The Cold Hard Truth About Doug Ducey’s Cold Stone Legacy

The Wall Street Journal reported this week on the “10 worst franchise brands in terms of Small Business Administration loan defaults.” Despite touting its rampant success as a reason he would make a good governor, Republican Doug Ducey’s Cold Stone Creamery was found near the top of that list, with its franchisees “defaulting at more than double the rate for SBA borrowers who invested in” other chains, per the Journal’s analysis.

Like an ice cream cone in the summer heat, Cold Stone’s business plan, for which Ducey has claimed credit, created a sticky mess for many franchise owners. Numerous franchisees have been quoted saying Cold Stone’s business model was “defective” and pushed the cost of running a store so high that it was difficult for individuals owners to make a profit. Franchisees have called Ducey’s business practices “deceptive,” and said the company’s business model pushed personal bankruptcies, cost savings, and homes.

What does Doug Ducey have to say to Ken Gornall, who was left to fend for himself using his personal savings when his Cold Stone business was struggling – and eventually had to file for bankruptcy and lost his house? When asked by the press, Cold Stone declined to comment.

Or Ed Normand? Normand’s home was repossessed after his Cold Stone franchise failed. Or Neal Prasad, who filed for bankruptcy over Cold Stone Creamery-related debt totaling nearly $300,000? Prasad brought suit against Cold Stone, claiming the company discouraged franchisees from selling by informing prospective buyers they could purchase a franchise directly from Cold Stone at a cheaper price.

American Bridge has the background on the cold hard truth about Doug Ducey’s Cold Stone franchisee legacy, see below.

BACKGROUND

Doug Ducey Cited Cold Stone’s Business Plan, Expansion, And Franchise Culture As A Core Rationale For His Candidacy

In Campaign Interviews, Ducey Said he “built” Cold Stone

Ducey Said “I Had My Opportunity When Some Friends And I Built Cold Stone Creamery.” According to the National Review, “Doug Ducey, the former CEO of Cold Stone Creamery and current treasurer of Arizona, is running for governor of Arizona. He talked to National Review Online’s Kathryn Jean Lopez on why he wants to be governor and why it is worth the effort in a crowded primary field. […] DUCEY: […] What I found is a diverse state where rights are respected, hard work is rewarded, and all that most people want from government is a chance to get ahead. I had my opportunity when some friends and I built Cold Stone Creamery, and I want everyone here to have that same chance to succeed.” [National Review, 5/1/14]

Ducey Said That “I Built And Led A Team That Took Our Company From A Handful Of Ice-Cream Stores In Arizona To More Than 1,440 Stores In All 50 States.”  According to the National Review, “Doug Ducey, the former CEO of Cold Stone Creamery and current treasurer of Arizona, is running for governor of Arizona. He talked to National Review Online’s Kathryn Jean Lopez on why he wants to be governor and why it is worth the effort in a crowded primary field. […] LOPEZ: What’s so special about your ‘real-world experience’ at Cold Stone Creamery that sets you apart from the others running? DUCEY: You think it’s easy to sell a cold dessert in a hot desert? Granted, everybody likes ice cream, but we at Cold Stone Creamery managed to get a big piece of the market after starting with just a simple business concept and a few storefronts. I built and led a team that took our company from a handful of ice-cream stores in Arizona to more than 1,440 stores in all 50 states. It’s an American success story, and I’m proud that it all started right here in the great state that gave me my own start.” [National Review, 5/1/14]

CNN: Cold Stone Business Plan Was Ducey’s

Early Success Of Cold Stone Was Credited In Part To “Ducey’s Master Plan” For Franchisee Relations, Which Included A Franchisee Advisory Council And Ways For Franchisees To Communicate With Each Other About Issues And Ideas. According to CNN Money, “Six years ago CEO Doug Ducey emerged from a Cold Stone Creamery retreat in Arizona with a plan to expand to 1,000 profitable ice cream stores by 2005–a lofty goal, considering that the company had just 74 at the time. Ducey has more than hit his mark. Cold Stone Creamery has nearly doubled the number of its shops each year since 2001–zooming past the 1,000-store goal this month–which places it among the top 20 fastest-growing franchises in the United States. What’s Ducey’s secret? Cold Stone’s butterfat-rich ice cream, served up with exotic accessories such as apple pie filling and graham-cracker pie crust, isn’t as crucial as you might think. Many in the industry credit the company’s unusual formula for franchisee relations–a communications loop that makes owners as happy as customers and keeps stores on a fast track to profit. Ducey’s master plan called for a Cold Stone franchisee advisory council–a group of owners that could serve as a clearinghouse for not just gripes but also new ideas. Last year the seven-member panel, which meets four times annually and runs periodic conference calls for franchisees, won the company’s support for a national buying program that gets all owners lower prices for supplies.” [CNN Money, 4/1/05]

During Campaign: Ducey Took Credit For Cold Stone Franchise Culture

Audio: Ducey Was Proud Of The Franchise Community And Culture He Created. According to Doug Ducey on Wake Up Tusco, “I was 50/50 with the founder, we still have a great experience today. We are still really proud of the experience inside the store, the franchise community we built and the culture we created for the company and the franchisees.” [Wake Up Tusco, 7/30/14]

Ducey Cited Cold Stone Expansion Strategy As Qualification For Office

August, 2014: Ducey Pointed To His Growing Cold Stone From One Store To A Nationwide Franchise As A Reason He Would Be A Good Governor. According to the International Business Times, “Will business experience make him a good governor? That’s what Ducey’s campaign claims. ‘Serving ice cream isn’t exactly like serving in state government, but what I learned guides me today,’ Ducey says in one of the campaign videos on his website. The Arizona gubernatorial candidate also pointed to the expansion of Cold Stone from one store in Tempe to a nationwide franchise under his leadership to make the case that he’d be a good state executive.” [International Business Times, 8/27/14]

