The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A furious legal battle is raging over the Hard Rock Cafe’s Bahamas franchise, after a judge this week refused to dismiss a lawsuit by its former owners alleging they were deliberately squeezed out of their $4 million investment.

Documents obtained by Tribune Business expose a trans-Atlantic legal battle that sheds new light on a situation that nearly cost 40 Bahamians their jobs, until Hard Rock allocated the franchise to a new owner.

For Judge Paul Byron, sitting in the Florida middle district court, on Tuesday declined to dismiss the action filed by Keith and Kevin Doyle, the Bahamas franchise’s immediate past owners, which claims that Hard Rock and several of its senior executives manufactured the loss of their business.

They are claiming that their departure was engineered to allow a personal friend of Tom Perez, Hard Rock’s director of business development and franchise operations, to take over running the Nassau-based Bahamas franchise.

Hard Rock confirmed in April last year that the Bahamas franchise had been passed over to its Charlotte Street landlord, ex-MP Marvin Pinder, the father of current Elizabeth MP, Ryan Pinder.

However, the Doyles are alleging in their lawsuit that the Bahamas franchise is actually being operated by a company owned by overseas investors, Paul Zar and Anders Vestergaard. They claim Zar is Mr Perez’s “long-time friend”.

There is nothing to suggest Mr Pinder has done anything wrong, and he is not named as a party in the legal battle that is raging between the Doyles and Hard Rock in both Jersey and Florida.

However, among the lawsuit’s other details are:

• The Doyles question why Hard Rock has passed the Bahamas franchise to Mr Pinder and his Thirty 3 Ltd, when they were previously forced by the chain to pay him $1 million to unwind a deal where they sub-licensed to the Bahamian businessman the rights to operate the Hard Rock Cafe restaurant.

• The Doyles, and their HRCC Ltd, also allege that Hard Rock shipped inventory supplies to Zar, even though these either belonged to them or the liquidator appointed to wind-up their former business, Grant Thornton (Bahamas) accountant, Paul Gomez.

• Hard Rock allegedly forced the Doyles to keep their downtown Nassau franchise open at night, despite “slow business” and crime fears, which cost them $350,00 to $400,000 in annual losses.

• The Doyles’ lawsuit describes downtown Nassau as “unsafe” at night, with the US Embassy and cruise ships warning tourists to avoid the area.

• The Hard Rock Bahamas franchise suffered “significant losses” in its restaurant, and was not generating enough revenue to “recuperate the millions of dollars” invested in its start-up and operation.

The Doyles allege that between the December 2000 opening and mid-2013, they invested $4 million in establishing the Nassau franchise, and paid Hard Rock some $5 million in royalties and licensing fees.

The Hard Rock situation again illustrates how much Bahamian workers are potentially exposed to internal disputes and machinations within multinational companies that operate in this nation. They have little to no influence or recourse over events that can mean so much to their lives.

For Judge Byron, in a June 2 ruling, upheld the Doyles’ allegations of “constructive termination”, and that Hard Rock and its executives had breached Florida’s Deceptive and Unfair Trade Practices Act over their franchise end.

This does not represent a final ruling, though, and only suggests the Doyles have established prima facie evidence that there is a case for Hard Rock and its executives to answer.

Judge Byron also dismissed the latter’s claims that the Doyles and HRCC had failed to sue a key party, and that Florida was the wrong venue for the case.

However, Hard Rock and its executives did persuade the judge to dismiss the Doyles claim for compensatory damages and loss of profits based on alleged breaches of the Florida Act.

But, while striking out the ‘civil conspiracy’ claim against Hard Rock, Judge Byron refused to dismiss this claim against the three Hard Rock executives.

Apart from Perez, they include Hamish Dodds, Hard Rock’s president and chief executive, and Michael Beacham, Perez’s deputy.

They, and the company, had alleged that Jersey was stipulated in their contract with the Doyles as the venue for resolving all disputes. And they have obtained a $91,804 judgment against the Doyles for unpaid royalties that were owed when the Nassau franchise was terminated in early 2014.

Hard Rock and its executives also dismissed the Doyles’ Florida action as “a variety of gripes from 14 years as a Hard Rock Cafe franchisee”. The judge, though, has ruled that they are a little more than that.

The Doyles, in their complaint, alleged that they spent more than a year - between March 1999 and June 2000 - discussing the development of Hard Rock Cafe franchises in the Bahamas and wider Caribbean with the brand.

The Bahamas agreement was signed on June 29, 2000, and the Charlotte Street location opened in December that year as a retail store only.

The deal required the Doyles to pay royalty rates to Hard Rock equal to 5 per cent of the gross on all food sales, and 10 per cent on merchandise sales.

In return, they alleged Hard Rock told them they would recover their initial investment within three to five years, and enjoy 15-30 per cent returns on annual sales of between $6.5-$7 million per year.

