California Franchising Regulators Order Over $2 Million in Penalties and Restitution Against Former Adversary of Firm Client

January 19, 2022

Los Angeles Partner Daniel C. DeCarlo and Leo A. Bautista were instrumental in assisting the State of California in its investigation of a Franchise that had sued the Firm’s client.

Los Angeles, Calif. (January 19, 2022) - Los Angeles Partners Daniel C. DeCarlo and Leo A. Bautista were instrumental in assisting the State of California in its investigation of a franchise that had sued the firm’s client. The firm’s assistance lead to the state issuing an order levying over $2 million in penalties and restitution against the franchise.

Prior Franchisee Victory

In 2019, Messrs. DeCarlo and Bautista prevailed in a trademark and franchise dispute on behalf of its client, a putative franchisee of a martial arts franchise system, who had been accused by the franchisor of rape in a fabricated attempt to drive him out of the plaintiff’s franchise system and otherwise attempt to destroy his life and career. Lewis Brisbois ultimately proved at trial that the rape claim was false. In its ruling after the trial, the district court stated that the franchisor’s founder “lied under oath,” “suborned perjury,” and “tampered” with another witness. In addition, the court concluded that the franchisor acted with “a reckless disregard” for our client’s “livelihood, family life, and personal and professional reputation.” Accordingly, the court ordered the franchisor and its founder to pay over $1.3 million to Lewis Brisbois’ client as a sanction for the egregious conduct that the court outlined in its order. The court further declared that various franchise agreements were unenforceable as illegal contracts. Lewis Brisbois’ victory on behalf of its client in this matter garnered substantial media coverage.

State of California’s Subsequent Investigation and Ruling

Following the 2019 trial, the State of California’s Commissioner of Financial Protection further investigated the franchisor and its founder. The investigation was largely based on the evidence that Lewis Brisbois developed in the underlying litigation. The Department of Financial Protection and Innovation ultimately issued a scathing ruling in which it found, among other things, that the franchisor had engaged in 189 franchise law violations. As such, the state ordered the franchisor to pay over $472,000 in civil penalties and more than $2 million in restitution. In discussing this ruling, Lewis Brisbois’ franchisee client, Dr. Kristopher Rinehart noted, “Dan and Leo did a great job on the defense exposing the malfeasance of the plaintiff. The state action is finally some justice for the victims spanning 21 years and millions of dollars and is based at least 70% on Dan and Leo’s work.”

Said Mr. DeCarlo, “At trial, we prevailed for our client and got a measure of justice, but we are equally proud that our work lead to the State’s investigation.   We are grateful that our efforts on behalf of our client lead ultimately to justice for many more franchisees that were harmed by the illegal conduct outlined in the State’s Order.”      

Mr. DeCarlo is the chair of Lewis Brisbois' Intellectual Property & Technology Practice. In his nearly 30 years of practice, he has earned a reputation as one of the most formidable litigators and trial attorneys in Los Angeles and has been recognized as one of the top litigators and trial lawyersand trial lawyers in Los Angeles by the Los Angeles Business Journal in 2020 and 2021.

Mr. Bautista is a member of Lewis Brisbois’ Intellectual Property and Technology Practice and co-chair of the firm’s Franchise and Distribution, and Trade Secrets and Non-Compete Disputes Practices. A certified specialist of franchise and distribution law, Mr. Bautista has extensive experience in advising franchising companies and litigating franchising disputes.