Restaurant owner fends off chain’s $4 million counterclaim

By David Donovan

South Carolina Lawyers Weekly

A Greenville restaurateur and owner of No Regrets Properties presumably has no regrets after a jury awarded him a verdict of over $64,000 against a national restaurant franchisor and rejected the national company’s $4 million counterclaim against him.

Richard Godley agreed to set up a franchise of Indigo Joe’s, a casual sports pub/restaurant, in Greenville. The Indigo Joe’s concept failed to catch on, however, and by 2010, almost all the locations, including Godley’s, were out of business. He sued the franchisor, California-based Neighborhood Sports Pub Concepts, in state court, alleging that money which was supposed to be placed in a national marketing fund was not spent in accordance with the franchise agreement.

Neighborhood Sports countersued for $4 million, alleging that Godley had misappropriated its trademarks. The companies terminated their agreement in January 2010, but Godley continued to use the Indigo Joe’s mark until May of that year. The franchisor also alleged that Godley and the other remaining franchisees had conspired to bring down the whole franchise.

Neighborhood Sports sought to move the case to federal court based on the fact that the parties were from different states. In order for a federal court to have jurisdiction, the amount of money in dispute must exceed $75,000, which is more than Godley was seeking. The franchisor asked the federal court to combine its counterclaim with the value of Godley’s request in order to reach the threshold for federal jurisdiction.

U.S. District Court Jude Michelle Childs denied that request, sending the case back to state court. Childs said in her order that cases can be moved to federal court only on the basis on the claims set forth in the plaintiff’s complaint.

Once back in state court, the case proceeded to trial last month, resulting in Godley getting the full amount he had requested in his complaint, and defeating all of the franchisor’s counterclaims. The trial lasted eight days, and attorneys said the jury was out for about three hours.

Greg English of Wyche in Greenville and Adam Neil, of Murphy & Grantland in Columbia represented Godley and No Regrets. Natalma McKnew and Evan Sauda of Smith Moore Leatherwood in Greenville represented Neighborhood Sports Pub Concepts.

English and Neil said that crucial testimony in the case came from James F. Joyner, a certified public accountant based in Greenville. Joyner testified that the franchisor had not conducted an audit of the marketing fund, as the franchise agreement required. Joyner was also able to trace some of the expenditures out of the marketing fund, and determined that they were not spent in accordance with the agreement.

Joyner also compared industry costs and expenses of similar restaurants to the costs that were incurred at Indigo Joe’s due to the use of mandatory vendors, finding that the costs incurred were much higher than industry averages. English said that based on the higher costs, there was no way the restaurant could have been profitable.

As for Neighborhood Sports’ counterclaims, Neil said that the company was in negotiations with Godley between the time the agreement was terminated and the restaurant was closed, and that Godley was able to show that the franchisor acquiesced to his use of the mark during that period. Because the company knew Godley was using the mark but did not take any action to stop him, they could not sue him for trademark infringement later.

Neil added that he believed there was simply no evidence to support the allegations of a conspiracy to bring down the national franchise.

Picture of Wyche, P.A.

Wyche, P.A.

Wyche is a full-service law firm that has practiced law and served the community for 100 years. In that time, Wyche has participated in landmark litigation, served as counsel on cutting-edge transactions, and provided community leadership that has helped shape and drive our region’s growth and success. With offices in Greenville, Spartanburg, and Columbia, Wyche is the South Carolina member of Lex Mundi, the world’s leading association of independent law firms.

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