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Item 3. Legal Proceedings

2020-12-30 compared with 2020-04-01 · 65 added, 53 removed, 8 unchanged (94% of the section changed)

Legal Proceedings

From time to time, the

Company has been and may become involved in legal proceedings arising in the ordinary course of its business.

Regardless of the

outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management

resources, and other factors.

On October 2, 2015, the

Company filed suit in the state court in St.

John’s County, Florida, Case No.

CA 15-1076, against its former Chief Executive

Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company controlled by Mr.

named Franventures, LLC (“Franventures”).

The lawsuit seeks return of company emails and other electronic materials

in the possession of the defendants, company control over the process by which the company’s documents are identified, and

a court judgment that the property is the Company’s.

Pappas have returned certain company documents that they

have identified, but other issues remain.

On December 11, 2017, Brian Pappas filed a counterclaim alleging the Company is required

to indemnify him for a multitude of matters.

The Company denies the allegation and is actively litigating this matter.

In a separate suit, filed

on March 7, 2016 in the state court in St.

John’s County, Florida (Case No.

CA 16-236), Franventures, LLC (“FV”)

alleged that it is due an unstated amount of money from the Company pursuant to a contract the Company had previously terminated.

On June 23, 2016, the Company filed a counterclaim against Franventures, which also included a complaint against former Chairman

of the Board and Chief Executive Officer Brian Pappas.

The counterclaim seeks damages for losses and expenditures caused by alleged

fraud, conversion of company assets, and breaches of fiduciary duty that the Company alleges that defendants perpetrated upon the

Company, which the Company alleges occurred in part, while Mr.

Pappas was serving as the Chief Executive Officer of CLC and as

a member of its board of directors.

Company is subject to litigation claims arising in the ordinary course of business.

The Company believes that it has adequately

accrued for legal matters in accordance with the requirements of GAAP.

The Company records litigation accruals for legal matters

which are both probable and estimable and for related legal costs as incurred.

The Company does not reduce these liabilities for

potential insurance or third-party recoveries.

October 2, 2015, the Company filed suit in the state court in St.

John’s County, Florida, Case No.

CA 15-1076, against its

former Chief Executive Officer Brian Pappas, Christine Pappas, its former Human Resources officer, and an independent company

controlled by Mr.

Pappas named Franventures, LLC (“Franventures”).

The lawsuit seeks return of Company emails and

other electronic materials in the possession of the defendants, Company control over the process by which the Company’s

documents are identified, and a court judgment that the property is the Company’s.

Pappas have returned certain

Company documents that they have identified, but other issues remain.

On December 11, 2017, Brian Pappas filed a counterclaim

alleging the Company is required to indemnify him for a multitude of matters.

On October 8, 2020 the Court dismissed Brian Pappas’

indemnity counterclaim without prejudice.

a separate suit, filed on March 7, 2016 in the state court in St.

John’s County, Florida (Case No.

CA 16-236), Franventures,

LLC (“FV”) filed suit against the Company alleging that it is due an unstated amount of money from the Company pursuant

to a contract the Company had previously terminated.

On June 23, 2016, the Company filed a counterclaim against Franventures,

which also included a complaint against former Chairman of the Board and Chief Executive Officer Brian Pappas.

The counterclaim

seeks redress for losses and expenditures caused by alleged fraud, conversion of company assets, and breaches of fiduciary duty

that the Company alleges that defendants perpetrated upon CLC, including assertions regarding actions by Brian Pappas that the

Company alleges occurred while Mr.

Pappas was serving as the Chief Executive Officer of CLC and as a member of its board of directors.

The Company is actively litigating this matter.

On October 27, 2016, Brian Pappas filed a motion

to amend the complaint to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August

On October 27, 2016, Brian Pappas filed a motion to amend the complaint in Case

CA 16-236 to add a claim alleging that the Company slandered him by virtue of a press release issued on or about August 1,

2016, in which the Company reported to shareholders on steps it had taken and improvements it had implemented.

1 unchanged sentence

still not been ruled upon by the Court.

Pappas does amend his complaint, the Company will vigorously defend the proposed

The Company is actively litigating this matter.

On February 24, 2017, franchisee,

Team Kasa, LLC, along with its three owners, filed suit in the Eastern District of New York (Case No.

2:17-cv-01074) against former

CEO Brian Pappas, and Franventures.

The same plaintiffs also initiated arbitration on the same issues (American Arbitration Association,

01-17-0001-1968), alleging the Company is jointly and severally liable for damages resulting from the allegations against

Pappas granted the right to amend his complaint and does so, the Company will vigorously

defend the proposed claim.

Company’s complaint against Mr.

Pappas and Franventures (Case No.

CA 15-1076) has been consolidated with Mr.

Pappas’

and Franventures’

complaint against the Company (Case No.

CA 16-236) for purposes of discovery, but not for any other purpose.

February 24, 2017, franchisee, Team Kasa, LLC, along with its three owners, filed suit in the Eastern District of New York (Case

2:17-cv-01074) against former CEO Brian Pappas and Franventures, as well as four other defendants seeking damages under the

New York Franchise Sales Act.

The same Plaintiffs also initiated an arbitration proceeding against the Company on the same issues

(American Arbitration Association, Case No.

01-17-0001-1968), alleging the Company is jointly and severally liable for damages

resulting from the allegations against Mr.

Pappas and Franventures.

The Company is contesting the allegations and its liability for any damages.

This case has been held

in abeyance as the parties seek a resolution.

On November 8, 2017, franchisee,

Indy Bricks, LLC, along with its two owners, Ben and Kate Schreiber initiated arbitration against the Company.

(American Arbitration

Association, Case No.

The Company is contesting the allegations and its liability

for any damages in the arbitration case.

Both cases have been held in abeyance as the parties seek a resolution.

On November 8, 2017,

franchisee, Indy Bricks, LLC, along with its two owners, Ben and Kate Schreiber, initiated arbitration against the Company (American

Arbitration Association, Case No.

01-17-0006-8120).

The plaintiffs allege breach of contract, fraud, material misrepresentations and omissions,

violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act.

The Company is vigorously

contesting the allegations and its liability for any damages.

The Plaintiffs allege breach of contract, fraud, material misrepresentations

and omissions, violations of the Indiana Franchise Act, and violations of the Indiana Deceptive Franchise Practices Act.

23, 2020, a settlement agreement was entered into between the Plaintiffs and the Company under which the arbitration was dismissed.

Pursuant to the settlement agreement, Indy Bricks, LLC will pay the Company an agreed amount of past due franchise fees, monthly

marketing and royalty fees, and monthly fees to utilize the Company’s franchise management software.

6, 2019, the Company initiated arbitration against two franchise owners.

This case was settled on February 5, 2020.

Mine Safety Disclosures

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings