Janet Sparks writes at Blue MauMau that after Patrick LaFontaine, professional hockey player and inductee in the Hockey Hall of Fame, filed a lawsuit against Dunkin’ Brands and the principals of its bankrupted franchisee Kainos Partners Holding Company, a Nassau judge ruled last week that fraud claims can now move forward against the defendants.
Although not named in the lawsuit, Dunkin’ executive chairman of the board Jon L. Luther is at the center of the litigation as LaFontaine’s former neighbor and friend, and board member of his Companions In Courage non-profit charitable foundation for children.
The lawsuit filed under LaFontaine’s company High Tides, LLC, alleges Kainos board members used fraudulent misrepresentations, omissions and concealment of facts to induce his company to invest in their franchise operation. Kainos was formed in November 2006 to create a long-term business alliance with Dunkin’ Brands. It was initially capitalized by its founding members for $6 million. The company purchased the rights to develop Dunkin’ Donut/Baskin-Robbins combo retail shops in the greater Buffalo, New York area and elsewhere.
LaFontaine’s relationship with the Kainos principals began at a golf tournament in 2005, where Luther first introduced him. At that time, and in the context of discussing a possible equity investment by the hockey player, LaFontaine learned that Kainos was working with Luther to develop Dunkin’ shops, and that the Dunkin’ CEO believed that LaFontaine’s status as a former Buffalo Sabres hockey icon would assist Kainos in developing and growing the Buffalo market.
In 2006, Thomas H. Lee Partners LP, Bain Capital Partners and the Carlyle Group purchased Dunkin’ Donuts for $2.43 billion. According to the lawsuit, as part of this purchase, and through a complicated securitized structure, “Dunkin’ Brands burdened itself with secured debt estimated to be in excess of one billion dollars—a debt that needs to be retired.” It further states that “on information and belief, Dunkin’ is also preparing an initial public offering, whereby it hopes to offer common stock to the general public for the first time, for the benefit of itself and its investors.”
After consulting with Luther again in 2007, LaFontaine claims he was induced to invest in Kainos through an initial investment of $500,000, thereby becoming the owner of 500 shares. Later that year, the equity holders of Kainos, including High Tides, invested an additional $25 million. LaFontaine asserts that he relied on Luther’s advice, which earned his trust in Luther and Dunkin’ Brands. In press releases, Luther was quoted recognizing Kainos as “Dunkin’ Brands Rising Star” at an awards banquet at John F. Kennedy Presidential Library and Museum in Boston.
Read more at: Blue MauMau