardizing a proposed sale of the company to Steve’s Homemade Ice Cream.

The lawsuit is an outgrowth of a bitter battle with franchisees that has plagued Heidi’s for months. It was filed Nov. 23, one day after the Laguna Hills company announced that Steve’s, a New York-based chain, had signed a preliminary agreement to acquire Heidi’s.

According to papers filed in U.S. District Court in Santa Ana, 30 franchisees representing more than 40 Heidi’s outlets terminated their franchise agreements in early November. Most of those franchisees have since rejoined the chain, said Gerald T. Grenert, an Encino attorney who represents some franchisees.

The franchisees who have been sued have been outspoken critics of Heidi Miller, the body builder who founded the company. They are former Heidi’s executive John T. (Terry) Eubanks and his wife, Tina Eubanks; Coldwell Banker executive Howard B. (Buck) Jones and his wife Kitty, who have two stores, and Skip Villerot, owner of three Heidi’s stores and former president of the Assn. of Heidi’s Franchisees.

Unfair Competition

The action accuses the franchisees of unfair competition, breaching contracts and interfering with Heidi’s economic advantage and service marks. A service mark is similar to a trademark.

Eubanks and Villerot declined to comment on the lawsuit. Jones could not be reached for comment.

But James Toledano, an Irvine attorney who represents the three defendants, denied the lawsuit’s allegations.

“We’re prepared to respond to whatever is tossed at us,” Toledano said. “If it’s a hand from Steve’s saying they want us back and they’ll clean up Heidi’s act, we’ll respond. Right now, the only thing is litigation. . . . (But) we’re not interested in being part of an organization that is run by Heidi (Miller) and Brian Pallas.”

Pallas is an associate of Miller. Together they own about 86% of Heidi’s stock. Neither Miller nor Pallas could be reached for comment.

No Interest in Suits

The chairman of Steve’s, Richard E. Smith, said his company had nothing to do with the lawsuit. “Certainly, we’d like to see whatever could be resolved be resolved,” Smith said. “We’re not interested in lawsuits.”

Steve’s is still continuing its investigation of Heidi’s to determine whether it wants to buy the company, Smith said. He added that it is still too early to decide whether the deal will go through.

Toledano, the franchisees’ attorney, said he does not know if Smith and his company influenced the decision to file the lawsuit.

According to the suit, the defendants were among the group of franchisees who terminated their franchise agreements on Nov. 6.

According to Grenert, the group’s action was “a plan initiated before anything concrete about Steve’s was in the picture.” Toledano said the franchisees “basically were pushed to the wall . . . their unhappiness with management is a matter of historical record.”

According to the lawsuit, the three franchisees who have been sued then continued to use the Heidi’s name on signs, window decals, name badges, posters, wallpaper cups, bags, and napkins.

Detailed Instructions

The lawsuit also said they continued to serve Heidi’s proprietary fruit toppings such as “peaches plus,” Heidi’s hot toppings and “secret syrups,” and Heidi’s proprietary yogurt.

The suit accuses the defendants of trying to induce other Heidi’s franchisees to break their franchise agreements. They conspired to “force Heidi’s into bankruptcy” and gave other franchisees detailed instructions on how to terminate their businesses, the suit said.

Furthermore, the suit states, the defendants used intimidation to persuade other franchisees to join their conspiracy and influenced one supplier--Southwest Traders Inc.--to stop producing new supplies of Heidi’s proprietary yogurt formula.

The suit said the defendants tried to interfere with the Steve’s deal possibly to “begin a new, competing company under defendants’ leadership.”

The franchisees have contended that Heidi’s falsely represented that its yogurt was a formula originated by Miller and exclusive to the company. Instead, the franchisees said, the low-fat product was bought by Heidi’s from Honeyhill Farms then sold to the franchisees as the company’s own recipe.

‘Shotgun Approach’

The defendants’ attorney, Toledano, called the allegations “a shotgun approach” and said he doubts that his clients want to start a competing company.

He criticized the lawsuit for its “inconsistent approach” because Heidi’s has claimed in the past that the franchisees could not lawfully quit their franchise agreements.

“This is the first time that we’ve heard they accept those terminations,” he said.

What the defendants want, Toledano said, is to continue their businesses--without Miller. “They want to get on their relationship with the franchiser . . . with people who can do the job,” he said. “What they want is to get this mess over with.”

The lawsuit seeks unstated treble damages and attorney’s fees and asks that the defendants be restrained from using Heidi’s name and interfering with the company.