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Golden Boy Paul Twohig

Guest says, ".....actually had a 4 unit franchisee network in West Palm, FL, in the past. Based on this stellar record and his likely loss of investment, one would think he would be more broadminded and circumspect regarding DD franchisee relations."

I highly doubt Paul Twohig lost his investment in the 4 unit BK network. Given his close ties to BK corporate, he most likely acquired the network temporarily in order to benefit from the refranchising gain on sale. He is the perfect Dunkin' employee given his vast experience in non-compete litigation, re-franchising development, and theft of competitor trade secrets. Like Dunkin', Paul Twohig lacks contractual moral.

Paul Twohig, DD COO, interesting fact, from DD Historian

One interesting fact about Paul is that he was Burger King regional ops staff much earlier (1980s) and actually had a 4 unit franchisee network in West Palm, FL, in the past. Based on this stellar record and his likely loss of investment, one would think he would be more broadminded and circumspect regarding DD franchisee relations. But that hasnt happened...

Dunkin' Non-Compete

I believe the non-compete only applies during the term of the franchise agreement, upon expiration, and/or when the franchisee decides to sell the going concern at some point during the life of the agreement. Not when Dunkin' terminates the agreement.

It doesn't matter if Dunkin's actions are contrary to the manner in which they enforce their franchise agreements. They will take whatever action that creates a positive revenue stream for Dunkin' corporate.

Paul Twohig will vigorously enforce a franchisee's non-compete but will seek a waiver if it applies to Dunkin'. Franchisor rules their kingdom.

Howard R. Morrill's picture

Yes

I think that's a pretty good comparison.

Edward Ryan's picture

Dunkin' FDD Disclosure

Starbucks' press release announcing the settlement of the litigation with Paul Twohig says:

As part of the settlement Mr. Twohig will complete initial training but will otherwise not work at Dunkin' until January 15, 2010. In addition Starbucks will be paid $500,000. Mr. Twohig also reconfirmed his commitments not to share Starbucks trade secrets and other confidential information with Dunkin' at any time.

Dunkin' Donuts Franchising, LLC amended FDD dated November 23, 2010 confirms Paul Twohig was employed with Dunkin' Brands, Inc. as of October 2009:

Mr. Twohig joined us in October 2009. Mr. Twohig previously served as Senior Vice President at Starbucks Coffee Company, Seattle, Washington (December 2004 to March 2009) and Executive Vice President and Chief Operating Officer at Panera Bread Company, Richmond Heights, Missouri (January 2003 to December 2004).

Although the Starbucks lawsuit was filed against Paul Twohig individually, Dunkin' Brands Group Holdings confirms in their Form S-1 filing Mr. Twohig's litigation expenses were funded through a loan provided by Dunkin' and the principle and interest was forgiven during fiscal 2010.

There is nothing in Dunkin's November 2010 amended FDD referencing the litigation between Starbucks and Paul Twohig. However, the FDD does reference other litigation matters involving certain Dunkin' directors and principle officers but not Paul Twohig's matter with Starbucks.

RichardSolomon's picture

Do you believe that Hadley vs Baxendale is to contracts what

Palsgraff vs The Long Island RR is to torts?

Paul Steinberg's picture

Very difficult to vacate a settlement agreement

I agree that there is no contempt. What I spoke of was a situation where:

  1. Plaintiff and Defendant agree to terms.
  2. They sign a Stipulation of Settlement.
  3. They present it to the Judge.
  4. The Judge marks it "So Ordered."
  5. At that point, breach of the settlement is a violation of a court order.
  6. A violation of a court order may be punished by the court sua sponte, or more commonly upon the non-breaching party moving to hold the breaching party in contempt.

What you are describing is something different.

You raise a hypothetical where SBUX underestimated the value of Twohig to DNKN. This would be similar to where SBUX had sold some store leases to DNKN and then decided that it had sold too cheaply.

In cases where someone decides they made a bad bargain, the court is not likely to entertain any motion to vacate the settlement agreement. (Even if they do, a Motion To Reconsider would not be the appropriate vehicle).

