Doug Ducey worked at Cold Stone from 1995 to 2007, and was named CEO in 2000.

Under his
leadership, Cold Stone had a history of poor relationships with its franchises and its franchisees
defaulted on many of their Small Business Administration loans. Cold Stone consistently filed its
paperwork late. In 2006, one if its entities was forcibly dissolved by the Arizona Corporate Commission,
after multiple warnings to file its paperwork on time. Cold Stone also experienced an outbreak of
Salmonella poisoning and was repeatedly fined for child labor law infractions. Ducey arranged the sale
of the company in 2007, but its sale price fell by one-sixth due to a combination of a rapid expansion
and increasingly poor sales.
DUCEY WAS CEO OF COLD STONE
1995: Ducey Was Brought In To Handle Business Development For Cold Stone. According to Retail
Traffic, Cold Stones founders, Don and Susan Sutherland, opened their first shop in the college town of
Tempe, Ariz., in 1988. But the chains rapid growth didnt begin until 1995, when Doug Ducey, who had
previously held marketing positions at Procter & Gamble and Anheuser-Busch, was brought in to handle
business development. The company began franchising the following year. *Retail Traffic, 5/1/05]
2000: Ducey Was Named Chief Executive To Lead Expansion Of Cold Stone. According to the New York
Times, Following the Starbucks model, the three chains are densely situating their stores, particularly
Cold Stone. Founded in 1988,with its headquarters in Scottsdale, Ariz., Cold Stone has 1,400 franchises
in the United States, Japan and South Korea -- most opened in the last five years. A former Procter &
Gamble sales manager, Douglas A. Ducey, was named chief executive in 2000 to lead the expansion.
[New York Times, 10/26/06]
September, 2007: Kahala Cold Stone Board Of Directions Exercised Their Option To End Their
Relationship With Ducey. According to Business Wire, In addition, the KahalaCold Stone Board of
Directors exercised an option of the merger agreement to end their relationship with company CEO,
Doug Ducey. *Business Wire, 9/14/07+
DUCEY CLAIMED THAT HE BUILT COLD STONE WITHOUT SUBSIDIES, WHILE COLD STONE FRANCHISES
HAD A LONG HISTORY OF DEFAULTING ON GOVERNMENT-BACKED LOANS
Ducey: We Built Cold Stone Creamery Without Government, Without Subsidies [And] Without Tax
Incentives
VIDEO: Ducey Said We Built Cold Stone Creamery Without Government, Without Subsidies *And+
Without Tax Incentives. According to a video of an interview with Doug Ducey and the Small Business
Alliance of Arizona, Yes. I do, to be certain; I think that it was probably a good idea to move the
Commerce Authority out of government into the private sector. So I am a fan of privatization. Devils
always in the details, but I always, I dont think government does very many things well, so I thought it
was a good move. Its been out of the public domain and into the private domain about 4 and a half,
maybe 5 years. I think theres some fine-tuning thats needed. We built Coldstone Creamery without
government, without subsidies, without tax incentives for chocolate dipped waffle cones. We did it the
right way. *Small Business Alliance of Arizona, 5/21/14+
VIDEO: Ducey Said That We Did It *Grew Cold Stone+ Without Government, We Did It Without
Subsidies, And We Did It Without Tax Incentives For Waffle Cones. According to a video of Doug Ducey
speaking at the Republican Candidate Forum at Sun City West Republican Club, Thank you Frank. My
name is Doug Ducey and I want to be your next governor. *...+ Ive spent almost my entire adult life in
the private sector. Studied finance at ASU, worked my way through college at Hensley and Co. and
began my career at Procter and Gamble. Then, along with a few others we built a company called Cold
Stone Creamery. Started small with a great product and we built it to 1440 ice cream stores operating in
all 50 states. In 2007, we sold Cold Stone Creamery. Today, it operates in 25 countries around the world.
Its an American success story and Im proud that it started right here in Arizona. We did it without
government, we did it without subsidies, and we did it without tax incentives for waffle cones. We did it
the right way, great people, big dreams and hard work. And things like that can happen when a state is
focused on free enterprise. *Republican Candidate Forum at Sun City West Republican Club, 3/15/14+
Cold Stone Franchises Defaulted On Roughly 40 Percent Of Their SBA Loans
U.S. Government Accountability Office Study Found That, Between 2002 And 2009, Cold Stone
Franchisees Defaulted On Small Business Administration Loans At Rates Above 46 Percent.
According to Bloomberg Businessweek, The GAOs report is the latest in a series of watchdog
warnings about lax oversight of SBA loan programs. In July the SBAs inspector general found that
the agency had not implemented a program or process to effectively monitor risk in its loan
portfolio. The review found SBA loans made from 2002 to 2009 to operators of three franchise
brandsPlanet Beach, Petland, and Cold Stone Creamerydefaulted at rates above 46 percent. In
that period, almost 1,000 SBA loans totaling $199 million went to these three franchises. More than
half of them defaulted, costing the SBA $39 million in guarantees. *Bloomberg Businessweek,
11/14/13]
2001-2011: Study Found That Cold Stone Franchises Defaulted On SBA Loans At A Rate Of 42
Percent. According to the Phoenix Business Journal, Between 2001 and 2011, 42 percent of Cold
Stone franchises receiving U.S. Small Business Administration loans de-faulted, according to Blue
MauMau Inc., a franchise research group and newsletter. That was the 107th highest de-fault rate
among the 508 largest U.S. franchise businesses. Kahala Corp. acquired Cold Stone in 2008.
[Phoenix Business Journal, 8/6/14]
Cold Stone Had The 107th Highest Default Rate Out Of The 508 Largest U.S. Franchise Businesses.
