Dream Dinners hit with $30 million lawsuit
March 3rd, 2008 | 
Author: It looks like legal trouble ahead for Dream Dinners and their franchise. A lawsuit has emerged charging the business with false claims and figures that exaggerated what owners should expect as far as revenue.
From Courthouse News Service:
Franchisees Sue Dream Dinners For $30M
MANHATTAN (CN) – Fifteen franchisees claim Dream Dinners Inc. defrauded them by selling “home meal preparation” franchises that it falsely claimed would earn them $30,000 a month. Among the misrepresentations, plaintiffs claim, was defendant Stephanie Allen’s showing them these misleading numbers, and saying, “in substance, ‘I know the lawyers say I’m not supposed to show this to you, but if you write fast, you can get it all down.’” They demand $30 million.
The court documents were filed on Feb 19th, in New York by Michael Garner of Dady & Garner P.A. You can read the full court document here:
http://www.courthousenews.com/2008/02/21/DreamDins.pdf
Some of the charges sited include:
Dream Dinners, through Allen and Kuna, and with the assistance of McCurdy, Smith and Pickard, made the following representations to each of the Plaintiffs to induce them to purchase one or more Dream Dinner franchises:
- Dream Dinners had a proven model for operation of a franchise consisting of a “unique system†for the management and operation of a business to operate self-prepared home meal replacement systems that were based on uniform standards, procedures and business operations that would result in profitable operations within a few months and readily sustain a revenue of at least $30,000 a month per center.
- Allen and Kuna told plaintiffs during pre-sale interviews that “a full store would have 500 customers a month†and a second store would be expected to open with “at least 150 customers per month†which would, in effect, generate $26,700 in revenue and that maximum gross revenues per week would be $21,360.
- They represented orally that corporate stores were operating with 600 to 800 customers per month.
- They provided detailed “cost breakdowns per session†showing projections of revenues, expenses and profits for one session, weekly revenues, monthly and yearly revenues.
- They provided a “monthly income and expense forecast†showing revenues, costs and profits at four different levels or “scenarios.â€
In addition, Defendants furnished Plaintiffs with what they represented to be lawful Uniform Franchise Offering Circular – a document that franchisors are required to furnish to prospective franchisees by law and that is required to contain certain information to assist the prospective franchisee to make an informed decision whether to purchase the franchise or not.
The UFOC furnished to defendants to plaintiffs were deficient and unlawful in that omitted required financial statements of the franchisor; required agreements; lists of franchisees; and other required information.
Defendants’ representations, as set forth above at paragraph 7, were false, misleading and unlawful in at least the following respects:
- There was no proven system, and the system that existed in no way was capable of generating $30,000 per month in revenues. In fact, defendants changed the system repeatedly, rebuilt their website and otherwise undercut the system that plaintiffs had purchased.
- All of the representations of revenues, earnings and profits, of the numbers of customers that plaintiffs would have, and the numbers of customers that existing had, were false, unlawful and unrepresentative. Such representations were knowing and deliberate violations of state and federal law.
As a result of the defendants’ misrepresentation and violations of law, plaintiffs have been injured through loss of their investments, lost earnings that they otherwise could have made, and lost profits, in an amount to be determined at trial, but in no event less than $10 million.
Defendant Dream Dinners breached its contractual obligations to Plaintiffs by failing to provide training and support, failing to provide advertising and promotion, and failing to provide ongoing training.
Among other things the plaintiffs “wish to rescind their franchise agreements, have their guarantees cancelled and rescinded, and recover restitution and damages from Defendents in an amount to be determined at trial, but in no event less than $10 million, plus attorneys fees and costs.â€
It then states:
As a result of defendants’ violations of the aforesaid unfair trade practice statutes, plaintiffs are entitled to recover their actual damages of no less than $10 million, trebled to $30 million, plus attorneys fees and costs.
A few owners out there appear to have had and are going to do something about it. And for all the conspiracy theorists out there, doesn’t it seem odd that Darin comes on board as the new CEO right before this hits. Again, bad timing or scapegoat? Savior or sacrifice?
And there are claims that Darin isn’t taking a salary for all the work he is doing for Dream Dinners. Seems kinda sad since DD paid out over $3.5 million in salaries not that long ago. I guess we’ll have to see how they faired financially in 2007.
The other side of the coin is he isn’t taking a salary, but it trimming back everyone and everything. Rumors about a skeleton staff and several additional staff being let go.
