Ronald R. Madson (09230)

MADSON & MADSON

112 South Main Street

Alpine, Utah 84004

Tel: (801) 492-0423

Fax: (801) 492-1387

Attorney for Claimants

IN ARBITRATION
Brad Woodward & Sanford Woodward
Claimants,
v.
Bajio, LLC, Bajio Mountain West LLC which has voluntarily appeared herein as the self-admitted successor-interest to Bajio, LLC, Doe Entities I-V; Doe Individuals I-V
Respondents and Counterclaimants / Post-Arbitration Brief
Arbitrator: James Holbrook

The Arbitration Hearing for the matter regarding Brad & Sanford Woodward vs. Bajio, LLC & Bajio Mountain West, LLC took place July 19th, 2011 at 9:00 a.m. at the offices of Madson & Madson in Alpine, Utah. Present were Arbitrator James Holbrook, Claimants, and counsel for Claimants, Ronald Madson. No one appeared for Respondents Bajio, LLC or its self-admitted successor in interest, Bajio Mountain West, LLC. This Post-Arbitration Brief, compiled at the request of Arbitrator James Holbrook, outlines the basic elements, claims, and damages put forth by these Claimants as follows.

I. Notices from these Claimants to Respondents since Withdrawal of Their Counsel, Neil Sabin on May 12, 2011:

  • To respond to Respondents’ Notice of Withdrawal of Counsel, Ronald Madson, counsel for these Claimants, sent a letter dated May 18, 2011(see Exhibit 1 of this Post-Arbitration Brief, hereafter “P.A.B.”) to Bajio, LLC inviting them to either obtain representation or contact him in person to continue the case. This letter received no response.
  • On June 3, 2011, counsel for these Claimants sent a Notice to Appear or Appoint Counsel (see Exhibit 2 of this P.A.B.) to Bajio, LLC, and Bajio Mountain West, LLC. Neither of the Respondents responded.
  • On June 27th, 2011, counsel for these Claimants sent a Notice of Arbitration Hearing (see Exhibit 3 of this P.A.B.) to Bajio, LLC, Bajio Mountain West, LLC, and Neil Sabin, last counsel of record for Bajio, LLC. Neither of the Respondents nor Neil Sabin responded to this Notice, and no one appeared on behalf of Respondents at the actual hearing on July 19, 2011.
  • Certificate of mailing of Arbitration brief to Bajio, LLC, Bajio Mountain West, LLC and Neil Sabin, last counsel of record. (Exhibit 4)
  • Certificate of mailing of Post Arbitration Brief to Bajio, LLC, Bajio Mountain West, LLC and Neil Sabin, last counsel of record. (Exhibit 5).

II. Claims

The claims of these Claimants brought forth at the July 19th arbitration hearing are as follows:

  • Statutory Violations:
  • Claim
  • In executing the Woodwards’ Bajio Franchise Agreement, Respondents violated Utah Code Ann., § 13-11-1 et seq. via a violation of several provisions of the Utah Administrative Code, including R152-11-11(b)(1), R152-11-11(b)(3), R152-11-11(b)(6), and R152-11-11(b)(10).
  • Damages Available
  • Because of the illegal provisions contained in the Woodwards’ Bajio Franchise Agreement, Claimants are entitled to ask this Arbitrator to declare said Agreement should be rescinded.
  • Claimants are entitled to actual damages for violation of this statute per Utah Code Ann. § 13-11-19(2).
  • Claimants are entitled to attorneys fees for the violation of this statute per Utah Code Ann. § 13-11-19(5)(a).
  • Fraud:
  • Claim
  • Respondents fraudulently misrepresented many facts to Claimants which induced them to enter into the Woodwards’ Bajio Franchise Agreement, and
  • Fraudulently failed to disclose vital and material information to Claimants after entering the agreement.
  • Claimants suffered substantial losses as a result of this fraud.
  • Damages Available
  • Claimants are entitled under Utah common law to damages under the Benefit of the Bargain rule, including compensatory and consequential damages. This cause of action is also an independent basis for voiding/rescinding the franchise agreement.
  • Per Utah Code Ann. § 78B-8-201, Claimants are eligible to receive punitive damages inasmuch as compensatory damages are awarded and Claimants have shown conduct of Respondent to be “Malicious” or “intentionally fraudulent”.

