Rogue Yogurt

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They started buying frozen yogurt from another company, one that could supply them steadily, he says. They still sold mostly ICBIY yogurt, but added a second brand to their stores.

The Gunn brothers did not tell customers they weren't getting legitimate ICBIY yogurt, Mark Gunn admits. "We weren't telling them," he says. "We felt at that point we had no choice. We were the only stores left in the state of Colorado, and we had to look out for ourselves."

Tom Herskowitz, the ICBIY vice president, agrees that getting supplies to Colorado was difficult at times, but he says the company always managed to do it. The Gunns, he says, are vastly overstating the extent of their problems to rationalize their illicit turn to counterfeit product.

"We did get the product to them on a consistent basis," Herskowitz says. "And they used counterfeit product before they ever had any [distribution] problems."

Both sides agree that the Gunns fell behind in their royalty payments to the company, and almost lost their franchises in 1993. Mark Gunn says he and his brother withheld the royalties because ICBIY wasn't living up to its promises, but ultimately paid the fees.

Relations between the Gunns and ICBIY were already strained, therefore, on the day Bill Brice showed up and caught Doug Gunn selling counterfeit yogurt.

When their ICBIY franchises were revoked for selling bogus yogurt, Mark and Doug Gunn renamed their stores Not Just Yogurt and stayed in business. They now buy their supplies from a different manufacturer, and Mark says business is holding steady.

But the Gunns and ICBIY still have a host of legal battles that are far from settled.

The company is suing both brothers for back royalties it says it is owed. In addition, it is suing Doug Gunn for continuing to operate a frozen yogurt store in violation of a clause in the franchise agreement that prevents him from competing with ICBIY (although there is not an ICBIY store in Boulder with which Doug can compete).

Earlier this year, Mark Gunn got fed up with ICBIY's legal tactics. He took his vacation time, he says, and came down to Dallas to picket ICBIY headquarters and some of the company's Dallas locations. Gunn became a self-appointed watchdog, trying to sound the alarm among other ICBIY franchise owners and customers that ICBIY is not the warm and fuzzy company depicted in its carefully cultivated public image.

The company responded by suing Gunn in Dallas, obtaining a temporary restraining order to keep him from standing outside the ICBIY stores with his protest signs.

By the time he came to Dallas, Mark Gunn had found out about ICBIY's amnesty program afforded to other store owners who had sold counterfeit products. Gunn mailed a letter in October 1994 to other franchise owners, pointing out that he and his brothers were the only ones who lost their franchises during the counterfeit scandal. He accused ICBIY of being singularly concerned about its bottom line while store owners were being "eaten alive" by the high cost of the company's yogurt.

It was no wonder, Gunn wrote, that counterfeit yogurt was "prevalent" in the ICBIY chain.

James Amos, the company's chief executive officer, responded with a letter of his own on November 4, 1994, which has been entered as an exhibit in the court case. This letter, addressed to "Our Franchise Family and Associates," accused the Gunns of being deadbeats and counterfeiters, and urged other store owners not to give their protests much credence.

Amos particularly took issue with Gunn's contention that counterfeiting was "prevalent in the ICBIY family."

"That statement is patently false," Amos wrote. "There are approximately 15 franchisees and 40 nontraditional sites that have used counterfeit product. This accounts for 150-200,000 gallons of product."

Amos went on to pledge that ICBIY "stands on the fundamental values of Trust, Respect, Accountability, Integrity, Commitment and Caring. We have and will, in every endeavor, attempt to do the right thing for the greater good."

The Gunns read the letter, and in February sued ICBIY for defamation. It was in the course of that lawsuit that Steve Khoury, the Gunns' Dallas attorney, happened upon the revelations about powdered milk.

While deposing the company's head of manufacturing, Khoury says, he learned of the switch from fresh milk to powdered milk in the manufacturing process.

Shortly thereafter, Khoury amended the Gunns' lawsuit, claiming fraud, conspiracy, deceptive trade practices, and breach of fiduciary trust on the part of ICBIY.

For several years, the suit now charges, ICBIY continued to claim that its yogurt was made from only the finest ingredients, and kept raising the prices it charged store owners for the product.

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David Pasztor