Dream Dinners 2006 Financial Report:
Dady & Garner can be reached at:
Minneapolis
5100 IDS Center 80 South Eighth Street
Minneapolis, MN 55402
phone: 612.359.9000
fax: 612.359.3507
email: contact@dadygarner.com
New York
230 Park Avenue 10th Floor
New York, New York 10169
email: contact@dadygarner.com
Other Articles of Interest:
- 15 franchisees sue Snohomish-based Dream Dinners
- Taking On Restaurants And Grocers
- Dream Dinners CEO comments on updated lawsuit
- Defaults by Franchisees Soar as the Recession Deepens
- Dream Dinners Distributes Liz Claiborne Magazine
- Another Fifteen Franchisees Sue Dream Dinners Attorneys
- Dream Dinners, Attorneys Sued for Illegal Earnings Claims, Violation of Washington Franchise Act
- Meal Assembly – The Next Big Thing in Food Franchises
- Redbook partners with Dream Dinners
- Dream Dinners Hammered by Forbes
Posted in Dream Dinners
I can agree with both nuff thyme and dinnerzen, I too wish I had paid attention when I was at discovery day (a saturday) and for our actual training. In all of the sessions we “new owners” worked, there were more “new owners” than there were paying customers. One session there were 5 people in the session, there were 2 gals and the other 3 were were a mom, a dad and son making meals together. The family making meals together were only there because they had won free sessions for a year. This was the flag ship of the company that was so dead! The other store in Omaha was just as empty the day we were there! The double red flag should have gone off then! What could I have done differently? Done more extensive search on available websites that cache old webpages, it tells a VERY interesting story! I would have seen an alarming closure rate for a small company, I woud hae asked pointed questions about those closures, and this holds true for every franchisor! DO NOT take the facts and figures you get on any website such as EMP-their store counts for indies & zors are grossly inaccurate why? Because the only tracking system they have is by former owners letting them know they closed. They may crawl sites every once in a while to update, but that is very time consuming. Unfortunately for us and others there are no concrete numbers readily available to prosepctive zees or indies.
SYSCO-Well I have first hand knowledge that the specs I created for a recipe could not be uniformly used by every zee in our system, because of the lack of uniformity in Sysco houses. That is the inherent flaw in “negotiated price” claim. That too is a fallacy that zors will tell their zees. It hit home for me when I found out that my fellow owners and myself were shopping at buyers clubs and our local grocer for some of our ingredients because it was cheaper!! I spent countless UNPAID hours going over grocery ads and shopping for ingredients for my sessions. The formula & model that you pay for is just not realistic or even attainable. We had instances in our network where a recipe was developed and ingredients were unavailable or a “special order-code word for NIGHTMARE!” now I’m not taking exotic ingredients unless you think healthy cream of something soup is an exotic item. There were inventory items that we would have to special order in at cases at a time, NOT because our volume was so great that we used it, no it was inventory we had to carry & store because it took so bloody long to get it in because it was a special order for most houses! That is just one bad business practice we had to use to ensure we had the product we needed when we needed it. I talked to store owners who would stock pile inventory of multiple items when they could get them and another store owner would drive several hours to another store to pick them up, That is what they mean when they say special negotiated pricing, it is not special! Unless you think having to drive and waste your valuable time to get an item that you need for a recipe on your monthly menu special. Not to mention the extra storage space problems, cash flow problems ect that comes with the special order system our network advocated. It was hellish to plan for and even more difficult and exhausting to do on a monthly basis. I don’t think any other supplier is any different.
MARKETING-You cannot adequately spend hours marketing your business, give great customer service, order, shop and recieve inventory, set-up for seesion, run said sessions and do the million other little things that need to be done to run your business.
IF you had a staff of 10 maybe, but the cashflow for most MAK’s is just is not there. If you had untold thousands of dollars in cash (in addition to the “marketing fund” you are forced to pay into) to saturate your market with constant bombardment of your company name, maybe and that is a HUGE maybe. But then you have to ask what has the Zor done with my advertising fund money? I think they use is for photo shoots with food stylists and cute baby pictures in pots with hats on, or for manufacturers who make baby crap…unfortunately none of that benefits zees in anyway in getting the brand out there in front of the public in a consistent or effective way.
I could say more but I won’t.
Worried Dreamer – All you have to do is start reading the posts on this site and the answer is obvious. Sounds like you could get a great deal on an existing MAK. I bet you could negotiate the price further as we would have loved to sold for that. However as of this date the model doesn’t work in the vast majority of cases as was said above.