Ducey “Campaigned On A Promise To Bring His Experience Running Cold Stone Creamery To Bear On The Challenges Facing State Government.” According to the Arizona Republic, “State Treasurer Doug Ducey, who campaigned on a promise to bring his experience running Cold Stone Creamery to bear on the challenges facing state government, won the Republican primary for governor Tuesday night.” [Arizona Republic, 8/27/14]

Audio: Ducey Said Cold Stone Creamery Was “My Company.” According to Doug Ducey on the Patriot with Mike Gallagher, “Cold Stone Creamery was my company. It’s a brand that’s known and loved around the country and now the world. Id like to bring a business like approach and fresh energy.” [Patriot with Mike Gallagher, 8/20/14]

Ducey Said Overall Cold Stone Experience Was A Qualification FOr Office

Ducey “Highlights His Experience As Cold Stone’s CEO To Argue He’s Qualified To Run The State.” According to the Arizona Republic, “On the campaign trail, Ducey highlights his experience as Cold Stone’s CEO to argue he’s qualified to run the state. He frequently asks voters to judge him based on their experience with the company and touts its growth as an ‘American success story.’” [Arizona Republic, 8/31/14]

Ducey Asked Voters To Judge Him Based On Their Experience With Cold Stone. According to the Arizona Republic, “On the campaign trail, Ducey highlights his experience as Cold Stone’s CEO to argue he’s qualified to run the state. He frequently asks voters to judge him based on their experience with the company and touts its growth as an ‘American success story.’” [Arizona Republic, 8/31/14]

Ducey “Ran Largely On His Record As The Former CEO Of Cold Stone Creamery.” According to the Arizona Capitol Times, “DuVal, a former Arizona Board of Regents chairman and longtime Democratic operative, faces a formidable foe in Ducey, the state treasurer who ran largely on his record as the former CEO of Cold Stone Creamery.” [Arizona Capitol Times, 8/29/14]

Ducey “Argued That His Business Experience Readied Him To Lead The State.” According to the New York Times, “Mr. Ducey amassed a diverse group of supporters, including Tea Party members, Chamber of Commerce leaders and even the retired pitcher Randy Johnson, a local legend of sorts for his role in the Arizona Diamondbacks’ only World Series title, in 2001. He has argued that his business experience has readied him to lead the state. On the campaign trail, he courted voters over ice cream and liked to say that he helped build the chain, Cold Stone Creamery, from a local company into an international business ‘without tax breaks for chocolate-dipped cones.’” [New York Times, 8/28/14]

Ducey Promoted His Role At Cold Stone Creamery As A Way Of Showing His Ability To Run Arizona After The Collapse Of The Real Estate Market. According to the New York Times, “Mr. Ducey has drawn the support of both the business establishment and Tea Party favorites like the former vice-presidential candidate Sarah Palin and Senator Ted Cruz of Texas through his résumé of business experience and emphasis on traditional social values. He promotes his role in helping turn Cold Stone Creamery into an international franchise as a way of showing his abilities to run a state that is still struggling to find its footing after the collapse of the real estate market, which sustains much of its $9 billion economy.” [New York Times, 8/23/14]

Ducey’s Campaign Stump Speech Was “Focusing On His Success At Cold Stone Creamery In The Private Sector.” According to the Arizona Daily Star, “Maricopa County Sheriff Joe Arpaio may have stolen Doug Ducey’s thunder in SaddleBrooke on Wednesday night. America’s toughest sheriff, along with state Sen. Al Melvin, were there to campaign for the former Cold Stone Cream-ery CEO, but many in the audience seemed to be there to talk to Arpaio. […] Ducey stuck mainly to his campaign stump speech while addressing the 80-person crowd in SaddleBrooke, focusing on his success at Cold Stone Creamery in the private sector as well as his role in turning around the state’s financial books while serving as treasurer.” [Arizona Daily Star, 8/21/14]

Ducey Responded To Criticisms Of His Tenure At Cold Stone With Ads That “Doubled-Down” On His Experience By Highlighting The Company’s Success And The Awards He Had Won From It. According to the Arizona Republic, “The second was the Ducey campaign’s response to the million-dollar-plus attack ads on his tenure as head of Cold Stone Creamery funded by Jones’ former boss, GoDaddy founder Bob Parsons. The blitzkrieg staggered the Ducey campaign. The conventional political wisdom is not to respond to attacks, but to counterattack on some other subject. Instead, the Ducey campaign doubled-down, coming out with another Cold Stone Creamery ad, highlighting its success and the awards Ducey received while running it.” [Arizona Republic, 8/27/14]

Audio: Ducey Said People Should Judge Him Based On His Experience At Cold Stone, Because “I Built The Brand Cold Stone Creamery.” According to Doug Ducey on Mac and Gados, “I would say I would judge me by my real world experience record. I mean I built the brand Cold Stone Creamery. Started right here in Arizona we grew into 1400 ice cream stores in all 50 states and in countries all around the world.” [Mac and Gados, 8/27/14]

Audio: Ducey Said That Other Than His Family, His Proudest Accomplishment Was Coldstone. According to Doug Ducey during an interview with Mike Broom, “I will tell you other than my wife and boys the thing Im most proud of my whole life is Cold Stone creamery.” [550 KFYI With Mike Broom, 8/27/14]

Audio: Ducey Told Voters To Judge Him Based On Cold Stone. According to Doug Ducey at the Payson Tea Party, “I’m running on my real world record. Okay the company was Cold Stone Creamery. I hired a lot of exceptional people over the course of my career. And I’ll tell you the way to tell what someone is going to do going forward is by what they have done going backwards. So those of you that have been to Coldstone judge me by the quality of that ice cream.” [Payson Tea Party, 7/31/14]

