AAFD Terminates Accreditation of Cuppy’s Coffee Franchise Agreement

September 8, 2008. San Diego, CA…

The American Association of Franchisees and Dealers (AAFD) announced today that its Board of Directors has voted to terminate its accreditation of Cuppy’s Coffee as a Fair Franchise Contract.

AAFD Chairman Robert L. Purvin issued the following formal notice being delivered today to Cuppy’s Coffee CEO, Dale Nabors:

Since late July, the AAFD has received several serious allegations that Cuppy’s Coffee and its affiliate Elite Manufacturing have deliberately failed to honor contractual commitments regarding store build outs and openings, causing material harm to franchisees. The AAFD has invited Cuppy’s to respond to these complaints, and Cuppy’s has failed to address these latest allegations. In late August, I acted to suspend Cuppy’s Accredited Contract status with the AAFD pending action by the AAFD’s Board of Directors.

On September 4, 2008, the AAFD Board of Directors voted unanimously to withdraw AAFD Accredited Contract status for the Cuppy’s Franchise Agreement, effective immediately.

In order to maintain AAFD Accredited Contract status, a franchisor must both adopt and honor the provisions of a franchise agreement that substantially conforms to the AAFD Fair Franchising Standards.

In addition to Cuppy’s failure to respond to the AAFD’s invitations to respond to numerous charges of contractual defaults, recent public statements by Dale Nabors have essentially acknowledged the defaults, offering only that the defaults by Cuppy’s and its affiliates is not the result of criminal activity.

Purvin added, “Cuppy’s has also reneged on specific commitments to mediate contractual disputes with its franchisees and to support and subsidize the organization of its franchisees, but it was the unanswered claims of material breach of contract that led to the AAFD’s action, beginning with my decision to suspend Cuppy’s accreditation last month.”

The AAFD Board of Directors met by conference call on September 4, 2008. Purvin and Board Member and attorney, Michael Webster, gave detailed reports about the AAFD’s efforts to investigate franchisee complaints against Cuppy’s.

Michael Webster reported that there was evidence of Cuppy’s violating state franchise laws, and engaging in practices which materially increased the risk of default on SBA approved loans to the franchisees.

Purvin reported that all listings of Cuppy’s Coffee have been removed from the AAFD Website, and Purvin also reported that it appears Cuppy’s has complied with the AAFD instruction to remove all references to the AAFD from its Website and all franchise marketing literature, in print and on the Internet.

Purvin and the AAFD Board continue to believe in the value of AAFD Accredited contracts. “We intend to continue to recognize companies that offer franchise agreements that comply with the AAFD Standards, but our experience with Cuppy’s demonstrates that the AAFD must clearly educate investors that a fair contract is only one factor in choosing a franchise, and the AAFD will also attempt to do more to assure that Accredited Contract recipients honor their contracts.”

The AAFD offers two forms of accreditation. The AAFD’s Fair Franchising Seal is awarded to mature companies with an established track record of collaborative franchisor-franchisee relationships, high franchisee satisfaction, and a franchise agreement that respects the AAFD’s Standards.

On the other hand, the AAFD Accredited Contract recognition is available to companies as a first step to gain full accreditation.

For both awards, the AAFD disclaims that AAFD Accreditation is a full endorsement of a franchise system’s profitability or business model. The AAFD encourages individuals to perform their own pre-purchase investigation and where possible to contact the franchisor’s independent franchisee association for more details on the business model.

The American Association of Franchisees and Dealers is a national non-profit trade association dedicated to promoting its vision of Total Quality Franchising through the support of strong and effective franchisee associations and collaborative franchising practices. The AAFD currently supports some 60 franchisee groups representing more than 50,000 franchised units. The AAFD seeks to support a trademark specific chapter or independent franchisee association for every franchise system operating within North America.