Unlike when we were researching the MAK business, the success rate info is there. If you push ahead anyway at this point, you can’t whine if things go sour. That said, if we were to do it over, we would have gone independent.
Worried – what area of the country are you considering opening in? If there are already two places for sale, that tells me there may be quite a few in your area. This is not a concept that can withstand saturation. Too many stores cannibalize the business for all of them. Are the stores for sale franchises or independent? What is your background? How will you be different than all the other places in your area?
CG
Worried Dreamer:
As I’ve stated multiple times, meal assembly is a great concept, but it’s not a good business. As we have come to discover there are several key factors working against you, with the biggest being the customer’s inability to plan ahead. If they don’t take the time and effort to work you in their schedule they will never come in. There is a lot of “inertia†to overcome. They need to set aside the time, they need to budget your cost in, they need to make their selections, they need to actually drive to come and make the meals and in many cases they need to get a sitter or coincide their events so they came actually be free to work. There is a lot of juggling to do and unfortunately most people aren’t able to or willing to make that kind of commitment anymore.
You also need to work from a large customer base due to attrition. You may start off with customers who come in every month, but those customers may quickly get a freezer full of meals and need to skip a month so they can use them. Basically, that is a lost customer. Once you are off the radar there is very little chance you will get back on it. As I’ve said, it’s like exercise. Once you skip a session it’s hard to “get back on the treadmill†and keep going.
Right now, I don’t think it matters if you go with Dream Dinners or Independent. You are still dealing with a fickle customer and one you have to continually entice to come in. You can read many posts from franchise and independent owners on their marketing ideas, giveaways, bonuses, and other enticements they used in order to get customers back in. By and large it’s a hard sell. And all of these factors were done before food costs, gas prices and electric prices went up and before the economy started to go down.
It’s a tough sell right now, especially if there are multiple stores in the same area. You are competing over a small base of customers who may only visit you once every couple of months. They think they’re loyal and returning customers even if they only come in once every 6 months. If you happen to be opening a new location then the idea might be new enough that you can attract a following. But again, with food prices on the rise it could be a tough sell, especially if the rumor is true and Dream Dinners plans on raising prices.
Restaurants are a touch business right, but I think meal assembly is even more so under current conditions. As stated many times, there is no magic formula to get customers to come in and keep them coming back. You will be putting in long hours (60 a week may be the norm), you may be paying the bills but there is good chance you won’t be bringing in a paycheck, and with the pending litigation there is a fair bit of uncertainty to deal with.
Go over the books with a qualified accountant who understands this type of business. Depending on where you are in the process your investment may bring more of a return in another type of pursuit.
I am not a part of this industry but have been following it for a bit. I feel for all of you who have lost so much in the past couple of years.
It almost looks like Dream Dinners has settled the lawsuit. Looking at the website for Dady & Garner it appears it is listed in their “win” column. Here is what is listed:
The following are franchisors, manufacturers and suppliers against whom the franchise lawyers at Dady & Garner have resolved disputes:
DREAM DINNERS, INC.
Also, according to the Washington State Courts website, there has not been any activity on either of the two lawsuits in sometime. Have both of them been settled and gag orders been placed as part of the settlement? I though I read somwhere that Dream Dinners was not going to settle.
One last question. Is it really an honor to be considered a grandmother when you do not have grandchildren?
I pray that all of you that have lost little or lots gain the strength you need to carry on a peaceful life.
Well look at this. If you go to this page: http://www.dadygarner.com/adversaries.htm and scroll down to D, Dream Dinners is indeed listed.
The text says they have “resolved” the dispute, so it will be interesting to see what that actually means.
16
Look at the above website. Dream Dinners is no longer listed. I wonder why.
Hmm…what do you suppose that means?
To me, it means that Dady & Garner went ahead and prematurely posted DD as a client, and then someone–probably one of the plaintiffs–noticed (probably because of the views on this site) and asked Dady & Garner, which caused them to pull it down.
Sorry…I meant Dady posted DD as a “win”, not a client…
As I have started to lose faith in Dream Dinners & Since most of the blame for my failing store is my fault, I search around to see what credentials Darin Leonard really has.
This press release is over a year old however, I thought it was rather amusing that Darin would say that he worked with Fresca Mexican Foods knowing that is a flat out LIE. I remember clearly at training he had NO food background.
Darin Leonard Your a friggin’handy-dandy-repair man- wanna-be.
I even went as far as calling the Company to see if they had any record of your employment. Nope, Nadda!