Cold Stone Business Strategy Pushed Franchises Into Bankruptcy

Ducey Refused To Answer Specific allegations

Ducey Would Not Address The Specific Allegations Made By The Former Franchise Owners. According to the Arizona Capitol Times, “Ducey accused Cherny of ‘grasping at straws’ in his bid for the Treasurer’s Office, and said the former assistant attorney general and ex-White House aide was unfairly maligning Ducey’s former company. He would not, however, address the specific allegations made by the former franchise owners.” [Arizona Capitol Times, 10/7/10]

Cold Stone Franchisees: Cold Stone Business Model Pushed Personal Bankruptcies, Cost Savings And Homes

Numerous Franchisees Were Quoted Saying Cold Stone Had A “Defective” Business Model That Pushed The Cost Of Running A Store So High That It Was Difficult For Individual Owners To Make A Profit. According to the Arizona Republic, “Numerous franchisees were quoted in a 2008 Wall Street Journal story saying the company had a ‘defective’ business model that pushed the cost of running a store so high that it was difficult for individual owners to make a profit. The franchisees said rapid expansion – the company grew from a local scoop shop to more than 1,400 outlets – crowded stores too close together and brought in inexperienced franchisees.” [Arizona Republic, 7/17/14]

Franchisees Claimed Cold Stone Failures Led To Personal Bankruptcies. According to the Arizona Capitol Times, “Normand, who bought a store at 75th Avenue and Lower Buckeye Road in 2007, said he was forced to declare bankruptcy when his store closed. The Gornalls, who owned a store at 53rd Avenue and Bell Road from 2005 to 2007, said they lost their home and their retirement savings after their franchise went under.” [Arizona Capitol Times, 10/7/10]

Former Franchisees Accused Ducey Of Dishonest Business Practices

Group Of Former Cold Stone Franchise Owners Accused Ducey Of Using A Raft Of Dishonest Business Practices To Perpetuate A Revolving-Door System That Lured In Franchisees, Bankrupted Them And Then Pushed Them Aside To Make Way For New Ones. According to Arizona Capitol Times, “A group of former Cold Stone Creamery franchise owners accused Republican state treasurer candidate Doug Ducey, the company’s former CEO, of using a raft of dishonest business practices to perpetuate a revolving-door system that lured in franchisees, bankrupted them and then pushed them aside to make way for new ones.” [Arizona Capitol Times, 10/7/10]

  • Former Cold Stone Franchisee: “Cold Stone Didn’t Make A Lot Of Money Selling Ice Cream. They Made Money Selling Franchises.” According to the Arizona Capitol Times, “‘Cold Stone didn’t make a lot of money selling ice cream. They made money selling franchises,’ said Harold ‘Hal’ Hickman, who owned Cold Stone stores in Las Vegas and St. George, Utah.” [Arizona Capitol Times, 10/7/10]
  • Ducey Would Not Address The Specific Allegations Made By The Former Franchise Owners. According to the Arizona Capitol Times, “Ducey accused Cherny of ‘grasping at straws’ in his bid for the Treasurer’s Office, and said the former assistant attorney general and ex-White House aide was unfairly maligning Ducey’s former company. He would not, however, address the specific allegations made by the former franchise owners.” [Arizona Capitol Times, 10/7/10]
  • Former Cold Stone Franchisee: “We Were Pretty Much Set Up To Fail.” According to the Arizona Republic, “‘We were pretty much set up to fail,’ said Ed Normand, who ran a store on 75th Avenue and Lower Buckeye Road.” [Arizona Republic, 10/8/10]
  • Former Cold Stone Franchisee: “Franchisees Receive A Two-Week Training On How To Make Ice Cream, Manage Finances And Earn A Profit.” According to the Arizona Republic, “Franchisees receive a two-week training on how to make ice cream, manage finances and earn a profit, said John Link, who was not a part of the news conference but was provided by Ducey’s campaign.” [Arizona Republic, 10/8/10]

Numerous Franchisees Were Quoted Saying Cold Stone Had A “Defective” Business Model That Pushed The Cost Of Running A Store So High That It Was Difficult For Individual Owners To Make A Profit. According to the Arizona Republic, “Numerous franchisees were quoted in a 2008 Wall Street Journal story saying the company had a ‘defective’ business model that pushed the cost of running a store so high that it was difficult for individual owners to make a profit. The franchisees said rapid expansion – the company grew from a local scoop shop to more than 1,400 outlets – crowded stores too close together and brought in inexperienced franchisees.” [Arizona Republic, 7/17/14]

Cold Stone Franchisee Said Cold Stone’s Over-Expansion Cannibalized Sales Of Individual Franchises

Michael Goldman, A Northern California Franchisee, Said That, Under Ducey’s Leadership, Cold Stone “Did Overbuild Across The Country, No Question About It.” According to Wall Street Journal, “Some franchisees argue that the chain expanded too rapidly in its early years. ‘They did overbuild across the country, no question about it,’ says Michael Goldman, a Northern California franchisee with seven stores and a seat on Cold Stone’s National Advisory Board, a group of franchisees who meet to discuss the business and give franchisee feedback to management.” [Wall Street Journal, 6/12/08]

Goldman Said That Rapid Growth Cannibalized Sales. According to Wall Street Journal, “The rapid growth meant new stores were frequently close to old ones, cannibalizing sales, Mr. Goldman argues. ‘I’m sure there are sites that should never have been picked and franchisees that should never have been picked’ because of their lack of experience, he says.” [Wall Street Journal, 6/12/08]