A 2010 SDNY case, Curry v. NYC Police Dept, explained:

(“A settlement is a contract, and once entered into is binding and conclusive.”). Under these principles, “[a] court may vacate a stipulation of settlement only upon a showing of good cause, such as fraud, collusion, mistake, duress, lack of capacity, or where the agreement is unconscionable, contrary to public policy, or so ambiguous that it indicates by its terms that the parties did not reach agreement.” [cites omitted] (“Settlement agreements are favored by the courts and will not be set aside in the absence of cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident.”).

Howard R. Morrill's picture

Hadley was actually fairly liberal

Damages measure is the understood consequences of breach if those consequences are known to the breaching party, the natural consequences of the breach in the absence of such specific knowledge.

Not Contempt

SBUX & DNKN (Twohig) are two very powerful entities. My view is that the Judge would hear a Motion To Reconsider to get the facts out. Depending on the Judge's decision, the parties will most likely engage in new settlement discussions. A new settlement does not mean either party would get what they wanted.

michael webster's picture

No Easy Legal Advice

Ed, this is only legal information.  But if B settled with A, then A may be looking at a contempt order if the settlement contract is breached.  But heck if A is in act utiliatrian state - who knows.

What if B is the franchisor?

B settles with A and is able to sell A's widgets to C for 2x the amount. Can A breach his agreement with B and claim he is not getting the benefit of the bargain or will A be forced to stictly comply with B in order to sell the widgets to C for profit windfall?

Edward Ryan's picture

Strict Enforcement of Settlement Agreement?

Paul says, "In any event, if the settlement agreement is seen as consideration for dropping the lawsuit, we can view this in a different light than a garden-variety contract. A key difference is that the judicial system now has an interest in seeing that the "contract" (i.e., the settlement agreement) is strictly enforced."

Using the Starbucks/Twohig settlement agreement as the example, and assuming Judge Martinez resided over the settlement of the litigation, would Starbucks have been in breach of the agreement if they learned immediately after the settlement was signed that Twohig was worth $1M to Dunkin' and rejected acceptance of the $500K?

The new information would've allowed Starbucks to make a better decision on whether or not to settle with Twohig for $500K initially. In this scenario, Paul Twohig is the injured party and remains more valuable to Dunkin' if employable. Starbucks would not get the benefit-of-the-bargain by accepting the $500K, and is now requesting a longer non-compete restriction period and/or more money from Twohig to settle.

Would Starbucks realistically be in contempt of court? And, would their strict performance be upheld by Judge Martinez? Practically, it doesn't seem fair if Starbucks is still going to get screwed either way once the initial settlement is signed.

RichardSolomon's picture

Irreparable harm is mostly gone as a significant requirement in

covenants not to compete. IH means there is no damnage remedy. There is always (almost always) a damnage remedy.

The Covenant is always - these days - overlain with a liquiidated damnages clause, personal guarantees - plus states are now allowing courts to award damnages (feel good money mostly) in lieu of enforcing the covenants.

michael webster's picture

Very funny to compare

What would be very interesting is to compare the provisions of the non compete in Twohig's contract with Starbucks with the Dunkin non compete upon termination/expiry.  I think that Dunkin may be just lost the battle for breaches of its non compete being presumed to be irreparable.

michael webster's picture

Expectation versus Restitution Remedies

Paul writes: "Efficient breach theory is a sub-argument of the "benefit of the bargain" remedy, as Michael Webster has already noted.

Both of those are theories of restitution applied to contracts."

No, there is a big difference between the damages awarded on a efficient breach theory versus those on a restitutionary theory.

Here is the standard example.  A contracts with B for the delivery of 10,000 linen towels @$.90 each. Before B fills the order, he is approached by C who asks for 3,000 of those linen towels and is willing to pay $1.50 per towel.  If A is only gets 7,000 towels, it will cost him say an extra 20 cents per towel to replace the 3,000 that he is not getting.  SInce B can pay A that in damages if he accepts C's order, it would be financially beneficial for B to break the contract with A, pays the expectation damages, and do the deal with C.