Step up, be the man you say you are, and STOP the lies. We Owners are getting tired of it…
reference: http://www.oneaccordpartners.com/dream-dinners/
So, another one beats the dust! Myrtle Beach closed it doors…another loss for dream dinners!
FYI
http://hklaw.wordpress.com/2009/01/
SNOHOMISH, Wash. (Blue MauMau) – Fifteen Dream Dinners franchise owners are suing the attorneys of the meal-assembly franchisor. The suit claims that the attorneys failed to comply with franchise laws in preparing the Uniform Franchise Offering Circular (called Franchise Disclosure Documents after June 2008). It also stipulates that franchisor’s lawyers helped oversee Dream Dinners’ misleading sales process with potential buyers. Lead attorney John R. Bender, Jr. of Ryan, Swanson & Cleveland, originally working with the prestigious law firm of Holland & Knight, is accused of breaching his duty to prospective franchise owners by not ensuring that the disclosure information he received from Dream Dinners matched other written sales representations. As a result, he and the two law firms are included in the franchisees’ original lawsuit against the company and its officers.
Howard Morrill
The amended complaint filed in Washington state court by Howard R. Morrill, Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, is the second case against Dream Dinners attorneys, the first filed by Howard Bundy last October on behalf of francisees Eric and Nicole Turner on similar allegations. Although litigation against franchisor attorneys is rare, the franchise community is closely watching another case reported last summer in Franchise Times. Peaberry Coffee franchise operators claim that they have lost millions of dollars after buying into a system that was not viable for franchising. They accuse the company and law firm Perkins Coie, which was acting as legal counsel and business consultant, of misrepresentations and omissions, in selling the concept.
In this latest filing against Dream Dinners, Morrill alleges that the legal counsel, knowing that the sale of franchises is highly regulated and that earnings claims information could only be given to prospects in compliance with Federal Trade Commission guidelines, ignored that Dream Dinners executives were operating unlawfully and giving earnings information, outside the UFOC and without disclaimers. Bender had even advised the company to include a negative disclosure in its FDD under Item 19-Earnings Claims section, stating that Dream Dinners did not furnish or authorize its salespersons to furnish such data.
Dream Dinners Item 19 states:
“Dream Dinners, Inc. does not furnish or authorize its salespersons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a franchise. Actual results vary from unit to unit and Dream Dinners, Inc. cannot estimate the results of any particular franchise.”
The complaint states that Bender permitted Dream Dinners to conduct personal meetings with prospective buyers without providing the UFOC to them on the first visit, which is required by law. He also approved the procedures used by the company, requiring prospects to sign a binding contract before they received the disclosure documents. Bender is alleged to have allowed Dream Dinners to use financial statements giving illegal earnings claims, and then made an attempt to conceal it. He is also accused of being a member of the franchisor’s de facto board of directors and maintained an office at their headquarters which he used two days a week. According to the complaint, Bender participated in business decisions, and decisions that were not subject to attorney-client privilege, which would have protected him from litigation.
In the original lawsuit, Dream Dinners founders Stephanie Allen and Tina Kuna were accused of making a series of misrepresentations and omissions when inducing investors to purchase their franchises. Not only were they making assurances that Dream Dinners had a proven system, but they were also supposedly showing prospects how much money owners could make in a franchise by showing them the revenues or profits of existing company-owned outlets. And Allen and Kuna were presenting the franchise disclosure documents in a misleading way, mainly because they were giving it out in pieces that were incomplete. Adverse information, such as unaudited financials, was withheld and later presented in a form not in compliance with FTC guideline.
[Dream Dinners profit representation]
Dream Dinners Discovery Day slides (pdf, 12 slides) on store profits
PowerPoint Presentations
At the center of all litigation is the PowerPoint program given at Dream Dinners Discovery Days. Blue MauMau has since received these presentations giving the details of company claims. Kuna and Allen showed that franchisees would have a certain minimum number of customers per month, and what their gross revenues, cost of goods, operating expenses and net profits would be in various scenarios, giving different revenue levels. According to the complaint, prior to the presentation Allen smiled and said in substance, “I know the lawyers say I’m not supposed to show this to you, but if you write fast, you can get it all down.”
