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(FranchisePick.com) Coffee Beanery Executive Vice President Kevin Shaw had a secret so deep and dark that his company would stop at nothing to keep it hidden… even if it meant breaking the law.
The son of Coffee Beanery founder and former head of the International Franchise Association Joanne Shaw had been convicted of felony trafficing.
No, Kevin Shaw had not been convicted of drug trafficing.
He was not trafficing in arms, yellowcake uranium nor in non-fair trade Arabica beans.
No, Kevin Shaw had been caught stealing… traffic cones.
That’s right, traffic cones… those bright orange duncecaps of safety that keep schoolbuses of children from careening off mountain cliffs, and keep trucks loaded with boxes of fuzzy little puppies and baby chicks from plunging from condemned, broken bridges into the icy waters below.
It seems a few years back, Kevin was hanging out on the wrong side of the highway and fell in with a bad crowd. The kind of crowd that presses the pedestrian crossing button for sport. The kind that thinks nothing of flipping up the red flags of rural mailboxes… even when there are no stamped letters inside.
Evidently, a quick-thinking police officer pulled over Kevin and his sordid pals one evening and caught him orange-handed. Cone-sniffing dogs discovered his hidden cache. He was convicted of Grand Larceny.
The state of Maryland requires that all felony convictions by the principals of a franchise organization be disclosed in the franchise disclosure documents. For some reason, the company decided not to mention Kevin’s criminal past, as required by law. Perhaps the family’s shame was too deep to see it in writing.
Or perhaps the Coffee Beanery knew that if they disclosed this heinous act, they’d never sell another franchise again.
After all… who would purchase a franchise from a convicted cone-criminal?
Stay tuned for Part 2 of the Great Cone Caper of Kevin Shaw…
Also read:
COFFEE BEANERY: Secret Justice Franchisee Interview Part 1
COFFEE BEANERY: Secret Justice Franchisee Interview Part 2
The Coffee Beanery Franchise Woes Reported in Forbes ArticleWHAT DO YOU THINK? LEAVE A COMMENT
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Good points, gk2mom
It seems to me that there’s a problem when the business owner’s strategy is to open a “little coffee shop where the locals all gather with good cheer…”
A better strategy is “Find a need and fill it,” is it not?
If the market had no gathering spot, no coffee shop, it wouldn’t be so hard, would it?
One of the benefits of franchising is that it gives you choices to pick the type of business that fills the need in your particular market – regardless of your personal expertise.
Did these franchisees compare the need for, say, junk hauling services, temporary personnel placement, tanning salons, etc. and then decide that there was a need for a coffee and sandwich cafe?
I don’t mean to be unsympathetic, but realistically a coffee franchisor is going to sell the romance of owning a coffee franchise. The guy in the next booth at the IFE show may be selling the unromantic concept of industrial fluid recycling or windshield repair. The prospect needs to match the need in their market with the concept that fills that need and that they can afford and operate (somewhat) enjoyably.
Whoever stated, “Owning your own business is comparable to natural childbirth” is dead on. Its much more work than many think. Everyone has an “image” of the little coffee shop where the locals all gather with good cheer but reality is small business is a lonely, tough business to be in.
Quit trying to throw the red herring of the traffic cones into the discussion.
I believe that would be, technically, an orange herring.
I have to say I strongly agree with Tiffany. At least the part about my writing.
Thanks Tiffany. At least someone around here appreciates me.
Tiffany! Are you trying to change the subject and protect your interests somehow?
You don’t think there is anything illegal or immoral in tricking the public into buying franchises while hiding the risk from the buyer under cover of government regulation.
If the CB incident is not the perfect example of FRAUDULENT INDUCEMENT TO CONTRACT, it is only because the federal government decided to protect frnchisors from common law fraud in the State Courts in order to encourage franchising in the economy.
Mr. Shaw should get busted for plain, ordinary fraud in my opinion. Quit trying to throw the red herring of the traffic cones into the discussion.
