Krispy Kreme Loses Franchise Dispute
An arbitration panel awarded $7.9 million to two would-be California franchisees who sued Krispy Kreme Doughnuts Inc., the company said Monday.
Kevin Boylan and Bruce Newberg accused Krispy Kreme of breach of contract, intentional interference with contract and business relations and other claims after the company awarded development rights for Northern California to another group, Golden Gate Doughnuts, according to filings with the Securities and Exchange Commission.
That group is 67%-owned by Krispy Kreme.
Newberg and Boylan filed suit in Los Angeles County Superior Court in March 2000. The case was transferred to arbitration by the American Arbitration Assn.
Krispy Kreme had claimed that it had been in discussions with the plaintiffs regarding their participation in the Northern California franchise but differences regarding the terms and conditions of that participation were never resolved. Krispy Kreme said no oral agreement was reached and no written agreement was executed, according to SEC filings.
Krispy Kreme said it is reviewing its options, including further legal proceedings, but Chief Operating Officer John Tate played down that route.
“It’s just way too early to ascribe any outcome” to the company’s review of the decision, he said.
Tate said the ruling would result in a one-time after-tax charge against earnings of about 8 cents a share for the just-ended fiscal fourth quarter.
Krispy Kreme, which is based in Winston-Salem, N.C., expects to release an update on fourth-quarter sales by week’s end and will release earnings on March 18, Tate said.
BB&T; Capital Markets analyst Andrew Wolf said he doesn’t consider the news to be very negative.
“It’s a one-time charge and there are not any other pending lawsuits like this,” said Wolf, who rates Krispy Kreme shares at “buy.” Wolf doesn’t own any shares, but the company is a BB&T; investment banking client.
Shares of Krispy Kreme closed at $28.57 on Monday on the New York Stock Exchange, up 46 cents, or 1.6%, on heavy volume.