Ken Gornall

Gornall Owned A Cold Stone Franchise In Arizona

Ken Gornall Was The Owner Of A Cold Stone Franchise In Glendale, Arizona. According to the Wall Street Journal, “A number of franchisees also contend the company misled them, giving them promises of profit potential that proved unrealistic or inaccurate revenue numbers from existing stores. And some say that they got little help from the company as their stores went under. ‘They have a defective business model, there’s no question about it,’ says Ken Gornall, a former franchisee who closed his Glendale, Ariz., store last October. He adds that the average revenue numbers he received before signing up ‘were quite misleading,’ exaggerating likely annual sales.” [Wall Street Journal, 6/12/08]

 

June 2004: Gornall Started His Cold Stone Franchise. According to the Wall Street Journal, “For many franchisees, the new ownership comes too late. Formerly an independent real-estate agent, Mr. Gornall signed up for a Cold Stone franchise in June 2004. ‘The stores seemed busy all the time. You assume that ‘busy’ equates to profitability,’ he says. Before buying, Mr. Gornall called half a dozen franchisees. ‘No one said, ‘This is a bad deal,’ ‘he remembers. But it soon became clear that something was amiss. Mr. Gornall already faced high overhead such as a $3,700-a-month lease, he says. Then, he says, the company squeezed his margins further by mandating that he buy what he considered expensive ingredients, in larger quantities than he needed. Mr. Gornall adds that the company’s promotional couponing shrank his profits.” [Wall Street Journal, 6/12/08]

Gornall Was Pushed Into Financial Problems Due To Cold Stone’s Mandated Business Model Like A Single Supplier For Ingredients And Two For One Coupons

Wall Street Journal: Cold Stone Franchise Owners Followed A Model That Damaged Their Business By Offering Two-For-One Coupons While Having To Buy Expensive Ingredients From A Single Supplier. According to the Wall Street Journal, “Some have lost their homes, broken their retirement nest eggs or filed for bankruptcy. Even as they rave about the quality of the ice cream, numerous franchisees say the numbers in Cold Stone’s business model didn’t add up. The cost of running one of the shops was so steep that making a profit was daunting, especially in an economy where a $4 scoop was a pricey indulgence, they argue. They also contend the company cut their margins even further by offering two-for-one coupons and making them buy costly ingredients from a single supplier. Some argue that the company’s rapid expansion crowded stores too close together — and brought in too many inexperienced franchisees.” [Wall Street Journal, 6/12/08]

Gornall Said Cold Stone Mandated Franchise Owners To Buy Large Quantities Of Expensive Ingredients. According to the Wall Street Journal, “The stores seemed busy all the time. You assume that ‘busy’ equates to profitability,’ he says. Before buying, Mr. Gornall called half a dozen franchisees. ‘No one said, ‘This is a bad deal,’ ‘he remembers. But it soon became clear that something was amiss. Mr. Gornall already faced high overhead such as a $3,700-a-month lease, he says. Then, he says, the company squeezed his margins further by mandating that he buy what he considered expensive ingredients, in larger quantities than he needed. Mr. Gornall adds that the company’s promotional couponing shrank his profits.” [Wall Street Journal, 6/12/08]

Franchises Like Gornall’s Claimed Cold Stone “Misled” Them On Profit Potential

Wall Street Journal: “A Number Of Franchisees Also Contend That The Company Misled Them” On Profit Potential. According to the Wall Street Journal, “A number of franchisees also contend the company misled them, giving them promises of profit potential that proved unrealistic or inaccurate revenue numbers from existing stores.” [Wall Street Journal, 6/12/08] 

Wall Street Journal: Cold Stone Franchise Owners Followed A Profit-Making Model That Overwhelmed Their Businesses With “Soaring Bills And Shrinking Profits.” According to the Wall Street Journal, “Earlier in this decade, Cold Stone Creamery was one of the hottest franchises around. The super-premium ice-cream stores attracted scores of franchisees hungry for a piece of the ‘Ultimate Ice Cream Experience.’ Now many franchisees are selling their stores, overwhelmed by soaring bills and shrinking profits.” [Wall Street Journal, 6/12/08]

Cold Stone Did Not Offer Gornall Help In His Time Of Need

Gornall Did Not Receive Help From Cold Stone Or The Company Representatives Responsible For Monitoring Those Franchises. According to the Wall Street Journal, “Along the way, he says, he didn’t get much help, either from Cold Stone or the area developer — a company representative assigned to sell franchises in the area and monitor the franchisees. The area developer, Sean Brown, visited his store only once, Mr. Gornall recalls, and didn’t have any good ideas for boosting sales. Mr. Gornall and his wife borrowed on their personal credit cards to pay the store’s bills. But after their losses exceeded $100,000 last fall, they gave up and closed their store. They lost their house and are filing for bankruptcy. ‘It’s been pretty devastating,’ he says. Still, ‘I share some responsibilities’ for failing, Mr. Gornall adds. ‘Maybe I should have closed sooner, but I kept on thinking things would be better.’” [Wall Street Journal, 6/12/08]

Gornall Was Left To Fend For Himself Using Personal Savings

The Gornall’s Had To Use Their Personal Credit Cards To Pay Their Cold Stone Franchise’s Bills. According to the Wall Street Journal, “Along the way, he says, he didn’t get much help, either from Cold Stone or the area developer — a company representative assigned to sell franchises in the area and monitor the franchisees. The area developer, Sean Brown, visited his store only once, Mr. Gornall recalls, and didn’t have any good ideas for boosting sales. Mr. Gornall and his wife borrowed on their personal credit cards to pay the store’s bills. But after their losses exceeded $100,000 last fall, they gave up and closed their store. They lost their house and are filing for bankruptcy. ‘It’s been pretty devastating,’ he says. Still, ‘I share some responsibilities’ for failing, Mr. Gornall adds. ‘Maybe I should have closed sooner, but I kept on thinking things would be better.’” [Wall Street Journal, 6/12/08]

