The Tribune

Hard Rock Cafe's former Nassau franchisee has questioned why the business was so readily handed to its Bahamian landlord, when a decade earlier he had been "forced" to pay $1 million to end their partnership.

Kevin Doyle, HRCC (Bahamas) principal, in legal documents obtained by Tribune Business, asked why ex-MP, Marvin Pinder, had been allowed to take over the Nassau franchise given their previously troubled relationship.

His June 20 affidavit, filed with the middle Florida district court, alleges that HRCC's 2002 decision to sub-license the rights for Hard Rock's Nassau restaurant to Mr Pinder ultimately ended in acrimony.

Mr Doyle alleged that their relationship fractured over "a number of issues", including the restaurant's design.

He claimed that Hard Rock International, as franchisor, first advised him on how to deal with the dispute, before ultimately "requiring" him to buy the sub-franchise back from Mr Pinder in a $1 million deal in April 2004.

Given those events, Mr Doyle is querying why Hard Rock International so readily accede to Mr Pinder's offer to take over the Nassau franchise 10 years later, after HRCC (Bahamas) decided to close its doors.

His affidavit, and accompanying legal documents, also raise questions as to whether the initial sub-franchise deal with Mr Pinder was structured to circumvent the National Investment Policy, which purports to reserve sectors such as retail and restaurants for 100 per cent Bahamian ownership only.

Mr Doyle alleged that the sub-franchise agreement was conceived after he received legal advice about the Bahamas' "licensure requirements".

However, this does not accord with the corporate ownership structure for the Hard Rock Cafe's retail store, which Mr Doyle alleged opened in December 2000 as a standalone entity under HRCC's (foreign) ownership.

He added that under its Nassau franchise agreement, HRCC did not have to develop a restaurant component until June 2003 at earliest - and possibly as late as 2010.

Mr Doyle alleged that he was enticed into an early restaurant opening by Mike Kneidinger, Hard Rock's then-director of worldwide franchise operations, who projected that he could make between $6.5-$7 million in annual sales from the restaurant.

Having decided to move forward by 2002, he added: "Because HRCC is a British Virgin Islands company owned by non-residents of the Bahamas, there were certain strict business licensure requirements that posed as obstacles to HRCC beginning operations in Nassau."

The "business licensure requirements" appears to be a reference to the National Investment Policy. Although supposed to reserve certain industries exclusively for Bahamian ownership, it has frequently been waived on a case-by-case basis.

"HRCC was advised by its counsel that Bahamian law prohibits foreigners from owning an interest in a company operating in Nassau," Mr Doyle added.

"In light of the licensure requirements in Nassau, HRCC’s counsel recommended that HRCC grant a sub-franchise to a Bahamian company."

Thus the sub-franchise deal with Mr Pinder, the landlord for Hard Rock's retail store, was born.

Mr Doyle alleged that the former MP began to develop the restaurant concept at the same property, at all times with HRCC's oversight and support.

The restaurant was eventually opened in 2003, but the HRCC principal claimed: "During the build out process on the Nassau restaurant, HRCC began to have a number of issues with its franchisee Finder.

"These issues included, but were not limited to, failure to adequately and safely construct the restaurant. On behalf of HRCC, I notified Hard Rock of several of these issues.

"Hard Rock executives, including Mr Kneidinger, gave me advice on how to manage and handle the developing situation, which was only growing worse.

"At one point, Mr. Kneidinger assisted by suggesting manners in which we could deal with Finder."

Documents attached to Mr Doyle's affidavit showed this 'assistance' included advice on setting up a new Board of Directors, which was to include Mr Pinder's son, and current Elizabeth MP, Ryan Pinder.

It is unclear whether this structure, proposed in late July 2003, ever came about. However, Mr Kneidinger's proposal refers to "apparent discord in the Nassau Hard Rock Cafe business", and how the "harmful effects" were impairing the work of management.

"Current situation is lose/lose/lose," he wrote to all parties. "All must adopt a new paradigm... At this time, there is no room for blame in the game plan."

Mr Doyle, though, alleged that efforts to mediate a resolution between the parties failed to produce the desired results.

"When HRCC’s efforts to work collectively with Finder proved fruitless, Hard Rock required HRCC to re-acquire the sub-license rights from Finder to operate the Nassau restaurant," he claimed.