However, if the measure of damages is restitutionary, a measure of B's gain from breaking the contract, then things aren't so easy for B.  All or some of the extra 60 cents may go to A - the gain to B being A's loss as measured from a restitutionary view.

My own view is that neither of these views deserve to be the status quo measure for any Court; Paul's example of settlement agreements is a good example of how Courts when taking their own interests into account move from the expectation measure of damages through restitution right into specfic performance.  One might wonder why the public doesn't have the same interest in making sure that promises are kept - irrespective of the temptations at the time to break them.

RichardSolomon's picture

Now just hold on a minute, I like Hadley vs Baxendale. It ws one

of the first cases discussed in Contracts 1.0 way back when I was in law school, and people like Corbin, Williston, Prosser and all them were still walkin around and teaching people that they ought to really believe in things like principles.

Fortunately, we all graduated and learned that principles are those things that we enforce against our opponents, not some notion about what our clients might have to deal with.

And on that score there is no difference between franchisors and franchisees.

The real issue here is just who has the whip hand. When you stupidly sign anythng that gives the whip hand to someone else, don't expect that some vague morality issue will keep him from whippin your sorry ass.

WE can always find nice names for stuff and write about saucy theories, social interests, court efficiency and national goals and interests. But in the end it is about whose hand holds the whip.

If it were otherwise, we wouldn't be in here having these discussions.

I stupidly thought that Hadley vs Baxendale ws about foreseeability, but maybe in Canada foreseeability conflatulizes with with expectations.

Vote for Rick Perry for President.

Paul Steinberg's picture

Settlement Agreement: Depends on the facts, but probably "No"

Efficient breach theory is a sub-argument of the "benefit of the bargain" remedy, as Michael Webster has already noted.

Both of those are theories of restitution applied to contracts.

While it is true that a settlement agreement in a litigation proceeding is a contract, it is a very special type of contract in which societal interests are at stake which may trump economic considerations.

As a threshold matter, if the settlement agreement is approved by a Judge (in my state the Judge has a rubber stamp "So Ordered") then the agreement is still a contract between the litigants, but it is now also an order of the court. As such, the breaching party is subject to being held in contempt of court.

In any event, if the settlement agreement is seen as consideration for dropping the lawsuit, we can view this in a different light than a garden-variety contract. A key difference is that the judicial system now has an interest in seeing that the "contract" (i.e., the settlement agreement) is strictly enforced.

As noted by the New York Court of Appeals in IDT Corp v. Tyco (2009):

strict enforcement [of settlement agreements] not only serves the interest of efficient dispute resolution but is also essential to the management of court calendars and integrity of the litigation process

Motion To Enforce Settlement

The franchisor would move for a Motion To Enforce Settlement. Depending on the franchisee's economic argument the Judge may listen. My experience is that the courts will enforce a settlement that concluded a litigation. A franchisee settlement breach might buy the franchisee some time but it all depends on the Judge's schedule before it is enforced by the court. The losing party would most likely be ordered to pay the non-breaching party's legal fees.

michael webster's picture

Expectation Damages

Howard, Hadley ats Baxendale simply affirmed that the measure of contractual damages were expectation damages.  It was much later when Posner, and many others, argued that expectations damages were justified on economic grounds - as opposed to restitutionary damages which would have transferred all or some of the gain of the breaching party  to the innocent party.

Re: That's right!

I know who you are but who am I?

Edward Ryan's picture

Efficient Breach

Paul says, "Franchisors should not expect to claim "efficient breach" and then expect not to be called out when they hypocritically rail against the low moral standards of their franchisees-- something which was Dunkin's stock-in-trade for many years."

Suppose a franchisor reaches a settlement agreement with a franchisee. However, the franchisee decides not to honor the settlement agreement because by doing so it would economically harm them. Can the franchisee claim Efficient Breach? What would be the franchisor's damage? And, would the franchisee be at greater risk of economic damage by breaching a franchise settlement agreement?

That's right!

We know who you are also!

Howard R. Morrill's picture

Efficient breach aside,

Hadley v. Baxendale expressed the general rule in 1854.   

RichardSolomon's picture

No. I was referring to you.