You are so obvious and hopefully you will never get picked to serve on a jury! Want to bet, Tiffany, there will never be a jury trial!
Carol
First of all Sean, you are a brilliant writer. Secondly, to the franchisees involved in this. You are so caught up in your pride that you cant accept that the store failed because of you, not because of the franchisor. You read the company UFOC, as highly educated as you both are ..you should maybe be a little embarassed right now. My guess would be that neither of you have had any experience in the service industry.
Sounds to me like no one practiced any COMMON SENSE in buying their business. You really think that blaming Mr. Shaw for not letting you know he got busted sealing some Traffic cones years ago makes him a dishonest person? That is really reaching.. I sure wish I were part of the jury.
Correction: Dale Nabors is the new owner of Cuppy’s Coffee —-not CB.
What is it with all of these Coffee franchises?
Carol
It is so sad to know how many have been destoryed by franchising! Could this be avoided? Hopefully, the banks and the lenders will be alerted by the sub-prime scandal and the worst franchisors won’t be able find franchisees who can obtain loans to buy their lousy franchises.
You are right, Sean! when you say “No one should start a business if they cannot afford to fail. Period.” (Dale Nabors, the new owner of CB used to say this on Blue Mau Mau. One wonders if he lives by his own advice. He has children to educate. But, of course, he knows that the contract protects him and maybe he can afford to try to make CB a viable investment for himself.)
This is excellent advice but, of course, when push comes to shove and the prospective franchisee NEEDS a job and income, and the “risk” is obscured from view in the sales process, we see the outcome.
This is the ugly implication of The Patriot Express Loan Initiative of the SBA and I’m afraid that many VETS and/or their families are going to be hurt because they won’t understand the risk involved. I’m not against franchising if the risk is understood by the new buyer of the franchise.
Thanks for helping me to warn VETS and their families who will be looking for a way to make a living when they return to the States.
Carol
Just hours after writing about Bob Baber I learned that a failed Butterfly Life franchisee – facing mounting debt and foreclosure – took her own life.
These issues have deadly serious consequences. Franchisors need to think about the kinds of ramifications that their actions can have when they sell to people who are not equipped to deal with the consequences of business ownership.
At the same time, franchisees need to do their homework and understand the real ramifications of their decisions. No one should start a business if they cannot afford to fail. Period.
1354 days ago
[...] COFFEE BEANERY: Exec’s Trafficing Conviction Leads to Franchisee Legal Win Part 1, I recounted how Coffee Beanery V.P. Kevin Shaw’s dalliance into the secet underworld of [...]
Yes! You are right Sean! You’ve see so much of it. The deck is stacked — I understand that even more States are thinking about reducing the statute of limitations for filing claims against franchisors —because it brings franchisors into the state to stimulate the economy and help the job numbers.
It’s just a money game for the franchisors —-the Statute of Limitations has expired for many of their franchisees, etc.. and they do, of course, what is best for their bottom line.
Franchisees have to fight not only the franchisors but their insurance companies. The deck is stacked. But Insurance companies won’t pay out on “Fraud” so don’t franchisors take the risk that they might lose and be found guilty of fraud and they will not have any insurance coverage to help pay to fight the case?
Where did the $100,000 that CB paid out to the other Maryland Franchisee come from? —from Insurance or from the Coffee Beanery?
Its a pity that the courts were made part of it. When enough people lose faith in the system of justice under both criminal and civil law, they will take to the streets. Many great countries have found this out the hard way.
I never forget Bob Baber – Quiznos —and when I get discouraged and think my posting is accomplishing so little, I just read that suicide note again and keep on trying to educate and warn.
Thanks, Sean, for respecting free speech and not blocking my comments from your Site. I could tell you what I think the ABA stands for but I mustn’t be vulgar in my old age and insult their Mothers.
Since the 6th US Court of Appeals has ruled already, constructively, that the CB franchisees were fraudulently induced to contract, I don’t think this case will ever go before a jury, do you? It would appear to be in everyone’s interest to settle the matter outside of court so as to not make new case law.