"HRCC did so at great expense. Fursuant to Mr Kneidinger’s suggestion, HRCC spent $1 million to regain control of the restaurant from Finder.

"On or about April 30, 2004, HRCC and Finder’s company, Habacoe Ltd, entered into an assignment whereby HRCC reacquired the rights to operate the restaurant."

To "comply with local law", Mr Doyle said HRCC set up its Bahamian subsidiary, HRCC (Bahamas) to operate the Nassau franchise.

Given the troubled sub-franchise relationship with Mr Pinder, Mr Doyle expressed surprise that Hard Rock International accepted the ex-MP's offer to take over the Nassau franchise following his company's exit.

Hard Rock served HRCC (Bahamas) with a termination notice in early January 2014, on the grounds that it had failed to pay $105,307 in royalties that were due to it.

Mr Doyle alleged that the two sides failed to agree a settlement, leading him to appoint Paul 'Andy' Gomez, the Grant Thornton (Bahamas) accountant and partner, as HRCC (Bahamas) liquidator on March 31, 2014.

He claimed, though, that Hard Rock inventory already ordered - and which belonged to either HRCC (Bahamas) and/or Mr Gomez as its liquidator - was "diverted and delivered" to Mr Pinder's business, Thirty 3 Ltd, which was the new franchisee.

"On May 28, 2014, Mr Gomez resigned as liquidator and the assets of the business legally reverted to HRCC," Mr Doyle alleged.

"The rights to operate a Hard Rock retail store and restaurant in Nassau were given with a zero franchise fee to Finder and operated by a company owned by Paul Zar and his partner, Anders Vestergaard.

"Finder was appointed by Hard Rock as franchisee of HRC Nassau despite the fact that Hard Rock had previously forced HRCC to remove Finder as a sub-licensee."

This was reiterated in HRCC's oppositon to a motion for summary judgment against it, which has been filed by Hard Rock Cafe International and three of its current and former executives.

"Despite demanding that HRCC re-acquire the rights to operate the Nassau restaurant from Pinder’s company because he did not adequately concern himself with the safety of customers, Hard Rock transferred the rights to operate the Nassau restaurant to another of Pinder’s entities after terminating HRCC’s right to operate same in 2014," the HRCC motion claimed.

Mr Doyle is alleging that HRCC (Bahamas) loss of its franchise was deliberately engineered or manufactured so that Messrs Zar and Vestergaard, the former a friend of Thomas Perez, Hard Rock's area vice-president for the Americas, could step in and take over.

He is claiming that Hard Rock International, Mr Perez and two other executives put this plan into effect by repeatedly refusing HRCC (Bahamas) requests to reduce its losses, and cut costs, by closing earlier and reducing portion sizes.

This has been vehemently denied by all the defendants, who have also drawn on an affidavit submitted by Mr Pinder, confirming he sought out Messrs Zar and Vestergaard as operators for the business on his own volition.

Still, alleging double standards, Mr Doyle claimed: "When Finder began to operate the Nassau location, Hard Rock permitted the Nassau restaurant facility to change its hours of operation such that the location was permitted to close early."

Detailing his losses, he added that the "significant losses" suffered on the restaurant side had to be subsidised by profits from Hard Rock's Nassau retail and merchandising business.

"It became apparent that because of the losses suffered on the restaurant that Nassau’s combined restaurant and retail operations did not generate enough annual income to recuperate the millions of dollars invested in the opening and operation of the restaurant," Mr Doyle alleged.

"HRCC’s merchandise shop located in Nassau made total profits on merchandise of $10 million in the period of 2001 through 2014. From the time that the restaurant in Nassau opened through the date it closed in 2014, the restaurant lost a total of $7.127 million.

"The total net profit from the combined business operations was $2.871 million. Over the course of operating the restaurant, I became increasingly concerned that the food element of the business was grossly unprofitable, and that the retail sales of merchandise alone could not sustain the reasonable profitability of the franchise or offset the high costs of operating a restaurant in Nassau."

This was what drove Mr Doyle's request for reduced opening hours, believing such a move would increase its annual profits by between $300,000-$400,000.

He alleged that being open late caused "damages" of between $600,000 to $800,000 from December 2011 until when HRCC (Bahamas) closed.

"HRCC has invested nearly $4 million into the Hard Rock, and has paid approximately $5 million in total royalties to Hard Rock," Mr Doyle added.