According to the Phoenix Business Journal, Between 2001 and 2011, 42 percent of Cold Stone
franchises receiving U.S. Small Business
Administration loans de-faulted, according to Blue MauMau Inc., a franchise research group and
newsletter. That was the 107th highest de-fault rate among the 508 largest U.S. franchise
businesses. Kahala Corp. acquired Cold Stone in 2008. *Phoenix Business Journal, 8/6/14]
2008: Cold Stone Ranked Second In SBA Loan Defaults; Of 763 SBA Loans Given To Franchisees
Between 2001 And 2008, 75 Defaulted In 2008. According to the Arizona Capitol Times, According
to the U.S. Small Business Administration, Cold Stone was second in the country in defaults on SBA
loans in 2008 among franchises with 50 or more SBA-backed loans. Of 763 SBA-backed loans given
to Cold Stone franchisees from 2001 to 2008, 75 defaulted in 2008. *Arizona Capitol Times,
10/7/10]
UNDER DUCEYS LEADERSHIP, COLD STONES SALE PRICE FELL BY ONE-SIXTH AFTER A RAPID
EXPANSION AND CONCURRENT POOR SALES
Cold Stones Original Sale Price Fell By Around One-Sixth In Sale Dispute
Cold Stones Original Sales Price Was $80 Million, But After A Dispute, The Actual Sales Price Was
Reduced By An Amount That Was Less Than $16 Million. According to Arizona Republic, Ducey and
his partner, Cold Stone Creamery founder Don Sutherland, became locked in a dispute with Kahala over
the companys value post-sale. *+ Cold Stones original sales price was about $80 million. Ducey and his
partner received multiple payments over time, the intermediary wrote in an e-mail. During the
arbitration process, the parties agreed to reduce the original $80 million price by an amount that was
less than $16 million. The parties to the transaction eventually reached a compromise which involved
Kahala making a reduced final payment, the intermediary wrote in an e-mail. The parties to the
transaction have mutually agreed to waive confidentiality and have confirmed the reduction was less
than 20% of the original purchase price. *Arizona Republic, 8/20/14+
Ducey Downplayed The Dispute, Said It Was A Successful Sale. According to Arizona Republic, Ducey
has downplayed the dispute involving the companys sale. In an Aug. 12 statement to The Republic and
12 News, Ducey said, It was a successful sale because we worked together and agreed on the outcome.
Both sides signed off on the final terms and both were satisfied with them; indeed, the parties to the
transaction continue to be satisfied with the terms of the deal. *Arizona Republic, 8/20/14+
Ducey Refused To Release The Details Of The Settlement And His Deposition From The Sale Dispute,
Cited Confidentiality Agreements. According to Arizona Republic, Jones, a former GoDaddy executive,
and Smith, a former Mesa mayor, have called on Ducey to release details of the settlement and his
deposition in the case. Jones and Smith say disclosure of documents related to the sale and arbitration
would help voters judge for themselves whether Duceys leadership of the company was successful.
Ducey has declined, citing the confidentiality agreements. *Arizona Republic, 8/20/14+
Ducey Blamed The Recession For Cold Stones Falling Fortunes In 2007, But Recession Did Not Start Until
2008
Ducey Blamed The Recession For Cold Stones Problems, Even Though The Recession Did Not Start Until
2008 While The Company Was Sold In 2007. According to Arizona Republic, Ducey has blamed the
recession, which economists say started in earnest in 2008, for the store closures and the sales dispute.
In his Aug. 12 written statement, he said many companies that are in growth phases wind up investing
much of their profits right back into the business. Thats how they grow. And often times when
companies are acquired they are valued for the strength of their brand and their future growth
potential, he said. That was certainly the case with Cold Stone. *Arizona Republic, 8/20/14+
From 2001 To 2005, Cold Stone Went From Almost 200 To 1000 Stores
2005: Cold Stone Opened Its 1,000th Store. According to Business Wire, With only 74 stores open in
1999 when Cold Stone Creamerys original Vision was drafted, the company set out on a path of
operating 1,000 profitable locations. Today, Cold Stone Creamery announced the achievement of this
Vision with the 1,000th store opening in Columbus, Ohio. *Business Wire, 5/4/05+
t This Is Just The
Beginning. According to Business Wire, This day marks a tremendous accomplishment in the history
of Cold Stone Creamery, said Chairman & Chief Executive Officer Doug Ducey. It is a clear validation of
our continued vigorous growth and we know that this is just the beginning. *Business Wire, 5/4/05+
Milestone Speaks To The Enthusiasm And Dedication Of Our Partners And Customers. According to
Business Wire, I am inspired by the passion of our franchisees for Cold Stones business and core
values, added Ducey. Our franchisees have done a phenomenal job of establishing Cold Stone and
reaching this milestone speaks to the enthusiasm and dedication of our partners and customers.
[Business Wire, 5/4/05]
2001: Cold Stone Started Out With 100 Units, But By Year-End 190 Stores Were Open And Another 214
Were In The Pipeline Through Franchise Agreements. According to Nation's Restaurant News, As
Coldstone Creamery continues to ramp up expansion, the company has launched an evolved prototype
design in the hopes of drawing in customers while, at the same time, improving its ordering process. The
super-premium ice-cream concept, which opened its doors in 1988 and began franchising in 1995, has
come a long way in one short year. The chain started out in 2001 with a mere 100 units, but by year-end
190 stores were open and another 214 were in the pipeline through franchise agreements. *Nation's
Restaurant News, 3/25/02]
Ducey Credited Cold Stone Growth To 95 Percent Franchising Rate
Ducey Said Cold Stones Growth Had A Lot To Do With The Chains Franchising System; System Was 95%
Franchised In 2004. According to Restaurant Business, Cold Stones growth, says president and CEO
Doug Ducey, also has alot to do with the chains franchising system. *+ The system is currently95%
franchised. *Restaurant Business, 7/15/04+
-Up Costs Ranged From $260,000 To $370,000. According
to Restaurant Business, The relatively low initial franchise fee ($35,000) and start up costs ($260,000-
$370,000) help generate interest, and the typical small footprint (about 1,100 sq. ft) opens up a lot of
site opportunities. *Restaurant Business, 7/15/04]
Ducey Dismissed Worries That Company Was Overexpanding
Some Franchisees Worried That Company Support Would Suffer, Sparking Higher Costs And Delays In
Opening New Outlets, As Cold Stone Plowed Its Way To 1,000 Stores. According to the Arizona Republic,
The company is less known than its larger competitors and some franchisees worry that company
support may suffer, sparking higher costs and delays in opening new outlets, as the ice cream company
plows its way to 1,000 stores. Competitors say the goal is optimistic. *Arizona Republic, 1/11/04+
Ducey: I Dont Know If Were Growing Too Fast. We May Not Be Growing Fast Enough. According to
the Arizona Republic, Ducey, Cold Stones president and chief executive, calls the growth healthy. Our
growth has been a reflection of people that are knocking on our door, saying can I buy more ice cream?
