by
Sam Berry of Lefty's (Linkedin photo)
Phildelphia is normally a place where serious cheesesteak wars play out. Pat's or Geno's? Chubby's or Dalessandro's?
But here in Metro Detroit there's a different kind of cheesesteak war, a legal one playing out over ownership of a franchise, Lefty's Famous Cheesesteaks Hoagies & Grill, which was founded in 2012 by Sam Berry. The first shop was in Livonia. Since then, after being diagnosed with cancer, he has brought his mother Nayfe Berry into the business.
On the other side of the fight is Allie Mallad, the new owner of the burger-famous Miller's Bar in Dearborn, who owns 20 percent of the cheesesteak franchise. Mallad claims in a pending lawsuit filed last year in Wayne County Circuit Court that the Berrys, who are relatives through a marriage, are unfairly trying to boot him from the franchise that had 50 stores in 2022. Today, there are 26 shops, nearly all in Michigan.
Last week, Lefty's Holdings corporation, owned by the Berrys, countered with a federal lawsuit in Detroit to enforce a non-compete clause in the franchise. The suit alleges "a pattern of dishonesty and bad faith" and said Mallad earlier in January ignored letters terminating the franchise agreements with him. The non-compete allegations also involve Mallad's recent purchase of Miller's Bar, which the company says is competition for Lefty's, which also sells burgers and fries.
Allie Mallad (Linkedin photo)
The federal suit, which seeks to end the four-year partnership, alleges that Mallad violated a number of franchise rules, harmed "Lefty's reputation and goodwill," and duped the company's founder into giving him a one-fifth ownership in the franchise in exchange for 5 percent interest in Mallad's business, Red Effect, a fitness chain the suit calls "essentially worthless."
Mallad in 2020, according to the federal lawsuit, claimed Red Effect had 200 franchises and 200 more in the pipeline and that it would soon be a billion-dollar company. But the suit alleges that Mallad "vastly and intentionally misrepresented the success of Red Effect" which was chronically operating in the red. The suit says the franchise is no longer in operation.
Mallad claims in his suit that the Berrys reached out to him to expand its 11-restaurant chain into a big-time franchise. Mallad's suit said he had vast experience with such franchises as Little Caesars, Bruegger's Bagels and Golden Corral.
Lefty's cheesesteak
The federal suit counters by alleging that Mallad approached Sam Berry, telling him he could save the Company from eventual self-destruction and turn the Lefty's concept into a big national chain using his "purportedly unique franchising savvy."
"Mr. Mallad portrays himself as a successful franchisor, but if one carefully reviews his record, the opposite will be revealed," says attorney Bill Seikaly of Seikaly & Zeman in Farmington Hills, who represents Sam and Nayfe Berry. "He has left in his wake a series of failed franchise businesses."
The legal battle was first reported in the Detroit Free Press by JC Reindl.
Mallad's attorney, Kaveh Kashef of Kashef Legal Services of Grosse Pointe Farms, did not return multiple phone calls from Deadine Detroit. And Mallad did not respond for comment via a LinkedIn message.
“The allegations that are contained in the federal lawsuit are essentially a repackaging of the same claims," Kasheff told the Free Press, referring to the Berrys' earlier counterclaims in the circuit court case. “We believe that both the arbitration and the federal lawsuit are purely retaliatory, and will ultimately be proved to be frivolous and dismissed."
Berry's federal suit alleges Mallad:
►Rather than helping establish a national franchise as promised, Mallad concentrated on opening his own royalty-free stores, three in California and one in Ohio and 12 in Michigan. Most of the stores are closed.
►Solicited Lefty's franchisees and prospective franchises to become partners in a divorced-themed restaurant owned by Mallad known as "Ex-Wife's Famous Chicken." The menu items include names like "love me tenders," "hot chick" and "wild chick." All but one store in Michigan has closed. The Berrys have stated they consider the concept degrading to women.
►Violated the non-compete provisions by operating Ex-Wife's restaurants at same location or adjacent to Lefty's franchise stores.The suit alleges the store was a competitor to Lefty's, which also serves fried chicken and fries.
►Represented to vendors that Ex-Wife's Famoous Chicken was an affiliate of Lefty's to get special pricing and services.
►Created a scheme to continue getting royalties after selling his Lefty's stores instead of the new owner paying the royalties to Lefty's. Mallad's agreement allowed him to own 20 franchises without paying royalties.
►Violated Federal Fair Labor Standards by confisicating tips from employees at Lefty's franchises in Jackson and Lansing, resulting in a federal lawsuit.
"Mr. Mallad brought this litigation on himself by refusing to comply with the agreements he negotiated and signed," said attorney Nathan Fink of the Fink Bressack firm of Blooomfield Hills, which represents Lefty’s Franchising LLC and Lefty’s Holdings LLC, owned by the Berrys.
"Amazingly, he takes the position that a restaurant that sells burgers and fries does not compete with a chain that also sells burgers and fries."
