Feathers Fly in Partners Flap

A yen for fresh chicken spurred three friends to start what grew into a successful restaurant business. But 10 years later, that success has torn the friendship apart.

In 2002, Ryan Hodson, Tom Gordon and Greg Smart began developing recipes in Smart’s garage. Finally satisfied with their chicken dishes and dipping sauces, the men opened the first Slim Chickens restaurant in Fayetteville in February 2003.

They’ve since added four more locations in Arkansas and three in Oklahoma. And the company recently entered a new phase of growth by franchising.

Its first franchise, owned and operated by longtime employee Rob Byford of Little Rock, is slated to open this spring at 4500 W. Markham St. in Little Rock.

Another restaurant will open later this year in the new Founders Hall building on the University of Arkansas campus, with food-service company Chartwell’s operating it as a franchisee.

Over the last few years, though, dissension has been growing among the partners. Now Hodson is suing Gordon, Smart and a company the two founded in 2011 called Slim Chickens Development Co. LLC. Hodson’s suit is on behalf of the partnership, called HSG Partners Inc., and related companies Slim Chickens Inc. and Slim Chickens Holdings LLC.

Filed Oct. 26 in Washington County Circuit Court, the suit claims Gordon and Smart “pushed” Hodson out of the day-to-day management of the business in 2010 “because he objected to the desire of Gordon and Smart to operate HSG Partners beyond its financial means.”

Among other allegations, the suit states that although HSG Partners has operated at a loss since 2010, Gordon and Smart used its money and assets without authorization to pay themselves large salaries and car allowances, and to fund Slim Chickens Development, which was formed for franchising purposes.

In the suit, Hodson asks for a temporary restraining order and preliminary injunction to prevent his partners from selling or disposing of any of their assets due to the “immediate and substantial risk that Gordon and Smart will seek to conceal, transfer or dispose of the proceeds of their wrongful acts.”

The suit also asks the court to appoint a receiver to safeguard the assets of HSG Partners and Slim Chickens Holdings while the case is in litigation, and asks that Gordon and Smart be removed as directors and officers of those companies.

Additionally, it seeks damages in an amount to be determined at trial.

The case has been assigned to circuit judge Beth Bryan.

Clifford Plunkett, an attorney with Friday Eldredge & Clark LLP who represents the defendants, said Slim Chickens denies any allegations of wrongdoing, “and if the case continues, will vigorously defend.”

“It’s regrettable that Mr. Hodson felt this action was necessary,” Plunkett said.

Motions to dismiss the suit repeatedly state that Hodson’s claims “fail to state facts upon which relief can be granted.”

Both sides are now waiting on the judge to rule whether the case will proceed.

Chicken Fight

One of the issues in the suit involves the licensing of the Slim Chickens brand for franchising purposes.

Slim Chickens Holdings owns the trademarked name and other intellectual property such as recipes, products and procedures, according to the suit, and in 2010, a third party offered to buy these for $1.88 million.

The suit states the partners decided to license the intellectual property to Slim Chickens Development so it could sell franchises, and authorized Gordon to handle the required paperwork.

He was also to make Slim Chickens Holdings a 21 percent owner in the development company. However, according to the suit, Gordon never took the steps necessary to do so.

It also states Slim Chickens Development has never paid Slim Chickens Holdings for the use of the license. No dollar amount is stated in the suit.

Gordon said in an affidavit filed Nov. 19 that Slim Chickens Inc. owns 21 percent of the development company, while an accompanying document states he and Smart each own 34.5 percent. The remaining 10 percent is unaccounted for in that filing.

The suit states that a 7 percent interest may have been given to Seth Jensen, the company’s chief financial officer. Jensen did not return a phone call seeking comment.

An earlier version of the suit was filed Sept. 5, but the defendants’ attorneys responded in a brief that Hodson named Slim Chickens Holdings, Slim Chickens Inc. and HSG Partners as plaintiffs “without proper authority.”

“A shareholder has no standing to sue in his individual capacity for injuries allegedly suffered primarily by the corporation and its shareholders,” the brief states.

Attorney Marshall Ney with Mitchell Williams Selig Gates & Woodyard PLLC represents Hodson. Ney explained the amended complaint is on behalf of the corporate entities.

“Rather than wasting time fighting over procedure, we just filed the amended complaint,” he said. “If a corporation feels that it has suffered damages as a result of conduct of its owners, it is the procedure that one follows.”

If Hodson’s suit goes forward, Ney said, the next step will be filing a separate request for a receiver to be appointed.

Parting Ways

Matters between the partners seem to have come to a head on Aug. 30 when, according to the suit, Hodson “demanded the defendants immediately restore the financial solvency of Slim Chickens Holdings and HSG Partners that they had taken as a result of their self dealing, gross mismanagement, breach of fiduciary duty and other wrongful conduct.”

He gave them an alternate option of buying his interest in the two companies, the suit states.

According to Dun & Bradstreet, Slim Chickens has annual revenue of $900,000.

Records of the Fayetteville Advertising & Promotion Commission, which collects a 1 percent tax on restaurant revenue, shows the Slim Chickens on College Avenue made about $1.12 million between December 2011 and November. The restaurant on Mall Avenue made about $591,000 in that period.

The company has a Rogers location, but that city doesn’t collect a restaurant tax.

In a video posted on the Slim Chickens website under franchising, Gordon says the company will build new buildings, retrofit existing ones or lease shopping center space for franchises.

“We’ve spent nine years honing this model,” Gordon says. “We’ve not offered any franchising until now. Franchising is going to be the next focus of our growth.”

Hodson’s LinkedIn page states that he founded Real Clear Neighborhoods, a management company for homeowners associations, in 2010, and last September co-founded a company called ROE Restaurant Group.