  • The Gornall’s Had Accumulated Over $100,000 In Losses. According to the Wall Street Journal, “Along the way, he says, he didn’t get much help, either from Cold Stone or the area developer — a company representative assigned to sell franchises in the area and monitor the franchisees. The area developer, Sean Brown, visited his store only once, Mr. Gornall recalls, and didn’t have any good ideas for boosting sales. Mr. Gornall and his wife borrowed on their personal credit cards to pay the store’s bills. But after their losses exceeded $100,000 last fall, they gave up and closed their store. They lost their house and are filing for bankruptcy. ‘It’s been pretty devastating,’ he says. Still, ‘I share some responsibilities’ for failing, Mr. Gornall adds. ‘Maybe I should have closed sooner, but I kept on thinking things would be better.’” [Wall Street Journal, 6/12/08]

Gornall Filed For Bankruptcy

The Gornall’s Filed For Bankruptcy And Lost Their House. According to the Wall Street Journal, “Along the way, he says, he didn’t get much help, either from Cold Stone or the area developer — a company representative assigned to sell franchises in the area and monitor the franchisees. The area developer, Sean Brown, visited his store only once, Mr. Gornall recalls, and didn’t have any good ideas for boosting sales. Mr. Gornall and his wife borrowed on their personal credit cards to pay the store’s bills. But after their losses exceeded $100,000 last fall, they gave up and closed their store. They lost their house and are filing for bankruptcy. ‘It’s been pretty devastating,’ he says. Still, ‘I share some responsibilities’ for failing, Mr. Gornall adds. ‘Maybe I should have closed sooner, but I kept on thinking things would be better.’” [Wall Street Journal, 6/12/08]

 

Gornalls Said They Lost Their Home And Retirement Savings. According to the Arizona Capitol Times, “Normand, who bought a store at 75th Avenue and Lower Buckeye Road in 2007, said he was forced to declare bankruptcy when his store closed. The Gornalls, who owned a store at 53rd Avenue and Bell Road from 2005 to 2007, said they lost their home and their retirement savings after their franchise went under.” [Arizona Capitol Times, 10/7/10]

No Comment From Cold Stone

Cold Stone Declined To Comment On The Gornall’s Case. According to the Wall Street Journal, “The company wouldn’t comment directly on the Gornalls’ case. But Mr. Prasifka says, ‘When a franchisee asks for support, we make it a priority to get someone from our team to visit them, discuss their situation and get to the root cause.’ He says if franchisees aren’t satisfied with the support they receive from their area developer, there are ‘multiple resources,’ including an ombudsman, available. But he acknowledges that ‘during tough times, we will have some franchisees who will struggle.’ The company didn’t comment on Mr. Gornall’s complaints about Mr. Brown, which were echoed by several other ex-franchisees. Cold Stone terminated Mr. Brown in January 2007 after he ‘habitually failed to pay royalties, rent, advertising and other amounts’ on Cold Stone stores he owned, according to a company document in a tax-levy dispute with the government in U.S. District Court in Houston. The dispute arose over who should pay income and employment taxes owed on Mr. Brown’s stores. The government looked to Cold Stone, but the company argued that Cold Stone didn’t have an interest in Mr. Brown’s properties at the time the lien arose. Mr. Brown declined to comment.” [Wall Street Journal, 6/12/08]

Ed Normand

Ed Normand : “We Were Pretty Much Set Up To Fail.” According to the Arizona Republic, “‘We were pretty much set up to fail,’ said Ed Normand, who ran a store on 75th Avenue and Lower Buckeye Road.” [Arizona Republic, 10/8/10]

Normand Was Affiliated With North Shore Creameries. According to the Arizona Corporation Commission Edward I Normand and Charlene R Normand filed a company named North Shore Creameries, LLC on June 8th 2006. [Arizona Corporation Commission, Accessed 9/10/14]

  • Company Was Dissolved On September 2nd2009. According to the Arizona Corporation Commission North Shore Creameries, LLC was dissolved on September 2nd 2009 due to failure to maintain a statutory agent. [Arizona Corporation Commission, Accessed 9/10/14]

Normand Filed For Chapter 7 Bankruptcy On January 9th 2009.  According to a Nexis comprehensive Person Search Edward I Normand and Charlene R Normand filed for bankruptcy on January 9th 2009. [Nexis Comprehensive Person  Search, Accessed 9/10/14]

  • Case Was Closed And Discharged On May 11th2012. According to a Nexis comprehensive Person Search the case was listed as discharged on May 11th 2012. . [Nexis Comprehensive Person  Search, Accessed 9/10/14]

Normand’s Home Was Repossessed. According to United States Bankruptcy Court Case No 2:09-bk-00411-CGC, joint debtor Charlene Normand’s of debtor Ed Normand’s address was listed as 13275 West Flower Street Litchfield Park, AZ. The Same Documents listed that property as being reposed, foreclosed, or transferred or returned to Chase Manhattan Mortgage on December 29th 2008. [United States Bankruptcy Court Case No 2:09-bk-00411-CGC, Filed 1/9/09]

Neil Prasad

Prasad Was A Cold Stone Franchisee

2003: Neal Prasad Was A Co-Owner Of A Cold Stone Creamery Franchisee In Wall, NJ. According to Asbury Park Press via Cold Stone Creamery, “Call it a gimmick if you want, but Susan and Praveen Prasad say the ice cream at the Cold Stone Creamery in Brick is different from the ice cream you’ll find at other ice cream shops. […] They opened the shop at Cedar Bridge Avenue and Brick Boulevard in August. Susan Prasad, a 39year-old former business analyst for Merrill Lynch in Somerset, is the full-time operator of the shop. Her husband, a 40-year-old former network developer for Lucent Technologies and then Tellium Inc., continues to work full-time for Booz Allen Hamilton in Eatontown as a consultant for government. […] The Prasads, who live in Wall, plan to open franchises in Wall and Ocean Township in the spring of 2004 with Praveen’s 33-year-old brother, Neal, as a partner. The Wall shop will be on Route 35, near A & S Italian Import Deli. The Ocean Township location will be in the strip mall south of Seaview Square, on Route 66.” [Asbury Park Press via Cold Stone Creamery, 12/25/03]