I doubt CB gives a rat’s behind about whether they risk making new case law or not. If I were the franchisor, I’d be more concerned about the message I sent to all the failed, failing or struggling franchisees and franchisee attorneys who might consider taking a run at me in the future. Indicating that you’re willing to settle out of court would not be the message most franchisors would want to send.
Unfortunately for Richard and Deborah, a more effective message would be “If you take a run at us, we will tie you up in court until you’re more broke and miserable than you ever imagined you could be.”
Remember the lesson of poor Bob Baber.
I remember being in a meeting with a client who was being sued. The attorney said: “You’ve got two choices. We could settle this probably for $50,000. Or we could fight it an win for $100,000. If we settle, we’ll send a message encouraging others to sue us in the future. If we fight it, we send a message to everyone in the future that we don’t settle and we fight to the bitter end.”
The client opted to fight it… send a message that he wasn’t to be trifled with. Last I remember, his legal bill for fighting it was just over $800,000.
Attorneys don’t make big bucks for being stupid… on either side.
Sure! Sean! All of your comments are reasons that the franchisor attorney would use to indicate that it was DW’s fault that she bought the franchise because she didn’t do her DUE DILIGENCE as any intelligent person would in these circumstances —and that she wasn’t promised success or profits in the actual contract she signed.
But, of course, she couldn’t do her “due diligence” on Item 20 because there were errors and ommissions that amounted to misrepresentations according to the Maryland regulator. If it is necessary to perform due diligence outside of the voluminous red herring, the FDD, why doesn’t the government indicate that it is “unsafe” to buy a franchise without hiring expert due diligence help when they give their misleading advice “TO PROTECT YOU” WE …………
I think that DW demonstrates that very intelligent and successful people are being taken in by franchising because they think there is some government oversight of the industry —and that no franchisor would demand that kind of contract or take that kind of money unless they were selling something of “value.”
And-d-d, it doesn’t excuse the franchisor who is indulging in misrepresentations and fraud to sell an “unproven” and lousy concept to the public because they CAN!
Since the 6th US Court of Appeals has ruled already, constructively, that the CB franchisees were fraudulently induced to contract, I don’t think this case will ever go before a jury, do you? It would appear to be in everyone’s interest to settle the matter outside of court so as to not make new case law.
Carol
It appears that Audio Interview 1 and Interview 2 are the same?? Or, am I in Monday neverland?
Not sure where you are, but they’re video interviews and are not the same. #2 is a continuation of #1.
#1 has a lot of futzing around including Deborah correcting just about everything out of the Secret Justice guy’s mouth (name, marital status, etc.) His name is George McDermott and I believe he is running for President.
Personally, I don’t think Deborah comes off as very sympathetic in this video, and don’t think she’d do well in front of a jury. She may be completely correct in all she says, but she comes off as a know-it-all unwilling to acknowledge her own responsibility.
1) DW is basing her story on the fact that hers was a cerebral, logical, well-researched business decision, but it wasn’t. She decided to own a coffee shop because of a “romantic” notion of having a neighborhood “Cheers.” They didn’t look into whether it was a good business to own – or that their community had a need for a coffee shop – they had already decided. Their first choice was “Starbucks.” Well, Starbucks is closing 600 locations. If Starbucks franchised, there’s a good chance they would have failed with them too.
2) DW claims that she had read up on franchise law as part of her Due Diligence, and mentions that she believed – even before signing – that Maryland law controlled the contract. If that’s true, why did she accept illegal earnings claims and not see that clear violation of the law as a signal to immediately cease business with KS and CB?
Is she saying that an illegal earnings claim didn’t bother her, but if she had known he had stolen traffic cones she would have grabbed her checkbook and run?
3) I think it’s very hard to simultaneously impress people with your business experience and previous power and also claim to be an innocent victim. DW tells of being a powerful VP lording over an organization bigger than the Coffee Beanery, but she fell for the cheezy cocktail napkin trick and “Can you live on $125,000″?
