Big dough is at stake – literally and figuratively – as the owners of Freshslice Pizza are suing two former franchisees in the Supreme Court of British Columbia for breach of contract in connection with the overnight rebranding of nine pizzerias.
This week, a judge refused to grant Freshslice – a British Columbia-based pizza chain – an injunction that would have shut down all HellCrust Pizza and Yummy Slice Pizza locations pending a trial hearing.
Although Judge Christopher Giaschi found Freshslice has – on the face of it – a strong case against its former business partners, the judge said the biggest pizza chain had failed to prove it would suffer “irreparable harm” if the injunctions were refused.
In contrast, Hellcrust director Jaskirat Singh and Yummy Slice owner Theepan Kanagarajah each claimed they would be “financially crippled” if an injunction were granted.
“Given that defendants completely rebranded their restaurants, there is no realistic possibility of customer confusion or damage to Freshslice’s reputation, brand or goodwill,” Giaschi wrote.
“Furthermore, any loss of sales or revenue suffered by Freshslice may be adequately compensated by an award of damages.”
A mysterious overnight transformation
The legal battle sheds light on the mysterious transformation of three pizzerias in Burnaby, Vancouver and Maple Ridge on the night of March 31 to April 1, 2021 – they went to bed as Freshslice and woke HellCrust.
Six Freshslice locations in Vancouver and Richmond were similarly rebranded as Yummy Slice in the middle of the night two months later.
The former franchisees sent notices claiming to cancel agreements they had with Freshslice, whose owner Ray Russell said he learned of the situation in both cases when he received photos of the rebranding the next morning.
According to Giaschi’s decision, the rebranding “consisted of removing all Freshslice brands; replace Freshslice paste with paste purchased from other suppliers; change phone numbers; stop using Freshslice social media accounts; introduce a new menu; and implement a new point-of-sale system.”
On July 6, 2021, Freshslice sought to reclaim its share of Lower Mainland pizza with lawsuits accusing Singh and Kanagarajah of breaching non-compete terms and seeking the injunction which Giaschi would later deny.
“Systematic, unjust and oppressive behavior”
In considering whether to order HellCrust and Yummy Slice to shut down, the judge first had to consider the strength of Freshslice’s case.
Upon termination of the contracts, the agreements required franchisees to conduct no business at the franchise site and not conduct any business “involved in the sale of pizza and other Italian food products” within a three-mile radius.
Giaschi said that was reasonable except for one location, whose 100-kilometre restriction the judge said was not fair “in the context of restaurants that primarily sell take-out pizza.”
The owners of HellCrust and Yummy Slice claim that Freshslice implemented a “systematic, unfair and oppressive program of conduct” aimed at forcing them to sell their locations at a discount.
They say they were forced to buy dough at above-market prices and then agree to promotions such as a 50% price reduction on second pizzas, free slices for BCAA members and coupons for free pizzas and combo meals.
The judge said none of this seemed inconsistent with the type of deals most franchises offer to entice customers. He also said it was not unreasonable to expect a pizza place not to let pizza sit in a heated oven for more than 90 minutes.
A pizza maker with a devil fork
While Giaschi concluded Freshslice had a strong case as the fight headed to trial, he wasn’t convinced the new pizzerias would confuse customers in the meantime.
“The Freshslice logo is red and green on a white background with a small slice of pizza. The HellCrust logo is black with a cream background and contains a prominent image of a pizza maker in devil red with a devil fork. The Yummy Slice logo is red and yellow with a large cartoon image of a slice of pizza,” Judge wrote.
“Apart from the circular shape, the three logos are distinctly different. There is no possibility that these logos could cause anyone to confuse a HellCrust or Yummy Slice restaurant with a Freshslice restaurant.”
Giaschi said there were similarities between the menus, but “that’s not surprising given that pizza is the main food item sold and so many combinations of pizza toppings are ubiquitous.”
As such, the judge said it was a “key consideration” to deny injunctions that the restaurants had been rebranded to the point that Freshslice would suffer no loss of goodwill or reputation with customers.
The judge said he accepted that Freshslice had lost market share, but he said that didn’t necessarily mean it was the type of “irreparable harm” that would lead to an injunction before a trial.
“It is a loss that can be calculated and compensated in damages,” the judge said.
The decision does not say when a trial could take place.