 

Prasad Was A Co-Owner Of Cold Stone Franchises In Wall, Ocean Township And Toms River. On February 14, 2006, Praveen, Susan, and Neal Prasad filed a lawsuit in the United States District Court for the Illinois Northern District Court against Cold Stone Creamery for violating the New Jersey Franchise Act and interfering with the plaintiffs’ franchise business growth. According to the complaint, the plaintiffs Prasad claimed that “[o]nce Cold Stone had encouraged this growth, knowing his brother was interested, Praveen contacted his brother, Plaintiff Neal, to inquire whether Neal would like to get involved in the opening of new Cold Stone franchises. Neal agreed and partnered with Praveen in the purchase of three Cold Stone franchises located in Wall, Ocean Township and Toms River, respectively.” [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

Prasad Filed For Bankruptcy

2007: Neal Prasad Filed For Chapter 13 Bankruptcy – Listed Cold Stone Creamery-Related Debt Over $292,000. On October 31, 2007, one of the plaintiffs, Neal Prasad, filed for Chapter 13 bankruptcy with the United States Bankruptcy Court for the District of New Jersey. According to the petition, among the many debts, the SBA Loan related to Cold Stone Holdings LLC was valued at $285,000 principle debt and $7,000 delinquent debt. [Petition, “In Re: Neal K. Prasad,” United States Bankruptcy Court for the District of New Jersey, Case No. 07-25974, Filed 10/31/07]

  • 2008: Final Bankruptcy Plan Included $33,950 Of Debt Still Owned To Cold Stone Holdings LLC. Prasad’s final bankruptcy plan included repayment of $33,950 worth of debt to Cold Stone Holdings LLC. [Standing Chapter 13 Trustee’s Final Report, “In Re: Neal K. Prasad,” United States Bankruptcy Court for the District of New Jersey, Case No. 07-25974, Filed 6/5/08]

Prasad Settled With Cold Stone After Accusing The Company Of Tortious Interference

2006: Cold Stone Was Accused Of Violating The New Jersey Franchise Act And Tortious Interference With Franchisees’ Business. On February 14, 2006, Praveen, Susan, and Neal Prasad filed a lawsuit in the United States District Court for the Illinois Northern District Court against Cold Stone Creamery for violating the New Jersey Franchise Act and interfering with the plaintiffs’ franchise business growth. [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

2008: Case Settled And Ordered Closed. On October 27, 2008, the court ordered the case closed after both sides agreed to a settlement. The details of the settlement were not included in the case file for review. [Order & Judgment, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 10/27/08]

Accused Cold Stone Of Discouraging Franchisees From Selling Their Franchises By Informing Prospective Buyers That They Could Purchase Franchises Directly From Cold Stone At A Lower Price

Plaintiffs Claimed That They Attempted To Sell Their Franchises In Late 2005, But Cold Stone Discouraged Potential Buyers, Claiming That Said Buyers Could Purchase A Franchise Directly Through Cold Stone For Less Money. According to the complaint, the plaintiffs Prasad claimed that “[a]round this time, late 2005, Praveen and Neal decided to sell their franchises and Cold Stone agreed that Praveen and Neal would leave the Cold Stone system. However, Cold Stone, and more specifically Jay Goldstein (‘Goldstein’), interfered with at least one potential purchaser. Goldstein on at least two occasions discouraged potential purchasers of the Plaintiffs franchises by telling the purchaser that he was overpaying and could purchase a new franchise directly from Cold Stone for less money.” [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

 

Plaintiffs Claimed That Cold Stone Interfered “With The Prospective Sale Of Plaintiffs’ Franchise Stores Through Falsities And Misrepresentations.” According to the complaint, the plaintiffs Prasad claimed the following: “61. Plaintiffs repeat and reallege each and every allegation contained in the foregoing paragraphs of this Complaint with the same force and effect as through fully set forth at length. […] 64. Cold Stone and/or its agents/employees acted wrongfully, including but not limited to interfering with the prospective sale of Plaintiffs’ franchise stores through falsities and misrepresentations. […] 66. As a direct and proximate result Plaintiffs have suffered substantial financial loss as well as future loss.” [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

Plaintiffs Claimed That Cold Stone’s Actions Would Result In Personal Financial Devastation

Plaintiffs Claimed That The Loss Of Their Many Cold Stone Franchises Would Be Worth Approximately $900,000. According to the complaint, the plaintiffs Prasad that the loss of their various Cold Stone Creamery franchises would have resulted in a financial loss of approximately $900,000. [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

Plaintiff Claimed That Due To The Franchises Being Guaranteed By Loans Taken On Personally, Financial Devastation Would Have Resulted. According to the complaint, the plaintiffs Prasad claimed that financial ruin would result with the wrongful stripping of their franchise agreement because direct loans made for the benefit of their franchises were collateralized off of the Prasads’ earnings and real estate assets – including their personal residences. [Verified Complaint and Jury Demand, “Prasad Et Al v. Cold Stone Creamery Inc. Et Al,” United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed 2/14/06]

Ed Ramsey

Ramsey Was A Cold Stone Franchisee, Who Paid Franchise Fees For Three Locations. In his Behind The Stone blog, Ed Ramsey wrote, “We decided to take the chance….we called the area developer and told her we wanted to be a part of the Cold Stone family. We wanted in. We signed the paperwork, gave her a check for the franchise fee…..we had done it! Like most of you, we were excited. We signed an agreement for a second location a few months later, paid a second franchise fee, then, even a third location! Another franchisee fee! We still didn’t have an open location, but we were growing!” [Ed Ramsey Blog – Behind the Stone, 12/24/08]