I know who you are,

Paul Twohig's Manumission?

Richard are you saying that Paul Twohig masterbates while he thinks of colonizing a targeted group of franchisees?

RichardSolomon's picture

Manumission is just what you think it is.

It is something that boys and girls start doing when they are around 6 years old (at least that's the way it is here in Texas).

It is very inexpensive, so there is no reason not to enjoy it. Some parents may try to dissuade kids from enjoying it because it can result in very sticky laundry - mostly socks and sheets. But eating pancakes with syrup can produce the same mess.

It was conflated back in the early days of the American society, and in its Constitutional context was used to refer to the releasing of slaves from bondage.

But similar conflatus occurred with other words as well. The word colon, now more often thought of a a reference to one's bowels, had other historical meanings. Eliminating unwanted people from the body politic was known as colonization. A colony was a place where detritus was deposited for the purpse of acting as social and economic fertilizer - think Australia and England, for example. If a place had been colonized, that meant that the human waste of some society had been dumped there. Which always made me wonder why anyone would aspire to the rank of colonel.

Vote for Rick Perry for President.

Dunkin' Forgiveness?

Even this so-called "new" management team would neither forgive nor show compassion for the franchisee once Dunkin' decides to litigate. It's like the schoolyard bully who would never dare pick on someone his own size. The example you discuss with Dunkin' and Paul Twohig is analogous to being the schoolyard bully. SBUX doesn't have a reputation for churning their portfolio of licensed operators so they don't have the type ruthless franchise attorneys on retainer - GPM, Nixon Peabody, etc.

SBUX could have fought the non-compete but showed compassion and understanding for Mr. Twohig's need to earn a living. If Mr. Twohig was a Dunkin' franchisee, facing a non-compete allegation, he would have been thrown onto the streets and have everything he everything ever valued in his life taken away.

Ray Borradale's picture

Perry will redirect the armed

Perry will redirect the armed services away from VetFran and thats a terrible thing.

Australia isn't worried about China.  We have its word that as long as we keep paying our rent they will just drop by from time to time to make sure we are looking after its assets.

What the hell is manumission ... on second thoughts; don't tell me.

RichardSolomon's picture

You of all people should be a big Rick Perry supporter.

Rick Perry will keep the Chinese navy from making Australia another Formosa.

Rick Perry knows that military spending is the real cure for the financial crisis. With military spending we can afford to draft all the unemployed and instantly reduce unemployment in the USA from 9.1 % to almost nothing - just the physically unable would remain on the dole.

Rick Perry will put BBQ brisket on every poor household's dinner table and Jesus in every synagogue.

The women at White House functions will all be tall, blonde Texas women who will make you drop to your knees from sheer weakness. Instead of wmen's rights being a big political issue, woman worship will take its place.

Beans will become our national vegetable - not green beens, but them slow simmered spicy sumbitches in spicy tomato broth with lots of bacon and some molasses. Then - and only then - will the real meaning of conflatus become clear.

Vote for Rick Perry, even if you aint from here.

Ray Borradale's picture

That would be the KFC

Mr Perry seems to have indeed contracted conflatus.  Or could it be manumission ...

RichardSolomon's picture

As in Conflatus?

Imposing religious notions upon commercial relationships is conflatus? I think I agree with that.

Instead of franchisee bills of rights (what a bloody joke that is), why not just require all franchise sale closings to be held in church with some bloody priest officiating (for a fee of course)? The more work we provide for the priesthood, the safer the children will be. Tired priests tend to nap rather than bugger.

Now that is real win - win, right? Actually. win - win - win ---- or would it be wind - wind - wind (conflatus).

This is an excellent example of how good minds working together can produce total nonsense.

VOTE FOR RICK PERRY!

Twohig Mania

Let's see, Dunkin' had plans to go public and needed to sell a growth story to the street. What better way to sell the story than to grab your talent from two of your most formidable competitors?

Neil Mosses' talent is to quantify franchised intangible assets into something comparable to computer software and be able to pitch the asset values to the street.