Can I open more stores? Were just trying to meet the demand coming our way, he said. I dont know if
were growing too fast. We may not be growing fast enough. *Arizona Republic, 1/11/04+
Between 2003 And 2006, Cold Stones Revenue Tripled, But Its Profits Fell, Its Same Store Sales Fell And
Its Rate Of Store Closures Increased Significantly
From 2003 To 2006, Cold Stones Revenue Tripled, But Its Profits Decreased By 89 Percent, Its Same
Store Sales Fell. According to Arizona Republic, Financial statements show that in the years before the
sale, Cold Stones profits were falling even as it was opening stores at a rapid pace. Documents filed with
the California Department of Corporations show Cold Stones revenue from selling and servicing
franchises nationwide more than tripled from 2003 to 2006, to $62 million, while profits plunged 89
percent, to $253,369. The average annual sales at Cold Stone stores dipped for three straight years,
from $391,700 in 2004, to $354,700 in 2007. *Arizona Republic, 8/20/14+
In 2004, Three Stores Closed For Every 100 That Opened; By 2006, 28 Stores Closed For Every 100
Openings. According to Arizona Republic, As stores were quickly opening, others were closing: in 2004,
for every 100 stores that opened, three closed. By 2006, the year before the sale, 28 stores closed for
every 100 that opened. *Arizona Republic, 8/20/14+
UNDER DUCEYS LEADERSHIP, COLD STONE HAD POOR RELATIONS WITH ITS FRANCHISES
Ducey Said Franchisers Were Never In Control, No Matter What The Agreement Says
Ducey: Franchisers Are Never In Control, No Matter What The Agreement Says. Thats Why You
Need To Select The Best Franchise. According to Inc., Franchisers are never in control, no
matter what the agreement says. Thats why you need to select the best franchisees. American
Flatbread was right to focus on people with shared values in the beginning. It needs to continue
doing that in selecting franchisees. When you have great franchisees who share your values, you
wont be spending money on attorneys fees. Doug Ducey CEO Cold Stone Creamery Scottsdale,
Arizona *Inc., 4/2007+
Former Franchisees Accused Ducey Of Dishonest Business Practices
Group Of Former Cold Stone Franchise Owners Accused Ducey Of Using A Raft Of Dishonest
Business Practices To Perpetuate A Revolving-Door System That Lured In Franchisees,
Bankrupted Them And Then Pushed Them Aside To Make Way For New Ones. According to
Arizona Capitol Times, A group of former Cold Stone Creamery franchise owners accused
Republican state treasurer candidate Doug Ducey, the companys former CEO, of using a raft of
dishonest business practices to perpetuate a revolving-door system that lured in franchisees,
bankrupted them and then pushed them aside to make way for new ones. *Arizona Capitol
Times, 10/7/10]
They Made Money Selling Franchises. According to the Arizona Capitol Times, Cold Stone
didnt make a lot of money selling ice cream. They made money selling franchises, said Harold
Hal Hickman, who owned Cold Stone stores in Las Vegas and St. George, Utah. *Arizona
Capitol Times, 10/7/10]
y Would Not Address The Specific Allegations Made By The Former Franchise Owners.
According to the Arizona Capitol Times, Ducey accused Cherny of grasping at straws in his bid
for the Treasurers Office, and said the former assistant attorney general and ex-White House
aide was unfairly maligning Duceys former company. He would not, however, address the
specific allegations made by the former franchise owners. *Arizona Capitol Times, 10/7/10+
To Fail. According to the
Arizona Republic, We were pretty much set up to fail, said Ed Normand, who ran a store on
75th Avenue and Lower Buckeye Road. *Arizona Republic, 10/8/10+
-Week Training On How To Make
Ice Cream, Manage Finances And Earn A Profit. According to the Arizona Republic, Franchisees
receive a two-week training on how to make ice cream, manage finances and earn a profit, said
John Link, who was not a part of the news conference but was provided by Duceys campaign.
[Arizona Republic, 10/8/10]
Numerous Franchisees Were Quoted Saying Cold Stone Had A Defective Business Model That
Pushed The Cost Of Running A Store So High That It Was Difficult For Individual Owners To Make
A Profit. According to the Arizona Republic, Numerous franchisees were quoted in a 2008 Wall
Street Journal story saying the company had a defective business model that pushed the cost
of running a store so high that it was difficult for individual owners to make a profit. The
franchisees said rapid expansion - the company grew from a local scoop shop to more than
1,400 outlets - crowded stores too close together and brought in inexperienced franchisees.
[Arizona Republic, 7/17/14]
Settled Multiple Lawsuits By Franchisees
Meyers et al. v. Conehead Investments, Inc. et al.
2006: Cold Stone Creamery And Ducey Accused Of Fraud And Misrepresentation In Representing
To Franchisee That Lease Was Good For Eleven Years When Lease Was To Expire In One Year.
On September 19, 2006, plaintiffs Lesa Meyers and Lesa, LLC brought suit against Cold Stone
Creamery, Inc., affiliated companies, and certain individual officers, alleging violation of
California Franchise Investment Law, intentional misrepresentation, negligent
misrepresentation, fraudulent suppression of fact, and unfair business practices in relation to
the transfer of a Cold Stone Creamery store lease, which the defendants knew they had lost the
right to renew and would therefore expire the following year. On September 29, 2006, the
plaintiffs amended their complaint to add two additional counts of violation of California
Franchise Investment Law and a claim for breach of contract, and to add a number of individual
defendants who were officers and directors of Cold Stone, including Douglas A. Ducey.