Ramsey Filed Chapter 13 Bankruptcy. In his Behind The Stone blog, Ed Ramsey wrote, “Filing a Chapter 13 bankruptcy action may not be the best strategy, but it was better than doing nothing. We were able to provide a clear title to both purchasers, free of any liens or encumbrances (cleared by the judge), and the judge did allow for one of my lien holders to get paid off. The money I owed to Cold Stone (somewhere in the $300,000 range, including unpaid rent, royalties, the remaining balance on a note they carried, and the leased equipment for $140,000) was discharged. They were able to collect some of the post petition rent that I owed them through the sale of the second store.” [Ed Ramsey Blog – Behind The Stone, 12/24/08]

Ramsey Went Bankrupt Because He Was In “Deep Financial Trouble” From Taking Out Loans To Start The Store Locations. In his Behind The Stone blog, Ed Ramsey wrote, “My first year, one of my stores was on track to do $425,000, the other, which opened nine months later, about $475,000. In fact, after the Cake Batter disaster, neither store broke $375,000. Year ending 2007, in fact, my combined total sales for both stores was $601,000! I would be lucky if someone would pay $200,000 for each store. Remember, as first generation franchisees, we had to shell out about $300,000 per location. And, besides what I owed to the government, I had leased equipment in one store for which I owed about $140,000, and I still owed my lenders about $300,000. And both of them had liens on my house. At this point, I realized that I was in deep financial trouble. I contacted a bankruptcy attorney.” [Ed Ramsey Blog – Behind The Stone,12/24/08]

Ramsey Blamed Financial Difficulties, In Part, On Excessive “Administrative Fees” From Cold Stone. In his Behind The Stone blog, Ed Ramsey wrote, “There was a lot of difficulty with financing, however, even though I had put up 20% of the projected costs. First National Bank of Arizona wanted more upfront money! I had to come up with an additional $25,000! And none of this included the first food order, the first payroll, or uniforms! Cold Stone would loan me an additional $75,000 because the bank wanted to only loan 50% of the total costs! That in itself should have been a warning signal; however, we continued to move forward, just trying to open our first location. My store was the first store in the system to have Cold Stone be the primary on the lease, so the lease agreement took some time to complete, and proved to be very hard to understand, at least for me. I immediately had to pay Cold Stone an additional 2% of the projected lease amount over a five year period to Cold Stone as an ‘administrative fee’. That was a whopping $6,000 I had to pay up front to Cold Stone, so they could collect the rent from me, and pay the landlord their rent.” [Ed Ramsey Blog – Behind The Stone, 12/24/08]

Ramsey Said Ducey “Stood On Stage, Telling Us All How Fast Cold Stone Would Grow. There Will Be 1,000 Profitable Stores Open By 2005, He Proclaimed.” In his Behind The Stone blog, Ed Ramsey wrote, “Now the relationship started to look a little one sided……but we still moved forward, buoyed by the AFM, the following January. It certainly was extremely upbeat, and we heard all these testimonials from some of the successful franchisees, and Cold Stone gave us their vision for the future, and it was glorious…..according to Cold Stone. Doug Ducy [sic] stood on stage, telling us all how fast Cold Stone would grow……’There will be 1000 profitable stores open by 2005!’ he proclaimed! And, if he had to, it would be with the 500 franchisees in the system already.” [Ed Ramsey Blog – Behind The Stone, 12/24/08]

Aaron And Karin Tzamarot

Aaron And Karin Tzamarot Were Cold Stone Franchisees. According to Blue Maumau, “The Tzamarots signed their 10-year lease on June 6, 2009, and entered into a sublease with Cold Stone. It was finalized by Gruber the next month. The franchisees then opened their Cold Stone ice cream store in January 2007.” [Blue Maumau, 4/10/12]

Tzamarots Filed For Chapter 13 Bankruptcy And Converted To Chapter 11 Reorganization. According to Blue Maumau, “Eleven months later, the landlord issued a notice of default for non-payment of rent and ordered the Tzamarots to vacate the premises. They then filed for Chapter 13 bankruptcy in December 2009, and the next year converted to Chapter 11 reorganization.” [Blue Maumau, 4/10/12]

Tzamarots Went Bankrupt After Defaulting On The Payment Of Rent, And Closed Their Store About 18 Months Into The Lease Term. According to Weaver Street Properties LLC v. Cold Stone Creamery, “The defendant then entered into a sublease with a company owned by Aaron Tzamarot and Karin Tzamarot, which ran an ice cream store as a franchise of the defendant.   The franchisee defaulted in the payment of rent, and thereafter closed the store about 18 months into the lease term.” [Weaver Street Properties LLC v. Cold Stone Creamery, 7/5/11]

Tzamarots Alleged They Were Victims Of A Scheme Despite Cold Stone’s Knowledge That The Franchise Was “Highly Unlikely To Generate Sufficient Revenues” To Support Lease Payments. According to Cold Stone Gruber Memorandum Of Law, “In the instant action, Plaintiffs allege that they were victims of a scheme by the Defendants to induce them into entering a franchise agreement with Defendant Cold Stone Creamery, Inc. (hereinafter ‘Cold Stone’) and ultimately to enter a lease and sublease for commercial property located at 1481 Weaver Street, Scarsdale, New York (‘Weaver Street property’ or ‘Weaver Street presmies’), despite Defendants’ alleged collective awareness of the ‘high failure rates of Cold Stone franchises,’ that the franchise was ‘highly unlikely to generate sufficient revenues and/or profits to support the lease payments,’ and that ‘Cold Stone and its affiliates had been alleged to have paid kickbacks…’ See Complaint, pp. 6-10. Plaintiffs set forth purported causes of action for fraud, fraudulent misrepresentation, negligent misrepresentation, breach of contract, breach of implied covenant of good faith and fair dealing, and tortuous interference with prospective economic advantage against the various Defendants.” [Cold Stone Gruber Memorandum Of Law, 1/27/12]

Accused of Lying To Franchisees On Lease Length

Meyers et al. v. Conehead Investments, Inc. et al.