The PowerPoint states that a full store would have 500 customers a month, and a second at least 150. It shows that the number of customers would generate $26,700 in monthly revenue and maximum gross revenues per week would be $21,360. Company-owned stores were shown to have operated profitably from January 2003 through April 2004, with certain stated numbers of customers, as set forth on Franchise Questions and Answers on Dream Dinners website. Kuna and Allen further represented that the franchise operated with what the perfect number is to make a profit. In addition to giving a monthly income and expense forecast in writing, they showed that the cost of food for the operation of a franchise would not exceed 45 percent of the franchisees’ revenue, when in reality it exceeded that amount.
Claims of State Law Violations
Because the fifteen franchisees are from various states, the amended complaints assert violations of different states’ franchise laws. It also names which law firms were involved in the sale of franchises, depending on when the individual franchisees made their purchases. Other claims against Dream Dinners include common law fraud, negligent misrepresentation, breach of contract, and negligence of defendant attorneys. Plaintiff franchisees are requesting a jury trial and seeking rescission of their franchise agreements. Those still in operation will continue to operate their meal-preparation centers and pay royalties. Franchise operators are asking for damages, fees, interest and other costs.
Source
Download now or preview on posterous
Dream Dinners amended complaint as filed.pdf (1458 KB)
Download now or preview on posterous
Bundy Declaration with Exhibits.pdf (1287 KB)
Posted via email from HKLaw Investigation
So I just learned that Myrtle Beach didn’t close…but has new owners. Can’t imagine finding someone who would buy in this day and age, but GOOD LUCK!
Shame on the previous owners of the Myrtle Beach store for foisting their problem on someone else.
I am currently a Dream Dinners owner. Although my partners and I lose money every month; we are more successful than the other DD’s in our part of the country. Sad but true. If we can terminate or renegotiate our lease;( we have a lawyer) we will do it. We tried to sell our store but no reputable broker will handle our sale. The lawsuits against DD and the reputation of the franchiser has made our franchise worthless. We will close our doors as soon as our lease has expired.
I think the lease is going to be the biggest stumbling block for many store owners. It would be my guess that many owners are still in business simply because they can’t get out of theirs. As those continue to expire or break more and more store will disappear. Stores are still being listed for sale, but I can’t see how or why anyone would take over one. It seems pretty obvious that you will never make a return on that investment.
It’s unfortunate you’ve wound up in this situation, hopefully you’ll get the chance to walk away without losing everything.
I am a DD owner with partners and every day we check this website to see if the lawsuit has finally done them in. We are waiting for the day that we can rid ourselves of this burden. We were lied to (and we are not part of the lawsuit) as I feel it was my obligation to properly vet an investment we made. At the same time, I certainly do not want to be held to a 10 year contract. We have time left on our lease, so we are trying to get by, but when our lease is up we are going to shut our doors and deal with ridding ourselves of our Dream Dinners contract.
Will the Real Darin Leonard Stand Up?
After reading Todd’s post, I thought I would do a little research on Darin Leonard. Seems like He is still with One Accord, has a new Bio. Last year, Darin Leonard touted He was the CEO for Dream Dinners. Today, nothing is mentioned.
A couple of weeks ago, he was on a conference call saying Dream Dinners is in good shape, no fear, He is Hear…blah, blah, blah.
What I find very interesting, Today, reading his Bio on One Accord mentions NOTHING about Dream Dinners, Inc. Is he not the magical savior CEO that Tina Kuna & Stephanie Allen tried to convenience the Owners?
opps…Here is the link: http://www.oneaccordpartners.com/team/darin-leonard/
Whois – Darin Leonard was on contract with DD through OneAccord (rent-a-CEO). Perhaps they are no longer “renting” his services? Interesting that he doesn’t tout his “successes” with meal assembly in his bio.
Rent a CEO? Somehow that made me laugh. What were Tina Kuna & Stephanie Allen thinking?
They didn’t get any more for their “rent” than the DD owners did! I don’t think the rent-a-CEO was a good buy…
Is that kinda like Renting furniture? Where the real value is only worth $1.00 However, when its all said and done, you have paid 800 the Times of what its really worth…
I wonder if Stephanie Allen rents out her Husband????
It would seem the Rent-A-CEO idea isn’t working out for either side. With Darin at the helm Dream Dinners has closed over 50 stores and their decline is nowhere near over. As mentioned, Dream Dinners was plastered all over his resume and bio, but now there is no mention of it. I wouldn’t be surprised to see a parting of the ways here shortly, if it hasn’t happened already.
I mean seriously, his association with Dream Dinners could cost him any future employment prospects based on how badly it’s all turned out. Of course he’s going to delete that and act like it never happened. Curse Google and it’s ability to capture the past!