*Complaint, Meyers et al. v. Conehead Investments, Inc. et al., Superior Court of the State of
California, County of Los Angeles, Case No. BC358836, Filed 9/19/06; First Amended Complaint,
Meyers et al. v. Conehead Investments, Inc. et al., Superior Court of the State of California,
County of Los Angeles, Case No. BC358836, Filed 9/29/06]
Subleasing To Previous Franchisee. According to the Complaint, Cold Stone Creamery Leasing,
Inc. had a Master Lease with its landlord for the Cold Stone Creamery store located in Long
Beach, California. Cold Stone, in turn, subleased the store to its franchisee, Jon McDuffie,
beginning March 21, 2001. Cold Stone and McDuffie agreed that McDuffie would make rent
payments directly to the landlord through July 31, 2006. Under the terms of the Master Lease,
on that date Cold Stone could request to renew the lease for two additional five-year lease
terms, provided that certain conditions for nonrenewal did not occur, including if Cold Stone
defaulted on the lease or if any three rent payments were late. According to the Complaint, rent
payments were late on more than 20 occasions and Cold Stone had lost the right to renew the
Master Lease as of December 2003. After the landlord purportedly threatened to evict Cold
Stone in February 2005, the company informed the landlord that it would make rent payments
directly, would be terminating McDuffie as a franchisee, and that a new franchisee would be in
place within 60 days. The Complaint alleged that the defendants again failed to pay the March
2005 rent payment on time. *Complaint, Meyers et al. v. Conehead Investments, Inc. et al.,
Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed
9/19/06]
Lease, Which Was Actually Set To Expire In A Year. According to the Complaint, the plaintiffs
learned in February 2005 that the store was for sale and contacted the defendants about
purchasing it. Cold Stone put the plaintiffs in contact with McDuffie, and they negotiated the
purchase of the store. Cold Stone executed a Franchise Agreement and an Agreement to Sublet
the Premises on March 29, 2005. The Franchise Agreement indicated a 10-year term with the
possibility of four consecutive five-year renewals. According to the Complaint, Cold Stone
continually made verbal representations, beginning in April 2005, that there were 11 years left
on the 15-year term of the Master Lease, and at no time were plaintiffs told of the late rent
payments or of any default of the Master Lease or that Cold Stone had lost the right to renew
the Master Lease when it was to expire on March 31, 2006. The plaintiffs contended that Cold
Stone knew the purchase would not have occurred if the plaintiffs had known that the lease was
set to expire in a year. The plaintiffs executed an official Business Purchase Agreement on April
8, 2005. According to the Complaint, on May 2, 2005, Cold Stone attempted to exercise renewal
of the Master Lease but was rejected by landlord. The sale closed on July 13, 2005 for $375,000.
The plaintiffs were first informed that there were problems with the lease on December 6,
2005, and when negotiations to renew officially failed, the plaintiffs were told that they had to
vacate the premises on June 29, 2006. *Complaint, Meyers et al. v. Conehead Investments, Inc.
et al., Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed
9/19/06]
Misrepresentation, And Unfair Business Practices By Cold Stone Creamery For Allegedly Hiding
That The Lease Would Not Be Renewed. According to the Amended Complaint, the defendants
sold the Cold Stone Creamery franchise to the plaintiffs through communications which included
one or more untrue statements of material fact, including that the sublease would be for a term
of five years with two additional five-year terms, for total of 15 years, and that the plaintiffs
would be able to remain at the premises for 11 years, when defendants fully knew and had a
duty to disclose that the lease was going to expire on July 31, 2006 with no right of renewal. The
plaintiffs brought three cause of action for violation of California Franchise Law, as well as claims
for intentional misrepresentation, negligent misrepresentation, fraudulent suppression of fact,
unfair business practices, and breach of contract. The plaintiffs contended that they suffered no
less than $2 million in damages as a result of the defendants false and misleading statements,
and also sought unspecified punitive damages, disgorgement of money and other benefits to
the defendants resulting from the defendants misconduct, costs of suit and
pre-judgment interest. *First Amended Complaint, Meyers et al. v. Conehead Investments, Inc.
et al., Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed
9/29/06]
Of The Dispute. On December 21, 2006, the defendants filed a petition to compel arbitration
with the Court, contending that the plaintiffs had expressly agreed to arbitration in both the
Transfer Agreement and Franchise Agreement they executed with Cold Stone. The defendants
further argued that the plaintiffs were required to arbitrate all claims brought against all
defendants, including those who were not signatories to the agreements between the plaintiffs
and Cold Stone, because all of the claims were intertwined and interdependent and the
plaintiffs were alleging concerted misconduct by all defendants. [Notice of Petition and Petition
to Compel Arbitration, Meyers et al. v. Conehead Investments, Inc. et al., Superior Court of the
State of California, County of Los Angeles, Case No. BC358836, Filed 12/21/06]
ompel Arbitration, Finding The Arbitration
Agreements To Be Unconscionable. On April 18, 2007, the Court issued an order denying the
defendants petition to compel arbitration. In its denial, the Court found evidence of both
procedural and substantive unconscionability in the agreements, because the Cold Stone
defendants had superior bargaining strength and presented the agreements to the plaintiffs on
a take-it-or-leave-it basis. The Court further noted that the agreements lacked mutuality
because only the plaintiffs were required to arbitrate, limited the damages otherwise allowed to
plaintiffs by California law, and effectively barred Cold Stones franchisees from vindicating their
statutory rights. *Order Denying Defendants Petitions to Compel Arbitration, Meyers et al. v.
