Firm News

JURY HOLDS JACKSON HEWITT RESPONSIBLE FOR FRANCHISEE’S INVESTMENT FRAUD SCHEME

New Precedent for Recovery in Franchise Law

April 28, 2010

CORAL GABLES (April 28, 2010) – A Sarasota jury’s recent verdict holding Jackson Hewitt Inc. responsible for failing to oversee the acts of its local franchisee is expected to help more than 100 victims of a fraudulent investment scheme recover their losses, according to Coral Gables trial attorney Robert L. Parks.

In the precedent-setting case, Sarasota attorney Robert E. Turffs, along with Sarasota attorney James Burgess, Robert Parks and Gabrielle D’Alemberte, a trial attorney with the Parks firm, represented Sarasota dentist Frank Kaman and his wife Ellen, who had moved to Sarasota to ease into retirement but lost their life savings in the scheme.

On Feb. 10, 2010, an all-female Sarasota jury returned a verdict against Jackson Hewitt Inc. for $575,000, the value of the Kamans’ investments. The jurors also held the national tax preparation company liable for the conduct of its franchisee, which promoted a series of investments from the Jackson Hewitt Tax Service stores in Sarasota.

“I felt a deep injustice had been committed,” said Turffs, who along with Parks, D’ Alemberte, and Burgess led the plaintiff’s group. “How else could so many smart and savvy investors be so wrong? They had a right to trust the brand Jackson Hewitt, especially in light of the control Jackson Hewitt had to stop this from happening.”

The Kamans’ case was the first of more than 100 similar cases filed in Sarasota County by the Turffs team on behalf of clients who collectively lost between $14 and $15 million, according to Parks, partner at The Law Offices of Robert Parks, P.L., Coral Gables.

The case revolved around the actions of the Jackson Hewitt franchisee, Dan Prewett, who had been arrested and convicted of insurance fraud and served time in prison in New York. In the late 1990s, Prewett became a manager of 15 Sarasota tax stores, with Jackson Hewitt Inc. conducting any investigation as to his fitness or his character.

“Operating from those Jackson Hewitt Tax Stores, Prewett soon launched a fraudulent investment scheme,” said D’Alemberte. “He created a second corporation with a similar name – Jackson Hewitt Investment Services (later changed to J.H. Investment Services) – as an investment group selling securities, real estate, insurance, 401(k) plans and other seemingly solid long-term investments.”

“Prewett wore a Jackson Hewitt shirt and told investors that Jackson Hewitt was behind his investment operation,” added Parks. “As the Kamans testified, investors believed these investments were endorsed by Jackson Hewitt Inc., the publicly traded company based in Parsippany, NJ.”

When the case came to trial, one of the investors, Mary Cort, testified that she warned Jackson Hewitt’s corporate headquarters about Prewett’s fraud back in 2002. As Burgess said, Jackson Hewitt chose to “put their head in the sand” as to the franchisee’s activities.

“In fact, Jackson Hewitt’s corporate office continued to ignore the situation, although its compliance department had been clearly informed that there was customer confusion and that individuals were making investments based on their reliance of the Jackson Hewitt brand,” Parks added.

In 2006, Prewett was arrested for unrelated illegal conduct, but continued his investment scheme until he fled the country in February 2007, according to investors’ testimony in the trial.

Parks said this case is precedent setting in that the jury found that apparent agency of the investment services groups did indeed exist with Jackson Hewitt, Inc. “Prior to this case, franchise law has been well settled that the corporate franchisor cannot be held responsible for the actions of its franchisees,” he said. “The difference in this matter was the unique set of facts, which suggested that Jackson Hewitt Inc. should have conducted some type of oversight and investigation prior to allowing the franchisee to open stores under its brand in Sarasota and continued to monitor during the franchisee’s ongoing operations.”

“The agency finding was important for two reasons,” added D’Alemberte. “First, Prewett was held to be responsible under agency law, even though he was not an officer of the franchisee, and had a ‘front person’ managing the offices. Second, it is usually the franchisor, not the con artist, who has ‘deep pockets’ in a Ponzi scheme or other investment fraud case.”

The next step for the plaintiff’s attorneys is to request that the court consolidate the remaining 120 cases and allow the legal team to conduct a liability-only trial. Thereafter, damages and causation would be tried separately – a strategy that is similar to the way tobacco cases were heard in Florida. As Parks said, “It is important for victims like the Kamans to recover their losses as quickly and efficiently as possible.”

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About The Law Offices of Robert L. Parks, P.L.
The Law Offices of Robert L. Parks, P.L. is a Coral Gables-based plaintiff’s litigation firm specializing in aviation litigation, resort litigation, premises liability, negligent security, commercial litigation, maritime/admiralty litigation, and general wrongful death and personal injury claims. For more information, please contact Robert Parks or Gabrielle Lyn D’Alemberte at bob@rlplegal.com or gabrielle@rlplegal.com or (305) 445-4430.