Midas Inc. says that, on Jan. 3, it received notice that its European licensee, MESA S.p.A., is suing the Itasca, IL-based franchisor in Italy, claiming that Midas is in breach of the 1998 license agreement and agreement for strategic alliance under which MESA operates the Midas auto service business in Europe. The complaint claims that Midas is in breach of these agreements due to, among other things, Midas’ alleged failure to cooperate with MESA to improve the Midas system.
This is essentially the same charge MESA brought against Midas in an arbitration proceeding that concluded in March 2011. In that proceeding, Midas prevailed in its defense of most of the claims that MESA had asserted. However, the arbitrators awarded MESA roughly $25.50 million in connection with claims that Midas failed to cooperate in the improvement of IT systems in its European operations. Yet, the license agreement between Midas and MESA continued in full force and the license fee royalty stream was to continue uninterrupted.
Now, MESA is seeking damages for the alleged breach of as much as $7.35 million, representing a portion of the royalties MESA paid to Midas for the period from June 2009 through October 2011. MESA also is asking the Italian court for a declaratory judgment suspending MESA’s obligation to pay 80 percent of its future royalty payments owed to Midas under the license agreement.
Midas contends that MESA’s claims are without merit and intends to defend itself against them. “We are extremely disappointed that MESA filed this lawsuit despite the company’s repeated efforts since the arbitration ruling to discuss ways in which our two companies can cooperate under the [agreement for strategic alliance],” said Alan Feldman, Midas’ chairman and CEO.
Feldman also confirmed that the review of strategic alternatives by a special committee of the company’s board of directors is ongoing. It was supposed to be completed by the end of 2011. Midas says it has yet to determine what effect the complaint filed by MESA will have on this ongoing review.