The state licensee of ActionCOACH, an international network of business coaching firms, is suing the owners of its Elm Grove-Brookfield franchise, which rebranded as Strategic Business Center earlier this year.
The complaint filed Tuesday in the U.S. District Court for Eastern Wisconsin accuses partners Thomas and James Palzewicz of "ignoring their contractual commitments" since 2015. The Palzewiczs launched ActionCOACH of Elm Grove in 2004.
The plaintiff, listed as Canal Winchester, Ohio-based Buji Inc., seeks to block Strategic Business Center from operating for two years. The complaint says any monetary dispute between the two sides will be settled through mediation as required under the franchise agreement.
Buji is the master license holder for ActionCOACH in Wisconsin and has the right to sublicense the coaching system and trademarks to franchisees in the state, according to the state
Calling the allegations "baseless," Jim Palzewicz wrote in an email to BizTimes Milwaukee that he and Tom deny the claims of wrongdoing and plan to soon file "counterclaims of improper conduct by the plaintiff.""In the franchising world, franchisors use claims like this to prevent former franchisees from operating independently at the conclusion of their terms as franchisees," said Palzewicz. "I believe that these types of competitive restrictions are improper, and that former franchisees as well as former employees should have the right to make a living when they no longer work for their franchisors and employers."
According to the complaint, the partners "fraudulently failed" to report revenue and misrepresented information in an attempt to reduce royalty payments, which resulted in underpayment of more than $120,000 excluding late fees and interest.
It also alleges the Palzewiczs broke a contractual non-competition agreement when ActionCOACH Elm Grove rebranded in May 2019 without corporate approval, months before the franchise agreement was set to terminate on September 30.
"The Franchisees, as visible and successful Franchisees, have undermined ActionCOACH’s brand both in Wisconsin and nationwide, and if not restrained from violating the Non-Competition Covenant, will continue to do so, causing irreparable harm to Buji and to ActionCOACH," the complaint says.
According to the lawsuit, Buji Inc. agreed in 2015 to waive minimum royalty payments for Tom Palzewicz after claiming he would no longer coach clients personally but instead through his separate limited liability company, ThreeP LLC. Those payments were waived again in 2017 when Palzewicz claimed he would not coach while running for Congress, but Buji says those claims were misleading.
"Tom’s representations about not personally engaging in business coaching were false. In fact, he continued to coach on a regular basis from 2015 through the present," the complaint says, citing a 2018 news report that Palzewicz held a coaching session for Milwaukee County employees.
Palzewicz is currently running again for Wisconsin's 5th Congressional District.
"We hope that this contract dispute will be settled quickly in the normal course as the parties continue to try to mediate this run-of-the-mill contract dispute," Jim Palzewicz said.