Conehead Investments, Inc. et al., Superior Court of the State of California, County of Los
Angeles, Case No. BC358836, Filed 4/18/07]
Dismissed With Prejudice. On May 28, 2008, the plaintiffs filed with the Court a notice that the
parties had agreed to unconditionally settle the entire case. The plaintiffs requested dismissal of
the entire case with prejudice on June 17, 2008, and the Court entered dismissal on June 28,
2008. *Notice of Settlement of Entire Case, Meyers et al. v. Conehead Investments, Inc. et al.,
Superior Court of the State of California, County of Los Angeles, Case No. BC358836, Filed
5/28/08; Request for Dismissal, Meyers et al. v. Conehead Investments, Inc. et al., Superior
Court of the State of California, County of Los Angeles, Case No. BC358836, Filed 6/17/08;
Notice of Entry of Dismissal, Meyers et al. v. Conehead Investments, Inc. et al., Superior Court
of the State of California, County of Los Angeles, Case No. BC358836, Filed 6/26/08]
Prasad Et Al v. Cold Stone Creamery Inc. Et Al
2006: Cold Stone Was Accused Of Violating The New Jersey Franchise Act And Tortious
Interference With Franchisees Business. On February 14, 2006, Praveen ,Susan, and Neal Prasad
filed a lawsuit in the United States District Court for the Illinois Northern District Court against
Cold Stone Creamery for violating the New Jersey Franchise Act and interfering with the
plaintiffs franchise business growth. [Verified Complaint and Jury Demand, "Prasad Et Al v. Cold
Stone Creamery Inc. Et Al," United States District Court for the Illinois Northern District Court,
Case No. 3:2006-cv-00648, Filed 2/14/06]
amery Wrongfully Threatened To Terminate The
Plaintiffs Franchise During Buy-Out Negotiations. According to the complaint, the plaintiffs
Prasad claimed that their franchise status was threatened wrongfully threatened during buy-out
negotiations with Cold Stone Creamery in 2006. Plaintiffs Prasad stated that they were engaged
in negotiations to sell their franchises with Cold Stone Creamery permission through their
respective counsels throughout late 2005 and early 2006 despite Cold Stone Creamerys
onerous and unacceptable settlement terms. *Verified Complaint and Jury Demand, "Prasad Et
Al v. Cold Stone Creamery Inc. Et Al," United States District Court for the Illinois Northern District
Court, Case No. 3:2006-cv-00648, Filed 2/14/06]
ed That The Loss Of Their Many Cold Stone Franchises Would Be Worth At
$900,000. According to the complaint, the plaintiffs Prasad that the loss of their various Cold
Stone Creamery franchises would have resulted in a financial loss of approximately $900,000.
[Verified Complaint and Jury Demand, "Prasad Et Al v. Cold Stone Creamery Inc. Et Al," United
States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648, Filed
2/14/06]
Guaranteed By Loans Taken On Personally,
Financial Devastation Would Have Resulted. According to the complaint, the plaintiffs Prasad
claimed that financial ruin would
result with the wrongful stripping of their franchise agreement because direct loans made for
the benefit of their franchises were collateralized off of the Prasads earnings and real estate
assets including their personal residences. [Verified Complaint and Jury Demand, "Prasad Et Al
v. Cold Stone Creamery Inc. Et Al," United States District Court for the Illinois Northern District
Court, Case No. 3:2006-cv-00648, Filed 2/14/06]
closed after both sides agreed to a settlement. The details of the settlement were not included
in the case file for review. *Order & Judgment, Prasad Et Al v. Cold Stone Creamery Inc. Et Al,
United States District Court for the Illinois Northern District Court, Case No. 3:2006-cv-00648,
Filed 10/27/08]
2007: One Of The Plaintiffs Files For Chapter 13 Bankruptcy Listed Cold Stone Creamery-
Related Debt Over $292,000. On October 31, 2007, one of the plaintiffs, Neal Prasad, filed for
Chapter 13 bankruptcy with the United States Bankruptcy Court for the District of New Jersey.
According to the petition, among the many debts, the SBA Loan related to Cold Stone Holdings
LLC was valued at $285,000 principle debt and $7,000 delinquent debt. *Petition, In Re: Neal K.
Prasad, United States Bankruptcy Court for the District of New Jersey, Case No. 07-25974, Filed
10/31/07]
Prasads final bankruptcy plan included repayment of $33,950 worth of debt to Cold
StoneHoldings LLC. [Standing Chapter 13 Trustees Final Report, In Re: Neal K. Prasad, United
States Bankruptcy Court for the District of New Jersey, Case No. 07-25974, Filed 6/5/08]
Cold Stone Creamerys Pattern Of Taking Legal Actions Take Against Their Own Franchisees
During Duceys Tenure, Cold Stone Creamery Filed Ten Federal Lawsuits Against Their Franchise
Holders: Often Winning Or Extracting Settlements. Cold Stone Creamery has filed ten federal
lawsuits against their own franchise holders in federal court during Duceys tenure as an
executive with the company. In these cases, Cold Stone Creamery claims breach of contract,
breach of franchise agreement, or trademark infringement against their own franchises (or
former franchises). Cold Stone Creamery has won four of these claims, usually extracting
financial compensation or a granted injunction ordering a franchisee to stop using Cold Stone
Creamerys trademark and sometimes even forfeiting the disputed franchise. Cold Stone
Creamery and the defendant franchisee have reached five settlements in other cases. Details of
instances where Cold Stone Creamery filed claims against their own franchisees in federal court
are detailed in the table below:
Case Name Case Number Date Filed Location Party Role Nature
Cold Stone Creamery, Inc. v. Ice Dream Makers Ii, Inc. Et Al
3:2007-cv-03786
8/9/2007
United States District Court, Illinois Northern District Court
Plaintiff
Contract/Franchise claim against franchisee running stores in Red Bank and Freehold, NJ. Case
was settled and closed on 09/19/2007. Settlement required that franchisee paid $5,000 in
attorney fees to plaintiff Cold Stone Creamery Inc.
Cold Stone Creamery, Inc. Et Al v. Blue Ice Creamery, Inc. Et Al
7:2007-cv-06705
7/25/2007
United States District Court, Illinois Northern District Court
Plaintiff
Contract/Franchise claim against franchisees running stores in Huntington, Lynnbrook, Lake
Grove, and Woodbury, NY. Case settled and discontinued on 11/07/2008.