DNKN :Twohig mania, Yanoksky quals

One question is why did DNKN want Paul so badly, coming from that big operator (SBUX) that HAS NO FRANCHISEES. Good choice for a 100% franchised organization.

And how is Neil Yanofsky qualified to work DNKN INTERNATIONAL from his Panera (PNRA) 100% domestic focus and his software/technology days.?

For the record, regarding Paul Twohig, his detailed allowances were:

$250,000 for loss of capital on sale of his home in Seattle
$516 dollars for pre-move expenses (laundry, movie rentals, etc.)
$33572 for temp living expense
$5827 home purchase
$10985 for home loan origination fees
$10,000 "miscellaneous"
$208866 gross up to cover taxes
$363,126 for "settlement" expense

Amen!

Rick Perry!

Capt. Gregg

Looks much wiser and more compassionate than his long lost cousin Dunkin' Captain Paul Twohig.

Thanks for researching The Twohig Family Genealogy here on BMM.

2 Recent Cases

There are 2 cases filed this year in PA and in NJ that I am aware of. Both cases deal with silent franchisee partners not known to Dunkin'. There are no claims for damages or underreporting of sales. The complaints are for franchisee shareholder breaches. Dunkin' is seeking penalties from both franchisees in order to settle their matters. Seems to me that the Travis/Twohig team are using the same tactics as the Luther/Horn regime. But I'm not surprised since Bain is still the owner of the Brand with both management teams.

Relocation Gross-Up

Yes, there's a $383k reference to SBUX and there's a $200k figure noted as a relocation tax gross-up. I wouldn't think Mr. Twohig would come out-of-pocket to join Dunkin'. Rather, I would expect Dunkin' to fudge the numbers to make it seem as though Mr. Twohig had some skin-in-the-game.

RichardSolomon's picture

Oh Puleeze y'all! I expect FranWads to whine and call names, but

we lawyers know that there are morals and then there are the morals of the market place.

Get the hell off the high horses and stop pandering to the demented "hurt zees" constituency. That aint an election year and y'all aint running for nuthin anyhow.

Zees who would sell their striken franchises to others who are not told what the zee seller knows/believes are serious ills have no standing to call others bad names. The whiners in here just didn't happen to find suckers to dump their losers on.

Lets get the hell off these pulpit preachments, please. They are hypocritical and useless. Lawyers ought not to get into this nonsense.

Vote for Rick Perry!

michael webster's picture

Contracts as Promises

Charles Fried wrote an influential book - Contracts as Promise- persuasively arguing that contractual obligations were grounded in moral obligations.  I read the book almost 30 years ago, long before I had ever heard of efficient breaches, confidential information and restitutionary damages.  Posner's argument for efficient breaches is a nasty form of ill thought out act utilitarianism - no good has ever come from that theory in trying to explain self imposed constraints.

Not a question of Dunkin morals

Absolutely not, until you need to meet the goals you stated to investors about tripling the size of your footprint by selling franchises.

Sell them to who, exactly? People who can't be separated from their money fast enough, or franchisee businesspeople who are capable of executing and dominating their markets?

What kind of deals do the latter make?

Ask Twohig's boss says a lotr: "YOU GET THE FRANCHISEES THAT YOU DESREVE."

Now all of this is linked to Twohig's name, but no one can say that Twohig or his boss are associated with the brutual contractual regime of Steve Horn that they are bieng mocked with, right?

CFA Bill of Rights, Contract terms and moral obligations

Of course they are 2 different things. So is a 2011 Mercedes coupe and a 1976 AMC Pacer.

Now, how do you explain this to prospective buyer of a giant franchise territory when he syas that he or she has read the Universal Franchisee Bill of Rights and compared it to the contract and the list of litigation in the FDD you just gave to him?

I submit that you need to show this person the money on the topics. Well, anyone you'd want to be in business with and trust with building your brand, anyway.

If you are intent only on fleecing rubes, then it doesn't matter. The short con is over long beforethe mark starts looking for the money.

