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Krispy Kreme Sued by Largest Franchise

Associated Press
Published | Updated

CHARLOTTE, N.C. – Krispy Kreme Doughnuts Inc. (KKD) will "vigorously defend" itself against a lawsuit filed by its largest franchise that claims company executives misappropriated marketing money and billed for phony charges, the company said Thursday.

Richard Reinis and Roger Glickman, two partners in Los Angeles-based Great Circle Family Foods LLC (search), also claimed in their lawsuit that Krispy Kreme was trying to force their company into bankruptcy.

Krispy Kreme spokeswoman Laura Smith said Thursday the company has been served with the lawsuit and would have no further comment beyond a short written statement pledging a vigorous defense.

Shares of Krispy Kreme fell 9 cents, or 1.4 percent, to $6.18 Thursday on the New York Stock Exchange.

The lawsuit filed Sept. 29 in Los Angeles County Superior Court accuses Krispy Kreme and its executives of making false representations to convince franchise owners to personally guarantee the franchise's financial obligations. The suit also claims Krispy Kreme systematically inflated its prices and engaged in deceptive business practices.

Krispy Kreme also required the franchise to contribute to a brand fund that Krispy Kreme was required to spend on marketing and advertising, Reinis and Glickman contend. Krispy Kreme appears to have misappropriated the money and refuses to account for the expenditures, the lawsuit claims.

Along with Krispy Kreme, the defendants include former chief executive Scott Livengood (search), former senior vice president of franchising Phil Waugh, former chief operating officer John Tate, and Kroll Zolfo Cooper, the consultant hired by the Krispy Kreme board of directors to manage the company after the departure of Livengood.

The company faces several other lawsuits, including one that alleges workers lost millions of dollars in retirement savings because company executives hid evidence of declining sales and profits.

Krispy Kreme is also the target of a federal criminal inquiry in New York and a Securities and Exchange Commission (search) probe into financial irregularities.