Ziebart to pay for rusty relationships
After more than tow years of legal wrangling, 27 current and former Ziebart franchisees won $1.5 million in damages for breach of contract and product liability from car-care specialist Ziebart International Corporation. The franchisees were also awarded “declaratory relief,” which will guide both parties’ future actions.
That was in November 2003.
Since then, there has been more haggling, both in court and out. Ziebart filed several unsuccessful motions to delay payment, prompting Norman Yatooma of Yatooma & Associates [sic], the law firm representing the franchisees, to send moving trucks to Ziebart’s Troy, Mich., corporate offices to collect in one form or another the money owed.
After Ziebart’s emergency motion was denied by the Wayne County Circuit Court, they filed another with the Court of Appeals, Yatooma said. That motion also was denied.
That was in December 2003.
Yatooma waited the required 21 days for Ziebart to begin payments. “They did not pay,” he said. “On the 22nd day (January 14) we took an execution of the judgment into the court, asked the court to sign it, put it in the hands of a court officer, and I—along with four court officers, two movers and three moving trucks—went to Ziebart headquarters to empty the place out.”
Once the movers began loading office equipment into the trucks, Ziebart CEO Thomas Wolfe “acknowledged” there was $200,000 available in the company’s credit line, Yatooma said. It was too late in the day to access the money, however. Wolfe then volunteered to stay overnight at Ziebart headquarters with two court officers until the bank opened in morning. The next day, Wolfe withdrew $200,000 from his personal bank account to be pledged against the company’s available credit, Yatooma said.
“The $200,000 is a nice down stroke, and it beats walking out with a few trucks of copiers and computers,” he said. “But it’s a long cry from the million-five.”
A payment agreement is being negotiated. Yatooma speculated the schedule would have Ziebart pay the total amount within a two-year period. He expected payments to begin February 15. “Obviously, nobody’s interests are served by bankruptcy. It hurts Ziebart more than anybody of course, and in particular, people like Thom Wolfe because this is an employee-owned company. But it’s not good for my guys, either. They don’t want to be franchisee to a bankrupt company.”
A Ziebart corporate representative said the company would not comment on the case at this time.
Troubled relationship
The lawsuit, which originally was filed in the Wayne County Circuit Court in August 2001, alleged that Ziebart violated its franchise agreement through overpricing of chemicals and other products. Specifically, the suit alleged that Ziebart violated its contract by not providing products to franchisees “at our below competitive market prices.”
“Ziebart was marking (up) their products as much as 400 percent to their own franchisees,” Yatooma said. “For our franchisee to make a dime on it, they had to mark it up, obviously, even from there. And they’re either selling overpriced product which they can’t sell, or they’re selling it at a loss. Neither one’s a very desirable result for them, of course.”
Both parties agreed earlier in 2003 to submit their case to binding arbitration before the Honorable Barry L. Howard, former chief judge of the Oakland County Circuit Court. While Howard declared the “at or below competitive market prices” term ambiguous, he also declared that Ziebart breached its contract from late 1998 to the present by charging the franchisees prices for “Formula Q,” the company’s primary rust-proofing sealant, that were not “at or below market prices.”
“They (Ziebart) were undercutting us,” Yatooma said. “We had guys within the same region of corporate stores whose biggest competition was the corporate store. When they marked (the product) up 400 percent for (the franchisees), they weren’t marking it up 400 percent to themselves, of course.”
The franchisees also alleged that “Formula Q,” was defective. The lawsuit was based on past defectiveness, Yatooma said. “The product being used today is perfectly good product. In the year 2000 the product was bad. It caused problems with customers, the employees and equipment and so forth. That was a significant portion of the monetary award.”
The “declaratory relief” portion of the ruling requires Ziebart to price competitively to their franchisees. It’s the more significant victory, Yatooma said. “A million-and-a-half (dollars) certainly is nice, don’t get me wrong, but our guys need to be able to make money on a going-forward basis,” he said. The declaratory relief included also the discharge of approximately $350,000 in franchise fees owed to Ziebart as compensation for the overpriced chemical.
Maintaining status quo
Significant to the case was the filing of a motion “to prevent extortion and to maintain the status quo,” Yatooma said. The motion provided that the franchisees were protected by the court, and that the franchisor, Ziebart, was forbidden tot retaliate against the franchisees for initiating the litigation.
“Almost all litigation from which I’m engaged in behalf of the franchisee against the franchisor, almost without exception the franchisor will engage in these retaliatory tactics to try and break the backs of the franchisee . . . knowing that if they don’t have the wherewithal or the resources—be it information or money—they will not be able to prove their case,” he said. “So what we were able to achieve here, and I hope to be able to achieve in future franchise cases, is to encourage the court to give us an umbrella of protection forbidding the franchisor from engaging in that kind of retaliation.”