2006: Cold Stone Creamery And Ducey Accused Of Fraud And Misrepresentation In Representing To Franchisee That Lease Was Good For Eleven Years When Lease Was To Expire In One Year. On September 19, 2006, plaintiffs Lesa Meyers and Lesa, LLC brought suit against Cold Stone Creamery, Inc., affiliated companies, and certain individual officers, alleging violation of California Franchise Investment Law, intentional misrepresentation, negligent misrepresentation, fraudulent suppression of fact, and unfair business practices in relation to the transfer of a Cold Stone Creamery store lease, which the defendants knew they had lost the right to renew and would therefore expire the following year. On September 29, 2006, the plaintiffs amended their complaint to add two additional counts of violation of California Franchise Investment Law and a claim for breach of contract, and to add a number of individual defendants who were officers and directors of Cold Stone, including Douglas A. Ducey. [Complaint, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 9/19/06; First Amended Complaint, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 9/29/06]

  • Cold Stone Accused Of Knowing That It Had Lost The Right To Renew The Lease While Subleasing To Previous Franchisee. According to the Complaint, Cold Stone Creamery Leasing, Inc. had a Master Lease with its landlord for the Cold Stone Creamery store located in Long Beach, California. Cold Stone, in turn, subleased the store to its franchisee, Jon McDuffie, beginning March 21, 2001. Cold Stone and McDuffie agreed that McDuffie would make rent payments directly to the landlord through July 31, 2006. Under the terms of the Master Lease, on that date Cold Stone could request to renew the lease for two additional five-year lease terms, provided that certain conditions for nonrenewal did not occur, including if Cold Stone defaulted on the lease or if any three rent payments were late. According to the Complaint, rent payments were late on more than 20 occasions and Cold Stone had lost the right to renew the Master Lease as of December 2003. After the landlord purportedly threatened to evict Cold Stone in February 2005, the company informed the landlord that it would make rent payments directly, would be terminating McDuffie as a franchisee, and that a new franchisee would be in place within 60 days. The Complaint alleged that the defendants again failed to pay the March 2005 rent payment on time. [Complaint, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 9/19/06]
  • Cold Stone Accused Of Representing To Plaintiff That Eleven Years Remained On The Master Lease, Which Was Actually Set To Expire In A Year. According to the Complaint, the plaintiffs learned in February 2005 that the store was for sale and contacted the defendants about purchasing it. Cold Stone put the plaintiffs in contact with McDuffie, and they negotiated the purchase of the store. Cold Stone executed a Franchise Agreement and an Agreement to Sublet the Premises on March 29, 2005. The Franchise Agreement indicated a 10-year term with the possibility of four consecutive five-year renewals. According to the Complaint, Cold Stone continually made verbal representations, beginning in April 2005, that there were 11 years left on the 15-year term of the Master Lease, and at no time were plaintiffs told of the late rent payments or of any default of the Master Lease or that Cold Stone had lost the right to renew the Master Lease when it was to expire on March 31, 2006. The plaintiffs contended that Cold Stone knew the purchase would not have occurred if the plaintiffs had known that the lease was set to expire in a year. The plaintiffs executed an official Business Purchase Agreement on April 8, 2005. According to the Complaint, on May 2, 2005, Cold Stone attempted to exercise renewal of the Master Lease but was rejected by landlord. The sale closed on July 13, 2005 for $375,000. The plaintiffs were first informed that there were “problems with the lease” on December 6, 2005, and when negotiations to renew officially failed, the plaintiffs were told that they had to vacate the premises on June 29, 2006. [Complaint, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 9/19/06]
  • The Plaintiffs Sought More Than $2 Million Plus Punitive Damages For Fraud, Misrepresentation, And Unfair Business Practices By Cold Stone Creamery For Allegedly Hiding That The Lease Would Not Be Renewed. According to the Amended Complaint, the defendants sold the Cold Stone Creamery franchise to the plaintiffs through communications which included one or more untrue statements of material fact, including that the sublease would be for a term of five years with two additional five-year terms, for total of 15 years, and that the plaintiffs would be able to remain at the premises for 11 years, when defendants fully knew and had a duty to disclose that the lease was going to expire on July 31, 2006 with no right of renewal. The plaintiffs brought three cause of action for violation of California Franchise Law, as well as claims for intentional misrepresentation, negligent misrepresentation, fraudulent suppression of fact, unfair business practices, and breach of contract. The plaintiffs contended that they suffered no less than $2 million in damages as a result of the defendants’ false and misleading statements, and also sought unspecified punitive damages, disgorgement of money and other benefits to the defendants resulting from the defendants’ misconduct, costs of suit and pre-judgment interest. [First Amended Complaint, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 9/29/06]
  • 2008: The Parties Agreed To Settle The Case And The Plaintiffs Requested That The Case Be Dismissed With Prejudice. On May 28, 2008, the plaintiffs filed with the Court a notice that the parties had agreed to unconditionally settle the entire case. The plaintiffs requested dismissal of the entire case with prejudice on June 17, 2008, and the Court entered dismissal on June 28, 2008. [Notice of Settlement of Entire Case, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 5/28/08; Request for Dismissal, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 6/17/08; Notice of Entry of Dismissal, “Meyers et al. v. Conehead Investments, Inc. et al.,” Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 6/26/08]