Cold Stone Creamery Inc Et Al v. Lenora Foods I Llc Et Al
4:2007-cv-00303
7/3/2007
United States District Court, Florida Northern District Court
Plaintiff
Contract/Franchise claim against franchisee running store #1605. Jury awarded judgment to
plaintiff Cold Stone Creamery Inc. in the amount of $800,000 on 08/19/2008.
Cold Stone Creamery, Inc. Et Al v. Carfagno Et Al
3:2007-cv-02088
5/3/2007
United States District Court, Illinois Northern District Court
Plaintiff
Trademark claim against franchisee running a store in Flemington, NJ. Case was dismissed with
prejudice upon request of plaintiff Cold Stone Creamery on 04/03/2008.
Case Name Case Number Date Filed Location Party Role Nature
Cold Stone Creamery, Inc. Et Al v. Summers Et Al
1:2007-cv-01854
4/4/2007
United States District Court, Illinois Northern District Court
Plaintiff
Contract/Franchise claim against franchisee running store #479. Case was settled and dismissed
without prejudice on 06/21/2007.
Cold Stone Creamery, Inc. Et Al v. Lucas Et Al
3:2006-cv-02924
6/28/2006
United States District Court, Illinois Northern District Court
Plaintiff
Trademark claim against franchisee running a store in Edison, NJ. Case was settled and
dismissed without prejudice on 12/29/2006.
Cold Stone Creamery, Inc. v. Cold Stone Creamery Leasing Company, Inc. Et Al
3:2006-cv-00758
2/14/2006
United States District Court, Illinois Northern District Court
Plaintiff
Trademark claim and breach of contract claim against franchisee running stores in Brick, Wall,
Toms River, and Ocean City, NJ. Defendant franchisee filed a counter claim. Due to a settlement
in another related case this case was jointly dismissed with prejudice on 10/20/2008.
Cold Stone Creamery, Inc. Et Al v. Walker
8:2006-cv-00244
1/30/2006
United States District Court, Illinois Northern District Court
Plaintiff
Contract/Franchise claim against franchisee running a store in Silver Spring, MD. Court granted
plaintiff Cold Stone Creamerys request to order defendant to stop using Cold Stone Creamery
trade name and hand over premises 05/08/2006. Defendant franchisee filed counter claim. The
counterclaim was settled and dismissed with prejudice on 11/14/2006.
Cold Stone Creamery, Inc. Et Al v. Scoops Galore, Llc Et Al
2:2005-cv-06679
12/21/2005
United States District Court, Illinois Northern District Court
Plaintiff
Trademark claim against franchisee running stores in Ardmore and Wayne, PA. Court granted
plaintiff Cold Stone Creamerys request to order defendant to stop using Cold Stone Creamery
name on 02/28/2006.
Cold Stone Creamery v. Henriod, Et Al
2:2005-cv-01630
6/1/2005
United States District Court, Arizona Eastern District Court
Plaintiff
Breach of contract claim against franchisee running store #142. Court entered judgment in favor
of plaintiff Cold Stone Creamery in the amount of $19,789.9 on 11/04/2005.
[Public Access to Court Electronic Records, Cold Stone Creamery,
http://pacer.psc.uscourts.gov;
OPPOSED INCREASING THE MINIMUM WAGE AND REFUSED TO PAY WORKERS MORE THAN THE
MINIMUM WAGE AT COLD STONE
Opposed Increasing Minimum Wage
VIDEO: Ducey Opposed Increasing The Minimum Wage. According to video of Doug Duceys response at
the Arizona Hispanic Chamber of Commerce gubernatorial forum, I built a company. Now I want to
shrink your government and grow the states economy. The non-partisan Congressional Budget Office
said that if we raise the federal minimum wage, America will lose 500,000 jobs. I dont want to see us
lose 500,000 jobs, I want to see us grow jobs and create the environment in which to grow jobs. So Im
opposed to it. *Arizona Hispanic Chamber of Commerce Gubernatorial Forum, 2/8/14]
AUDIO: Ducey Did Not Support Raising The Minimum Wage. According to the Hugh Hewitt Show, Well
Id start first didnt the Congressional Budget Office say that this would cost 500 thousand jobs if you
raised it? I mean right there, why would you want to reduce jobs? Sure, in an ice cream store the
margins are very small. In a sandwich shop the margins were very small. We couldnt get away with
paying minimum wage because these kids were great kids, they could go wherever they wanted. So we
wanted to find ways, one, that we could pay them more which means youd have to sell more ice cream,
to more people, more often and in more locations so a franchisee could make more money. *Hugh
Hewitt Show, 4/24/14]
AUDIO: Ducey Opposed Raising Minimum Wage Because Businesses Couldnt Get Away With Paying
Minimum Wage. According to an interview with Doug Ducey on the Hugh Hewitt Show, Ducey: Well
Id start first didnt the Congressional Budget Office say that this would cost 500 thousands jobs if you
raised it? I mean right there, why would you want to reduce jobs? Sure, in an ice cream store the
margins are very small. In a sandwich shop the margins were very small. We couldnt get away with
paying minimum wage because these kids were great kids, they could go wherever they wanted. So we
wanted to find ways, one, that we could pay them more which means youd have to sell more ice cream,
to more people, more often and in more locations so a franchisee could make more money. But we also
that singing inside the store had people spontaneously tipping. So our kids would leave with, uh you
know, cash from tips which you typically dont get from fast food. *Hugh Hewitt Show, 2/20/14+
AUDIO: Ducey Claimed That Raising The Minimum Wage Would Mean Allowing Kids To Go Wherever
They Wanted. According to an interview with Doug Ducey on the Hugh Hewitt Show, Ducey: Well Id
start first didnt the Congressional Budget Office say that this would cost 500 thousands jobs if you
raised it? I mean right there, why would you want to reduce jobs? Sure, in an ice cream store the
margins are very small. In a sandwich shop the margins were very small. We couldnt get away with
paying minimum wage because these kids were great kids, they could go wherever they wanted. So we
wanted to find ways, one, that we could pay them more which means youd have to sell more ice cream,
to more people, more often and in more locations so a franchisee could make more money. But we also
that singing inside the store had people spontaneously tipping. So our kids would leave with, uh you
know, cash from tips which you typically dont get from fast food. *Hugh Hewitt Show, 2/20/14+
Refused To Pay Workers More Than Minimum Wage At Cold Stone
Ducey: McDonalds Has Had A Great Influence On Cold Stone. According to Nation's Restaurant News,
Ducey, leader of the quickly growing Cold Stone Creamery ice creamchain, said he was happy to see
Skinner and McDonalds honored as the years top operator. McDonalds has had a great influence on
Cold Stone, he said. Wehave many former McDonalds executives, and weve learned from the
systems longevity, their franchise model and their commitment to operations. *Nation's Restaurant
News, 10/30/06]
VIDEO: Ducey Claimed That He Came Up With Singing For Tips At Cold Stone In Order To Avoid Paying
Workers More Than Minimum Wage. According to video of Doug Duceys response at the Arizona
Hispanic Chamber of Commerce gubernatorial forum, I built a company. Now I want to shrink your
government and grow the states economy. The non-partisan Congressional Budget Office said that if we
raise the federal minimum wage, America will lose 500,000 jobs. I dont want to see us lose 500,000
jobs, I want to see us grow jobs and create the environment in which to grow jobs. So Im opposed to it.
