Ambiguous Franchisor Sued for Fraud
Franchising has had its share of fraud and market saturation lawsuits in years past, but who would think that Christian artist Thomas Kinkade would be accused of such shenanigans. Although his paintings are symbolic of the simpler life, the question of whether he is encompassing his art in the framework of franchising has lead to complications he probably never envisioned.
Last October in Birmingham, Mich., a lawsuit was filed against Kinkade and his licensing agency, Media Arts Group, which oversees business and products the self-proclaimed “Painter of Light.” Media Arts sells through a distribution network of more than 4,500 dealers, including 344 signature galleries and 361 showcase galleries. The complaint, filed by attorney Norman Yatooma, on behalf of J.M. Wittman LTD, d/b/a/ Thomas Kinkade Carillon Gallery, alleges fraud and violations of the Michigan Franchise Investment Law. Various officers and/or directors of the company were also named in the suit.
Even though the Thomas Kinkade Web site proclaims that its “Signature Gallery Program is a licensed distributor program, not a franchise,” the Wittman complaint states that under Michigan Franchise Investment Law “the Dealer Agreements constitute the offer or sale of a “franchise.” According to Yatooma, the Michigan Law is a “friend to franchisees” and that’s why the Kinkade defendants prefer to call themselves a licensor instead of a franchisor.
The lawsuit claims Media Arts guaranteed the Wittmans that their gallery would be the first and the cornerstone of the “gift gallery” concept, selling Kinkade pillows, mugs, calendars and other items.
The complaint alleges that Media Arts defrauded the plaintiffs by flooding the market with the Kinkade products and paintings that were priced significantly lower than those the defendant was permitted to sell. When Kinkade began selling its products on QVC television and making deep-discount deals with stores such as Wal-Mart and Target, plaintiffs were harmed significantly, according to Yatooma.
He also said there are about 10 similar lawsuits across the country against Media Arts. Yatooma said preliminary figures show both plaintiffs’ losses are in the millions—$5.4 million for Wittman and $22 million in a case filed by David and Nancy White.
But Dana Levitt, Alschuler Grossman Stein & Kahan, attorney for Media Arts, paints the lawsuits with a different brush. He said, “There are hundreds of galleries in the U.S. and most are thriving and doing very well…You hear about the ones who are disgruntled-the ones who either owe the company money and don’t want to pay or those who mismanaged their businesses.” He also acknowledged that many owners are facing slumping sales, but said, “The country’s recession, not company business practices, is to blame.”
Levitt firmly states the Media Arts is not selling franchises. “It’s not sold as a franchise, not represented as a franchise.”
In both cases attorneys filed an arbitration demand. “The first case has been transferred to arbitration. But in the Wittman case we are filing a motion to enjoin the arbitration from proceeding.” He said there was a subsequent agreement signed, the “masters of light” agreement, which does not have an arbitration clause.
