A local Realtor who owned the Shipley Do-Nuts franchise on Central Avenue now faces a civil lawsuit for breach of contract.
Shipley Franchise Company LLC, through its attorney Judy Simmons Henry of Wright, Lindsey & Jennings LLP in Little Rock, filed the suit against Jeff By last week.
According to the complaint, By entered into a 15-year franchise agreement with Shipley to run a Shipley Do-Nuts shop at 5001 Central Ave. on Dec. 1, 2012.
The complaint states that By operated the business for nine years but stopped paying royalties for the franchise in late 2021. It also alleges that in late 2021 or early 2022 By sold the business to Island Donuts LLC, a Texarkana, Arkansas-based company that lists By as an officer on the Secretary of State’s website.
According to the franchise agreement, which was included in the lawsuit, By was required to pay a franchise fee of “$20,000 plus the legal and accounting fees and expenses incurred” to sell the franchise to him. He was also to pay additional royalties of 3% of the franchise’s gross sales each month with a 1.5% penalty for late payments and an additional $50 late fee for payments over 14 days late.
The franchise agreement also states that if By receives “a bona fide offer and desires to sell, transfer, assign, lease or sublet” the business or any part of it, the offer should be sent to Shipley to be accepted within 60 days. The lawsuit alleges “By did not obtain advance written permission to sell his donut shop” or “offer the shop to his franchisors on the same terms as offered to Island Donuts LLC.”
The lawsuit also notes that the franchise agreement would be subject to “immediate termination without notice” if the business was not operated “continuously and actively” for seven or more days, claiming By had failed to operate the franchise “for well over seven” days.
The franchise agreement does exclude closures with prior written approval or those caused by “an act of God or other circumstances beyond the Franchisee’s control.”
Shipley is claiming damages for “lost past and future Franchise Royalty” for $75,680 in the lawsuit as well as an additional $410,608 for lost purchases of “Do-Nut Mix, Fillings, and Icings” from Shipley Flour & Supply, as required by the franchise agreement.
In addition to the damage claims, Shipley is asking the court to keep By and or anyone working with him to be banned “from operating or aiding others in operating any donut or kolache shop” within 25 miles of the site of the former location.
Attempts to contact By or his attorney were unsuccessful as of presstime.