Founder of Freshii suing company that bought his restaurant chain

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Freshii founder Matthew Corrin is suing the company that bought his healthy-food chain, alleging the new owner failed to honour an agreement that allowed him to serve as executive chair, as well as cutting him out of meetings, drastically reducing his consulting fee and accusing him of being paid a lot of money “to do nothing.”

Mr. Corrin is seeking at least $2.5-million in damages from Foodtastic Inc., a privately held company in Montreal that purchased Freshii in a $74.4-million deal that closed last year. Foodtastic has a penchant for snapping up downtrodden restaurant chains, including Second Cup and Milestones. Its portfolio contains 26 brands and more than 1,200 locations in Canada and the United States.

The lawsuit was filed in the Ontario Superior Court of Justice in January by Mecii Management Inc., a company controlled by Mr. Corrin.

None of the allegations have been tested in court. Foodtastic has filed a defence seeking to have the case thrown out, while chief executive officer Peter Mammas declined to comment on it. A lawyer for Mr. Corrin did not reply to e-mails.

In May, 2022, Mr. Corrin stepped down as Freshii’s CEO, a role he’d held since founding the company in 2005. He struck an agreement to stay on as a consultant and act as Freshii’s executive chair, providing “strategic advice and guidance,” and continued to hold the majority of the voting rights in the company. Freshii agreed to pay Mecii, Mr. Corrin’s firm, $540,000 annually and granted a $42,000 discretionary spending account.

In December of that year, Freshii agreed to be acquired by Foodtastic. After the deal closed a few months later, Foodtastic terminated most of Freshii’s senior executives but maintained the agreement with Mr. Corrin, according to court documents.

Mr. Corrin now alleges Foodtastic never had any intention of fulfilling the agreement and instead decided to “progressively strip” him of his role to reduce or entirely avoid paying him a termination fee, which would amount to three times his base pay under the terms of the contract.

“Foodtastic’s plan was to deprive Mecii and Corrin of any substantive role or involvement in the business, and to then rely upon this diminished involvement to radically adjust the base fee downwards,” the statement of claim reads.

Foodtastic excluded Mr. Corrin from management meetings and communications, deliberately gave him little to do, and referred to him as a “consultant” inside and outside the company, he alleges, and not as Freshii’s executive chair.

Mr. Corrin said he tried many times to discuss the situation and suggested that Foodtastic should terminate the agreement if his services were no longer needed.

One exchange occurred in July, 2023, on a call with Mr. Mammas and Jordan Rubin, managing member of JHR Capital, which holds shares in Foodtastic. Mr. Rubin allegedly told Mr. Corrin that his fee could be reduced to zero since he was being paid to “to do nothing.” If Mr. Corrin fought the decision in court, Mr. Rubin allegedly added, he would spend a lot of money on lawyers, only to lose.

By the fall of 2023, “Freshii was in frank disarray,” Mr. Corrin claimed in his lawsuit. Franchisees had told him that “Foodtastic was ruining the Freshii brand because of bad supply chain changes, bad menu innovation and poor communication.” He offered help to Mr. Mammas at Foodtastic, but he was ignored, according to court documents.

Foodtastic said in its defence that Mr. Corrin originally resigned as CEO of Freshii amid a “crumbling share price and disappointing earnings” and that Foodtastic had to get more involved with the chain because several franchisees had “serious reservations about Mr. Corrin.”

While Freshii was not obligated to seek Mr. Corrin’s help, he did participate in managers’ meetings. “Ultimately, Mr. Corrin provided little input or advice,” Foodtastic said in its defence.

On Dec. 24, Mr. Mammas wrote to Mr. Corrin to say his annual fee would be reduced to $50,000, a 90-per-cent reduction.

Mr. Corrin alleges Foodtastic made the decision “without any rationale process or consultation,” and simply wanted to reduce his termination pay.

Foodtastic said it was within its rights to adjust Mr. Corrin’s pay, and that it had “limited needs” for his advice. The new fee also worked out to $1,000 an hour – a “generous” rate, Foodtastic said.

Freshii had been struggling for years before Mr. Corrin sold it. The company went public in 2017 and shares peaked at just under $15 that year before falling precipitously, never to recover. Under Mr. Corrin, Freshii opened too many stores too quickly, and in too many countries, while competition among purveyors of healthy bowls and leafy salads mounted. Same-store sales growth waned, and Freshii closed underperforming locations in hopes of improving its finances.

Foodtastic purchased Freshii at just $2.30 a share, nearly 85 per cent below its peak.

Mr. Corrin later helped launch a virtual cashier platform called Percy in 2022. Freshii conducted a pilot project, installing a video-calling device that connected customers with remote workers abroad to place orders. Some virtual cashiers were paid US$3.75 an hour, sparking a public backlash.

Foodtastic directed franchisees to remove the terminals after the acquisition. “I like the personal contact of having a cashier actually in the store,” Mr. Mammas said in a previous interview with The Globe and Mail.