A Minnesota-based smoothie bowl franchise is accused of breaking the “cardinal rule” of franchise sales by making financial performance representations not listed in its franchise disclosure document to prospective franchisees, among other unlawful practices.
A handful of franchisees accused Nautical Bowls of fraud, deception and violating state franchise practice acts in three lawsuits filed in December. Along with the franchisor, former CEO Peter Taunton, Max Taunton and Nautical Bowls co-founders Bryant and Rachel Amundson are named as defendants.
Nautical Bowls apparently fired Peter Taunton in the fallout from the lawsuits, according to a report by Minneapolis TV station Fox 9. Bryant Amundson did not immediately respond to Franchise Times’ request for comment, but he reportedly told Fox 9 the company “recently made the decision to part ways with our now former CEO as soon as it became clear his vision to steer the company away from our founding purpose was not going to hold up in the difficult economic conditions in which every business is currently operating.”
Attorneys representing the defendants declined to comment. In court filings, the defendants denied the allegations. Attorneys for franchisees involved in the litigation declined to comment on case specifics.
Nautical Bowls’ first location opened in 2018 in a Minneapolis suburb. The Amundsons later brought on Peter Taunton, the founder of Snap Fitness, to help with Nautical Bowls’ franchise launch. He started Snap in 2003 and grew the company to 1,000 gyms.
“We’re selling franchises every week,” Taunton said in 2021. “I think in the Minneapolis-St. Paul area you’re going to see 10 to 12 locations open by Christmas.”
In 2021, Nautical Bowls opened two locations. In 2022, that number jumped to 24, and in 2023, 35 new stores opened, according to Item 20 in the brand's FDD. Last year, the company terminated one franchise agreement and seven more stores closed for “other reasons.” Five of those were in Minnesota. Its sold-not-open, or SNO count, sits at 58.
The claims in all three cases state Nautical Bowls representatives misrepresented or lied about sales expectations for the franchise. A suit filed in Minnesota by former franchisee Kirin Hawley states Nautical Bowls staff members told her “repeatedly” that she should anticipate 22 percent of gross sales as her bottom-line profit.
Hawley, who opened her store in December 2022 and closed it less than a year later, was unavailable for comment at press time.
The Federal Trade Commission’s Franchise Rule and most state franchise laws, including the Minnesota Franchise Act, prohibit franchisors from making financial claims not listed in Item 19 of the FDD.
Max Taunton, listed in a franchise brochure for Nautical Bowls as the brand’s national account manager, allegedly told Hawley during a May 2022 call that stores are profitable immediately, that she could expect approximately $16,000 in gross sales per week—or $832,000 annually—and she wouldn’t need to put any additional funds into the brand after opening because the business was self-sustaining, according to the suit.
The company’s 2022 FDD provides sales and other financial information for two company stores and notes no franchise restaurants had been operating for at least a year as of December 31, 2021. It reports gross sales were $1,095,647 and $854,001 in 2021 for the two corporate locations.
The company also allegedly told franchisees during the discovery period that the business model allows for an absentee or semi-absentee owner, which franchisees claim isn’t the case.
Another suit filed in Minnesota, this one by former franchisees Cheryl Hatfield and Everett Arceneaux, lists similar allegations. Hatfield and Arceneaux opened their Nautical Bowls store in Fayetteville, Arkansas, in February 2023. “Since then, despite following Nautical Bowls’ direction (albeit limited), the franchisees are losing substantial sums of money each month,” according to the lawsuit, which also names franchise broker Rick Morgin of The Franchise Consulting Company as a defendant.
Hatfield said in an email that she wouldn’t speak further about the pending litigation, but wrote, “We stand firmly behind the allegations made in the public filings in our case, and we believe we were unlawfully oversold the franchise, which has caused severe financial and emotional distress for us.”
Another lawsuit against the brand was filed in California by Bright Beacon, owned by franchisees Michelle and Brian Gibbs. Originally filed in San Diego County Superior Court, the case was moved in March to federal court.
Bright Beacon lists in its lawsuit claims similar to those filed in Minnesota.
Each lawsuit claims the franchisor knowingly inflated sales figures in its 2022 FDD. Peter Taunton allegedly told franchisees that the sales figures for corporate-owned locations outside Minneapolis were “anomalies.” The company “defied the governmental COVID related shut-down orders,” court documents say, so a lack of competition resulted in higher-than-normal sales during that time.
Franchise sales representative Jeff Mathews allegedly emailed Hatfield a business plan that said Nautical Bowls will “hold franchisees’ hands throughout the entire process” and provide “tailored marketing plans for each location.” She alleges this wasn’t true in her experience with the company.
Incomplete Item 3
An FDD’s Item 3 must list any relevant material litigation for the last 10 years and any ongoing litigation. Nautical Bowls’ 2022 FDD claimed there was no litigation required to be disclosed in the document.
The plaintiffs claim Nautical Bowls neglected to include a 2015 case in Minnesota’s U.S. Bankruptcy Court involving Peter Taunton. Taunton, that case alleged, was involved in Ponzi scheme-related fraud, and settled the dispute for $126,500 in August of that year. As part of the settlement agreement, he agreed to waive his right to receive any distribution of assets in the bankruptcy case.
The settlement and release of rights satisfy the “held liable” standard of the FTC Franchise Rule, the Nautical Bowls franchisee lawsuits claim, and should have been disclosed in the FDD.
In the Minnesota cases, the franchisor filed a motion to dismiss the Item 3 claims, which Judge Thomas J. Conley granted.
Exclusive territory promises
Hawley alleges Nautical Bowls told her she’d receive a three-mile exclusive territory in Chanhassen, Minnesota. Shortly after signing her franchise agreement in June 2022, another franchisee signed a contract to open a Nautical Bowls store only 2.28 miles from Hawley’s store. The restaurant opened a month after Hawley’s.
Seven months after she opened her store, Nautical Bowls opened a corporate location in Excelsior, Minnesota, 2.98 miles away.
In April 2023, Nautical Bowls sought to amend Hawley’s agreement to create an exclusive territory of just 2.5 miles, according to the lawsuit, “in a transparent attempt to avoid any liability.” Hawley, the lawsuit said, refused to sign the proposed agreement.
The franchisees involved in litigation are asking for monetary relief for damages, and the Minnesota owners are requesting rescission of their contracts with Nautical Bowls.
