By Sarah Blaskovich
The Dallas Morning News
WWR Article Summary (tl;dr) 18 franchisees have filed a federal lawsuit against Gina “Gigi” Butler, her business partner Alan Thompson, the parent companies and others. The lawsuit claims the company misrepresented itself financially, threatening franchisees’ ability to be successful.
The Dallas Morning News
A nasty fight may be shaping up between a Fort Worth-based cupcake chain and its franchisees, even as the company’s founder travels to Dallas to promote a new book touting her success.
Gigi’s Cupcakes filed for Chapter 11 bankruptcy protection on Jan. 4 amid a tangle of lawsuits from current and former franchisees who say they were misled about the company’s finances. Gatti’s Pizza, owned by the same parent company, is also part of the bankruptcy filing.
It reads like a cupcake war for Gigi’s. The parent company is not speaking beyond a statement, and former franchisees like Bruce Speidel of Tennessee are alleging “disgusting” business practices.
“You really can’t make any money with the way these companies are set up,” he said.
Gigi’s Cupcakes operates dozens of franchises across the United States. Gigi’s has eight shops in North Texas, including locations in Carrollton, Dallas, Fort Worth, Frisco and Granbury.
The shops are named for Gina “Gigi” Butler, a Nashville entrepreneur who launched her business in 2008 and sold it for $6 million in 2016 to Fort Worth investment firm FundCorp, according to court documents.
The shops sell about 15 varieties of cupcakes piled high with frosting. Butler still operates her original Gigi’s Cupcakes on Broadway in Nashville, and she acts as a franchisee.
But 18 of her fellow franchisees have filed a federal lawsuit against Butler, her business partner Alan Thompson, the parent companies and others. The lawsuit claims the company misrepresented itself financially, threatening franchisees’ ability to be successful.
The lawsuits were still underway when the bankruptcy filing landed in early January. Later this month, Butler will travel to Dallas to promote her new book The Secret Ingredient: Recipes for Success in Business and Life.
“This book is all about how I recovered from failure and transitioned successfully,” Butler said on Jan. 10. She says she ditched a dream to be a singer-songwriter while she was cleaning Taylor Swift’s home years ago. She pivoted to opening a cupcake shop.
“It’s all about fighting the fear and doing it anyways,” Butler says.
Texas franchisee Chet Kenisell would say he’s still fearful. Kenisell said he invested between $700,000 and $800,000 to open two stores in the Austin suburbs of Cedar Park and Georgetown but “had to go find a full-time job” in the oil and gas industry because his cupcake shops’ sales have declined each year. He closed the Georgetown location in June to focus on the Cedar Park shop.
Kenisell joined the civil lawsuit in January 2018, saying “we simply want to regain our losses.” He believes Gigi’s Cupcakes and its parent companies “defrauded” franchisees by disclosing incorrect labor numbers.
Representatives from Gigi’s corporate place the blame elsewhere. They claim Gigi’s Cupcakes had issues before it was purchased in 2016.
A lawsuit filed in October 2016 argues that FundCorp “very well may not have completed the transaction at all” if it had an accurate number of the franchisees who threatened to leave the business. That complaint, however, was dismissed in November 2016, and none of the defendants was served.
Gigi’s corporate wouldn’t respond to questions raised by attorney Jeffrey Cohen about a multimillion-dollar loan.
The corporate office released a statement saying that customers won’t see changes in service or quality as a result of the bankruptcy filing. It also says there are no plans to close Gigi’s shops.
“Due to issues that were existing when we acquired the brand that we have not been able to resolve, we are taking this step [to file for Chapter 11] to ensure the strength of the brand and the franchise system moving forward,” the statement says.
Butler explained the transition at Gigi’s as “rebranding” and said she’s focused on sharing her new book. She’ll be at Interabang Books in Dallas on Jan. 26 to meet with fans.
“They’re figuring some things out,” she said of the Fort Worth parent company, “and they’re regrouping — and there are exciting things to come.”