Dennis E. Neal v. The Closet Factory Inc., The Closet Factory Franchise Corp., et al.
Published: Jan. 17, 1998 | Result Date: Dec. 21, 1997 | Filing Date: Jan. 1, 1900 |Case number: BC101918 Verdict – $800,000
Judge
Court
L.A. Superior Central
Attorneys
Plaintiff
Richard A. Love
(Love LLP)
Defendant
Experts
Plaintiff
Robert Lucas
(technical)
Lynn M. Cawley
(medical)
Lewis Finkelstein
(technical)
Defendant
David B. Wallace
(Office of the U.S. Attorney)
(technical)
Richard Rothbard
(medical)
Alfred E. Osborne Jr.
(technical)
Facts
The Closet Factory Inc ("CF") began manufacturing and installing custom closets in homes in 1983 in Los Angeles and Orange Counties. CF was owned by defendants John La Barbera and Niejse Van Heusden-La Barbera. In the late 1980's, Closet Factory Franchise Corporation ("CFFC") was formed to sell Closet Factory franchises based on the business plan/model sold by defendants for the customs closet business. In 1990, there were over 20 Closet Factory franchises, and by the time of trial, Closet Factory claimed 80 franchises. Plaintiff Dennis Neal had an MBA and owned and operated a Midas Muffler franchise from 1986 to 1989, when he sold it at a profit. In early 1990, Neal had a total net worth, all liquid, of approximately $157,000. In June 1990, Neal purchased two Closet Factory franchise territories for an initial franchise fee of $57,000 from the CFFC under two franchise agreements which, among other things, gave Neal exclusive franchise rights to advertise, manufacture and sell under the Closet Factory name in Riverside and San Bernardino Counties. The total initial financial commitment by Neal for the two franchises with equipment, lease, initial advertising, etc. was approximately $150,000. Neal began operating his custom closet business in those territories in October 1990. For the initial two years, Neal's franchise broke even or had a modest profit or loss. In 1993, a major price war broke out between CF (which was operating in LA and Orange Counties) and its two major competitors which advertised and sold throughout the Southern California region, including in plaintiff's franchise territories. As a small businessman, Neal could not compete with either advertised or actual prices at which CF and the competitors were selling in the market. In June 1993, Neal attempted to sell his franchises, but was unsuccessful due to his sharply decreasing revenues, and the fact he learned in July 1993 that a contractor's license was needed to sell or install custom closets so his business could only be operated by a licensed contractor. In October 1993, Neal's franchises went out of business. The plaintiff brought this action against Closet Factory Franchise Corporation, the Closet Factory, its owners and the two competitors based on fraud and unfair theories of recovery. Plaintiff reached settlement with the competitor defendants over one year prior to trial. CFFC filed cross-complaint for unpaid royalties under the franchise agreements.
Settlement Discussions
Nine months before trial, plaintiff made a settlement demand for $600,000 to the Closet Factory defendants. The Closet Factory defendants indicated a $200,000 offer.
Damages
The plaintiff claimed $450,000 in total damages.
Other Information
The verdict was reached approximately three years and eight months after the case was filed. A mediation was held on Feb. 19, 1997 before retired Judge Eric Younger. It did not resolve the matter. Pursuant to Business and Professions Code º17043 (unfair competition), unfair competition damages are trebled. Therefore, plaintiff's $200,000 general damages award will be trebled to a total of $600,000. In addition, plaintiff will receive attorney fees pursuant to Business and Profession Code º17082.
Deliberation
four days
Poll
10-2
Length
11 days
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