III. Damages

These Claimants have sustained the following actual/compensatory damages as a result of Respondents’ illegal and fraudulent behavior:

  • Compensatory Damages
  • Franchise fee(Exhibit 2 of Arbitration Brief, or “A.B.”)$10,000
  • Equipment purchase & build-out (Exhibit 13 & 14 of A.B.)$390,382.29
  • Cost of Butler Loan (Exhibit 15 of A.B.)$165,000 (points and interest incurred)
  • Forfeit of Claimants’ lease security deposit$12,000
  • Architect fee (Exhibit 16 of A.B.)$7,000
  • Rent paid on store before opening (Exhibit 17 of A.B.) $49,924 (from July 2007 through January 2008)
  • Claimants’ pre-opening labor costs$3,000
  • Claimants’ owner/manager training costs$8,640
  • Miscellaneous restaurant equipment, including cabinets,

a freezer, plates, and silverware

$4,950

  • Claimants’ operating loss from 2008 to 2010 (Exhibit

18 of A.B.)

$152,468

  • Personal loan made from Claimants to their Bajio operation

(Exhibit 19 of A.B.)$212,758

  • Loan from Claimants’ Subway stores to their Bajio

Operation (Exhibit 19 of A.B.)

$130,753

  • Past Due Taxes (Exhibit 20 of A.B.)$58,581
  • Unpaid Workmen Compensation (Exhibit 21 of A.B.)$11,484.45
  • Amount owed to employee Scott Woodward (Exhibit 21 of A.B.)$7,100.08
  • Overdraft & NSF charges $54,777
  • Legal fees prior to present litigation (Exhibit 22 of A.B.)$81,335.62
  • Legal fees resulting from present litigation (Exhibit 6 which are legal fees of Madson and Madson attached to this P.A.B.)

$48,275

Total Actual damages prior to interest:$1,408,428.44

  • Prejudgment Interest at 10% (per U.C.A. 15-1-1(2), calculated

From filing of complaint September 15, 2010 to Arbitration Hearing

July 19, 2011 as to actual damages of $1,408,428.44

$ 118,462.09 (plus $385.87 a day until judgment awarded)

Total Compensatory Damages

$1,526,890.53

  • Consequential Damages
  • Present value of lost future profits for Woodwards’

Bajio restauarant (Exhibits 7 of this P.A.B. and Exhibits 3

And 23 of A.B.) Calculation of benefit of bargain of $5,000 net profit per week times twenty year franchise contract:

Based on 4.33 weeks per month (Ex. 23)$3,024,017

  • Present value of lost future profits for Subway (Exhibits

8 of this P.A.B. and Exhibit 24 of A.B.). Based on 35 years. These entities being a retirement fund and income for children $2,338,345

Note: Taking inflation into consideration, which has been historically 4.41 average over last forty years, then using 6% discount rate changes the number of present value dramatically. This counsel

is merely suggesting that this arbitrator consider a 2% inflation rate which is reflected in Exhibit 9 of the P.A.B. With an 2% inflation rate (still using a 6% discount) the above numbers increase to $3,488,384.76 and $2,959,215.73, respectively,

  • Lien on this Judgment from divorce of Brad Woodward

(Exhibit 9 of this Post-Arbitration Brief) $52,460

  • Extreme loss of credit for both Woodwards (Ex. 25 AB)$3,000,000

Total Consequential Damages$8,414,822

Punitive Damages:

Actual damages of $1,526,890.53 times five (5) $7,634,452.65

Fraud in the inducement:

*Misrepresented Claimants could legally be placed at site selected

*Misrepresented profit pro forma of Bajio Restaurants (Exhibit 3)

*Misrepresented that permission and/or waiver given by Area Developer to develop at site selected.

*Misrepresented to Claimants that the franchisee seeking to remove Claimants from store had a merit-less claim.

Abuse of process:

*Knew at least as early as November of 2008 that Claimants were

in another franchisee’s exclusive designated territory and yet

chose to not remedy the problem by rescinding its’ contract with

Claimants

* Rather than admit to having violated a franchisee’s exclusive

designated territory, engaged in a litigation tactic of using

Claimants in defending against a fellow franchisee’s claim to

protect his exclusive designated territory for which there was

no legitimate legal defense.

*Sought means to shut down Claimants’ restaurant through the

attrition of litigation rather then rescind contract based on Respondent’s inability to provide a legal license for Claimants’ to operate or sell.

*Admitted in Court on May 3, 2010 that they had “just” discovered in

March of 2010 that one of their franchisee’s held an exclusive designated territory as stated in the UFOC that they had prepared. It was an abuse of process to not immediately remedy all losses sustained by all involved, and in particular these claimants, by not offering them an immediate rescission of their franchise agreement in March 2010 when they alleged to have discovered their error, rather than wait until May 3, 2010. Rather than act in good faith and disclose their “new” found knowledge the Respondents chose to do the following from March 2010 through May 3, 2011:

a. Requested that the landlord who held the lease for Claimants’ restaurant evict the Claimants who were subtenants to Respondents.

b. When the Landlord would not evict these Claimants the

Respondents evicted these Claimants from their store, and

c. Then only once these Claimants were evicted during the last

week of April, 2010, then and only then did the Respondents

confess to having just discovered that these Claimants were

placed in another franchisee’s exclusive designated territory

d. Just hours after admitting that they had placed Claimants in another franchisee’s exclusive designated territory, Respondents terminated the counsel that they had hired to protect Claimants’ from damages arising from a claim based on their being wrongfully placed in said territory.

