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Thursday, June 13, 2024

Popular boba franchise sued, court rules partial win for franchisee

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‘It’s Boba Time,’ a popular milk tea franchise company run by Korean Americans, was sued by a franchisee for breach of contract. The case recently went to appeals and ended in a ruling that partially dismissed the plaintiff’s request, highlighting the conflict between the franchisor and the franchisee over the opening of multiple franchises in a given area.

The California 2nd District Court of Appeal affirmed the trial court’s award of damages for breach of contract to Glen Suh, who operated a Boba Time franchise near 6th Street and Kenmore Avenue in Los Angeles Koreatown.

The case began in March 2022, when Suh filed a lawsuit in Los Angeles County Superior Court against Unmi Pak, the founder of Boba Time, seeking damages for breach of contract and exclusive territory rights.

The lawsuit alleges that the company’s breach of contract and exclusive territory rights. [Image captured from It’s Boba Time]

The plaintiffs had operated Boba Time in Koreatown since 2014. Suh alleged that when he purchased the existing Boba Time store for $675,000, he entered into a non-compete agreement with Pak. This agreement was meant to protect his business by prohibiting the opening of another franchise in the vicinity of his store.

The problem arose when Pak and others subsequently opened additional Boba Time stores within a 10-mile radius of Suh’s business. “Sales at the Kenmore store were steadily increasing, but when the defendant opened the other stores, sales decreased and began to run at a loss,” the plaintiffs claimed in their complaint, adding, “When I asked the headquarters about the agreement at the time, they denied its existence.”

Due to the decline in sales, Suh eventually decided to close the store in January 2020. The trial court upheld Suh’s claim and awarded him $1.32 million in lost profits. However, it rejected Suh’s claim for the expected future profits of $4,714,622 that he could have earned if he had operated the neighboring franchises.

Suh appealed the decision, but the Court of Appeal rejected his argument. “The amount of lost profits can be calculated by looking at Suh’s operating books for the first two years,” the court said. “However, the reverse royalty claim included expected profits from future franchise operations, which is not an adequate basis for proof.”

This concluded more than two years of legal wrangling between Boba Time and the franchisee, with each side claiming a “half victory.”

In response to the lawsuit, Boba Time franchise director Daniel Heo told the Korea Daily, “Conflicts over territorial exclusivity rights are common, but in this case, we did not infringe on anything.” He added, “We have set standards that prohibit franchisees from opening within half a mile in Koreatown and one mile in other areas. We are currently preparing a claim for the costs of responding to the appeal.”

Boba Time is a boba specialty beverage company founded in 2003 by husband and wife team Unmi Pak and Richard Jun. It currently has a total of 85 stores, including locations in California and Las Vegas, according to the company.

BY YEOL JANG, HOONSIK WOO [jang.yeol@koreadaily.com]