Building Cold Stone Creamery, I believe minimum wage jobs is something that I know about. And Im
telling you, in the years we had rapid growth in developing that brand from 1996 to 2007, we had a
tough time keeping a minimum wage employee. We had a booming economy in McDonalds and In-N-
Out Burger, Taco Bell and Smash Burger, all these new concepts were opening. Part of the reason we
had this whole signing inside the store for tips was so that we could keep and retain these great high
school kids that we brought on. So immediately wages were rising. So lets have a booming economy,
thats the best way to get people out of a minimum wage situation. *Arizona Hispanic Chamber of
Commerce Gubernatorial Forum, 2/8/14]
Callous About Paid Vacation
In Response To A Report That Europeans Receive, On Average, Three Times As Much Paid Vacation As
Americans, Ducey Said Why Isnt The Story Americans Like To Work Hard. According to Doug Ducey
Twitter, Why isnt the story Americans like to work hard RT @FareedZakaria: The average European
gets about 3x as many days of paid vacation as his counterpart in America. http://t.co/3ZGje1H *Doug
Ducey Twitter, 9/4/11]
COLD STONES IMPROPER FILINGS UNDER DUCEY
2006: Cold Stone Creamery Capital Forcibly Dissolved After Repeated Warnings To File Annual Reports
Cold Stone Creamery Capital Was Dissolved By The Corporation Commission In 2006 After Failing To File
Its Annual Report For More Than Two Years. According to the Arizona Republic, But the pattern of late
filings extended to Cold Stones other business entities. Cold Stone Creamery Capital was dissolved by
the Corporation Commission in 2006 after failing to file its annual report for more than two years. It had
previously been threatened with dissolution in 2002 and 2003. *Arizona Republic, 8/19/10+
the Arizona Republic, According to records, the Corporation Commission could not find a valid mailing
address for the company. *Arizona Republic, 8/19/10+
Ducey Said The Criticism Was Just A Sideshow To Distract From The Issues At Hand. According to
Arizona Daily Star, Duceys annual corporate filings to the Arizona Corporation Commission were late
for the six years from 2000 to 2005, from 10 days in 2002 to eight months in 2005. Ducey, who was in
charge of the ice cream company from 1995 until he sold it in 2007, said that paperwork never reached
his desk, adding the criticism is just a sideshow to distract from the issues at hand. *Arizona Daily Star,
9/14/10]
2000-2005: Failed To File Annual Reports Before Deadline
Cold Stone Filed Its Required Annual Reports Late Each Year From 2000 To 2005, Missing The Deadline.
According to the Arizona Republic, Cold Stone filed its required annual reports late each year from 2000
to 2005, missing the deadline by as little as 10 days (in 2002) and as much as eight months (in 2005).
[Arizona Republic, 8/19/10]
ports Was A Task Delegated To The Companys Legal
Department. According to the Arizona Republic, Ducey, who led Cold Stone from 1995 to 2007, said
through a spokeswoman that the filing of annual reports was a task delegated to the companys legal
department. As CEO, Doug was responsible for how the company ran, Sara Mueller said in an e-mail.
Routine administrative matters such as this seldom reached his desk, nor would they reach the desk of
a CEO of any comparably sized company. *Arizona Republic, 8/19/10]
Failing To File Its Reports On Time. According to the Arizona Republic, Twice during Duceys tenure, the
Corporation Commission threatened to dissolve the ice-cream retailer for failing to file its reports on
time. Companies that are dissolved lose their legal authority to do business in Arizona, said Rebecca
Wilder, a spokeswoman for the Corporation Commission. *Arizona Republic, 8/19/10+
1995-2006: Failed To File Annual Reports Before Deadline 10 Times
Cold Stone Creamery Leasing Company Filed Its Annual Report Late 10 Times Between 1995 And 2006,
And In 2002 The Corporation Commission Threatened It With Losing Its Right To Do Business. According
to the Arizona Republic, Another subsidiary, Cold Stone Creamery Leasing Company, filed its annual
report late 10 times between 1995 and 2006, and in 2002 the Corporation Commission threatened it
with losing its right to do business. *Arizona Republic, 8/19/10+
Cold Stone Creamery Real Estate LLC Was Still Listed In Duceys Name After He Left The Company.