IV. Order to Produce Ordered Discovery:

It is significant to note that throughout these proceedings, Respondents have engaged in abuse of process by using this forum not as an opportunity to legitimately defend themselves, but rather as an opportunity to fight a war of attrition against Claimants, whom they hoped would run out of money and go out of business. This is evidenced by the fact that Respondents have admitted openly to knowing that Hofheins held an exclusive territory as early as March of 2010 (see Exhibit 7 of Arbitration Brief) yet continued to posture a bad-faith defense until they finally admitted their knowledge in May 3 of 2010 (see Exhibit 7 of Arbitration Brief).

Because of their bad-faith motives, Respondents have continually refused to produce discoverable information despite an explicit order by this Arbitrator to produce material documents. This has, in Claimants’ opinion, allowed Respondents to continue to hide what these Claimants believe to be damning evidence. Claimants therefore ask that this Arbitrator enter, as part of the judgment, an order for Respondents to comply with all requests to produce as ordered by this Arbitrator in his Rulings on Discovery and Procedural Matters dated April 28, 2011.

V. Joint and Several Liability

The original respondent named by these Claimants was Bajio, LLC. However, Bajio Mountain West voluntarily appeared in this arbitration and submitted to its’ jurisdiction and has further admitted that it is the successor-in-interest to Bajio, LLC, thus accepting joint and several liability together with Bajio, LLC. Bajio Mountain West, LLC established itself as successor-in-interest to Bajio LLC as follows:

  • On Sept. 27, 2010, in its first Reply and Counterclaim in Arbitration, counsel for Bajio, LLC wrote, “Bajio Mountain West, LLC (herein “Respondent”) as successor-in-interest to Defendant Bajio, LLC, replies to the Complaint in Arbitration.”
  • In the same Reply and Counterclaim dated Sept. 27, 2010, Bajio Mountain West, LLC, as successor-in-interest to Bajio, LLC, made affirmative claims against these Claimants, cementing its interest and role in the ensuing Arbitration.
  • Thereafter, counsel for Respondents referred, in its pleadings, to “Respondents” (plural) rather than “Respondent.”
  • On Feb. 24, 2011, in its Memorandum Objecting and Opposing Motion to Compel Discovery & Request For Issuance of Subpoena, counsel for Respondents included Bajio Mountain West, LLC’s name as a Respondent in the header.
  • On April 28, 2011, this Arbitrator included Bajio Mountain West, LLC as self-admitted successor-in-interest to Bajio, LLC in the header for his Rulings on Discovery and Procedural Matters.
  • That their attorney, Neil Sabin, had withdrawn as Bajio Mountain West, LLC’s counsel on May 12, 2011, all subsequent notices in this arbitration were sent to Bajio Mountain West, LLC.

As a result of establishing itself as the self-admitted successor-in-interest to Bajio, LLC, Bajio Mountain West, LLC assumes all of Bajio, LLC’s liabilities incurred as a result of this Arbitration. Therefore, these Claimants’ ask that Bajio Mountain West be held by this Arbitrator to be jointly and severally liable, together with Bajio, LLC, for all and any judgments against them.

VI. No award as to Counterclaims

In their Reply and Counterclaim in Arbitration dated Sept. 27th, 2010, Respondents, Bajio Mountain West, LLC and Bajio, LLC made affirmative claims against these Claimants of:

  • Breach of Lease
  • Monetary Breach of Franchise Agreement
  • Collusion
  • Fraud

As Respondents have failed to produce any kind of evidence supporting these claims, have failed to follow up with any additional supporting arguments, and as Respondents have further withdrawn from participation in general in this Arbitration, these Claimants therefore ask that this Arbitrator find that there was no evidence offered by the Respondents against these Claimants, and, therefore, request that this Arbitrator rule in favor of the Claimants in awarding no damages related to these claims.

Conclusion

These Claimants request that this Arbitrator consider the Arbitration Brief with accompanying exhibits, the testimony of all witnesses, including the expert testimony of Jon Holbrook and Dale Gibson, as well as this Post Arbitration brief in awarding these Claimants all of the damages referenced above that reflects not only the gravity of the bad faith and fraud involved on the part of the Respondents, but, more importantly, to restore to these Claimants the overwhelming financial losses they sustained.

Dated this 21st day of July, 2011

______

Ronald R. Madson

Attorney for Claimants

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