Seller Commits Fraud in the Sale of Restaurant

Seller Commits Fraud in the Sale of Restaurant

Buyer Defrauded by Seller of Restaurant

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Our client came to us with a problem.  He had purchased a restaurant for hundreds of thousands of dollars and it was losing money.  The financials he was given showed that the business made over $1,000,000 each year.  The client knew how to run a business so it wasn’t losing money because of inability on his part.  It turns out that the seller had provided fraudulent financial records and concealed many other important facts.  Before coming to us, the client demanded that the seller buy back the business, but they refused.  Once Brown & Charbonneau, LLP was hired, we gathered all the evidence needed to prove the case.  Once armed with the proof, settlement efforts were undertaken to no avail.  The case went to trial and the jury awarded our client approx. $3,250,000 and punitive damages awarded for “malice, oppression & fraud”.

 

Seller Commits Fraud in the Sale of Restaurant

Jury Awards Over $3,250,000 for Fraud

My name is Gregory Brown and I have been a business and trial lawyer for over 30 years.  I want to tell you about one of our cases we handled here at Brown & Charbonneau.  The case involved the sale of a popular Orange County restaurant, and numerous fraudulent misrepresentations and concealments of financial information made by the Seller, a publicly traded company, in connection with the sale. Our firm was hired to represent the Buyer of the restaurant after the Seller ignored his demand to buyback the restaurant. A jury trial of the case spanned 3 weeks in the Orange County Superior Court and resulted in a huge win, including punitive damages.

Our client purchased the restaurant for $325,000, based on his reliance on financial records provided by the Seller during the due diligence period reflecting annual gross revenues of $1,062,000 and net profits of $227,000. After the sale, our client discovered that the financial records he had been provided were false, and that the restaurant’s gross revenues were only $650,000 – $750,00, and that it had actually lost money the last few years. Our client was ultimately forced to sell the restaurant for a mere $10,000.

We filed sued on behalf of the Buyer against the Seller, its Chairman and its CFO asserting causes of action for fraud (intentional misrepresentation and concealment) and breach of the purchase and sale agreement.

At trial, the Seller continued to maintain that the restaurant was generating in excess of $1 million in annual gross revenue prior to the sale, and that any failure of the restaurant was due to claimed mismanagement of our client. In response, we presented extensive evidence establishing the falsity of the Seller’s representations, including a “smoking gun” profit and loss statement obtained from the Seller’s broker showing the restaurant was losing money, and that gross revenues were 35-40% less than represented by the Seller.

The jury found in favor of our client on all causes of action, and awarded compensatory damages of just over $3m, which included compensatory damages of $1,650,000, which included lost profits of $1,025,000. The jury also found that the Seller, and its Chairman and CFO acted with malice, oppression or fraud, and awarded punitive damages in favor of our client in the amount of $1,280,000. Our client was also awarded all attorneys fees and costs of approximately $250,000, for a total award of in excess of $3.1 million. We at B&C are proud to have helped secure this monumental win for our client.

For more information on this topic, or if you have other business-related legal issues or disputes, call us today at 714.505.3000 or email us at inquiries@bc-llp.com.

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Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of business disputes including, fraud, breach of contract, breach of fiduciary duty, real estate, construction, employment and many other types of  disputes. If you are involved in a business dispute, or would like to learn about your options, rights and how to protect them, we can provide you with the information you need. Contact us or call today at 714-505-3000 to schedule a consultation and learn more about how we can help you.

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