According to the Arizona Republic, A third subsidiary, Cold Stone Creamery Real Estate LLC, is still listed
in Duceys name even though he left Cold Stones parent company in 2007. *Arizona Republic, 8/19/10+
Required. According to the Arizona Republic, The LLC is not listed on Duceys financial disclosure with
the Arizona Secretary of States Office as required. *Arizona Republic, 8/19/10+
Blamed Late Paperwork On Paralegals
Ducey Apologized For The Late Taxes, But Said While The Corporate Filings Also Were Late, That
Paperwork Was Handled By Paralegals. According to the Arizona Daily Star, Ducey has apologized for
the late taxes, but said while the corporate filings also were late, that paperwork was handled by
paralegals. Those never came to my desk, he said. This is the sideshow my opponent likes to create
rather than talking about qualifications and background and ideas. *Arizona Daily Star, 10/6/10+
UNDER DUCEYS LEADERSHIP, COLD STONE WAS INVESTIGATED EIGHT TIMES AND FINED REPEATEDLY
FOR CHILD LABOR LAW INFRACTIONS
Ducey Believed A 14 Year-Old Was Perfectly Equipped To Work In An Ice Cream Store And Criticized
Child Labor Laws For Prohibiting Hiring Children Under 16. According to an interview with Doug Ducey
speaking on the Hugh Hewitt Show, Q There was a report today on youth unemployment, which is
pretty stunning. President Obama has built a system that positively disincentivizes hiring kids. It makes it
the last person you want to hire, it costs too much, you cant let them work very much or theyll be
burdened with Obamacare benefits. I mean, theyve really- they mustve burdened your old franchisees
something terrible. DD They did burden our franchisees. And our franchisees - you know, a 14 year old
is perfectly equipped to work inside an ice cream store. But the child labor laws prevented our
franchisee- oftentimes theyd say were not going to hire anybody unless they are 16, even though in
many of the neighborhood stores kids could walk to work and work a few hours in an ice cream store.
And I see this even getting worse and worse. Many of these jobs are entry-level jobs at the minimum
wage and you learn a lot. You deal with customers, you have to be responsible, you punch in, and you
punch out. You handle cash for a franchisee. *Hugh Hewitt Show, 6/23/14+
Cold Stone Creamery Franchises Were Investigated Eight Times For Child-Labor Infractions And Fined A
Total Of $13,400.17 During Duceys Tenure. From 2002 to 2007, franchises of Cold Stone Creamer were
investigated for child-labor related infractions eight times. In total, the franchises were fined and paid
for $13,400.17 in back wages and civil monetary penalties. Over that time period, the U.S. Department
of Labor fined Cold Stone Creamery franchises for $8,848.52 in back wages and $4,552.65 in civil
monetary penalties. A review of the companies that owned these franchises did not list Ducey or Cold
Stone Creamery (the main company in Arizona) as partners in their organizations respectively. The child
labor investigations are detailed in the appendix. [Documents obtained from the Department of Labor
Employment Standards Administrations Wage & Hour Division+
SALMONELLA POISONING
FDAs NationWide Alert For Salmonella Poisoning Associated With Cold Stone Creamerys Products
During Duceys Tenure
2005: FDA And Cold Stone Creamery Announced Salmonella Outbreaks In Minnesota, Washington,
Oregon, And Ohio Were Associated With Cold Stones Cake Batter Ice Cream. According to the FDAs
press release, Cold Stone Creamery together with the FDA are notifying the public that products
containing "cake batter" ice cream sold at Cold Stone Creamery stores may be associated with
outbreaks of Salmonella Typhimurium infection in four states. Cake Batter's possible contamination
with this organism came to light after outbreaks of infection with this form of Salmonella were reported
in Minnesota, Washington state, Oregon and Ohio. Some of the people reporting this illness also
reported consuming cake batter at a Cold Stone Creamery shortly before the onset of their illness. *FDA
Press Release, 7/1/05]
Containing What Could Have Been A Bigger Problem. According to Nation's Restaurant News, I guess a
bit too late given the illnesses, but the FDA truly has consumer safety in mind and so do we. We were
both successful containing what could have been a bigger problem. *Nation's Restaurant News,
10/31/05]
Cold Stone Creamery Announced That They Removed All Cake Batter Ice Cream Products From Stores
Nationally. According to the FDAs press release, As a precautionary measure, Cold Stone Creamery was
quick to respond and is voluntarily removing all cake batter products from all of its stores throughout
the country. Consumers who may have purchased take-home cake batter products should not eat them
but return it to the store for a full refund. *FDA Press Release, 7/1/05+
2005: 14 Customers Got Salmonella Poisoning After Eating Cold Stones Cake Batter Flavor. According to
Nation's Restaurant News, Cold Stone Creamery hit a serious speed bump this summer in its bid to be
viewed as the nation s premier
parlor for premium ice cream: salmonella poisoning. About 14 people, all of whom have since
recovered, got sick in four Midwestern states after eating one of the brands most popular flavors, cake
batter. *Nation's Restaurant News, 10/31/05+
According to Nation's Restaurant News, Whats the big lesson learned from your salmonella outbreak?
It reinforced that food safety is utmost to Cold Stone Creamery and always has been. It reinforced the
value of continuing to stress food safety with our franchisees and serving the safest and best products
every day to our customers. *Nation's Restaurant News, 10/31/05+
Ducey: It Was An Unfortunate Incident That Involved One Of Our Suppliers. According to Nation's
Restaurant News, How did it happen, salmonella getting in your cake batter ice cream? It was an
unfortunate incident that involved one of our suppliers. But the product has been reformulated, and it is
better and safer than ever. *Nation's Restaurant News, 10/31/05+
UNDER DUCEYS LEADERSHIP, COLD STONE LAID OFF A QUARTER OF ITS CORPORATE OFFICE, OVER 50
EMPLOYEES
December, 2005: Cold Stone Announced It Was Cutting Nearly A Quarter Of Its Corporate Jobs.
According to the Arizona Republic, Fast-growing ice-cream franchiser Cold Stone Creamery announced
it was cutting nearly a quarter of its corporate jobs on Wednesday. *Arizona Republic, 12/15/05+
Than Concentrating On Developing New Franchisees. According to the Arizona Republic, The company
said it was refocusing its strategy toward building sales at existing and new stores rather than
concentrating on developing new franchisees. *Arizona Republic, 12/15/05+
-Three Employees Were Laid Off. According to the Arizona Republic, Fifty-three employees, from
entry to executive level, in various divisions were laid off, leaving the company with 183 workers. Those
laid off will be paid through the end of the year and given a severance package according to years of
company service, said company spokesman Kevin Donnellan. *Arizona Republic, 12/15/05+
Source: American Bridge