4) Having a million dollar house with $600,000 equity does not make you sympathetic character to the average person. Just a tip before getting in front of a jury of people struggling to make payments on a $125K townhouse.
Thanks, Sean! I hope the Posting of the Audio Interview of DW of CB clarifies some points. DW is very well spoken and definitely not a dummy, huh! It appears that Audio Interview 1 and Interview 2 are the same?? Or, am I in Monday neverland?
You lean on the “due diligence angle” but those who do due diligence for prospects charge for this service, don’t they? And, is it possible for a prospective franchisee to be really safe without involving the $200.00 to $300.00 an hour attorney in the process?
Will new prospects who do their “due diligence” with experts be advised of the odds of success (profits and survivability) as demonstrated by the historical financial performance statistics of the franchisor. How do the experts get these statistics?
Franchisees should really understand the risk before they put so much at risk and we have nothing but past and present performance statistics of the units on which to assess this risk.
If prospects DO hire advisors, etc.. and the advisors give them inaccurate information and misrepresent the opportunity, do they have any legal recourse?
I’m with Les Stewart of Franchise Fool on all of this who thinks any legal recourse for franchisees is like “trying to revive a corpse” and sometimes this is the second victimization of the failed franchisees by the Bar.
And, as indicated on NOLO’s Ten Good Reasons Not to Buy a Franchise, as published in Forbes.Com., Let the Buyer Beware!
Thanks for not blocking my computer, Sean. You are a good man and you do good work in your quest to tell both sides of the story.
Carol
1354 days ago
[...] COFFEE BEANERY: Exec’s Trafficing Conviction Leads to Franchisee Legal Win Part 1 August 21st, 2008 [...]
…because the franchisee attorneys KNOW that the deck is stacked and the franchisors are protected by regulation (and the intent of The FTC Rule and the State FDD’s) from claims of fraudulent inducement and failure to disclose MATERIAL facts to new buyers, they have to look for any breach that they can find of the actual adhesory contract to get the attention of the arbitrator or the judge.
Well put.
When your dispute enters the legal system, you are now in a world with different rules, procedures and priorities. Of course, to the attorneys this makes sense. This is their country, they speak the native tongue fluently. But for those from the everyday world who find themselves suddenly in this foreign country, it’s confusing and maddening. They now in the attorney’s world, and they are dependent on these highly priced tour guides to drive them around and teach them the local customs. They pray to God they know what they’re doing as they watch the meter spinning wildly at $350 an hour.
The tourists need to realize that there’s no right and wrong in this world. There’s actionable and non-actionable. Proveable and not. Material, statutory… all the lingo you’ve picked up for your last few years dealing with all this stuff.
So, prospective franchisees need to understand that if they fail to do their due diligence, if they inadvertently invest with the wrong company or in the wrong concept, everything they assume exists (like a governmental guardian angel watching over them, or some sense of fairness, or anyone who even cares about their problems for less than $350 an hour) doesn’t.
Once they venture into the legal system, they are at a tremendous disadvantage and the odds are they are going to lose even if they win.
I think there are two things that unhappy franchisees can do to try to have some good come out of their negative experience. First, they can fight the legal battle, as Deborah & Richard are doing, in the hopes that they can not only recover money but also bring attention to the problems and prompt changes in the flawed system. I think that it’s an important and noble avenue to pursue for those who have truly been screwed over – though it may prove financially, emotionally and personally devastating.
The other way (which is not exclusive of the first) is to share the lessons they’ve learned with prospective franchisees, and to provide them with the warnings and guidance they never received. I don’t mean simply “Don’t buy a franchise” or “Don’t trust this particular franchisor,” but also: here’s what you should look for in a concept… here are things I wish we’d asked about… Here’s why this concept looked like it would work, but didn’t.
