B.C. restaurant chains trade legal counterclaims in ‘soap opera’ of dining dynasties

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Customers eat at a Cactus Club in Vancouver. The chain’s majority owners also own Earls and Joey restaurants. (Ben Nelms/CBC)

For 30 years, Cactus Club and Earls have occupied a similar space in the hearts and stomachs of B.C. diners. The chains, which have spread across Canada and into the U.S., have peacefully coexisted in the “premium casual dining” market, competing for the same customers without stepping on each other’s toes.

That shouldn’t be surprising. Cactus Club was founded by two former Earls servers, and today the majority of its shares are owned by the Fuller family, which also owns Earls.

But the era of friendly competition is over.

Lawsuits filed in B.C. Supreme Court over the last year reveal a bitter fight between the two chains. The relationship has become so acrimonious that the Fullers are calling for the company that runs Cactus Club to be completely dissolved.

Court documents include allegations that Cactus Club president Richard Jaffray has been misusing the restaurant’s funds to pay for private jets and art for his home. There are claims that the Fullers have used Cactus Club’s confidential financial information to give an unfair edge to upstart competitor Joey.

Retail consultant David Ian Gray of DIG360 describes the characters behind Vancouver’s most successful restaurant chains as the cast of an “old-school, prime-time soap opera.”

He says the falling out between the Fullers and Jaffray has been a long time coming.

“These are iconic families with a lot of success, and there’s a lot of ego that goes with it,” he told CBC.

“Behind the scenes, we’ve seen a lot of friction for a long time, and it’s probably inevitable that something’s bubbled up.”

A local soap opera

Leroy Earl “Bus” Fuller is the patriarch of the Fuller family restaurant empire, and he founded Earls with his son Stanley in 1982.

The two helped Jaffray and partner Scott Morison — both former Earls employees — open the first Cactus Club in North Vancouver in 1988, providing the startup funds and taking majority ownership of the new company.

(Morison left in 2004, and went on to become the chairman and CEO of Browns Restaurant Group, yet another competitor in the same market.)

Joey restaurants are in direct competition with Cactus Club and was started by Jeff Fuller. (Ben Nelms/CBC)

The Fullers and their companies now own 65 per cent of Cactus Club, according to court documents. The arrangement appeared to be working for both sides — recent years have seen Cactus Club chain expand its reach across Canada, while Earls is now opening restaurants in the U.S.

The first outward sign of trouble came a year ago, when Jaffray filed suit against various Earls subsidiaries and members of the Fuller family.

His claim, registered in B.C. Supreme Court in June 2018, alleges a complicated transfer of Cactus Club shares between members of the Fuller family. Jaffray claims this was done without giving him proper notice of the deal.

Jaffray’s lawyer, J. Kenneth McEwan, said in a written statement that Jaffray filed the suit “to enforce his legitimate commercial rights under the shareholder’s agreement.”

In their response to the claim, however, the Fullers deny breaking the agreement with Jaffray, saying there was no transfer of shares.

Joey complicates things

Then there’s Joey.

Unlike Earls, Joey Restaurant Group is a direct and active competitor for Cactus Club, battling for the same customers, employees and restaurant locations in Canadian cities.

It just so happens that Joey is also owned by the Fullers. In fact, Bus Fuller’s son Jeff is Joey’s CEO.

Earlier this year, the company that runs Cactus Club petitioned B.C. Supreme Court for an order stating that Jaffray would no longer have to provide audited financial statements to the Fullers.

He argued that the family has allowed Jeff Fuller and other people associated with Joey to access Cactus Club’s confidential records, “providing Joey with a competitive advantage,” according to filings prior to a judgment handed down in June.

The first Earls restaurant opened in 1982 and the Fuller family owns a stake. (Ben Nelms/CBC)

But Justice Margot Fleming dismissed the petition, writing “there is no evidence showing Cactus’s business has been harmed or even affected.”

In a statement provided to CBC, the Fuller family said they’re proud to have given Jaffray his start at Cactus Club, and they respect what he’s accomplished with the business.

“However, we are dismayed and disappointed by Richard’s baseless attempt to limit our ability to monitor our investment,” the statement reads.

An end to Cactus Club?

The Fullers go much further than that in a counterclaim filed in B.C. Supreme Court in November.

They’re asking for Cactus Holdings, the company that operates Cactus Club, to be liquidated and dissolved.

The counterclaim alleges that Jaffray violated the shareholders agreement, “by, among other things, treating Cactus Holdings’ treasury as if it were his own.”

The Fullers allege Jaffray used its resources to pay for personal legal fees, landscaping and art for his home, private jets for vacations, parties for himself and expenses for his other restaurant, Shelter.

The Fullers aren’t commenting on that part of the legal battle while it remains before the court.

Jaffray has applied for an order striking the counterclaim. McEwan, his lawyer, said the counterclaim “is a disappointing reaction, as it contains groundless accusations intended to distract from the real issue that has been raised.”

None of the allegations in either Jaffray’s claim or the Fullers’s counterclaim have been proven in court.

SOURCE: CBC.ca

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