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HomeBusinessNothing casual about Earls, Cactus Club food fight as dispute sheds light on ownership intrigue

Nothing casual about Earls, Cactus Club food fight as dispute sheds light on ownership intrigue

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Bob Mackin

A food fight that has erupted among the clan connected to four restaurant chains highlights how so few own so many of the biggest food and drink brands in Canada.

A June 6 B.C. Supreme Court judgment, which was published last week, denied an application to waive the obligation for sole Cactus Club director Richard Jaffray to produce and publish audited financial statements to shareholders Earl’s Holdings, Stanley Fuller and a family trust, Rockefuller Holdings and Cacthold Holdings.

“Cactus and Earl’s are competitors in the ‘premium’ casual dining market. Stanley and his brothers Stewart, Clayton and Jeffrey Fuller, are the directors of Earl’s. They are also the directors of Joey Restaurant Group,” wrote Justice Margot Fleming. “Jeffrey is Joey’s chief executive officer. Joey also operates multiple restaurants in Canada and the United States. Cactus describes Joey as a direct and active competitor that unlike Earl’s, has no economic interest in the success of Cactus.”

Bus Fuller (the father of Stanley, Jeffrey, Clayton and Stewart Fuller) founded Earl’s in 1982 in Edmonton. Jaffray met Bus and Stanley Fuller while working at Earl’s in 1986 and, two years later, Jaffray and Scot Morison opened Cactus Club in North Vancouver with $180,000 in startup capital from Earl’s; Stanley and Julie Fuller were 60% shareholders in the Cactus Club startup.

Jaffray now owns 35% interest in Cactus Club and Earl’s owns 45%, with Stanley Fuller, the Fuller Family Trust, Rockefuller and Cacthold holding the remaining 20%. Jaffray and the Fullers have traded legal barbs amid allegations that Jaffray has misspent company funds on travel and luxury items.

Jaffray became sole director and president of Cactus Club indefinitely in September 2004, after a falling out with Morison, who founded the Browns Socialhouse chain.

In June 2018, Cactus petitioned the court for an order to permanently relieve Jaffray of his obligation to publish financial statements to all shareholders.

Cactus Club’s Richard Jaffray (left), Christy Clark and chef Rob Feenie in 2013. Clark is now a director of competitor Recipe Unlimited. (BC Gov)

“Cactus complains that in recent years and in breach of the confidentiality clause, the respondents have refused to prevent Jeffrey and others associated with Joey from accessing the financial statements or the information they contain, providing Joey with a competitive advantage,” Fleming wrote. “Given these circumstances and the ‘the specific bargain struck’, Cactus takes the position that relieving Mr. Jaffray of his obligation to provide the financial statements to the respondents, so as to prevent their content from being disclosed to and used by Joey, is reasonable.”

Fleming refused the Cactus application.

The evidence does not show, despite the history of delivery to date and Cactus’ earlier disclosure of confidential information during meetings with Earl’s and Joey, however, a competitive disadvantage or any harm to Cactus. What this leaves is the mere possibility of a detriment for Cactus arising from Jeffrey and others having access to the information contained in the financial statements.”

Earls Kitchen + Bar, the oldest of the group, has 56 locations from B.C. to Ontario, while Cactus Club has 31 and Joey 22. Browns, meanwhile, has 67.

Meanwhile, publicly listed Recipe Unlimited (the former Cara Operations) boasts 1,382 restaurants operating under 22 brands (1,324 are in Canada). It says 82% of them are franchised or joint ventures in Canada and nine other countries (U.S., Bahrain, China, Macau, Oman, Panama, Qatar, Saudi Arabia and United Arab Emirates). Of the restaurants, 46 are joint venture, 208 are corporate and 1,128 franchised.

Recipe reported system-wide sales of $3.4 billion for the 2018 fiscal year from Swiss Chalet, Harvey’s, St-Hubert, The Keg, Milestones, Montana’s, Kelsey’s, East Side Mario’s, New York Fries, Prime Pubs, Bier Markt, Landing, Original Joe’s, State & Main, Elephant & Castle, The Burger’s Priest, The Pickle Barrel, Marigolds & Onions, and 1909 Taverne Moderne.

The board of directors includes former BC Liberal Premier Christy Clark, whose crowning achievement while in office for six years was the relaxation of laws and regulations around the retail, wholesale and service of beer, wine and spirits.

A late 2013 Clark news conference about some of those amendments was held at the flagship Cactus Club at the Vancouver Convention Centre.

Those at the top of the food chain with Cactus, Earls and Recipe were some of the biggest donors to the BC Liberals, before the NDP banned unlimited corporate political donations in fall 2017.

From 2012 to 2017, Jaffray donated $123,600 to the BC Liberals, the lion’s share from Cactus Club accounts. In June 2017, after the provincial election, Cactus made two $25,000 donations to the BC Liberals.

Stan Fuller donated $192,749 from 2005 to 2017, including $25,000 from Earls Head Office Canadian Inc. in June 2017, three days before the BC Liberals were toppled in a confidence vote by the Green-supported NDP. Joey Restaurants gave $38,650 from 2013 to 2017.

Recipe Unlimited vice chairman David Aisenstat, the CEO of Keg Restaurants, donated $427,232.66 from 2005 to 2016, including $150,000 from the Keg Restaurants on May 17, 2013 — three days after Clark led the BC Liberals to a surprise re-election.

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