The Herald, Sharon, Pa.

Business

January 6, 2009

Ex-franchisee cedes Quaker Steak rights

By Joe Pinchot

SHARON — A federal judge has signed off on a consent order in which a former Quaker Steak & Lube franchise holder relinquished its rights.

Quaker Steak & Lube Franchising Corp. and QSL Intellectual Properties Corp., both of Sharon, sued Bono Holdings Inc., DuBois, Nov. 7 alleging that Bono was continuing to operate a QS&L; franchise restaurant in Patton Township, near State College, after the franchise agreement had been terminated.

Bono closed the restaurant Nov. 26 and has agreed not to operate a Quaker Steak & Lube.

Under the consent order signed Monday and filed Tuesday by Judge Kim R. Gibson, Johnstown, the franchise agreement is terminated and Bono has no rights under that agreement to use Quaker Steak’s trade secrets, dress, trademarks, computer software, logos or other business items related to Quaker Steak & Lube.

“I believe the order speaks for itself,” said Bono attorney William J. Labovitz of Lynch Weis, Cranberry. He said he had no additional comment.

Quaker Steak Executive Vice President and Chief Operating Officer Gary J. Meszaros called the closing of the restaurant significant and disheartening, but said it is not indicative of the overall health of the franchise operation.

Two other franchises are reorganizing in separate bankruptcy proceedings, but are continuing to operate, he said.

“It’s doing fine,” Meszaros said of the business. “We have quite a few new stores to be opening in 2009.

The economy has made many people “rather cautious” in expansion and development, but Meszaros said he believes Quaker Steak is doing well when compared to other chains.

Quaker Steak has 32 franchises, 24 of them full-sized restaurants and the rest express units or stadium eateries, stretching as far south as Pinellas Park, Fla., and as far west as Council Bluffs, Iowa, said Meszaros, calling from Orlando, Fla., where some possible franchise sites were being scouted.

Bono filed for bankruptcy in March and all its assets will remain under bankruptcy court protection. Quaker Steak is not seeking money damages as a result of this suit, although it says Bono owes it royalties under the franchise agreement. Meszaros said he believes the royalties claim will become part of the bankruptcy case.

The State College restaurant opened Jan. 18, 2006, about six months after Bono and Quaker Steak signed a franchise agreement. Bono was supposed to pay 5 percent of its gross sales and an additional fee for research, promotion and marketing, but failed to make timely payments since September 2007, Quaker Steak said.

In a suit filed as part of the bankruptcy, which was not resolved by the consent order, Bono’s Larry Salone said Quaker Steak officials lied to him about the restaurant’s prospects for profitability. He said Quaker Steak executives told him he would make $100,000 a week in revenues. Salone said he needed to earn $80,000 a week to break even, but was bringing in only $40,000 to $50,000.

Also pending are charges by Salone that Quaker Steak approved too large a restaurant for the State College market; forced him to use a select list of food vendors and menu choices that hurt his chances for profitability; and did not provide adequate training, startup marketing or operational support.

Quaker Steak has denied Bono’s allegations.

A judge has a set a May 18 trial date for Bono’s suit.

Meszaros said he doesn’t know if the Quaker Steak brand has a future in State College. He said the Bono litigation likely will give him more information to answer that question.

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