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Is the Relationship Between Cold Stone Creamery and Its Franchisees a Bit Chilly?

by Mario Herman

Cold Stone Creamery has had its share of problems over the past few years. The latest chapter is a lawsuit by a number of its franchisees.

In mid-January 2012, a lawsuit was filed in the Miami-Dade Circuit Court, by an independent franchisee association against franchisor Cold Stone Creamery 2012.  The association is made up of more than 120 franchisees who allege that Cold Stone Creamery withheld information from its franchisees regarding monies collected from third-party vendors and funds collected under the Cold Stone Creamery gift card program. The complaint alleges that although the members of the franchisee association requested an accounting of the vendor rebates the franchisor received under its Flexible Marketing Program (“FMP”).

 Of concern to the members of the franchisee association are:

  1. What percentage of vendor rebates that are marked for the FMP are actually being used for marketing
  2. What percentage of supply prices from vendors were used to offset kickbacks to the franchisor
  3. In the matter of gift cards that have been sold but not redeemed, the franchisees seek an accounting of the amount and accrued interest thereon.

The complaint alleges that Cold Stone Creamery franchisees were told in emails and in company meetings that the money from vendor rebates would be used for marketing, and the interest on the money from unused gift cards would be used to offset the cost of using third-party vendors to sell the gift cards.  The lawsuit seeks an order that Cold Stone Creamery provide the association with the above referenced information, as well as costs of the litigation.  Clearly, this case is in the early stages, and will be interesting to watch unfold.

Mr. Herman based in Washington, D.C., represents franchisees domestically and internationally negotiation, mediation, arbitration, and litigation.

202-686-2886 (ph)

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