The Doyles and HRCC alleged that their relationship with Hard Rock soon hit problems. “Shortly thereafter, HRCC sub-licensed the rights to operate the Hard Rock Cafe Nassau restaurant to Marvin Pinder, a local resident and landlord of the property in which Hard Rock Cafe Nassau was located.

“Prior to the opening of the Hard Rock Cafe Nassau restaurant, Hard Rock required HRCC to re-acquire the sublicense rights from Pinder to operate the Hard Rock Cafe Nassau restaurant,” the lawsuit claimed.

“As a result, HRCC spent an additional $1 million to regain control of Hard Rock Cafe Nassau restaurant from Pinder and continue with the construction of the restaurant to ensure compliance with all requisite safety and regulatory standards.”

The business, though, failed to meet financial projections. “During the operation of the franchised restaurant, Hard Rock Cafe Nassau experienced significant losses on food sales,” the lawsuit claimed.

“It became apparent that Hard Rock Cafe Nassau did not generate enough revenue per year to recuperate the millions of dollars initially invested in the opening and operation of the Hard Rock Cafe Nassau franchise.”

Merchandise sales were unable to compensate for the “grossly unprofitable” restaurant, but Hard Rock allegedly refused to approve cost-cutting measures that involved a reduction in food and drink royalties, plus a drop in serving sizes.

The Doyles alleged that Hard Rock agreed to certain concessions for other franchisees, and concealed flaws in the franchise business model from them.

“The losses incurred by Hard Rock Cafe Nassau were further exacerbated by Hard Rock’s refusal to allow Hard Rock Cafe Nassau to set its own hours of operation,” the Doyles alleged.

“From 2005 to 2012, Doyle repeatedly requested that Hard Rock permit Hard Rock Cafe Nassau to close early because the area was unsafe at night and as a result, business was very slow.

“Indeed, the costs associated with keeping Hard Rock Cafe Nassau open at night resulted in annual losses ranging from $350,000 to $400,000.”

The Doyles alleged that Hard Rock ignored their submissions about the crime risks and sales losses, even though “the US Embassy and cruise ship staff advised tourists to avoid the area in which Hard Rock Cafe Nassau was located”. They were forced to hire ‘armed security guards’ to work at night.

The Doyles alleged that Dodds, the Hard Rock chief executive, at one point told them to close the Nassau franchise down because it was “not worth the hassle”.

Relations between the two parties started to deteriorate in 2011 after the Doyles refused to sign-up to Hard Rock’s loyalty programme, with the franchisor allegedly threatening to terminate their agreements.

With their differences said to becoming personal, Hard Rock warned the Doyles they had failed to pay due royalties on December 11, 2013. Even though the outstanding fees were allegedly never specified, the franchise was then terminated on January 6, 2014.

Bahamian accountant Mr Gomez was then appointed as the liquidator, and the Doyles alleged: “Hard Rock Cafe Nassau was later given to [Marvin] Pinder and operated by a company owned by Perez’s long-time friend, Paul Zar, and his partner, Anders Vestergaard.

“Pinder was appointed by Hard Rock as franchisee of Hard Rock Cafe Nassau despite the fact that Hard Rock had previously forced HRCC to remove Pinder as a sub-licensee of Hard Rock Cafe Nassau while Hard Rock Cafe Nassau was under construction.”

The Doyles then claimed: “By April, 2014, Hard Rock, Dodds, Beacham and/or Perez arranged to have HRCC’s retail inventory supplies shipped directly to Zar, despite the fact that such inventory supplies belonged to HRCC and/or Gomez.

“Indeed, HRCC placed the order for such retail supplies from its supplier prior to termination of the franchise agreement. Perez conspired with Zar to sell HRCC’s assets in order to benefit Zar.

“As soon as the new franchisees and store operators began operating Hard Rock Cafe Nassau, Hard Rock permitted the Hard Rock Cafe Nassau restaurant facility to change its hours of operation such that the location was permitted to close early.”

The Doyles then claimed: “Defendants, through the specific participation and assistance of Perez, Dodds and Beacham, have conspired and engaged in a concerted plan and scheme to drive HRCC out of business and seize Hard Rock Cafe Nassau through churning and other unfair and deceptive practices.

“Indeed, HRCC has invested nearly $4 million into the restaurant franchises and has paid approximately $5 million in royalties to Hard Rock.”

The Doyles alleged that the Hard Rock executives “manufactured” claims they were in breach of their franchise agreement, and added: “These allegations were clearly designed to create the mistaken impression that Hard Rock Cafe Nassau was in default of its obligations and that as a result, HRCC was subject to having the Hard Rock Cafe Nassau franchise taken away by Hard Rock.

“Defendants, through the use of false and misleading representations regarding the profitability of the Hard Rock Cafe franchise and food costs, forced HRCC to operate at a loss with the intent of taking over the franchises and depriving HRCC from the benefit of its investment in the franchise.

“As a result of defendants’ actions, Hard Rock Cafe Nassau incurred significant expenses and losses.”