Your linked S-1, Page 125

Go to page 125 to see the makeup of the 'Other Compensation'.  At that point you'll realize that all of it was not related to the SBUX buyout, but the forgiveness amount was around $383k.

michael webster's picture

Levels of Bad Faith

Paul notes: "Unless the bad faith rises to the level of an independent tort, which itself would support an award of punitive damages, mere bad faith on the part of a party to a contract will not give rise to punitive damages."

Alright, I will bite: how many levels of bad faith are there, and when do you get to an independent tort?

Howard R. Morrill's picture

No disagreement about the hypocrisy Paul

Nobody can work up their righteous indignation like our friends who represent franchisors.

Paul Steinberg's picture

Is Twohig bad at math or is there more to the story?

The amount "forgiven" is almost twice what SBUX said the settlement amount was.  And how much legal fees could he have racked up in a few days--he didn't even file an answer.

I have to say, I am pleased that Dunkin has developed a sense of "forgiveness"

Too bad that won't be extended to their franchisees.

Does this goo for franchisers as well?

Or are they under a different set of rules?

Paul Steinberg's picture

As a matter of law, Howard Morrill is correct. But...

As a matter of law, Howard Morrill is correct insofar as he is stating the American view that not keeping one's word does not give rise to a claim for punitive damages (with rare exceptions):

people shouldn't equate contractual undertakings with moral obligations

Most people would disagree with him to the extent that he suggests that we tolerate the practice as a society.

It is important to remember that the reasons why punitives do not normally lie in a claim based on contract is due to economic considerations, as the Supreme Court of Delaware discussed in DuPont v. Pressman [679 A.2d 436 (1996)]:

Historically, damages for breach of contract have been limited to the non-breaching parties' expectation interest...

Also, punitive damages are not recoverable for breach of contract unless the conduct also amounts independently to a tort.

Unless the bad faith rises to the level of an independent tort, which itself would support an award of punitive damages, mere bad faith on the part of a party to a contract will not give rise to punitive damages.

Traditional contract doctrine is also supported by the more recent theory of efficient breach. The theory holds that properly calculated expectation damages increase economic efficiency by giving "the other party an incentive to break the contract if, but only if, he gains enough from the breach that he can compensate the injured party for his losses and still retain some of the benefits from the breach." Restatement (Second) of Contracts... 

The notion of efficient breach "accords remarkably with the traditional assumptions of the law of contract remedies." [cite omitted]

Punitive damages would increase the amount of damages in excess of the promisee's expectation interest and lead to inefficient results.

In plain English, this means that it is economically beneficial to permit people to not keep their word, even if they do so deliberately and while trying to conceal their deciet (as Paul Twohig and Dunkin' Brands did).

I would not have an objection if Dunkin Brands had simply held their franchisees to their contracts, and obtained the appropriate non-punitive damages in the event of breach.

But that is not what Dunkin has done for the past 15 years. Rather they have gotten on their moral high horse (as many franchisors have done) and they have even done so (as other franchisors have done) in the context of legal symposia.

Many years ago I had an off-line exchange with several franchisor attorneys about the case where the wife of a Dunkin franchisee set up a competing donut shop nearby. The zor attorneys did not argue in the context of a dispassionate "efficient breach" jurisprudence; they got righteously indignant at the immorality of the slimy franchisees.

Franchisors should not expect to claim "efficient breach" and then expect not to be called out when they hypocritically rail against the low moral standards of their franchisees-- something which was Dunkin's stock-in-trade for many years.

In addition, it should be pointed out that the theory of efficient breach as applied by the courts results in the playing field being tilted in favor of those with lots of money. But that is a whole different story.


Lionel Hutz PA's picture

Galveston Bay Chili

Solomon writes:

One should not conflate (whatever conflate means)

It means to combine 2 different things. Sort of like Douglas Durst conflating his neighbor with hamburger when he made Texas Saltwater Chili.

Howard R. Morrill's picture

I'm with Richard

As much as I appreciate the comparison of Dunkin's treatment of its franchisees and its own behavior, people shouldn't equate contractual undertakings with moral obligations.

Lionel Hutz PA's picture

Twohig was at sea off the coast of Hilton Head

Twohig is actually the long-lost brother of  Capt. Gregg from The Ghost & Mrs. Muir.