ITEM 3 LITIGATION
Our predecessor, Royal Aloha
("R.A."), voluntarily entered into a consent agreement with the State
of Hawaii in October, 1998 for having previously offered and sold franchises in
the state without prior registration. R.A. paid a $5,000 fine and is required
to offer rescission to certain licensees in Hawaii. The consent agreement is
with the Hawaii Department of Commerce and Consumer Affairs (Case No.
SEU-95-144).
Bad Ass Coffee Company of
Hawaii, Inc. (Petitioner) v. Attitude Coffee Corp., Bad Ass Enterprises, Inc.,
and Ron Plucer (Respondents) (Civil No. 2:04CV00743) United States District
Court, Central Division, District of Utah. In this action, BACH filed a
petition to compel arbitration alleging that Respondents must submit to
arbitration pursuant to various agreements (e.g., franchise agreements,
distributor agreement, non-competition agreement) between BACH and Respondents
"relating to" a termination of the agreements. A hearing on BACH''s
petition was held on October 6,
2004.� At that hearing,
the.Court directed the parties to submit supplemental memoranda.
We filed a Petition to Compel
Arbitration ("Petition") against our Canadian area development
franchisees, namely the Attitude Coffee Corporation ("Attitude") and
Bad Ass Enterprises, Inc. ("Enterprises"), and their principal Ron
Plucer ("Plucer") (collectively, the "Plucer Parties") in
the United States district Court, Central Division, District of Utah
("Utah Federal Court"). This matter is entitled Bad Ass Coffee Company of
Hawaii, inc. v. Attitude Coffee Corp., et al, Civil No. 2:04CV00743. The
suit claims that the Plucer Parties breached their contractual agreements with
us by, among other things, failing to pay royalties and fees under the
agreements, and by continuing to use our trademarks following the termination
of the agreement. On December 14, 2004, the Utah Federal Court issued a Preliminary
Injunction enjoining the Plucer Parties from using our trademarks and
derivatives thereof. Furthermore, on December 17,2004, the Court issued an
order compelling the Plucer Parties to submit to arbitration.
The arbitration hearing was conducted on January 25,
2005. Thereafter, on February 28,
2005,� the arbitrator issued
an award under which the Plucer Parties are jointly and severally liable to
us for unpaid royalties, and Enterprises and Plucer are jointly and severally
liable to us for unpaid
franchise fees together with interest. In addition, the arbitrator determined
that the Plucer Parties had
no continuing right to use our trademarks. The arbitrator also awarded
attorney''s fees to us. Our
motion to confirm the arbitrator''s award is currently pending in the Utah
Federal Court.
On August 31, 2004, Attitude
and Enterprises filed an amended Statement of Claim in the Court of Queen''s
Bench of Alberta. This matter is entitled Attitude Coffee Corporation,
etal. v. Bad Ass Coffee Company of Hawaii, Inc., etal (Action No. 0401-13446). We,
Harold Hill, and Michael Bilanzich (collectively "Us" or
"Our") are named as defendants. In this action, Enterprises seeks
$50,000 in damages from Us related to Our alleged breach of an alleged
agreement allowing Enterprises to act as an area developer in Western Canada,
and (2) unspecified damages from Us related to the Our alleged tortious
interference of Enterprises'' contractual relations with certain third party
franchisees. For its part, Attitude seeks unspecified damages from Us related
to Our alleged breach of contractual relations with Attitude. Furthermore,
Attitude and Enterprises seek a declaration of rescission of any and all
contractual relations with Us. The case is in the pleadings stages.
There was also litigation against us, our principals
and Royal Aloha arising out of Royal Aloha''s bankruptcy. See Item 4,
Bankruptcy, below.
Other than the above lawsuits
and administrative order, no litigation is required to be disclosed in this
disclosure document.
