Legal Specs

No Accident That These Two Went into Business Together

03 Apr 2008

Last year there was much to-do in the papers about a Muslim man and orthodox Jewish (Hasidic) woman going into business together in two Dunkin' Donuts franchises. Both have spouses and four young children.

Essam "Sam" Habib and Hindy "Cindy" Gluck met while she was a real estate broker showing him store locations. They decided to pool their life savings and, in 2005, opened a Dunkin' Donuts franchise on Church Avenue at East 17th Street in Flatbush, Brooklyn. In 2006 they opened another Dunkin' Donuts franchise, on Flatbush Avenue and Sixth Avenue, in Brooklyn.

Habib is the majority shareholder and Gluck owns less than 50% of the business. He goes to his mosque to pray on Fridays and she takes off on Saturdays to observe the Jewish Sabbath, leaving him in charge.

The doughnuts are brought in from a kosher bakery. On Jewish holidays, Ms. Gluck transfers her share of the business to Mr. Habib, because she is not allowed to earn money on those holy days.

Neither Habib or Gluck take any money from the profits made from selling pork products, such as bacon, sausage and ham. They give away the sales proceeds from those items.

The New York Times noted last year that because of a contract dispute, Mr. Habib and Ms. Gluck were selling their stores back to Dunkin' Donuts. But the truth is nastier. A fight broke out because Gluck tried to sell a small part of her portion of the business to two employees.

Now, Dunkin' Donuts has an interest in controlling who runs its franchised restaurants. Dunkin' makes certain that the owners and operators of its restaurants are qualified to run a first-class operation, so that they will do nothing to tarnish the Dunkin' Donuts name ' a very valuable name and trademark, indeed. Because of this almost every business franchise agreement in the world, and certainly the Dunkin' Donuts franchise agreement, provides that Dunkin' Donuts headquarters must approve any sale or transfer of ownership interest.

The point is this. While Gluck tried to sell part of her ownership interest to her employees, she could not legally do so without the approval of Dunkin' Donuts headquarters. So that any sale she made without that approval ' as was the case here ' was and is null and void. Being reasonable people, you and I would say that, there being no injury here, "No harm, no foul." But Dunkin' Donuts h.q. felt differently and sued to terminate Habib and Gluck's franchise for violation of their franchise agreement. Why would Dunkin' Donuts do this?

The owners allege, essentially, that Dunkin' is trying to rip them off. On March 23, 2008 the New York Post reported that Dunkin' Donuts offered Habib and Gluck "a munchkin-sized buyout of $400,000 for the two stores they opened - stores they could resell for $700,000 or $800,000 each. And when the partners solicited offers elsewhere, Dunkin' Donuts nixed the deals - even though the potential buyers came from a corporate-approved list . . . ".

Habib and Gluck memorialized their claim in their legal response to Dunkin' Donuts' lawsuit against them (called an Answer), a lawsuit started by Dunkin' in Brooklyn Federal court, by alleging that:

(1) Dunkin' has a "scheme . . . to sell franchises to persons seeking to better themselves in the business world";

(2) Dunkin' Donuts' franchise agreement is "one-sided, unilateral and non-negotiable";

(3) Dunkin' seeks "to find a technical violation of the franchise agreement," which is one that "does not affect the operation of the franchise or the integrity or honesty of the franchisee or the funds that [Dunkin gets]";

(4) Dunkin' deliberately looks to create a default of the franchise agreement to force franchisees to pay penalties or sell their stores, "all of which enriches [Dunkin' Donuts'] bottom line";

(5) Dunkin Donuts' conduct "is unconscionable" and violates the law and "constitutes a fraud."

What do you think, Dear Readers?

Commentary: You can't know the whole story just from newspaper accounts and reviewing court papers, but in my opinion it seems that Dunkin' is (what we used to call as kids) "dirty-fighting."


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