Attorney Paul Steinberg recently asked “What is it with all these coffee franchisors?” lamenting the disputes with Cuppy’s, CB, etc. The fact is, owning a coffee house (like a little “Cheers” as Deborah said) seems like an ideal business to many people. If people want to start a coffee shop, someone will be happy to sell them one. If unhappy franchisees are willing to share what they learned to the contrary, they can at least have the gratitude of some they might have steered toward more viable concepts.
Apparently, Sean! you are indicating that because the franchisee attorneys KNOW that the deck is stacked and the franchisors are protected by regulation (and the intent of The FTC Rule and the State FDD’s) from claims of fraudulent inducement and failure to disclose MATERIAL facts to new buyers, they have to look for any breach that they can find of the actual adhesory contract to get the attention of the arbitrator or the judge.
How can the franchisee attorneys penetrate that shield of safety that is provided to franchisors under regulatory policy? — except by looking for every possible breach that can be raised and raising the matter of the breaches to the courts or the arbitrator in hopes of getting compensation for their clients.
Their clients, generally, were fraudulently induced to contract but didn’t know it and signed their due process rights away in the boilerplate franchise agreement that makes it legal for franchisors to induce prospective buyers to contract by whatever means are available to them.
They have to find ways to skin the regulatory cat! —or something like that!
Sean: If you want answers to the questions you have asked, I suggest you contact the Rawelshans in Annapolis and speak with them. I will also give you another person to contact, Alan Kerr, at Kerr Insurance in Little Rock, Arkansas. If you can’t find him, let me know. There are also many, many others that have gone out of business.
…what is the point and the advantage to DW of discussing the deficiencies of a franchise in which she lost over a million dollars in just a few years?
They allege that they were sold a defective product, that CB lied to them and the deficiencies of the product were covered up.
What were the deficiencies that led to the failure?
Yeah, that question is probably irrelevant. I’m sure the traffic cones, 2 cent gift card swipes and a questionable Pepsi contract were enough to sink them in the marketplace.
Sean: You say “it is not possible to know the odds of failure of any business” but are you saying that the odds of failure as demonstrated by first owners of the concept who do fail are not a MATERIAL risk factor known to the franchisor that that should be disclosed to the new buyer of a franchise by the franchisor. Isn’t the failure to do, and the failure of the government to mandate disclosure of UNIT historical financial performance statistics a failure to meet even minimum standards of commercial practice under our Code?
You can’t deny, can you? that if the performance statistics of the Cafe Concept, as known to the owners of the CB, had been disclosed to DW, she would not have made this investment that has so devasted her financially and emotionally.
Is the CB model itself deficient? —-the performance history certainly indicates that the model, itself, was not efficient no matter how competent the franchisees. Since the franchisors have no legal obligation to prove that their model is efficient to prospective buyers, or that they are competent, there are, of course, a lot of inefficient and unviable models offered for sale to the public and I think DW would give you reasons as to why CB is one of them.
I think D&R knew from the beginning that the model itself was inefficient but, of course, it was represented as a proven and viable concept and that’s why they bought it. I think they talked about some of the problems with the equipment and store layout on Blue Mau Mau.
The Quiznos franchisees who suffer because of encroachment and overselling of the franchises to the public in an effort to capture market share to compete with Subway and other QSR S franchises, no matter what the cost to the franchisees, suffer also from policies of the franchisor that enhance the franchisor’s profits at the expense of loss of profits for the franchisees.
Again, the franchisees of Quiznos suffer from the constructive fraud of the government disclosure document and the adhesory contract that are packaged together in the sales process. They, also, are fraudulently induced to contract because the franchisor can obscure the failure rate and the lack of profitability of the nits in the system from new buyers of the franchise. If Quiznos franchisee prospects had any idea of the churning and pumping and dumping and encroachment that Quiznos indulged in, they, of course, wouldn’t offer themselves up to be a expendable resource on which Quiznos can perpetuate themselves in the marketplace.
There is no need for secrecy but just what is the point and the advantage to DW of discussing the deficiencies of a franchise in which she lost over a million dollars dollars in just a few years?